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ECON649 Economic Analysis : Assignment
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Added on 2020-03-28
ECON649 Economic Analysis : Assignment
Added on 2020-03-28
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ECON649/991ASSIGNMENT (PARTS 1-4)YOU MUST WRITE YOUR ANSWERS IN THIS DOCUMENTTHIS IS THE DOCUMENT YOU MUST SUBMIT FOR MARKINGIF YOU SUBMIT ANOTHER DOCUMENT WE WILL NOT MARK IT!TOTAL MARKS FOR THE ASSIGNMENT = 210___________________________________________________________________PART 1 (TOTAL MARKS PART 1 = 75)EXERCISE 1: THE POOREST MAN’S COTTAGE (UNIT 1) (10 MARKS)‘The poorest man may in his cottage bid defiance to all the forces of the Crown. It may be frail, its roof may shake; the wind may blow through it; the storms may enter, the rain may enter—but the King of England cannot enter; all his forces dare not cross the threshold of the ruined tenement.’ – William Pitt, 1st Earl of Chatham, speech in the British Parliament (1763). 1.What does this quote tell us about the meaning of private property? (50 wordsmaximum) (5 MARKS)This implies that the owner of private property as the absolute right over the property. The Crown or the government excluded from it within limits of the law.2. Does it apply to people’s homes in the country where you were born? (50 words maximum) (5 MARKS)This applies to India. All possessors, who have paid the right price and lawfully acquired private property have complete ownership of property within the law.India has private property rights and the government, within the law, is excluded from the property. India has property rights index of 55EXERCISE 2: FIRM OR NOT? (UNIT 1) (5 MARKS)Use the definition of the firm from the textbook. Discuss whether or not an eighteenth-century pirate ship can be classified as a firm. To answer this question, you should research the characteristics of pirate ships online and investigate if they satisfy the features that define a firm. (80 words maximum)(5 MARKS)The pirate ships paid for their efforts in kind on the ship. Every pirate has some share in the plunder and pirates were profit maximizing entities who also indulged in trading of goods some times. While they
were not legally denoted, they were profit maximizing firms, purely based on the above characteristics. EXERCISE 3: THE MOVING ASSEMBLY LINE: CHANGES IN THE MANUFACTURE AND SALE OF CARS (UNITS 2 & 7) (60 MARKS)1. In 1913 Henry Ford began to manufacture the Model-T Ford using the moving assembly line. Technological improvements in the machine tools used to produce cars accompanied the innovations in the production process. The introduction of this new method of production was one of the great innovations in the manufacturing process. These new processes dramatically decreased the time it took to make each car. Before the introduction of the moving assembly line, it took 12 hours to produce one Model-T car. After the innovations, the time to make one Model-T decreased to around 30 minutes. All these changes meant that manufacturing process used more capital and less labour relative to the earlier more craft based production of cars. You can watch the following 4-minute film clip of the significant innovations involved in the production of the Model-T Ford. https://www.youtube.com/watch?v=cTZ3rJHHSikOther car manufacturers in the United States quickly adopted the production techniques pioneered by Henry Ford. One of the incentives that led to the introduction of the moving assembly line and other technological innovations in the production of cars in the United States was the increase in the wages of skilled workers required to produce cars using older production methods.a)Show on a diagram the two different technologies used to produce one Model-T car, i.e. the technology before (Technology A) and after the innovations by Henry Ford (Technology B). On the horizontal axis put the number of workers employedin the production process. (5 MARKS)
b)Are either of the two technologies (A or B) dominant? Explain. (30 wordsmaximum) (5 MARKS)Technology B is the dominant technology since the total cost of productionis lower as well as the time required to produce goods is lower, thus maximizing capacity utilization.c)Use isocost lines to illustrate the costs of Technology A and B before the change in relative prices. Illustrate the impact on the isocost lines arising from the changes in relative prices caused by the increase in the wages of skilled workers.(5 MARKS)
d)Discuss the impact on the incentives for firms arising from this change in relative prices. Incorporate the concept of economic rent into your discussion. (50 wordsmaximum) (5 MARKS)The economic rent of capital will be wages paid to labour and vice versa. Hence, if the relative prices change, then the economic rent will change both inversely and proportionately.2. Henry Ford said that he wanted to make cars at a price that meant any middle-class American could afford to buy them. He achieved his goal with the price of Model-Ts declining from around $800 to less than $300 between 1908 and 1923. The lower price increased annual sales of the Model-T from around 10,000 to more’s than 2 million cars across the period. Assume that the Ford company in this example has similar cost curves to the firm that manufactured Beautiful Cars (Unit 7 of the textbook). a)Illustrate diagrammatically the impact of the Ford company’s profit maximising choice of price and quantity arising from the innovations in the manufacturing process. (5 MARKS)b)Explain any assumptions you may have made in drawing this diagram/s. (40 words maximum) (5 MARKS)The assumption made here is that the car market is a non-collusive oligopolistic market.
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