March 18th, 2019 
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The assessment is consisted in 3 parts
Part 1
In 500 words or fewer, answer a question of your choice which requires you to
use a microeconomic principle, or principles, discussed in the module. This
question should involve a pattern of events or behaviour that you personally
have observed. The issue you address need not be one traditionally analysed
using economics, but your work should be an original application of economic
logic and reasoning to something which interests you.
Examples of issues students elsewhere have addressed are:
1. Why do brides spend so much money on wedding dresses, whereas grooms often
rent cheap tuxedos, even though grooms could potentially wear their tuxedos on
many other occasions and brides will never wear their dresses again?
2. Why are child safety seats required in cars but not in airplanes?
3. Why are round-trip fares from Hawaii to the US mainland higher than the
corresponding fares from the US mainland to Hawaii?
4. Why do airlines charge much more for tickets purchased at the last minute,
yet theatres follow exactly the opposite practice?
5. Why do many people buy larger houses when they retire and their own children
leave home?
Your question and the issue you address does not need to be important or
worthy, but try to begin with an interesting question. You should check with
your seminar tutor that the question you wish to address is suitable. The most
successful answers begin with a really interesting question (one that makes the
reader instantly curious to learn the answer) and then use an economic
principle or principles to construct a plausible answer. You do not have to
provide a complete solution to the question ? the key is to apply economic
principles to achieve an insight into the issue.
It should be written as if to a friend or relative who has never taken a course
in economics. It must be clearly understood by such a person. It does not need
diagrams or mathematics. It should not be heavily laden with economic jargon or
terminology. You do not need to include references (since it is an original
application of principles). Nor are you expected to do extensive research in
support of your argument, although a relevant fact or two might help convince
yourself and others that you are on the right track.
Part 2
a) Show that, compared to perfect competition, monopolies reduce output and
increase price. Does this mean that monopolies are always against the public
interest? (8%)
b) Explain how the existence of externalities (whether from congestion or
pollution) cause a less than optimal allocation of resources in road transport
(8%)
c) Why might GDP not be a good measure of the level of welfare or economic
activity within an economy? (8%)
d) What is meant by ‘the multiplier’? What determines its size and why does it
matter? (8%)
e) Using Aggregate Supply and Aggregate Demand analysis explain the short- and
long-run effects national economic output and prices of a reduction in
government spending? (8%)
Part 3 (40% of overall mark)
?Gold reaches record price of almost $1,900 per ounce? was just one of the many
headlines on the soaring price of gold in late 2011. The price of gold rose by
28% from $1,483 per troy ounce on 01 July 2011 to a high of $1,895 on 05
September. By 26 September it had fallen by 16% to $1,598. Figure 1 shows the
price of gold to be very volatile.
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