Fully explain two​ (2) specific ways in which international borrowing has contributed to crisis tendencies in developing countries.

QUESTION 1 (a) How has the bilateral trade between the US and China made the two economies intertwined and interdependent? Provide a well-substantiated discussion.

(b) Did the value of the dollar influence the US trade deficit with China? Provide a well substantiated answer.

Irrigation water is supplied in units called acre-feet. Suppose that the marginal cost of supplying each acre-foot of irrigation water is $40, and the market demand for irrigation water is P = 100 - 2q.

i) Graph this market. Assume it is perfectly competitive. ii) What is the privately efficient allocation of irrigation water? iii) Calculate market participants' net benefits. iv) How are net benefits distributed between consumers and producers in this market?

Exam case study Foreign direct investment in China: A case study from the Yangtze Delta Basin The metropolis of Shanghai dominates the rich, fertile and low-lying plain south of the Yangtze River in China. Within a 150 kilometre radius are also located the major urban centres of Suzhou, Nanjing, Hangzhou and Ningbo. Suzhou is approximately one hour by road from Shanghai and is one of the oldest cities in the Yangtze Delta Basin, with an identifiable history stretching back 2500 years. There is a traditional Chinese saying: ‘There’s paradise in heaven, but Suzhou and Hangzhou on earth’—a reference to Suzhou’s beautiful gardens and canals. In the 1980s Deng Xiaoping’s ‘open door policy’ was adopted in China and provided preferential treatment for coastal regions to develop special economic zones. These themed reforms nurtured economic change and were in line with Deng’s wishes, enabling ‘some people to get rich’ (Isaak 2000). To persuade foreign direct investment to come to Suzhou, policies for the effective leadership of development were enacted. For example, in 1998 L Government, the Jurong Township Corporation (JTC), was appointed to manage the establishment process for what was initially called the Singapore Industrial Park (SIP). Located between Shanghai and Suzhou, SIP became a flagship project for the new generation of ETDZs. The initial investment and control was 65 per cent Singaporean and 35 per cent Chinese, and a specially set up authority managed the ETDZ. It had its own customs house, and was notable for its superior infrastructure and strict environmental controls. However, the success of the Singaporean model became awkward for the Chinese and the local Suzhou municipality. They witnessed the success of the SIP, but had limited share in the wealth being generated. This prompted a flurry of activity for the emergence of another ETDZ on the other side of Suzhou, which created direct competition with the SIP. The Suzhou new district The Suzhou New District (SND) was thus built by the local municipality. SND was first established in 1992, and was considered a ‘high-tech’ ETDZ with a science and technology theme. It promoted a ‘garden-like’ atmosphere with ‘liveable surroundings’. The infrastructure in SND was developed through establishing a banking sector and a mediumrise expatriate living area. The growth of this ETDZ was credited to the development of its infrastructure services. SND established a theme park and invested in recruiting, employment and training industries. The land quality and position of SND was superior to that of the SIP and it was located right beside the city centre of Suzhou, whereas the SIP was, at this time, somewhat more remote. Despite fierce initial rivalry, both ETDZs are now successfully established and are attracting substantial FDI; the local TVEs are booming and local private business is encouraged. Considerations for FDI in the ETDZs While Jiangsu province now boasts a number of development zones, the Suzhou New District and the Suzhou Industrial Park are the main economic and technological development zones in this region. Specific regulations vary within each zone, which provide incentives for foreign direct investment. Important considerations for the ETDZs are the infrastructure (such as water plants, sewage and gas, power supply and ISDN telecommunications) and a preferential tax policy offering favourable terms to foreign investment companies. Furthermore, housing for both expatriates and workers, along with sporting, cultural, dining and shopping precincts, enhances the quality of life for residents living in the region. For example, SND provides incentives for housing local workers and SIP has a waste management plan. The administrative authorities within the zones play an integral role in the operations of the ETDZs and in the activities of enterprises within those zones. To help the facilitation of business by making it easier to obtain the permits and licences required for registration as a foreign enterprise in China, the SIP and SND both promote their ‘one-stop set-up shops’ for foreign enterprises. Promotion portraying the convenience of the residential and recreation facilities is clearly visible. When faced with the depth of regulation, language and cultural differences, and bureaucratic delays in obtaining approvals and registrations, facilities within the ETDZs assist foreign enterprises to start up their operations in China. There are also facilities to conduct major recruitment fairs on behalf of enterprises. Each year these fairs attract graduates from all over China. As part of the process, administration checks, qualification and reference checks, along with additional training, are provided, which streamlines employment for both candidates and enterprises. Cultural differences between the international and local culture prevail. SND is located close to the old city of Suzhou, whereas there is a distinctly more international flavour in the SIP, which hosts a ‘Singapore Square’ along with a tax policy favouring foreign investment. The rapid expansion in the ETDZs also has its drawbacks for foreign direct investors. The infrastructure development has not always kept up with expansion in the zones. Access to essential services, long waiting times for operational components and minimal or reduced social and cultural activities are the consequences of rapid progress. This, in turn, has produced diverse opportunities for local entrepreneurs to seize the chance to capitalise on gaps in economic development. The ETDZs are notable for their ability to assimilate supply chains quickly. Because of the large geographical area of the ETDZs, many small townships are located within them. Township enterprises have begun producing components required by the foreign direct investors. Most of these townships were communes during the Maoist area, meaning that production is still organised along these lines. In many instances, these TVEs were single-product-based and supplied Suzhou and Shanghai with farmed fish, fresh vegetables and craft items. Now, many have changed their production to manufacturing items required further along the supply chain. For example a ‘Technology Township’ in SND designs and provides research and development, then component manufacture, to supply the larger assembly plants located in the ETDZ. Therefore, a distinct logistical chain operates between the ETDZs and Shanghai, with components being manufactured in one location and assembled in another, while sales and marketing offices are situated in Shanghai. Perry and Yeoh (2000) provide a history of the China-Singapore- Suzhou Industrial Park. The authors describe the ETDZ’s success in attracting high-technology firms in the electronics, software, mobile telecommunications and pharmaceuticals sectors, although they also highlight the absence of R&D activities in some cases.

There are three main points to consider in discussion of the ETDZs located near Suzhou in Jiangsu province, China:

1 The area has been selected by China’s central government as region for major growth.

2 Multinational/international companies are established in, and are directly investing in, the region.

3 SMEs and TVEs have established supply chains to help facilitate supply and provide logistical channel support to FDI enterprises.

Suppose a global recession is underway. Answer the following questions using the money market.

(a) What action will the Fed likely take? How will their interest rate target change? What action will they take to achieve their target?

(b) Using a graph of the money market, what happens on impact in response to that change in policy?

(c) How does the money market transition to the new equilibrium?

The demand and supply functions are given by P= $1200 – $40Qd and P=$250 + $25Qs

A. Calculate the equilibrium price and quantity:

B. Sketch a graph indicating the reservation price, minimum selling price, and market equilibrium (You will add multiple layers so don’t make this too small!)

C. Determine the value of consumer surplus in equilibrium and show this area on your graph.

D. Determine the value of producer surplus in equilibrium and show this area on your graph.

E. Determine the value of economic surplus or total surplus at equilibrium.

F. If the government implements a $10 per unit tax on sellers, determine the new supply equation, write it here, and graph on your original graph with the new minimum selling price.

G. Determine the new equilibrium price and quantity and show on your graph.

H. Calculate the new consumer surplus. Are consumers better or worse off? Briefly explain.

I. Calculate the new producer surplus. Are producers better or worse off? Briefly explain.

Please answer F, G, H, I. A-E have already been answered.

What are Russia’s economic strengths and challenges? minimum 2 paragraphs please

Explain Diminishing Marginal Returns. How does that relate to Capital (K)? How does this explain why smaller countries grow faster than bigger countries.

a. Draw a graph showing the relationship between GDP and Capital (K).

Who is Baulmol and what is his theory?

Please explain in a simple and understandable manner.

How would you expect India’s export orientation policy of recent decades to have affected the economic welfare of (i) China, (ii) the US

2. Price-discriminating firms charge higher prices to those who

• have greater incomes.

• have higher price elasticities of demand compared to others.

• have more inelastic demand.

• have many substitutes available to them.

• 3. Two customers, Fred and Lamont, walk into a Grady’s Used Pickups. Who probably has a more inelastic demand for one of Grady’s pickups: people like Lamont, who are good at shopping around, or people like Fred, who know what they like and just buy it?

• People like Fred

• People like Lamont

• 4. Where will you see more price discrimination: In monopoly-type markets with just a few firms or in competitive markets with many firms?

• Competitive markets

• Monopoly-type markets

• 5. Consider two groups of people who shop at the same Wal-Mart: the Convenience Shoppers and the Bargain Shoppers. Which of the following statements is most likely to be true?

• Wal-Mart is more likely to have monopoly power over Bargain Shoppers because this group is more likely to splurge on something on a whim rather than stick to their prearranged shopping list.

• Wal-Mart is more likely to have monopoly power over Bargain Shoppers because this group is more likely to stick to their prearranged shopping list rather than splurging on something on a whim.

• Wal-Mart is more likely to have monopoly power over Convenience Shoppers because this group is more likely to stick to their prearranged shopping list rather than splurging on something on a whim.

• Wal-Mart is more likely to have monopoly power over Convenience Shoppers because this group is more likely to splurge on something on a whim rather than stick to their prearranged shopping list.

• 6. When will a monopoly create more output: When the government bans price discrimination or when the monopoly is allowed to and can perfectly price discriminate?

• Monopoly-type markets

• Competitive markets

Detail the evolution of the European Common market, the European Union, and the euro currency from the end of WWII until the beginning of the Eurozone Crisis.

Chapter 13

1) Describe the general types of barriers.

2) Competition keeps prices lower for consumers. So why do we have patent laws?

3) What is the relationship between the marginal revenue curve and the demand curve for a single-price monopolist?

Lottery – Let $1,000 be your current wealth. There are 100 people and each buys a lottery ticket at $5. The administrative cost of the lottery ticket per person is $5. If you win the lottery, you will get $500. There is only one person who can win the lottery. (The cost is 5+5 not 5)

a. Define the gamble

b. Calculate the expected value of the gamble

c. Is this gamble favorable, fair, or unfavorable?

d. Now, suppose your utility function is ? = ?5/2 . Calculate the Certainty Equivalent and the risk premium for individual willing to buy the lottery (i.e., minimum amount of money he/she needs to receive to forgo the lottery)?.

e. Now suppose that there are only 50 individuals participating in the lottery. Without calculating all the math again, what happens to risk premium? Does it increase, decrease, or stay the same?