BLAW1002 S1 2023 – Economics Principles Analysis (EPA) Brief
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BLAW1002 S1 2023 – Economics Principles Analysis (EPA) Brief
This assessment is called the ‘Economics Principles Assignment’ (EPA), based on economics topics M6 to M7, is worth 30% of the final mark.
It is a ‘take-home’ assignment, consisting of a set of tasks to do in short-written answers. The EPA shall be made available online on Blackboard (Bb) from 9pm Sunday 16th of April. You will have nineteen (19) days to complete the assignment on your own. The assignment is to be submitted on Turnitin by official due date: 11:59pm (Perth, AWST) Friday 5th of May.
Key assessment information:
▪ EPA consists of one section with four (4) part compulsory questions.
▪ Each part is worth a certain number of marks.
▪ Your answers need to be typed, but diagrams must be hand-drawn and included in the Word document or in PDF.
You should complete the tasks set out in this assessment brief by your human self. There should be no need for you to share/upload it on the web for extra help – the lectures, the set tutorial questions, and the assigned readings within this brief and from the CORE text should be sufficient resources for you to draw upon to answer the questions well enough. Many thanks in advance for your cooperation, Brennan AI Technologies Incorporated (BAT Inc.)
When ready to submit, ONLY include the answers and prepare your document as following: Full Name, Student ID and Tutor’s name as a title in the Word document (or PDF) to Turnitin by the due date (see Assessments tab on Bb).
Note, the word count is a suggested maximum. The main thing is that you specifically answer the questions and have sufficient explanations, and refer to key sentences and ideas from various articles where relevant to support your analysis.
For more information, see the following documents (in PDF) on Bb: ‘BLAW1002 S1 2023 - EPA Guide + FAQs‘ and ‘EPA Marking Rubric Sem1_2023‘ .
Price-Setting Power of Firms in the Post-Pandemic Years – 30 Marks
Background: We could all provide examples of the higher prices we have had to pay for the same goods and services we value that we purchased a couple of years ago. There are some obvious supply and demand explanations behind the price hikes such as the disruptions in the production and distribution chains caused by COVID lockdowns (thus increasing input costs), Russia’s invasion of Ukraine, government stimulus packages, and consumers’ willingness to spend big as the pandemic waned. However, there is also an argument that capitalist firms, with already-excessive power, have likely taken advantage
of the recent inflationary environment: by raising final prices above and beyond input cost increases, giving substantial profit margins. This EPA is about the monopolist firm exercising power by raising prices and earning higher retail markups.
To give you some relevant knowledge and guidance for this task, read the following (freely-available) news articles:
In US,https://www.nytimes.com/2022/06/03/business/economy/price-gouging-inflation.html[go to ‘reading list’ on Bb for access] https://www.vox.com/money/23641875/food-grocery-inflation-prices-billionaires
In UK/Europe,https://www.theguardian.com/business/2023/mar/12/global-greedflation-big-firms-drive-shopping-bills-to-record-highs
In Australia,https://www.abc.net.au/news/2023-02-24/profits-drive-inflation-while-wages-lag-behind/102014162
Imagine the following scenario: You are an entrepreneur, manager and economist working in the demanding restaurant and food service sector. You own a major retail firm on Curtin’s largest campus, home to some 50,000 very hungry students who come to campus on a regular and consistent basis. You are known for selling delicious empanadas, pies, pasties, and sausage rolls (including vegetarian/vegan options) and provide this type of hot food stuffs and more for all on campus, including staff, visitors, those in the student accommodation areas, and from neighbouring suburbs.
In the first-quarter of 2021, the price you set is $6 for an assortment of these food goodies for lunch (sold as a unit), and the unit costs are a constant at $2. Over the course of the next couple of years, you anticipate and experience some inflationary cost pressures along with stronger demand for your hot foods. By the first-quarter of 2023 your marginal costs have gone up by 15 percent. And so, you reason it would still be profitable indeed for your business to raise the price of your food goodies (sold as a unit) by 35 percent. Besides, other competitors within the same industry as you have been doing roughly the same thing, raising prices for similar products.
As an economist of the firm, you will be required to illustrate and explain to a typical first-year undergrad student who has no economics background what has happened to the profitability of your firm from the first-quarter of 2021 to the first-quarter of 2023. To do this, you will draw two (2) sets of isoprofit diagrams*, known in this exercise as ‘diagram 1’ and ‘diagram 2’. *= The appropriate ‘isoprofit’ diagram is an adaptation of Figure 7.9d from the CORE ESPP text. An adaptation means that you modify the main diagram from the text to suit the case study at hand, i.e. for hot food stuffs.
Your tasks for this EPA are as follows:
a. Based on this discussion and economic theory, explain and compare in some detail the amount of profit (producer surplus) and markup in diagram 1 and 2.
400 or so words should be sufficient
6 marks for diagrams + 6 marks for quality of analysis = Total of 12 marks for part a
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Hint: As you do part a, just draw one isoprofit curve for each diagram (no need for multiple ones). As you draw the isoprofit curve for your firm, for each diagram, select and identify any one price/quantity point to the left and any one price/quantity to the right of the price set by your profit- maximising firm. Accuracy is important here, but there is no need to calculate with precision all other points on the isoprofit curve. Relying on intuition and good judgement, you will need to use hypothetical values (rough guesses) for the x-axis and for prices/costs on the y-axis, and you will need to make up a simple demand (straight-line) ‘curve’ . |
b. This concerns ‘diagram 2’ in part a. What would happen if a strategic price control was put in place on your firm to reflect that of a competitive market. In ‘diagram 2’ you have drawn above, illustrate and explain what the price and quantity sold would be and shade in the net gain of consumer surplus. Do you think laws that limit excessive price increases by firms should be put in place? Elaborate and give one example to support your argument.
400 or so words should be sufficient
= Total of 8 marks for quality of analysis, argument and extension of ‘diagram 2’ for part b
c. Assume students still bought their favourite empanadas and what not from you, as you have built up over time such a strong branding of your product. Do you think the current demand for your empanadas is relatively price inelastic or elastic? On a separate diagram (unrelated to ‘diagram 1’ and ‘diagram 2’), suppose students were faced with a 50 percent price rise in empanadas. Draw a straight-line demand curve and explain the relevant details on the price elasticity of demand (PED) in this situation.
250 or so words should be sufficient
2 marks for diagram + 2 marks for equation + 2 marks for quality of analysis = Total of 6 marks for part c
d. Do you think it would be realistic for your firm to sustain such an excessive price increase? Discuss your answers in terms of the innovative competitors, the role of the entrepreneur, and the ability to make excess profits when barriers to market entry are high vs. low.
350 or so words should be sufficient
= Total of 4 marks for quality of discussion for part d
2023-04-29