Microeconomics

Assignment DUE: Your Tutorial, August 26 – 30, 2013
? Carefully read the following Scenario.
? Write direct answers for each part of each question – eg.
(a) An economy may not be able to produce all the schools and all the clinics
it wants because . . .
? Answers should be typed (size 12 font), though graphs may be drawn by hand.
? When using a graph, be careful to carefully label each axis and curve. A
graph that is carefully drawn to scale is more easily interpreted.
? Ensure that your name, student number, tutorial day, time and tutor are
recorded on each page of your assignment (a footer to each page).
? Assignments to be submitted to your tutor during your Week 3 tutorial.
Scenario:
You have been hired as the economics adviser for the newly elected State Premier.
On your first day, the Premier introduces you to the new Minister for Health and the
Minister for Education and Training, and explains that your expertise is needed to
settle a policy debate.
The Minister for Education and Training wants to build 6 new technical schools to
train new tradespeople to help solve the critical shortage of skilled workers. The
Minister for Health wants to establish 30 health clinics that provide specialised
childhood, preventative and early intervention medical services to improve public
health in disadvantaged communities. The Premier asks you if this is possible. You
are unsure, and question whether the economy has the resources to do both.
The Minister for Education and Training says he won’t accept less than 5 new
technical schools. The Minister for Health says she will agree to no less than 29 new
clinics. The Premier says that this compromise of 5 facilities and 29 clinics seems
fair. You then calmly suggest that before a policy is announced, it might be
worthwhile working out what is actually possible. Before the Cabinet Meeting at
10.00 am tomorrow morning, you have to write a report that answers the following
questions:
(a) Why might you suspect (even without evidence) that the economy might not
be able to produce all the schools and clinics the Ministers want ?
What constraints are there on an economy’s production ?
(4 marks)
(b) The Premier provides you with the following production possibilities data
recording combinations of schools and clinics produced over past years.
Technical
Schools
Health
Clinics
0 30
1 29
2 27
3 23
4 18
5 10
6 0
Given this information, draw a production possibilities curve (PPC) for the
economy, labelling the axes and each combination.
Explain why the line is curved and not straight, with reference to the concept
of opportunity cost.
Were you right to suspect the economy could not produce 6 schools and 30
clinics at once? Explain why.
( 4 marks)
(c) Explain the concepts of efficiency and inefficiency in relation to the PPC.
Consider the Minister for Education and Training and the Minister for
Health’s second choices of 5 schools and 29 clinics and mark it on your graph.
Is this combination possible or efficient? Explain.
(4 marks)
(d) The Premier wants to improve all possible and efficient outcomes, to keep the
people happy with the government. He understands that this year’s production
is restricted, but next year he wants to provide both 6 schools and 30 clinics.
Describe two different changes in the economy that could make this possible.
(4 marks)
(e) Explain in just a few lines, if it were up to you, which combination of
technical schools and health clinics you would choose to produce, and why.
In terms of kinds of economic analysis, what makes your answer different to
those above it?
Are other economists likely to agree with your analysis in parts (a) to (d) ?
Are they likely to agree with your preferred choice? Explain.
(4 marks)
(Total marks 4 + 4 + 4 + 4 + 4 = 20 / 2 = 10 %)
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