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Economics Fundamentals Worksheet

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Economics Fundamentals Worksheet

Cooper and Anh help manage supplies at a remote outback station. Use economic ideas to explain the choices they face. Show your reasoning where asked.

A. Scarcity, choice and markets

Use the station scenario and your economic knowledge to answer Questions 1–5.

1.The station has $1,200 in its monthly budget for either a water tank repair or new solar panels, but not both. What economic problem does this illustrate, and what is the value of the next-best option forgone when one choice is made?

2.A heavy rainstorm washes out a section of the supply road. Deliveries of bottled water to the station become less frequent, while demand is unchanged. On the number line below, mark the direction of the likely change in the market price of bottled water: left for a fall, right for a rise.

3.A new freight contractor makes it cheaper to deliver fencing wire to the station. Assume demand is unchanged. Which outcome is most likely in the wire market?

Supply shifts left; equilibrium price rises and quantity falls.
Supply shifts right; equilibrium price falls and quantity rises.
Demand shifts right; equilibrium price and quantity both rise.
Demand shifts left; equilibrium price and quantity both fall.

4.At a price of $5 per litre, customers at the station want 80 litres of diesel each day, but suppliers offer 60 litres. Is there a surplus or a shortage, and what pressure is likely to act on the price?

5.The station’s local market for hay has many buyers and sellers, and each seller offers a very similar product. Which market structure does this most closely resemble?

Monopoly
Oligopoly
Perfect competition
Monopolistic competition

B. Government and the wider economy

Use your economic knowledge to respond to the following situations.

6.Complete the statement about an excise tax on cigarettes: A per-unit tax raises sellers’ costs, shifting the curve to the .

7.Complete the statement about the effect of an excise tax on cigarettes: If demand slopes downwards, the market price paid by consumers will generally .

8.The government sets a legal maximum price for essential water below the market equilibrium price. Identify this intervention as a price ceiling or price floor, and explain one likely effect on the market.

9.Which three are commonly used indicators of Australia’s macroeconomic performance? Select all that apply.

Gross domestic product (GDP) growth
Consumer price inflation
Unemployment rate
A single company’s profit margin

10.Unemployment rises across Australia while inflation is moderate. Name one fiscal policy response the Australian Government could consider and explain how it might support employment.

C. Apply and evaluate

Use the scenario in each question to build a reasoned prediction.

11.A more efficient pump lowers the cost of producing drinking water at the station. At the same time, a new work crew arrives and household incomes increase. Explain the likely effect on the equilibrium quantity of water sold. What can you conclude about the equilibrium price?

12.A drought reduces pasture and hay supplies in the region. Explain how this scarcity could affect the station’s costs and identify one choice Cooper might make in response. Link your answer to opportunity cost.