ECON6049 ECONOMIC ANALYSIS, S1 2023
Compulsory Assignment (20%)
Due Date: 11:59pm Sunday 7 May 2023
Instructions:
This Assignment includes five (5) questions of equal marks (20 marks each), and each
question contains a number of parts. Together the Assignment is worth 100 marks, and
accounts for 20% of the Unit total.
• Your answers must represent your own work (students with similar answers will
receive a mark of ZERO.)
• Your answers must be typed (except diagrams/graphs) using any font type with a font
size of 12.
• Diagrams/graphs can be hand-drawn or created using software. They can NOT be
taken from other sources (e.g., the internet, or copied from friends, etc) and must be
your own creation.
• Your diagram must be fully labelled and therefore you must label both axes and lines
or curves, and correctly identify the vertical and horizontal intercepts. Please note that
when using diagrams to illustrate answers you must still provide a written explanation
of what your diagrams are showing (i.e, diagrams can’t speak for themselves).
• Referencing, both in text and in the form of a reference list, of sources is required.
Any reference style/format is accepted.
Submission:
• The assignment must be submitted in a WORD or PDF file.
• The assignment must be submitted online via the Unit’s web page by 11:59pm Sunday
7 May 2023
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Plagiarism:
• Each assignment must represent the student’s own work. In particular, this means
that the written answers and diagrams/graphs submitted by the student should be
composed by that student. Copying of another student’s answer or from references or
any other sources (such as chat GPT), or getting someone else (with or without
payment) to do the assignment for you, or part thereof, is clearly regarded as
plagiarism.
• Cases of plagiarism will be dealt with severely. For further information on plagiarism
and how to avoid it, please refer to the university policy about academic honesty and
integrity.
Late submission:
• No extensions will be granted. There will be a deduction of 10% of the total available
mark for each 24- hour period or part thereof that the submission is late (for example,
25 hours late in submission incurs a 20% penalty). Late submissions will be accepted
up to 96 hours after the due date and time.
• This penalty does not apply for cases in which an application for Special
Consideration is made and approved. Note: applications for Special Consideration
must be made within 5 (five) business days of the due date and time.
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Question 1
(a) As discussed in the Week 3 lecture, working hours have been declining overtime, together
with rising income per capita. In the last few years, there have been talk and movement to
shorten working hours per week, more specifically, a model of a four-day work week has
emerged. This model allows employees to work less hours but maintain the same amount of
work done as if they work for five days, and thus they receive the same pay. In other words,
compared to the five-day work week model, the four-day one offers 80% worked hours, 100%
workload, and 100% pay.
In what ways can this model be good for an economy? (Hint: think about the benefits for
employees, employers, and society in general)
(b) Draw a diagram illustrating the increased utility/satisfaction for consumers as a result of a
shorter working week. (Hint: although total monthly salary stays the same, shorter working
hours per week implies an increase in the wage rate per hour.) Make sure you explain your
diagram too.
Question 2
Suppose that the market for combustion-engine 5-seater cars in Australia is competitive and
illustrated by the following supply and demand equations:
Demand: QD = 8000 – 200P
Supply: QS = 2000+100P
a) Calculate the equilibrium price (P in $’000 or $K) and quantity (Q, cars per month), and
show this equilibrium on a diagram. Use your diagram to calculate the consumer surplus,
producer surplus, and total surplus.
b) Assume that, as part of an electric transition plan, the Australian government imposes a tax
on the sale of combustion engine cars to discourage people from purchasing fossil-fuel
vehicles, so that the sales of this type of cars falls to 3000 cars per month.
What would be the specific (per unit) tax imposed by the government (on car sellers) to
achieve this outcome? What is the per unit incidence of the tax experienced by consumers,
and by sellers?
c) How would this tax help increase the national well-being in the long run, knowing that in
the short run it causes a dead weight loss?
d) With the introduction of this tax, what would happen to the market for electric vehicles?
Use a diagram to demonstrate the change in this market equilibrium before and after the
tax imposition.
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Question 3
As a student, you allocate your daily 24 hours between working (to make living and meet
your consumption desires) and leisure. Assume the hourly wage rate is currently at $22.
a) Construct your budget constrain equation and illustrate your own choice of utilitymaximizing bundle on a diagram (with consumption on the vertical axis and leisure
hours on horizontal axis). By ‘your own choice’, you need to contemplate and specify
the number of working hours to make you most happy.
b) Now suppose that because of a shortage of labour (in the post pandemic world), the
wage rate increases to $25 per hour. With the help of a diagram, explain how this new
wage rate would impact your own optimal choice (i.e., you need to be specific on the
number of working hours and explain why you decide to choose this number).
c) In your diagram in part (b), decompose your overall change in leisure hours (due to
the wage rise) into income and substitution effects.
Question 4
The table below show price elasticity of demand for a number of products in Australia.
Source: Lorraine and Prentice (2019) ‘How much do households respond to electricity prices?
Evidence from Australia and abroad’, Infrastructure Victoria Technical Paper No. 1/19
a) What is the elasticity of demand for cigarettes in Sydney? And in Brisbane? What do
these figures mean? Why aren’t consumers very sensitive to a change in the price of
cigarettes?
b) Regarding petrol, explain why consumers are more sensitive to a change in the price
of petrol in the long run than in the short run.
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c) Comment on the following statement:
“Given the price elasticity of demand for water and baby food, the water supplier and
baby food producers should reduce prices of these goods significantly, so that they
can increase sales, and then sales revenue”.
d) Assume the market for milk in New South Wales (NSW) is perfectly competitive, and
exports or imports of milk are not permitted. At the current market equilibrium, the
price is $2 per litre of milk, the quantity (per day) is 840,000 litres.
Using two side by side diagrams to demonstrate the market equilibrium for milk, and a
representative diary farmer’s profit-maximization point, suppose that there are 7,000
dairy farmers in NSW.
Question 5
a) Consider a bank’s balance sheet as shown below. Would this bank face any liquidity risk
and default risk? What would follow such risks? (Your answer should be around 300 words)
(Hint: you could take into account rising interest rates in the past year)

b) You are probably aware of recent banking turbulence in the US, via the demise of a midsize bank, Silicon Valley Bank (SVB). Do your own search and write a short essay (about
300-400 words) analysing the causes of SVB’s collapse.