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Please refer to attached file under ASSESSMENT TASK 3: MICROECONOMICS CASE ANALYSIS (50\%) ECON1025 - Semester 2 2021 Prices and Markets Assessment Guidelines Professor Robert Hoffmann Assessment Task 1: Online Quiz (10\%) Assessment Task 2: Microeconomic Analysis Report (40\%) Assessment Task 3: Microeconomic Case Analyses (50\%) Assessment Task 1: Online Quiz (10\%) This is a multiple choice quiz worth 10 marks. It is based on all the material from weeks 1-3 (lectures and tutorials). You must access and complete it on Canvas. The quiz will consist of 10 questions and you have 60 minutes to complete it. All questions are equally weighted. There is no negative marking (where a wrong answer loses you marks). You will get one attempt at this quiz. You will not be able to to go back to a previous question once you submitted your answer to it. The below quiz and the weekly tutorial quizzes provide some guidance as to what the assessment task 1 will look like in terms of format and type of questions. Sample Quiz 1. Based on the table below, using the midpoint formula, what is the income elasticity of demand for good X? -3.5 -0.29 0.29 3.5 2. Which of the following statements is not correct, based on the figure below? When the price is $10, quantity supplied equals quantity demanded. When the price is $6, there is a surplus of 8 units When the price is $12, there is a surplus of 4 units. When the price is $16, quantity supplied exceeds quantity demanded by 12 units. 3. Which of the following phrases best captures the notion of efficiency? Minimum Waste Absolute Fairness Equal Distribution Equitable Outcome Income Q of X Purchased $30,000 2 $40,000 6 4. Suppose Jim and Tom can both produce baseball bats. If Jim’s opportunity cost of producing baseball bats is lower than Tom’s opportunity cost of producing baseball bats, then Tom must have an absolute advantage in the production of baseball bats. Jim must have an absolute advantage in the production of baseball bats. Tom has a comparative advantage in the production of baseball bats. Jim has a comparative advantage in the production of baseball bats. 5. The cross-price elasticity of demand between Kit Kat and Mars is negative. Based on this information alone, we can conclude the two products are substitutes True False 6. Economics is primarily the study of the state, nation, government, and politics and policies of governments the problems related to the existence and evolution of society how agents choose to allocate scarce resources and how these choices affect society the mental functions and behaviour of individuals and groups 7. Which of the following statements correctly highlights the difference between microeconomics and macroeconomics? Microeconomics deals with a small part of the economy, whereas macroeconomics deals with aggregate economic performance. Microeconomics describes what economic agents actually do, whereas macroeconomics describes what economic agents ought to do. Microeconomics primarily deals with positive analysis, whereas macroeconomics primarily deals with normative analysis. Microeconomics is descriptive, whereas macroeconomics is advisory. 8. Which of the following best describes equilibrium? A stable situation where no economic agent would benefit by changing his or her behaviour A situation where economic agents do not optimise as they do not have perfect information A situation where only one individual or firm makes an optimal decision A situation where the government intervenes to allocate resources 9. Empiricism is analysis that uses ________ to test theories. illustrations philosophy data value judgments 10. Which of the following is an example of a positive economic statement? An increase in income causes an increase in savings. Eliminating poverty is more important than reducing inflation. Economics is the most useful social science. The government should ideally work as a welfare state. Answers: 1D;2B;3A;4D;5FALSE;6C;7A;8A;9C;10A. Assessment Task 2: Microeconomic Report (40\%) Using models and theories of either (1) the market or (2) market failure (i.e. only material from lectures 2 to 6), perform a microeconomic analysis of one specific appropriate issue or phenomenon of your choice. Clearly explain your chosen question, method and conclusions. Assessments task 2 has limit of 1500 words to be submitted on Canvas. Your submissions should be word processed (i.e. produced using a program such as Microsoft Word) and contain word count and bibliography. There are no specific requirements for font size or typeface, spacing or margins other than that your document should be easy to read. You also do not need an executive summary or other elements not specifically mentioned here. For every 10\% word count (counting everything but the bibliography) over the limit you will lose 10\% of the assignment marks until it reaches zero. There is no discretionary margin above this limit. There is no minimum but you are advised to use all the words allowed to allow for a more developed and detailed analysis. Your submission will receive an automatic Turnitin similarity score that should not exceed 25\%. You should check this score using the tool on Canvas before submitting. Exceeding this limit raises the risk of your submission being subject to an academic integrity process. As per University regulations late assignments receive a 10\% penalty per day until the mark reaches zero. Marks will be given according to the rubrics on Canvas. You must attach a completed coversheet with your submission (template appended below). Your task is to conduct microeconomic analysis of an issue that you select yourself, just as businesspeople and policymakers do. You will be assessed on what you learnt in the course by correctly choosing and applying definitions, methods and theories from lectures and tutorials 2-6. As this is a microeconomics assignment you should not write a general or journalistic report or use concepts from other courses not discussed in this course, including macroeconomics. Clearly structure your report (depending on topic), for instance using numbered sections for each of the parts of the task, e.g. introduction, concepts, model, analysis and conclusion. Introduction and conclusion will normally be shorter. The length of individual sections could reflect their weights in the grading shown in the rubric below. Sample topics, questions relating to them and appropriate methods/analytical tools are given in Assessment 2 Steps 1 Choose topic and question Look at the business and economics news for ideas for an appropriate issue. It needs to fit the purpose of microeconomics (lecture 1) - a topical, important example of resource allocation with questions you can answer by applying microeconomic methods from the lectures relevant to the assignment. State the question, why it’s interesting and economically significant. Present facts or descriptive data to illustrate. The issue needs to be a specific (topical or historical) case. This means you will discuss a specific market for a product, service or factor of production in a specific context rather than a general economic issue or problem. Also make sure your topic does not fall within macroeconomics, which is not covered in this course. 2 Select your methods (concepts and models) Select the right method (i.e. microeconomic model, theory or tool from lectures and tutorials 2-6 to answer your question. 3 Explain your concepts and models Explain your method. Assume your reader needs to be explained every concept and model needed to follow your analysis, as if you are teaching your reader these. 4 Analyse your topic Apply the method to your issue. Report the different steps of your analysis and your findings. Typical analysis applies the tools from the relevant lectures to your specific case. Use relevant diagrams or models as they answer the question better than only words. If your chosen method comes with such models (e.g. diagrams or graphs), not using these in your assignment will result in a significant loss in marks. 5 Conclude Your conclusion will directly answer the question and maybe look at the big picture - the significance and limitations of your work. Provide answer to questions like: What have we learnt from your analysis for business or government policy? So what? the table below. They are taken from lectures and the tutorial questions you tackled in class. Please do not use these or indeed any examples from classes as choosing an original topic and analytic tool by yourself is part of the assessment. These and other cases discussed in lectures and tutorials give you an idea of how to complete this assignment. You are required to send your tutor a short email with a short summary your chosen topic and questions (please do not send full drafts) for approval at least two weeks before the deadline. You must append a copy your tutor’s approval email to your submission. Failure to do so will result in a grade deduction of 5\%. It will be your responsibility to ensure you completed your assessment in good time. Managing this project and your time will be critical for your success. In addition to this document, guidance for assignment 2 is available from: (1) a video that contains important guidance on report writing in economics, (2) a tutorial devoted to the assignments, (3) the email exchange with your tutor and (4) the weekly consultation hours with the course coordinator. Also, examples of the kind of analysis you are required to do is contained in the relevant lectures (see table below). Note that we do not provide a template or model answer. The reason is twofold: Part of the assignment is to develop your independent thinking and research. Providing a model answer encourages a “painting-by-numbers” approach that is inappropriate for a university education and will not make you an independent thinker, and will not sufficiently prepare you for work life where no templates exist. Also, there is considerable scope to tailor your assignment (within the requirements above) based on your own style, chosen topic and method. Sample Assessment 2 Topics from Lectures and Tutorials (DO NOT USE - FOR ILLUSTRATION ONLY) Topic Question Potential Methods (concepts and models) Lecture 3.2.3. Coffee Prices What explains the rise in world coffee prices in 2011? Comparative statics Tutorial 3 1b. Building Ban Should Bangalore introduce a ban on building new apartments to safeguard sustainable urban development? What is the effect on apartment prices when there is a rise in the city’s population? Comparative statics, elasticity, market intervention Tutorial 3 1d. Mad Cow Disease During the 1993 mad cow disease or BSE outbreak in the UK, evidence emerges regarding the dangers of eating beef from infected animals. Which markets are affected, and what are the effects? Comparative statics, elasticity, market intervention Tutorial 4 1. Rent Controls Analyse rent controls in the Melbourne residential rentals market using an appropriate diagram. Who benefits and who loses out? What is the effect on total surplus? How is the policy affected by demand and supply elasticity? Comparative statics, elasticity, market intervention Tutorial 4 3. Alcohol Excise Duty Australia has a reputation as a hard-drinking culture yet there has been a steady decline in alcohol consumption over the past three decades. Government is considering reductions to its relatively high taxes on alcoholic drinks. Which markets are affected, and what are the effects? Is this policy appropriate? Comparative statics, elasticity, market intervention, market failure Tutorial 5.1. Hosting F1 Should Victorian taxpayers should pay $60 million annually to host the F1 Australian Grand Prix? Examine the pros and cons. Comparative statics, market failure Assessment 2 Cover Sheet Prices and Markets Student Name Student ID Tutor/Local Lecturer Date Please tick all the applicable boxes below. Note that failing to comply with any of the requirements below may results in deductions from your grade for this assignment. I have read and followed the guidelines for this assignment, watched the assignment video and took the assignment guidance quiz. ☐ I have discussed my topic with my local lecturer/tutor and I have appended any email correspondence approving my chosen topic. ☐ The topic I have chosen is my own original topic and was not discussed in lectures or tutorials. ☐ The topic I chose is not macroeconomics but microeconomics and is appropriate for analysis using the tools introduced in those lectures of this course relevant to this assignment. ☐ My work contains both explanation and use (in analysis) of relevant microeconomic models. ☐ The tools I have used to analyse the topic are exclusively from relevant lectures of this course, i.e. the market, market failure (lectures 2-6). ☐ The word count does not exceed 1500 words (excluding bibliography, title page and text in diagrams). I understand there is no discretionary margin allowed above this number and that there is no minimum allowed number of words. ☐ The work is my own and all sources I used to inform me are referenced and appear in the bibliography. ☐ I have checked the Turnitin score for my work and it is acceptable (i.e. <25\%). ☐ I have submitted this work by the submission deadline. ☐ I have checked that I have uploaded the correct file and the correct version of this file. ☐ Marking Rubrics for Assessment 2 (total: 40 marks) Criterion HD DD CR PA NN Choice of an appropriate, original specific topic amenable to microeconomic analysis and formulation of an appropriate question about it (8/40 marks). Topic and question are very original and appropriate Topic and question are quite original and appropriate Topic and question are somewhat original and/or appropriate Topic and/or question are not very original and/or appropriate Topic and/or question are not at all original and/or appropriate Selection of relevant course models and concepts from the course syllabus to analyse the topic (12/40 marks). Selected course models and concepts are very relevant Selected course models and concepts are mostly relevant Selected course models and concepts are somewhat relevant Selected course models and concepts are not very relevant Selected course models and concepts are not at all relevant Correct explanation of chosen course models and concepts in sufficient detail (4/40 marks). Chosen course models and concepts are explained entirely correctly in sufficient detail Chosen course models and concepts are explained mostly correctly in resonable detail Chosen course models and concepts are explained correctly to an extent in adequate detail Chosen course models and concepts are not explained correctly and/ or in modest detail Chosen course models and concepts are not explained correctly at all and/or in lacking detail Correct and detailed analysis, i.e. application of relevant course models and concepts to analyse the topic (12/40 marks). Course models and concepts are used in analysis entirely correctly and in detail Course models and concepts are used in analysis mostly correctly and in reasonable detail Course models and concepts are used in analysis somewhat correctly and/ or in adequate detail Course models and concepts are not used in analysis correctly and/ or in modest detail Course models and concepts are not at all used in analysis correctly and/ or in lacking detail Drawing correct and relevant conclusions from analysis for economic and/or business policy (4/40 marks). Conclusions drawn from analysis are entirely correct and relevant Conclusions drawn from analysis are mostly correct and relevant Conclusions drawn from analysis are somewhat correct and relevant Conclusions drawn from analysis are not correct and relevant Conclusions drawn from analysis are not at all correct and relevant Assessment Task 3: Case Analyses The assessment is worth 50 marks and will be delivered as a question sheet on Canvas exactly two weeks before the submission deadline. Your submission will receive an automatic Turnitin similarity score that should not exceed 25\%. You should check this score using the tool on Canvas before submitting. Exceeding this limit raises the risk of your submission being subject to an academic integrity process. As per University regulations late assignments receive a 10\% penalty per day until the mark reaches zero. Marks will be given according to the rubrics on Canvas. You must attach a completed coversheet with your submission (template appended below). For the formatting requirements follow the advice given for assessment task 2 above. Your submission should be a word-processed document not exceeding 2000 words. Any diagrams that you wish to use can be inserted into this document in any way you like, i.e. created in the word-processing software itself, or inserted as a photograph of a pencil drawing or from another software. Label your figures and tables including numbers and refer to them in the text by their numbers. Your submission will automatically receive include a Turnitin similarity score. You should not exceed 25\%. You may check your score using the Turnitin checking tool on Canvas. Please also add a word count. For every 10\% word count (not counting bibliography) over the limit you will lose 10\% of the assignment marks until it reaches zero. There is no discretionary margin above this limit. There is no minimum but you are advised to use all the words allowed to allow for a more developed and detailed analysis. The task will be essay-style case analysis. The question paper will contain details of 5 economic phenomena. 4 of which you analyse in separate answers. Each of the cases will ask you to use one of the analysis tools of this course. As a general guide, your answer should include the steps that were explained for assessment 2 except for step 3: You will not be expected to explain the concepts and model that you are using. Details of the analysis tools of this course to be used in this assessment are shown below. The marking rubrics are shown below. You will be assessed based on the sophistication, breadth and depth of your analysis (e.g. how many factors do you take into consideration) as well as on correctness of the analysis and appropriateness of your conclusions. Note that your answer should be written such that a reader who is versed in economics can assess your understanding in every step of your argument. While you do not need to explain or define theoretical concepts or methods, you will need to explain why and how these apply, and how they are used in your answer. It is not enough to say “concept X applies to issue Y”, you need to demonstrate that it does and how it does, and what the implications are. As an example consider the two answers in the table. Nothing is wrong in either answer but in the left column we see an answer in the incorrect format. The first paragraph simply lists and defines concepts. The Analytic tool Components Examples from Class Market Analysis Comparative statics, own-price, cross price and income elasticity, market intervention. Coffee Prices (lecture 3.2.3.); housing subsidies and minimum wages (lecture 4); rent control (tutorial 4). Market Failure Assumptions of the market model, types of market failure, government intervention and government failure types. Formula 1, casinos, chewing gum, ERP, DVD piracy (tutorial 5); online free speech, helmet/seatbelt regulation (tutorial 6). Market Structure Structure-conduct performance paradigm, market structure characteristics and types (perfect and monopolistic competition, oligopoly and monopoly), market power debate, government monopoly policy. Container sea freight industry (tutorial 7); Google (tutorial 9). Game Theory Rules of the game, payoff matrices, Nash equilibrium analysis. Coordination, the Sydney game, prisoner’s dilemma (lecture 10); chicken market collusion, Nash equilibrium (tutorial 10). Optimal Boundary of the Firm Horizontal and vertical integration, diversification, production economies, transaction cost economies, make-or-buy decision. Starbucks (Lecture 11.3.1.- 11.3.2.). second paragraph contains no explanation why the conclusion (SP is a monopoly) follows from the definition. It also doesn’t support the implication (higher price, lower output) or discuss it critically. In contrast, the correct style in the right column does not have the definition but tells the reader why, and in what sense, SP is a monopoly. It also states why this might be a bad thing in theory, yet offers an alternative view. The next pages contains the marking rubric and sample question papers that will show you the format of the paper, style and scope of questions and what we look for in your answers. QUESTION 3 (see below) Answer 1 (incorrect style) Answer 2 (correct style) Monopoly is defined as the market structure where there is one firm in the market with 100\% market share and compete barriers to entry. Market structure refers to the competitive environment in which the firms operate and is made up of four characteristics: the number of firms, their size (relative to the market), the existence of entry barriers which make entry by potential competitors difficult, and finally product differentiation where different firms’ products are seen as distinct in the eyes of consumers. SP Group is therefore a monopoly and that is bad because monopoly charges a higher price and produces less output than a perfectly competitive industry. The SP Group is a monopoly because it is the only electric grid operator in Singapore’s domestic market. Its delivery network has a high fixed cost and therefore complete entry barriers: Given market demand, it is too expensive for any competitor to invest in a power distribution n etwo rk. Also ele ctr icity is a pe rfe ctly homogeneous product and a potential competitor cannot differentiate themselves by producing a different type of electricity. SP being a monopoly is significant because its market structure, the competitive environment, is highly concentrated (CR1=100\%). SP’s conduct (high costs and price) and performance (economic profit) may be poor as it is not competing with actual or potential rival operators. Government may consider regulating SP’s price. Then again there are reasons why, in power markets, large firms may have efficiency advantages such as … Marking Rubrics for Assessment 3 (total: 50 marks) Criterion HD DD CR PA NN Translating the case study topic into a question or questions amenable to microeconomic analysis microeconomic question (5/50 marks). Topic and question are very original and appropriate Topic and question are quite original and appropriate Topic and question are somewhat original and/or appropriate Topic and/or question are not very original and/or appropriate Topic and/or question are not at all original and/or appropriate Selection of relevant course models and concepts from the course syllabus to analyse the topic (10/50 marks). Selected course models and concepts are very relevant Selected course models and concepts are mostly relevant Selected course models and concepts are somewhat relevant Selected course models and concepts are not very relevant Selected course models and concepts are not at all relevant Correct and detailed analysis, i.e. in-depth application of relevant course models and concepts to analyse the topic (25/50 marks). Course models and concepts are used in analysis entirely correctly and in detail Course models and concepts are used in analysis mostly correctly and in reasonable detail Course models and concepts are used in analysis somewhat correctly and/ or in adequate detail Course models and concepts are not used in analysis correctly and/ or in modest detail Course models and concepts are not at all used in analysis correctly and/ or in lacking detail Drawing correct and relevant conclusions from analysis for economic and/or business policy (10/50 marks). Conclusions drawn from analysis are entirely correct and relevant Conclusions drawn from analysis are mostly correct and relevant Conclusions drawn from analysis are somewhat correct and relevant Conclusions drawn from analysis are not correct and relevant Conclusions drawn from analysis are not at all correct and relevant SAMPLE QUESTION PAPER Answer any FOUR of the following questions. Each question is worth a total of 12.5 marks. If more than four questions are answered, marks will be awarded for the first four answers only. QUESTION 1 Coffee is now the second most traded commodity in the world after crude oil. Not only has demand for various coffee products risen sharply in Western countries in recent years, increasingly there is also greater taste for coffee drinks in developing countries such as China and India. In addition, by-products of coffee beans have become popular such as coffee leaves which can be used to brew a tea with known health benefits. However, as a natural produce, coffee plants are subject to weather conditions. Recently major producers such as Brazil have been plagued by droughts. Using the demand-supply model, explain the likely effects of these phenomena in the coffee bean market. How can a market analyst use this information to her advantage? QUESTION 2 The internet and online social media in particular are giving people unprecedented ability to express their views and share information with others. On the other hand the truth of what people say online and the sheer volume of information are hard for most people to handle. In Germany the government has introduced the Net Enforcement Law which prohibits certain kinds of online speech (e.g. incitement to hatred). Social media firms have 24 hours to check and remove suspect posts reported by users or face huge fines. Use the theories of market failure and government intervention to explain the reasons for Germany’s new law. Critically discuss potential problems with this intervention. QUESTION 3 Singapore Power (SP) is the only operator in the domestic electricity market in Singapore. Electricity distribution generally is associated with extremely high economies of scale because of the infrastructure (a nationwide power grid) needed to deliver power to individual households. Using the theory and models of market structure, examine this firm. Should government be worried about any aspect of how a firm under this market structure will perform? What should government do to address such worries? QUESTION 4 Starbucks is mostly known to be a retailer of coffee drinks that are brewed in-house using coffee beans and other equipment sourced in the market. Starbucks is now considering vertical and horizontal integration beyond coffee drinks retail. Using the theory of the optimal boundary of the firm, discuss the make-or-buy decision as well as the scope for horizontal integration and diversification of Starbucks. What stages of the vertical chain should it consider conducting in-house? What other horizontal markets may it integrate into and why? QUESTION 5 In Singapore, 13 fresh chicken suppliers together accounting for 90\% of market share have received a record $27 million fine for operating as a cartel, fixing prices at a high level and restricting output. To achieve this representatives of the firms repeatedly met at at the Poultry Merchants Association. Analyse the interaction between the firms using game theory. Simplify your model to only 2 players representing the different firms in this industry. Present a payoff matrix to model the situation and analyse it for Nash equilibrium. Which is the best outcome for each firm? Which is the best outcome for society as a whole? Why did government invest in the costly investigation and prosecution of these companies? SAMPLE QUESTION PAPER Answer any FOUR of the following questions. Each question is worth a total of 12.5 marks. If more than four questions are answered, marks will be awarded for the first four answers only. QUESTION 1 During the novel coronavirus (COVID-19) pandemic, people of all incomes from poor to rich are stocking up on different types of product they regard as necessary. Suppliers cannot increase their output quickly enough. Singapore government is concerned about profiteering and affordability in the markets concerned and is considering intervening. Using the demand-supply model, explain these phenomena in one or two markets of your choice. Advise which market interventions, if any, government should conduct in these markets. QUESTION 2 Watching movies with particular kinds of content (e.g. violence, coarse language, crime, sexual references) may affect moviegoers in negative ways that concern government policymakers across the world. Use the theories of market failure and government intervention to explain the reasons for this concern. Identify different suitable …