ECON10004: INTRODUCTORY MICROECONOMICS
ASSIGNMENT 1: SEMESTER 1, 2018
Due: Monday, April 16, 14:00
• Assignments must be submitted via the LMS subject webpage.
• Remember to keep a copy of your assignment.
• This assignment will account for 10% of your final grade in the subject.
• Limit: 750 words (diagrams do not count toward the word limit.)
Question 1: Ride Hailing Apps Ride-hailing apps are widely used globally today. In
this question, we examine questions surrounding this popular technology. Read the attached
article from The Economist (attachment 1) before attempting the following questions.
(a) According to the article, “in theory, entry [into taxi markets] should be easy yet in
many cities, cabs are far from that competitive ideal”. Using what you have learnt so
far, do you think taxi markets can be thought of as perfectly competitive? Explain. [2
(b) Given your answer to part (a), how does the creation of ride-hailing apps (in particular,
the introduction of their driver-partners) make the process of getting a successful
customer-driver match more competitive? What additional role does surge pricing play
in this regard? Assume that the ride-hailing market is perfectly competitive and use a
demand/supply diagram to substantiate your answer. [3 marks]
(c) According to the article, “customers who value the good at more than it costs to
produce might miss out in a one-price-fits-all system—as many punters who have tried
to find a regular cab on New Years Eve [when demand spikes] will know”. Identify these
customers on a demand/supply diagram, assuming that the taxi market is perfectly
competitive and prices for taxis are fixed. Using the same diagram, show that the
creation of ride-hailing apps (thus the introduction of their driver-partners and surge
pricing) can a↵ect consumers and producers (hence society’s) welfare on New Year’s
Eve. [3 marks]
(d) Suppose the opportunity costs of supplying rides is so high on New Years Eve that
drivers simply do not respond to price changes. How would this change your answer
to (c)? Explain using a demand/supply diagram. [2 marks]
Continue to the next page
Question 2: Import Tari↵s and Quotas In the 1980’s the Australian government
imposed quotas on the importation of cars without imposing restrictions on the construction
of foreign-owned car factories in Australia. This question is intended for you to analyze a
potential rationale for these policies.
The demand for cars in Australia has the following form:
where QD(P) is in millions of cars and P is in units of $10,000. The domestic supply of cars
in Australia takes the following form:
QS(P) = P (2)
(a) What is the price elasticity of demand of this function when P = 2? What is the price
elasticity when P = 3? (Hint: dQD
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