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Assessment item 1Assignment 1Value:10%Due date:12-Mar-2018Return date:05-Apr-2018Length:Approximately 1000 wordsSubmission method optionsAlternative submission method Task Assignment 1 consists of two...

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Assessment item 1Assignment 1Value:10%Due date:12-Mar-2018Return date:05-Apr-2018Length:Approximately 1000 wordsSubmission method optionsAlternative submission method
Task


Assignment 1 consists of two problem questions (worth 5 marks each)based on text material. Text material which may be relevant to this question may be drawn primarily from any of Text chapters 1, 2, 3 and 4.


Answer the following:

Question 1

Define and explain the three key economic ideas: 1) people are rational; 2) people respond to economic incentives; 3) optimal decisions are made at the margin. Provide an example for each idea (Do not use the examples from the textbook).

Question 2

Using the economics or other literature (butnotthe textbook) to identify estimates of theincome elasticity of demand for at least three different products.Provide full citations for the employed literature. Comment on the magnitudes of these estimates in relation to the standard economic determinants of theincome elasticity of demand.Rationale

The question addresses the following learning outcomes:

  • be able to apply demand and supply analysis to make a range of market related decisions
  • be able to make decisions that incorporate the relevant benefits and cost analysis

Marking criteria

Question 1
Learning outcome
: be able to make decisions that incorporate the relevant benefits and cost analysis.This question requires an understanding of key economic ideas which develop optimal decisions based on a comparison of costs and benefits.

HighDistinction(85%+)Provides excellent and complete definitions and explanations of the key economic ideas. Provides exemplary examples which usefully illustrate the key ideas. Highly developed skills in expression and presentation of ideas. Provides well-argued articulated statements with excellent supporting evidence.
Distinction(75%-84%)Provides very good definitions and explanations of the key economic ideas. Provides very good examples which usefully illustrate the key ideas. Well-developed skills in expression and presentation of ideas. Provides well-argued and articulated statements with very good supporting evidence.
Credit (65%-74%)Provides good definitions and explanations of the key economic ideas. Provides good examples for which usefully illustrate the key ideas. Some well-developed skills in expression and presentation of ideas. Provides some well-argued and articulated statements with some good supporting evidence.
Pass (50%-64%)Provides satisfactory definitions and explanations for the key economic ideas. Provides satisfactory examples which partially illustrate the key ideas. Some inconsistency in sentence structure and some expression lapses. Arguments based on limited evidence.
Fail (Less than50%)Provides poor and/or incomplete definitions and explanations for the key economic ideas. Provides unclear and/or incomplete examples which poorly illustrate the key ideas. Poor communication of ideas due to careless writing and lack of proof-reading. Little demonstrated evidence of ability to construct clear and coherent arguments

Question 2
Learning outcome:be able to apply demand and supply analysis to make a range of market related decisions. The question requires a thorough understanding of the concept of income elasticity as it relates to demand analysis.

HighDistinction(85%+)Provides fully cited and complete estimates of income elasticity of demand for different products. Explains with excellent and comprehensive detail how these estimates relate to the economic determinants of income elasticity. Highly developed skills in expression and presentation of ideas. Provides well-argued articulated statements with excellent supporting evidence.
Distinction(75%-84%)Provides well cited and complete estimates of income elasticity of demand for different products. Explains with very good detail how these estimates relate to the economic determinants of income elasticity. Well-developed skills in expression and presentation of ideas. Provides well-argued and articulated statements with very good supporting evidence.
Credit (65%-74%)Provides reasonably cited and mostly complete estimates of income elasticity of demand for different products. Explains with some good detail how these estimates relate to the economic determinants of income elasticity. Some well-developed skills in expression and presentation of ideas. Provides some well-argued and articulated statements with some good supporting evidence.
Pass (50%-64%)Provides satisfactorily cited and nearly complete estimates of income elasticity of demand for different products. Explains with satisfactory detail how these estimates relate to the economic determinants of income elasticity. Some inconsistency in sentence structure and some expression lapses. Arguments based on limited evidence.
Fail (Less than50%)Provides poorly cited and grossly incomplete estimates of income elasticity of demand for different products. Poorly explains with little detail how these estimates relate to the economic determinants of income elasticity. Poor communication of ideas due to careless writing and lack of proof-reading. Little demonstrated evidence of ability to construct clear and coherent arguments
Presentation

Answers should be typed and diagrams must be clear and neat and preferably drawn electronically. Hand-drawn diagrams are acceptable.

Requirements

APA referencing must be used when citing literature.

This assignment must be submitted through Turnitin.

It is recommended that your name, student ID and page number are included in the header or footer of every page of the assignment.
Further details about submission in Turnitin are provided in On-line submission.

Answered Same DayMar 11, 2020

Solution

Soma answered on Mar 11 2020
50 Votes
Question 1
1) People are rational:
Rationality is recognized as one of the fundamental assumption in economic theory. Mainstream economic study assumes due to rational act of human behaviour, preferences are developed for people in self-interested or utility maximizing manner. Economists assume people are rational in the sense that people while taking decisions or making the choices, they make the best possible use of available information. In order to behave rational, perfect information is necessary but at the same time it is not always obtainable. Hence according to Lipsey, people behave as rational as possible within the available information they obtained and processed them co
ectly. The assumption of rational behaviour, though not followed by everyone all the time, is useful in explaining most of the choice people make. (Jarl, 2003)
Example: When we assert that human act is rational we mean only this: I will definitely buy a ticket for Light Night Music instead of a football match as I prefer to enjoy Light Music. Being a rational human being, I will use all the available information and take action of buying the ticket of Light Music to fulfil my objective, given the opportunities I have.
2) People respond to economic incentives:
This is the one of the principle among the Ten Principles of Economics. This principle is well accepted by all economists, as assured by Mankiw. Neoliberals also agree well, it is the basic human nature that they respond well to money more than anything else. Incentives are crucial that induces human being to act. Since rational human beings compare cost and benefits while making decisions, they respond more on economic incentives. (Walker, 2015)
Example: People respond to price changes: if the price of Pizza goes substantially high, people will look for other alternatives. If high tax is imposed on gasoline, then growing number of commuters will switch over to public transport. People want to avoid the additional cost in the short run and long run.
3) Optimal decisions are made at the margin
The notion that optimal decisions must be made at the margin is another fundamental economic idea that plays a critical role in economic theory. The rationality act intends to take an action as long as long the marginal benefit exceeds the marginal cost. The word ‘marginal’ as used by economists refers to additional cost or additional benefit associated with a decision. Any economic decision will reach to optimal level when the marginal benefit...
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