ECON649 Economic Analysis : Assignment
Added on - 28 Mar 2020
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. Itmay 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 notcross 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 absoluteright over the property. The Crown or the government excludedfrom it within limits of the law.2. Does it apply to people’s homes in the country where you were born? (50 wordsmaximum)(5 MARKS)This applies to India. All possessors, who have paid the right price andlawfully acquired private property have complete ownership of propertywithin the law.India has private property rights and the government, within the law, isexcluded 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 aneighteenth-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 theysatisfy the features that define a firm. (80 words maximum)(5 MARKS)The pirate ships paid for their efforts in kind on the ship. Every piratehas some share in the plunder and pirates were profit maximizingentities who also indulged in trading of goods some times. While they
were not legally denoted, they were profit maximizing firms, purelybased on the above characteristics.EXERCISE 3: THE MOVING ASSEMBLY LINE: CHANGES IN THE MANUFACTUREAND SALE OF CARS (UNITS 2 & 7)(60 MARKS)1. In 1913 Henry Ford began to manufacture the Model-T Ford using the movingassembly line. Technological improvements in the machine tools used to produce carsaccompanied the innovations in the production process. The introduction of this newmethod 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. Beforethe introduction of the moving assembly line, it took 12 hours to produce one Model-Tcar. After the innovations, the time to make one Model-T decreased to around 30minutes. All these changes meant that manufacturing process used more capital andless 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 inthe production of the Model-T Ford.https://www.youtube.com/watch?v=cTZ3rJHHSikOther car manufacturers in the United States quickly adopted the production techniquespioneered by Henry Ford.One of the incentives that led to the introduction of the moving assembly line and othertechnological innovations in the production of cars in the United States was the increasein 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-Tcar, i.e. the technology before (Technology A) and after the innovations by HenryFord (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. (30wordsmaximum)(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, thusmaximizing capacity utilization.c)Use isocost lines to illustrate the costs of Technology A and B before the changein relative prices. Illustrate the impact on the isocost lines arising from thechanges 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 relativeprices. Incorporate the concept of economic rent into your discussion. (50wordsmaximum)(5 MARKS)The economic rent of capital will be wages paid to labour and viceversa. Hence, if the relative prices change, then the economic rentwill change both inversely and proportionately.2. Henry Ford said that he wanted to make cars at a price that meant any middle-classAmerican could afford to buy them. He achieved his goal with the price of Model-Tsdeclining from around $800 to less than $300 between 1908 and 1923. The lower priceincreased annual sales of the Model-T from around 10,000 to more’s than 2 million carsacross the period.Assume that the Ford company in this example has similar cost curves to the firm thatmanufactured Beautiful Cars (Unit 7 of the textbook).a)Illustrate diagrammatically the impact of the Ford company’s profit maximisingchoice of price and quantity arising from the innovations in the manufacturingprocess.(5 MARKS)b)Explain any assumptions you may have made in drawing this diagram/s. (40wordsmaximum)(5 MARKS)The assumption made here is that the car market is a non-collusiveoligopolistic market.