Research School of Economics

PRACTICE FINAL TAKE HOME EXAM

Semester 1, 2021

ECON1101_Semester 1 Microeconomics 1

Information

● The Final Exam is a take home exam paper. It will be available on Wattle on Thursday 3rd June at 9am AEST).

● You have until Friday 4th June 9am (AEST) i.e. 24 hours to upload your paper. No late papers will be accepted. You can submit before this time of course, but not after.

● You should first read through the ENTIRE exam to make sure you understand what each of the questions is asking.

● Clarification questions: A post in the Discussion Forum will be available to ask questions during the exam. This is for general questions ONLY and can ONLY be answered by the ECON1101 teaching staff. Inappropriate use will lead to its deletion.

● Total Mark of Exam: The exam counts for 40% to the final grade of this course.

● In addition there are PDF documents explaining how to upload a file to Wattle, and information on how to Scan and Compress (if necessary) a PDF. These are in the ‘Course Resources’ block on the Wattle site.

● If for some reason you are unable to take the exam on Thursday 3rd June – you must apply for a Deferred Assessment through ISIS. The Deferred Exam will be held in O-week to week 1 of Semester 2 2021.

Instructions for uploading answers

You must read the following instructions carefully and act/follow accordingly. Contact the teaching staff immediately if there is any part you do not understand.

● You must write down your name and university ID clearly on the top-left corner of each page of your submission

● You must TYPE your answers. Graphs can/should be hand-drawn (I would highly recommend this over using the computer) and then photographed/scanned and inserted into your answer document.

● Q1 answers should be uploaded to the Turnitin Link for Q1

● Q2 answers should be uploaded to the Turnitin Link for Q2

● Q3 answers should be uploaded to the Turnitin Link for Q3

● etc

● Please save your submitted files as uniID_Qx_Final

● All writing and graphs must be facing upright (i.e. your work must not be sideways or upside down – this is straining for the markers and they will not mark such exams).

● You must submit your exam answers as a PDF or WORD doc ONLY.

● Please reduce your file size to the minimum possible, while still making sure it is legible.

● If you have any technology problems with submission – email your answers to the ECON1101 email address ([email protected]). This will ONLY act to ensure you have submitted on time. Please note this is NOT the preferred submission style. Any students who do email will be asked to resubmit via Wattle when technology issues have been resolved. The email submissions will NOT be marked – ONLY your wattle submission will be (this is just a back up for time-stamping your assignment in case of technology issues).

● We will NOT accept any additions to your work after it has been submitted.

● You are able to submit drafts and resubmit these throughout the 24hours (but you will be unable to resubmit after the due time of the exam).

● You MUST work on this exam by yourself, without help from, or collaboration with, others and the work you submit must be your own and not from a 3rd party.

Answer ALL of the SEVEN questions below using the relevant economic theories discussed in lectures, problem sets and workshops. Your answer should display understanding of economic theory and application of the relevant theory to the problem. Words in excess of the word limit will not be marked.

Part A [45 marks]:

Use the economic theories discussed in class to determine whether the statement in Italics in each of the following questions (Q1, Q2, Q3 and Q4) is True, False or Uncertain. Please explain using both words and graph(s) and make it concise. Your answer should be around ¾ to 1 page (hand-written) for each question. Excessively long answers will be penalized. No points are granted for stating True, False or Uncertain, but rather for the quality of your explanation.

Q1. [10 marks] Word limit: 300 words

Consider a dam which provides drinking water for a local community and which allows free access to all. As a public good the only way to manage this resource is through government regulation so that overuse does not occur.

Q2. [10 marks] Word limit: 300 words

There are currently a number of firms selling different brands and types of digital cameras. There is the opportunity for one firm to partake in research and development that will decrease the Average Total Cost of production (and only ATC, not MC). This firm will undertake the research and development so as to gain long run economic profits.

Q3. [10 marks] Word limit: 300 words

Consider a monopoly provider of water tanks. The monopolist could practice third degree price discrimination by setting a price of $5000 for a 5000 litre water tank to residents in rural areas, but charge only $4000 for the same 5000 litre water tank to urban residents because the elasticity of demand is more inelastic in urban areas.

Q4. [15 marks] Word limit: 300 words

Students believe that if everyone in the course studies for the final exam, then the average mark everyone can expect is 75. However, if no one studies, everyone does so poorly that grades are scaled and the average mark of 60 is achieved. If one person studies while everyone else doesn’t, the one who studies achieves 80, the rest achieve 45 (and no scaling takes place). This game is a one-off simultaneous game with the two players to be ‘You’ and ‘Everyone else’. If everyone colludes, then the Nash equilibrium is for no one to study.

Part B [55 marks]:

Use the economic theories discussed in class to answer the following three questions (Q5, Q6 and Q7) comprehensively showing all working. Points are awarded on correctness of answers and quality of explanation. You will be given very few marks for providing the final answer without any explanation or working shown.

Q5. [20 marks] Word limit: 500 words

Consider a perfectly competitive market for childcare. Recently a per unit subsidy was provided for parents who send their child(ren) to childcare. Assume there are no other subsidies in operation in the industry.

a. [10 marks] Examine the effects of this subsidy on consumers, produces and the wider market.

b. [10 marks] Anecdotal evidence suggests that the number of children attending childcare services has NOT increased. How could you explain this?

Q6. [20 marks] Word limit: 500 words

Ryan likes to listen to music while studying at home. His brother Isaac, however, needs peace and quiet in which to work. They both get an allowance and so have some money. To deal with arguments over whether music is played or not the parents decide that on Monday, Wednesday, Friday and Sunday peace and quiet must reign, but that on Tuesday, Thursday and Saturday it’s ok to play music. Note that the parents set this rule just to avoid quarrels between the two brothers; hence they do not need to stick to the rule as long as there is no quarrel. Note further that no headphones are allowed. Isaac values peace and quiet at $10 per day. Ryan values the ability to play music at $7 per day. If the boys are allowed to negotiate between themselves on which day(s) does music get played? Explain.

Q7. [15 marks] Word limit: 400 words

The use of petroleum products is thought to be one of the lead causes of pollution and climate change. One main use of petroleum products is as fuel for cars and other forms of transport. Discuss the pros and cons of taxing petrol to reduce pollution.

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