Question B1

Alex opened Supreme Chinese Seafood Restaurant (Supreme) in the housing estate in Tung Chung two years ago. As Supreme is the only restaurant selling seafood in the neighbourhood, it has enjoyed very profitable business since it opened despite the fact that its prices tend to be higher than similar products sold elsewhere.

Early this year, Supreme is facing very keen competition after another restaurant called Bravo selling seafood opened in the same housing estate. Most of Bravo’s seafood are priced almost the same as those of Supreme, except lobster is only HK$78 each which is lower than the cost and much lower than that of Supreme. During weekends, Bravo also offers “Set Dinner for Four” at a special price of HK$280. Therefore, a lot of loyal customers of Supreme have switched to Bravo. As a result, Supreme has suffered financial loss in the past few months.

1. (a) Identify the THREE types of pricing objectives. Then, justify which pricing objective was adopted by Supreme in the first two years. And, debate whether this pricing objective is appropriate for Supreme at that time.

2. (b) Justify the THREE pricing strategies used by Bravo.

3. (c) Discuss and justify whether Bravo may fall into ONE ethical issue on pricing.

1. Answer all of the following questions regarding the Money Supply and Reserves.
   1. Briefly explain, using arguments developed in the course, why the Fed does NOT have complete control over the money supply.
   2. Use the Market for Reserves framework to analyze each of the following scenarios. Treat each scenario separately (i.e. draw a separate fully-labeled graph for each in order to get full credit). Assume that the market is initially in equilibrium. Important: Make sure that your graphs clearly show changes in the equilibrium federal funds rate, changes in the equilibrium level of reserves, and any shifts in the demand or supply curves. Explain in one sentence what your graph is showing.
      1. Commercial banks decrease their demand for reserves.
      2. The Fed sells Treasury bills to commercial banks.

Assume that the 4-A Clinic is at capacity with the workers you hired above. To expand further, some adjacent office space would need to be leased and new equipment would need to be added. The fixed costs associated with this are shown below. The patient-equivalents are the total patients seen, not the increase in patients.

• The marginal cost (labor, operating costs, and consumables, but not the fixed costs) of seeing another patient-equivalent is $150.
• The revenue from a patient-equivalent is fixed at $300.

Calculate the average incremental fixed cost per patient equivalent for:

8. an increase from 50 to 70 patients.

9. an increase from 70 to 90 patients.

10. an increase from 90 to 100 patients.

11. In expanding the clinic, which is most profitable?

1. Stay at 50 patients.
2. Expand to 70 patients.

TRUE/FALSE/UNCERTAIN?

According to the Heckscher-Ohlin model, an increase in the amount of labour lowers the return to labour and raises the return to capital.

Identify a historical event that you feel, contributed the most to a country's economy in Latin American, and then engage in the discussion.

• Identify the event, when it occurred,
• Explain why you feel it contributed the most to the Latin American economy.
  • Did it impact the country's main economic resources, average income, GDP, Per capital GDP, health care situation, exchange rate, literacy rate, etc?
• Discuss the future impact that you feel this historical event may continue to have.
• Explore whether the influence was positive or negative, and explain why

Consider a monopolist facing two types of consumers. Normalise the total population to 1. Type one consumers are in proportion 1/2, and type two are in proportion 1/2. The monopolist has marginal cost of production c = 1/2. The two types have demand curves

q₁ =1-p

q₂ =1-(p/2).

If the monopolist can identify the two types and can charge different two-part tariffs to different types: {A1, p1} and {A2, p2}. [All type one consumers are identical and have the q1 demand curve, All type 2 consumers are identical and have the q2 demand curve. When one consumer shows up, the firm knows exactly his type and can discriminate directly.]

1) Consider the situation that the monopolist cannot distinguish between the two types of consumers and wishes to serve both types with one two part tariff. That is, the monopolist knows that there are two types of consumers with the above mentioned demand curves and also is aware of the proportions of each type of consumers. But the monopolist cannot distinguish the two types of consumers and cannot price discriminate directly. The monopolist now offers one two part tariff {A, p} to serve both types. The optimal p is equal to?

2) In the two-part tariff in Q1, the optimal fixed fee A is equal to?

3) If the monopolist now offers two pricing plans {T₁,q₁} and {T₂,q₂}. That is, the consumers have two options: paying T1 for q1 (fixed quantity) of goods or paying T2 for a fixed q2 quantity of the good. For example {T1 = 10, q1 = 8} refers to the pricing plan such that the consumer pays $10 for 8 units of the good.

Take your answer from Q1 and Q2 (the one where the monopolist offers one two part tariff to both types of consumers). Set T1 to be the total expenditure from type 1 consumer under that tariff, that is T₁=A+pq₁ where q1 is the quantity demanded by type 1 under the previous tariff.

With {T₁,q₁} given as the above, we now want to work out the optimal  {T₂,q₂}. The optimal T2 is?

4) And the resulting q2 is?

An entrepreneur has an idea for a new product. As she researches her market she finds that the income elasticity of her consumers to be 4.13. Through market research she finds that two related goods, automobiles and airplanes have cross price elasticities with her product of -0.39 and 0.22 respectively. Finally she finds the price elasticity of demand for her product to be quite inelastic at 0.15.

In sentence form, answer the following questions to explain what these values actually mean:

1. What two things does this say about her consumers?

2. Who would she be competing with (i.e. a potential substitute)?

3. What does this say about potential opportunities and threats from automobile and/or airplane manufacturers?

Question 1: Tax Incidence with Linear Supply and Demand (60p) In the market for tulips , the demand curve is: qd = 50 − 3p and the supply curve is: qs = 2p. Assume for now that there are no externalities or pre-existing market distortions, so these represent the true social marginal benefit and marginal cost curves. The government decides to raise revenue by taxing consumers t = 5/3 for every tulip purchased. a) Graph the supply and demand curves, and indicate how the curves shift after implementation of the tax. Label deadweight loss, tax revenue, consumer and producer surplus. Show the price paid by consumers and the price received by producers, and use these to indicate the burden borne by each party due to the tax. b) Calculate the change in consumer and producer surplus from the tax, and how much revenue is raised by the tax. Also, using the pre-tax price, the post-tax price and the tax, calculate what proportion of the tax is borne by each party. c) Calculate the demand and supply elasticity at the pre-tax equilibrium and use the elasticities to confirm your answer for what proportion of the tax is borne by each party. d) Calculate the deadweight loss from the tax directly from supply and demand functions. Then, use the Harberger formula for deadweight loss to confirm your answer.

1. Suppose Country A is suffering from recession. The policy makers could increase the government spending to raise the output to end the recession. But such a policy could also cause a negative side effect on AD and therefore reduces the policy effectiveness. Explain.
2. Except raising government spending, adjusting interest rate might be an alternative. Recommend such an alternative policy to the government that is also suitable for the current situation of Country A. Illustrate one method that the government can use to change the interest rate, and to explain the way to which it helps to end the recession.

22.The price of Jamaican Blue Mountain coffee is $100 per bag in 2018. In 2019, itrises to $110 per bag. However, the overall quantity of Jamaican Blue Mountain coffeedoes not change. What is the most likely explanation?

(A) Both supply and demand increase.

(B) Both supply and demand decrease.

(C) Supply increases, while demand decreases.

(D) Supply decreases, while demand increases.

23.Which of the following is the best example of an inferior good?

(A) A Lamborghini.

(B) Instant coffee.

(C) Silk scarves.

(D) Electricity.

24.Which of the following is the best summary of Karl Popper’s definition of ‘science?’

(A) Science is the study of the natural world, through observation and experimentation.

(B) Science is a set of statements that can be falsfied with data.

(C) Science is a systematic enterprise that builds and organizes knowledge in the formof testable explanations and predictions about the universe

(D) ... Kanye is the GOAT.

CP Oil Inc. of the Unites States of America and AZ Oil of Australia are negotiating an international agreement to work together.

You work for CP Oil Inc. Your job is to ensure that the proper wording to allow for an international Arbitration is put into the contract in case there are any disputes.

1. What terms are you going to include in the contract?
2. Why?

Which of the following might be strong drivers of TFP?

research/development in innovation

capital accumulation

government regulations and institutions high saving rates

both answer 1 & 3

Both answer 2 & 4

Explain the effect of sharing economy in terms of economic theory.