Economics for Decision Making
Question 1 – Topic 1: Demand and supply analysis
a. Thredbo is a small alpine village in the heart of the New South Wales ski fields. One
Thredbo hotel, the Thredbo YHA, aims to provide a low cost accommodation option to YHA
members and the general public.
During the peak ski season the demand for rooms at the Thredbo YHA far exceeds the fixed
supply. The allocation of beds is done by way of a lottery open to YHA members only.
Assume it is free entry to the lottery for any interested YHA members.
(i) Could the market for beds at the Thredbo YHA during the ski season be described as a
market in equilibrium? Explain why or why not with the aid of graphs. (Note: the
number of beds – supply – is fixed, at least in the short-run due to building restrictions
and is not influenced by price.)
(ii) As an alternative to rationing by lottery, what price adjustment could the Thredbo YHA
administrators make to deal with the present ski season shortage of beds?
(iii) Compare the relative merits of lotteries and price adjustments (that is, the price
mechanism) as rationing methods.
(5 marks)

b. The introduction of the first home buyers grant was intended to encourage people who had never
owned a home to buy one. Explain how you think this policy would affect the housing market
(price and quantity demanded) in the short-run (assuming supply is fixed) and the longer-term.
(5 marks)

Question 2 – Topic 2: The supply decision
a. The following information shows the average cost and average revenue (price) for a firm at each
level of output.

Output 1 2 3 4 5 6 7 8 9 10
AC (\$) 7.00 5.00 4.00 3.30 3.00 3.10 3.30 4.20 5.00 6.00
AR (\$) 10.00 9.50 9.00 8.50 8.00 7.50 7.00 6.50 6.00 5.50

i) Construct a table to show TC, MC, TR and MR at each level of output.
(Adjust the columns for MC and MR in a way so that MC and MR values are placed midway 3

between the output figures.)
ii) Using MC and MR figures, find the profit-maximisation output.
iv) Plot the AC, MC, AR and MR figures on a graph.
v) Mark the profit-maximising output and the AR and AC at this output.
(Parts i to v are worth 2 marks each.)

Question 3 – Topic 3: Market structure
a. What type of market structure best describes the domestic banking industry? Give reasons for
your answer. Where might similar industry market structures exist in the Australian economy?
(10 marks)

Question 4 – Topic 4: Market failure and government policy
a. Think of two quite different examples of market failure that exist in Australia. What led to the
market failure in each case, and what might be done to correct the failure?
(5 marks)

b. What are public goods/services? Using an example, discuss why governments take the
responsibility of supplying such goods/services.
(5 marks)

Question 5 – Topic 5: Wages and employment
a. Demonstrate with the use of demand and supply diagrams how a trade union will impact on the
labour market that its members are associated with. Explain how this market will differ from the
employer(s).
(5 marks)

b. The unemployment figure (6%) in January, 2014 was the highest during the last 10 years.
Explain, with reasons, how you think the trend in increasing unemployment will impact on the
behaviour of trade unions in regards to wage negotiations over 2014 and into 2015.
(5 marks)

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