Question

1. The number of owners of mobile phones has grown rapidly and hence the demand for mobile phones has also grown rapidly. Yet the prices of mobile phones have fallen. Why? [20 points]

2. Given that there is a fixed supply of land in the world, what implications can you draw from the law of diminishing returns about the effects of an increase in world population for food output per head?

3. An economy is currently in equilibrium. The following figures refer to elements in its national income accounts.

	£bn
Consumption (total)	1200
Investment	100
Government expenditure	160
Imports	200
Exports	140

(a) What is the current equilibrium level of national income?

(b) What is the level of injections?

(c) What is the level of withdrawals?

(d) Assuming that tax revenues are £140 billion, how much is the level of saving?

(e) If national income now rises to £1600 billion and, as a result, the consumption of domestically produced goods rises to £1160 billion, what is the mpcd?

(f) What is the value of the multiplier?

(g) Given an initial level of national income of £1600 billion, now assume that spending on exports rises by £80 billion, spending on investment rises by £20 billion and government expenditure falls by £40 billion. By how much will national income change?

4. Imagine that you had to determine whether a particular period of inflation was demand pull, or cost push, or a combination of the two. What information would you require in order to conduct your analysis?

5. If a developing country has a comparative advantage in the production of wheat, should it specialise as much as possible in the production of wheat and export what is not consumed domestically?

Answer 1

Question 1 - The number of owners of mobile phones has grown rapidly and hence the demand for mobile phones has also grown rapidly. Yet the prices of mobile phones have fallen. Why?

Answer - The number of owners of mobile phones has grown rapidly and hence the demand for mobile phones has also grown rapidly. Yet the prices of mobile phones have fallen because the supply of mobile phones is larger than the demand of mobiles. Due to advancement of technology, the cost of production of mobile phones have fallen and the profit rises. So mobile phone industry attracted many firms, and the producers of mobile phones has increased. It create the Competition on mobile production market. so every firm produce more products. Due to mass production of mobile phones the supply of mobile phone have increased. and when the supply of mobiles phones have increased, it driven down price of the mobile phones. so the demand of mobile phones wouldn't rises the price of mobile. And in upcoming future, if more advanced technology will come, the cost of production will fall and also the price of mobile phones.