2.2 The difference between material and non-material living standards and factors that may affect each

Source: VCE 2020 Economics Exam, Section A, Q10 © VCAA A fall in the equilibrium price but no change in equilibrium quantity could only occur from which one of the following combinations? A. a decrease in demand and an increase in supply B. an increase in demand and a decrease in supply C. a decrease in both demand and supply D. an increase in both demand and supply.

Question 8 Source: VCE 2019 Economics Exam, Section A, Q2 © VCAA Daphne can make either three dresses or nine shirts per hour. For Daphne, the opportunity cost of making an extra dress is A. one-third of a shirt. B. one-third of a dress. C. three shirts. D. nine dresses. Question 9 Source: VCE 2019 Economics Exam, Section A, Q9 © VCAA If a severe drought affected this year’s wheat harvest, what would be the effect on the equilibrium price and equilibrium quantity of wheat? A. The equilibrium price and equilibrium quantity both decrease. B. The equilibrium price and equilibrium quantity both increase. C. The equilibrium price decreases and the equilibrium quantity increases. D. The equilibrium price increases and the equilibrium quantity decreases. Question 10 Source: VCE 2018 Economics Exam, Section A, Q11 © VCAA Which one of the following is not a feature of a perfectly competitive market? A. Firms have ease of entry into and exit from the market. B. Products sold in the market are homogenous. C. Consumer sovereignty exists. D. Resources are not mobile. Question 11 Source: VCE 2017 Economics Exam, Section A, Q4 © VCAA What would be the effect on the market for Good X if there were a rise in the price of a substitute good? A. The demand curve would shift left and the equilibrium price of Good X would decrease. UNCORRECTED PAGE PROOFS B. The supply curve would shift left and the equilibrium price of Good X would increase. C. The demand curve would shift right and the equilibrium price of Good X would increase. D. The supply curve would shift right and the equilibrium price of Good X would decrease.

Source: VCE 2017 Economics Exam, Section A, Q10 © VCAA The quantity demanded for a product increases by a higher percentage than the decrease in the price of that product. What is this known as? A. demand elasticity B. demand inelasticity C. supply elasticity D. supply inelasticity.

Question 13 Source: VCE 2017 Economics Exam, Section A, Q11 © VCAA What name is given to the type of efficiency where resources are reallocated to increase choice and meet the changing tastes and needs of consumers? A. dynamic efficiency B. allocative efficiency C. productive efficiency D. intertemporal efficiency. Question 14 At a particular point in time, the quantity of resources available for national production is A. fixed. B. infinite. C. sufficient to meet the wants of society. D. mostly made available free of charge. Question 15 You are considering three possible ways of using two hours of leisure time • going surfing, which you value at $12 • watching a movie, which you value at $2 • minding the neighbour’s children, which is valued at $20. You decide to mind the neighbour’s children. The opportunity cost is therefore A. $2. B. $12. C. $14. D. $20. Question 16 In competitive market economies, businesses wish to sell their products at high prices, while consumers wish to purchase goods at low prices. This conflict of interest is generally UNCORRECTED PAGE PROOFS A. solved by governments imposing regulations. B. solved by reaching a compromise price through the competitive operation of market forces. C. left unresolved. D. solved by businesses indulging in collusive pricing and by government rationing.

If a competitive market existed for vegetables, the price may fall as a result of A. a poor growing season adversely affecting producers. B. the development and use of new higher yielding types of seed. C. a switch by consumers from meat to a vegetarian diet. D. lower labour productivity by vegetable growers.

Question 18 In Australia, the government modifies the allocation of resources that otherwise would occur in a market economy to help correct market failures. Which of the following policies could actually operate to reallocate resources? i. spending by government departments in providing public goods including community services and social infrastructure ii. legislation that limits the production or consumption of various goods and services and forces the consumption of others iii. a system where different indirect tax rates apply on different goods and services iv. the fixing of minimum wages v. the payment of subsidies and the provision of tax concessions. A. Policies (ii) and (iii) only B. Policies (ii) and (iv) only C. Policies (i), (ii), (iii) and (v) only D. All of the possible policies listed above. Question 19 Butter and margarine are regarded by many consumers as very close substitutes. Given this, a rise in the price of butter in a free or competitive market is likely to result in A. an increase in the demand for margarine. B. a decrease in the supply of margarine. C. a fall in the price of margarine. D. no change in the demand or price of margarine since the two markets are unrelated. Question 20 The Australian government sets a floor price on labour by imposing minimum wages. If this minimum wage is fixed above the equilibrium that would otherwise occur in a competitive or deregulated labour market A. there will be equilibrium in the market. B. there will be a shortage of labour. C. there will be a glut or unemployment, perhaps leading to poverty. D. all workers will be better off financially. UNCORRECTED PAGE PROOFS

Capital or investment goods can best be described as A. plant and equipment used by producers to help make other goods and services and to improve the efficiency of labour and natural resources. B. money that is available for capital formation. C. the purchase of shares on the stock market. D. equipment provided only by the government to help make collective services available to the public.

Question 22 Technical efficiency would probably not be improved if A. winemakers used new equipment for grape picking. B. government funding of training along with R&D by the CSIRO and other agencies was slowed. C. there was a reduction in water used in rice growing through the use of new drought-resistant strains of seed. D. the rollout of the National Broadband Network (NBN) was accelerated. Question 23 If the price of coffee rises by 10 per cent and the demand for coffee contracts by 5 per cent, the price elasticity of demand would be A. greater than 1. B. less than 1. C. equal to 1. D. cannot be calculated. Question 24 Concerning the features of public and private goods, which of the following is most correct? A. Private goods are non-rival in nature. B. Public goods are normally non-excludable. C. Public goods are normally both non-rival and non-excludable. D. Private goods are normally provided through the federal budget. Section B — Extended response questions Question 1 (18 marks) Source: VCE 2020 Economics, Section B, Q4 © VCAA a. Explain the nature of, and conditions for, a perfectly competitive market. (3 marks) b. In a competitive market, explain how an increase in demand for a product might result in a change in relative prices, and explain how this would influence resource allocation and living standards. (5 marks) c. Describe one strength and one weakness associated with the use of the market to allocateUNCORRECTED PAGE PROOFS resources. (4 marks)

d. Using a fully labelled demand and supply diagram, explain how the Australian Government could correct a market failure.

(6 marks)

Question 2 (9 marks)

Source: Adapted from VCE 2017 Economics, Section B, Q2 © VCAA a. Below is a schedule of demand and supply for strawberries during one week in the summer of 2022.

Price (per punnet) Quantity demanded (no. of punnets)

b. c. Quantity supplied (no. of punnets) $5 140 000 30 000 $8 120 000 50 000 $10 80 000 80 000 $12 60 000 90 000 $14 30 000 110 000 Construct a demand and supply curve diagram using the data in the table. Ensure all aspects of the graph are labelled appropriately. (3 marks) Assuming the market for strawberries is a perfectly competitive market, identify the equilibrium price and quantity traded, and explain what is meant by ‘equilibrium’. (2 marks) Assume that during the summer there was a period of unseasonably cold weather, and the output of strawberries was negatively affected. Draw this scenario on the graph in part (a) above, clearly showingUNCORRECTED PAGE PROOFS the adjustment to the market conditions. (2 marks)

d. Explain the adjustment to the equilibrium price and quantity.

(2 marks)