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Questions Economic or political decision-makers only used one tool at the beginning of the COVID-19 pandemic: whether to put individuals in quarantine

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Economic or political decision-makers only used one tool at the beginning of the COVID-19 pandemic: whether to put individuals in quarantine.

 

 

• Question 1: (Answer in 200-400 words in total, 10 marks)

Melbourne is well-known to be a dynamic city with numerous cafes. Since you enrolled in BUS5POE, there has been a lockdown in Melbourne and Victoria. Assume that cafes are in perfect competition in Melbourne and the initial market price of a take-out coffee is 5 dollars. Assume that cafes are authorized to open if they want during the lockdown. Provide a graphical representation of this shock and explain how the lockdown will impact:

• The supply curve of take-out coffees (answer in 70-130 words)
• The demand curve of take-out coffees (answer in 70-130 words)
• The equilibrium in the market for take-out coffees (answer in 70-130 words)

You can draw diagrams in MS Word or on paper. In the latter case just make a good quality photo and insert it in this Word file to the relevant question.

 

Question 2: (Answer in 200-400 words in total, 10 marks)

Assume that restaurants are in monopolistic competition in Melbourne. Looking at the cost incurred by firms operating in a monopolistic market, what is the impact of a curfew on the profit/losses made by Melbourne restaurants in the short run? What could happen in the long run? Provide a graphical representation of the equilibrium of the firm in the short run and in the long run.

• Question 3: (Answer in 200-400 words, 10 marks)

Recent figures produced by the Australian Bureau of Statistic show and increase in unemployment as illustrated in Graph 1. In some industries, the Unions and workers agreed to cut wage to preserve jobs. Explain the economic rationale of a wage cut of 10%. With a graphical representation of the equilibrium of the labor market, show how a reduction in the wage can preserve jobs

Graph 1: Evolution of Unemployment in Australia

 

 

 

• Question 4: (Answer in 200-400 words in total, 10 marks)

During the pandemic, stockpiling behavior have been criticized in the newspapers and described as irrational. From a game theory perspective, stockpiling of toilet paper can be modeled as a strategic game. Let’s assume that we have two players who can choose between option 1: running to buy toilet paper (stockpiling behavior); and option 2: waiting to buy toilet paper. They believe that there is a risk that supermarket will run out of stock. The following matrix gives the payoffs of each choice, where in each cell, the first number is the payoff of player A and the second number is the payoff of player B.

		Player B
		Wait to buy	Run to buy
Player A	Wait to buy	3, 3	1,4
	Run to buy	4,1	2,2

• Explain the strategic interactions behind the stockpiling behavior (answer in 70-130 words).
• Find the equilibrium by elimination of dominated strategies (answer in 70-130 words).
• Does individual rationality lead to a socially desirable outcome? Why? (answer in 70-130 words)

 

• Question 5: (Answer in 200-400 words in total, 10 marks)

Unprecedented bushfires impacted the Australian economy in late 2019 and early 2020. Explain:

• One economic mechanism by which bushfires has increased the Australian GDP (even if it was detrimental to well-being) (answer in 140-260 words).
• One economic mechanism by which bushfires has decreased the Australian GDP (answer in 70-130 words).