MAE101 Economic Principles
Question 1
“Economics is the study of how individuals, firms and society as a whole, manage its scarce resources.”
a) You are told that there are some 1,645 people who made the world billionaire list in 2014. Explain the concept of scarcity. Provide three examples that illustrate why even billionaires face the problem of scarcity.

b) Explain at least three of the core ideas or fundamental concepts that define the economic way of thinking. Include at least one specific example for each of the core ideas you have selected.
(5 + 5 = 10 Marks)
Question 2
This question is on fuel prices, droughts, and the prices of supermarket commodities.
You will need to read the following articles and do some research to answer the questions below.
John Quiggin, in his paper titled “Droughts, Climate Change and Food Prices in Australia,” 2010, concluded that “Droughts in Australia are generally associated with increases in the prices of some supermarket commodities, particularly fresh produce. In recent years, droughts in Australia have combined with global climatic and market trends to result in major increases in supermarket food prices across the board…”

Collect data on the world prices of oil, corn and wheat for the period 1990 to 2015. This data should be presented in a table and in a time-series line chart/graph using MS Excel. The graph must be titled and the sources cited.

a) Present a time-series line chart for each of the time-series mentioned above (1 table and graph for oil prices, and 1 table and graph for both corn and wheat prices).

b) Comment on the movements in the two graphs you have presented, giving reasons for the changes in prices for the commodities in the stated period.

c) What is ethanol? Use demand and supply graphs to explain why the demand for ethanol has influenced the price of corn (include two graphs).

d) Use Demand and Supply graphs to show how the increases in the price of corn have affected the price of milk and the price of cheese (two graphs).
(6+ 4 + 5 + 5 = 20 Marks)

Question 3
This question is on international trade.

a) Explain why more Australian food going to China would increase the price of food in Australia. Include a graph in your answer.

b) Construct a graph of the Australian market for beef. Label the domestic equilibrium price and quantity with no international trade and with international trade.

Call these PA and QA for price and quantity, without trade (for Australia), and PT and QT for price and quantity, with trade.

Evaluate the welfare effects from moving from “no trade” to “free trade”. You should include a clearly annotated graph as in chapter 9 in the text.
(4 + 6 = 10 Marks)

Recommended websites for this assignment:
– Adeyanju, Craig, The Top Factors that Move the Price of Corn http://www.futuresknowledge.com/news-and-analysis/grains/the-top-factors-that-move- the-price-of-corn/
– Biofuels Association of Australia, What are biofuels? http://biofuelsassociation.com.au/biofuels/
– http://www.futuresknowledge.com/news-and-analysis/grains/the-top-factors-that-move-the-price-of-corn/

– Quiggin, J, 2010, Droughts, Climate Change and Food Prices in Australia, https://www.acfonline.org.au/sites/default/files/resources/Climate_change_and_food_ in_Australia.pdf

– http://www.eia.gov/dnav/pet/pet_pri_spt_s1_d.htm
– http://www.indexmundi.com/commodities/?commodity=crude-oil&months=360
– https://www.quandl.com/data/DOE/RWTC-WTI-Crude-Oil-Spot-Price-Cushing-OK-FOB?utm_medium=graph&utm_source=quandl
– https://research.stlouisfed.org/fred2/series/DCOILWTICO/downloaddata
– http:/www.opec.org