MCR001 Economics TRIMESTER 1 2021 FINAL EXAMINATION

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TRIMESTER 1 2021 FINAL EXAMINATION

STUDENT ID                                                         
STUDENT NAME                                                             

SUBJECT NAME:                   Economics

SUBJECT CODE:                   MCR001

TIME ALLOWED:                    2 Hours

PERMITTED MATERIALS:

  • This is an Open Book exam.

INSTRUCTIONS FOR STUDENTS:

  • You do not require a separate answer booklet. Please type your responses in the space provided.
  • Type your full name and ID at the top of this page.
  • Answer all questions.
  • This examination consists of four written response questions:
  • Question 1: Microeconomics (15 marks).
  • Question 2: Microeconomics (15 marks).
  • Question 3: Microeconomics (15 marks).
  • Question 4: Microeconomics (15 marks).
  • Total 60 marks.

Question 1 (15 marks)


TYPED RESPONSE QUESTIONS

Please type your answers in the spaces provided on the exam paper.

The cherry farmers have had a very bad year due to drought and bush fires last summer. At the same time, increasing numbers of people look forward to having cherries in the summer season at Christmas time.

1.a). What are the factor(s) affecting the supply of cherries? (2 marks)

[Answer here]

        There are generally many internal and external factors that may affect the supply of good. Under the above situation, the major factors that will affect the supply of cherries here is the drought condition going on and the bush fires which will decrease its supply in market.        

1.b). What are the factor(s) affecting the demand of cherries? (2 marks)

[Answer here]

    With the decrease in supply of cherries the demand will not be affected. But due to decreased supply the prices of cherries will increase which will result in decrease in demand for the product. Therefore, price and product availability will be the major factors that will affect demand of cherries in the Market.            

1.c). As a result, how will this affect the demand curve and supply curve?  (2 marks)  

[Answer here]

        As a result of above situation, both the demand curve and supply curve will decrease. This will result in inward or leftward shifting of curves.   And the market will acquire a new level of equilibrium with new level of demand and supplies.      

1.d). Demonstrate using a Supply / Demand diagram, what would happen in the ultimate change in equilibrium price (Pe) and quantity (Qe) for cherries.  Label the axes and the curves.  (4 marks)

In Australia there are over 10,000 cherry farmers that face no barriers to entry.
Typically, the price for cherries increases around the Christmas season.  The price for cherries has risen from $2.99 to $4.99 per kg.The total revenue changes from$22425 to $39920 respectively.

[Answer and show workings here]

                   

1.e). What type of market structure is the cherry industry in Australia according to the above information? Explain. (2 marks)

[Answer here]

                   

1.f).  Calculate the price elasticity of cherries. (3 marks)

[Answer and show workings here]

                 

Question 2 (15 marks)

The following diagram shows the market shares of the supermarket industry in Australia:

2.a). What type of market structure is the supermarket industry? Explain. (4 marks)

[Answer here]

            oligopoly                              

2.b). Refer to the following matrix below.  Two non-collusive supermarkets, “C” and “W” are playing a game where they have to choose whether to “cut” or “raise” prices for grocery items.  The outcomes of their profit (in $M) are summarized below. 

Supermarket “C”  
 Cut priceRaise price
Supermarket “W”   Cut price160, 160200, 100
Raise price100, 200120, 120

2.bi).  What is the best strategy for Supermarket “W” if it does not know Supermarket “C”s strategy? (ie the Dominant Strategy for Supermarket “W”. (3 marks)

[Answer here]

    Best strategy for supermarket is to cut price and profit will be 200 $M      

2.bii). Where is the “NASH” equilibrium for Supermarket “C” and Supermarket “W” in the above matrix?  What are the outcomes for Supermarket “C” and Supermarket “W”? (3 marks)

[Answer here]

      Two  NASH equilibrium exist for super market C and supermarket W. Supermarket C cut price 160 and raise price 120 Supermarket W cut price 160 and raise price 120      

2.biii). Is this a case of ‘Prisoner’s Dilemma’?  Explain. (2 marks)

[Answer here]

        Prisioner dilemma analysis is the case in which two individuals acting in their own self-interests do not produce the optimal outcome. Yes, the above situation is totally the case of prisioner dilemma where both the parties are cutting down their produces for their self interest and not producting optimum output.      

2.c). What assumptions lie behind the ‘Game Theory’ & “Prisoner’s Dilemma” in an oligopoly industry? (3 marks)

[Answer here]

          The major assumptions that lie behind the ‘Game Theory’ & “Prisoner’s Dilemma” in an oligopoly industry are that the players in the game are rational and will try to maximize their produces but in their own self interests.    

Question 3 (15 marks)

Consider the information below for Country G and answer the questions:

Key Economic indicators for country G:

Country G 20162017
Consumption Spending 91.9790.56
Fixed Investment spending 28.2827.6
Government spending 35.3532.25
Export 20.3922.50
Import 21.0819.48
Depreciation expenditures 5.726.14
Saving 4.604.22
Transfer Payments 4042

According to a reliable source, Country G’s jobless rate is more than double the Eurozone average of 12 per cent. The Eurozone average has also shown signs of improvement, while Country G’s unemployment problem continues to deepen.


The number of employed is 3.637 Million, the number of unemployed is 1.176 Million and the working age population is 6.678Million.  The latest unemployment rate for Country G has risen to a record high, the country’s youth are paying the heaviest price, with a staggering 64.9 per cent of 15 to 24-year-olds out of work.

Harsh austerity measures aimed at repairing the country’s high debt-to-GDP ratio has not helped the situation either.

In the interim, it’s hoped that the tourism sector will provide a buffer against even worse employment outcomes. Tourism accounts for about one in five jobs and 17 per cent of Country G’s economic output.

3. a). Calculate the GDP for year 2016 and 2017 for Country G. (4 marks)  

[Answer and show workings here]

        GDP For 2016= 154.9   Fir 2017=153.53          

3. b). Calculate the labour force participation rate for Country G. (3 marks)

[Answer and show workings here]

    labour force participation rate for Country G. = Labour force / participation  working age =   3.637/6.678 = 0.5446          

3. c). Calculate the unemployment rate for Country G. (3 marks)

[Answer and show workings here]

      Unemployment rate = unemployment/ total population  = 1.176/6.678 = 0.1761            

3. d). Use the AD-AS model to show the impact of the austerity (contractionary) measures on country G’s economy. How would this impact on the unemployment and price level?  Label the x and y axes, the curves and explain.  Assume the economy is initially below full-employment.

(5 marks)

[Answer here]

    Jobless rate 12 % No. Of employed 3.637 M Unemployed 1.175M Working age = 6.678 If an aggregate demand increase Unemployment decrease as more Worker are hired then GDP increase and price level decrease                                                

Question 4 (15 marks)

Consider the following table that contains some macroeconomic data for the economy of Country U.

Economic Indicators20192018
Real GDP Annual Growth Rate3.4%2.9%
Working Age Population11.4 million11.3 million
Employed Persons27.5 million26.2 million
Unemployed Persons1.1 million1.3 million
Government Spending$700 million$760 million
Consumer Spending$783 million$700 million
Consumer Price Index (CPI) Transfer Payments Tax revenue118 $1680 $ 2130115 $1740 $ 2020
   

4.a). Calculate the inflation rate for Country U in 2018 and 2019.  (3 marks)

The inflation rate = 

[Answer and show workings here]

    [[CPI(current) – CPI( previous) ]*100] / CPI ( present)= 2.6%          

4.b). Given the above information, how would you conclude what stage of the business cycle do you think Country U is in? (2 marks)

[Answer here]

         
4(b)  
As inflation is pretty high so country is in expansion cycle.        

4.c). Given the above information, using the AD/AS Model, how would they affect the AD, SAS and/or the LAS curve.  Ultimately, what would happen to the Gross Domestic Product and the price level? Label the x and y axis, LAS, SAS and the AD curve.  (5 marks)

[Answer here]

                     

4.d). Given the current economic condition, what type of monetary policy is the Central Bank going to undertake?  How does the policy transmit to the economy? (5 marks)

[Answer here]

    Expansionary Fiscal policy   Expansionary fiscal policy boosts aggregate demand by reducing taxation or increasing government spending. Expansionary policy basically works by:   1. growing demand by increasing disposable income through tax cuts to personal income or payroll taxes   2. increasing expenditure by increasing after-tax profits.     3.increasing federal grants to state and local governments to increase their final goods and services   4.expanding government purchases by increasing federal spending              

END OF EXAM PAPER

[Extra writing/working space if required]

                                             
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