Questions

1. Explain why decreases in income tax, savings and import spending all increase aggregate demand.

2. How does a change in the interest rate influence the aggregate demand curve?

3. If the value of the Canadian dollar decreases, what is the likely impact on aggregate demand?

4. Why is a shift of the aggregate supply curve to the right like an outward shift of the production possibilities curve?

Dan Murphys (DM) and BWS are the only two liquor chains in Australia that hold the rights to sell a popular new beer named Victoria Sweeter (VS).

Both Dan Murphys and BWS are contemplating between charging a high price ($60 per case) or a low price ($40 per case).

The payoff matrix below shows all possible scenarios and outcomes for the two firms.

* Profits reported in the above table are monthly figures on the Victoria Sweeter (VS) beer only.

Required:

(a) Identify the dominant strategy for Dan Murphys in this game. Clearly explain why this is the dominant strategy. (0.5 + 0.5 = 1 mark).

(b) Identify the non-cooperative* Nash equilibrium for this game. Clearly explain why this is the Nash equilibrium. (1 + 1 = 2 mark).
(* Non-cooperative means that each firm makes their decision independently and does NOT cooperate)

(c) Notice that Dan Murphys and BWS can both earn good profits by both charging $60 per case. Clearly explain why this is NOT the non-cooperative Nash equilibrium. (0.5 + 0.5 = 1 mark).

(d) For Dan Murphys and BWS to both charge $60 per case and earn high profits ($30,000 and $25,000 respectively); a certain form of collusion is needed. While explicit collusion is prohibited and subject to hefty penalties in Australia, what strategy can both firms employ to achieve an implicit, tacit form of collusion? Clearly explain how (1 mark)

Draw a completely labeled supply and demand graph. Show the equilibrium point, the equilibrium price and quantity show using the diagram and explain in words, why a price above the equilibrium price would fall given a free market process and the same for a price below the equilibrium price.

1. Aggregate demand and aggregate supply schedules in Burgazistan are given as follows:

1. What is the short-run macroeconomic equilibrium GDP level? (5 pts)
2. What is the equilibrium price level?

Suppose that the initial equilibrium you found in “a” is at the long run aggregate supply curve and the economy receives a negative demand shock which decreases aggregate demand by 100 at each price level.

3. What is the new short-run macroeconomic equilibrium GDP level?
4. What is the output gap?
5. In the long-run the economy adjusts to the long-run equilibrium point. What is long-run equilibrium GDP level?

Two Ways to Reduce the Quantity of Smoking Demanded Public policy makers often want to reduce the amount that people smoke. There are two ways that policy can attempt to achieve this goal. One way to reduce smoking is to shift the demand curve for cigarettes and other tobacco products. Anti-smoking campaigns on television, mandatory health warnings on cigarette packages and the prohibition of cigarette advertising are all policies aimed at reducing the quantity of cigarettes demanded at any given price. South Africa was a pioneer in banning smoking in public places and in 2009 the laws governing where individuals could smoke were tightened further when bans were introduced on smoking in partially covered areas such as parking lots, verandas, and public walkways and in cars if children under the age of 12 were also in the vehicle. Alternatively, policy makers can try to raise the price of cigarettes through the imposition of taxes on cigarette manufacturers.

Using demand-supply analysis, illustrate and explain the effect on the equilibrium price and quantity of cigarettes if:

1.1. Public policy makers encouraged the reduction of smoking through the non-price methods mentioned in the excerpt and were successful. (10)

1.2 Policy makers encouraged the reduction of smoking through raising the price of cigarettes by imposing a tax on the manufacturers of cigarettes

Total has discovered a potential 1 billion barrels of “wet” gas off the coast of South Africa. The gas could be used as petrol or perhaps even converted into electricity, according to one expert. The Brulpadda gas find should mean more tax revenue and a stronger rand. How Will It Affect South Africans Firstly, government will earn more tax. Total and its partners will pay the regular 28% corporate tax on all taxable income from Brulpadda. According to the most optimistic estimates, the Brulpadda find could yield $1 trillion (R14.4 trillion) for Total and its partners, which would mean a massive tax windfall for South Africa. Certain Businesses and Skills Will Be in Demand The Brulpadda find could have a massive boost to all kinds of businesses in South Africa. Companies providing helicopters, marine services, catering supplies and transport to get supplies to the site would be required.

4.1 Assuming that government budget is at zero balance discuss the implication of the gas find in terms of government’s fiscal policy for the following economic factors:

4.1.1 Collection of revenue through taxation on personal income (6)

4.1.2 Government spending on the provision of goods and services (7)

4.2 Explain, with the aid of a diagram, the economic impact on cost-push inflation and aggregate output. (12)

4.3 Discuss the main type of unemployment that would be reduced

Samsung and Lg are the two surviving makers of phone operating with android. since they both have the same operating system they are considered virtually identical products to the average consumer, they are marginal cost of producing a phone in MClg=$20 for LG and MCs=20 for samsung. The inverse demand thye jointly face is P=200-2Y where Yg=Ylg+Ys (Ylg are are the phones produced by LGm while Ys are the phones produced by samsung.

1.What are the reaction of functions strategies for LG and for samsung if the market is a cournot duopoly.

2.What is the cournot equilibrium Ys and Ylg

3.What is the bertraqnd equilibrium and Ys ad Ylg

4.2 Question 4.2.1 to 4.2.3 is based on the excerpt below:

SA Household Finances are in Dire Straits The South African Reserve Bank (Sarb) yesterday painted a bleak picture of household finances, saying household expenditure had tanked for the first time in three years. In its quarterly bulletin for June, published yesterday, the central bank said consumption expenditure by households had fallen by 0.8% in the first quarter of 2019 following a 3.2% increase in the fourth quarter of 2018 as the economy wanes. The economy is on a downward spiral with gross domestic product contracting by 3.2% in the first quarter of 2019 – the largest contraction since the first quarter of 2009 when it contracted by 6.1%, at the height of the global financial crisis. The Sarb said the deterioration in the household consumption was in line with the decline in consumer confidence in the first quarter of 2019, as measured by the First National Bank/Bureau for Economic Research Consumer Confidence Index.The Sarb said consumers’ finances had been under pressure due to the prolonged period of weak economic activity, rising unemployment, an increased tax burden and successive fuel price increases. Growth in the real disposable income of households was weighed down by lacklustre employment growth and slower wage growth.

4.2.1 The article states that “the economy is on a downward spiral……first quarter of 2019.” Explain which phase of the business cycle this represents. (5)

4.2.2 The article further states that “growth in the real disposable income……and slower wage growth.” In terms of this statement, discuss the type of fiscal policy that government can implement to remedy this situation, paying specific attention in your answer to the tool that needs to be targeted. (5)

4.2.3 Discuss a demand side policy that can be implemented by government to reduce unemployment mentioned in the article.

On 22 February 2019 Philip Lowe, the Governor of the Reserve Bank of Australia, told the house economics committee:

“I think this country can have an unemployment rate close to 41 per cent 2

[as opposed to the commonly assumed 5, or 51 per cent] without wage 2

growth causing problems for inflation.”

Shortly after, journalist A suggested this is good news for the government. In contrast, two days later, another journalist, journalist B, argued the opposite, that this is bad news for the government, citing the high rate of underemployment in Australia.

1. a) Which well-known macroeconomic concept is Governor Lowe referring to and what is it called?

PLEASE ANSWER EACH QUESTION 1 THRU 4

1. Question text

When a pure monopolist price discriminates, which one of following happens?

Select one:

a. Producer's surplus increases by a samller amount than consumer's surplus decreases.

b. Producer's surplus increases by the same amount as consumer's surplus decreases.

c. Producer's surplus increases by a greater amount than consumer's surplus deacreases.

d. Consumer's surplus increase

2. Question

When is the monopolistic firm is under control of a regulatory commission, which of the following is correct?

Select one:

a. Price may be higher than it would be in an un-regulated monopoly, but output is greater.

b. Price would be at the same level as it would be in un-regulated pure monopoly, but government taxes away the economic profit of the regulated monopoly.

c. Price is theoretically set at the level at which average revenue equals average cost, and only normal profit exists.

d. Price is at the same level as it would be under pur competition.

3. Question

Which describes the best realtionship between technical effciency and allocative efficiency in the long run equlibrium under pure competition?

Select one:

a. They have no relationship with each other.

b. Allocative efficiency is greater than thechnical efficiency.

c. Technical efficiency is greater than allocative efficiency.

d. They are both maximized.

4. Question text

Which market structure has the largest number of firms?

Select one:

a. perfect competition

b. monopoly

c. oligopoly

d. monopolistic competition

QUESTION TWO [30]

2.1 Discuss the concept of price elasticity of demand. Include in your answer an explanation of the relationship of its key variables to the demand curve and the law of demand. (15)

2.2 Using relevant diagrams, explain how income elasticity of demand can help a business to evaluate the service it provides according to changes in demand and consumer income. (15)

5. If people anticipate higher inflation, but inflation remains the same then
a. the short-run Phillips curve would shift right and unemployment would rise.
b. the short-run Phillips curve would shift right and unemployment would fall.
c. the short-run Phillips curve would shift left and unemployment would rise.
d. the short-run Phillips curve would shift left and unemployment would fall.

6. If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?
a. both the price level and output
b. the price level but not output
c. output but not the price level
d. neither output nor the price level

7. Suppose the budget deficit is rising 3 percent per year and nominal GDP is rising 5 percent per year. The debt created by these continuing deficits is
a. sustainable, but the future burden on your children cannot be offset.
b. sustainable, and the future burden on your children can be offset if you save for them.
c. not sustainable, and the future burden on your children cannot be offset.
d. not sustainable, but the future burden on your children can be offset if you save for them.

8. Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?
a. Avoid unexpected changes in the inflation rate.
b. Rewrite the tax laws so that nominal gains were taxed instead of real gains.
c. Make policy that would discourage firms from issuing indexed bonds.
d. All of the above are correct.

9. Real interest rates
a. cannot be negative.
b. can be negative only if inflation is negative.
c. can be negative only if inflation is zero.
d. can be negative only if inflation is greater than zero.

You are a private tution teacher who conducts one-on-one home tuition in economics for senior college students. You are considering growing your business. In particular you are considering vertical and horizontal integration. Using the theory of the optimal boundary of the firm, discuss the make-or buy decision as well as the scope for horizontal integration and diversification of your business. What stages of the vertical chain should you consider conducting in house? What other horizontal markets may you integrate into?

Imagine the following hypothetical situation. Two firms, Super Chic Farm and Fortune Poultry, have become the only suppliers of fresh chicken meat in Singapore. Both firms are seeking to increase their profits and are considering entering into illicit price collusion by agreeing to charge artificially high prices. Such a practice is illegal and risks heavy fines. Analyse the interaction between the two firms using game theory. Present a payoff matrix to model the situation and analyse it for Nash equilibrium. Which is the best outcome for each firm? Which is the best outcome for society as a whole? What can be done by the firms or government to make society’s best outcome more likely?

describe how to apply autonomy in the intervention of a real world issue?