ECON 802 Economics Of Global Business :
Faculty of Business and Law
School of Business
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ECON 802
THE ECONOMICS OF GLOBAL BUSINESS CHALLENGES
Examination Paper
Trimester 1, 2022
| Exam duration Weighting | 3 hours 50% |
| Items permitted by examiner | Open Book |
| Aids supplied | none |
| Directions to students | Total number of questions: 4 questions Two (2) questions to be answered. There are two parts: Part A and Part B. Answer one (and only one) question from Part A. Answer one (and only one) question from Part B. You must identify the question you are answering. Not identified questions will receive a zero (0) mark. This examination will be marked out of 100. |
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PART A
Each question is worth 40 marks
ANSWER ONLY ONE QUESTION
Question 1 [40 marks]
There has been rumours that the government is developing a secret plan to tax mango producers. The tax t will be in $ per kilo of mangoes. A whistle blower has stolen the diagram shown in Figure 1. The variable P is measured in $ per kilo of mangoes and the variable Q is measured in kilos of mangoes per hour.
You are required to answer the following questions in your role of detective economist for an important news corporation.
- What is the pre-tax equilibrium price of mangoes? [5 marks]
- What is the price paid by consumers (buyers) after the tax has been introduced? [5 marks]
- What is the price received by producers (sellers) after the tax has been introduced? [5 marks]
- What is the burden on consumers? [7.5 marks]
- What is the burden on producers? [7.5 marks}
- What is the value of the tax t expressed in $ per kilo of mangoes? [10 marks]
Figure 1
Question 2 [40 marks]
This question refers to (a) a hypothetical situation where the government intervenes to break a monopoly and creates a quadropoly; and (b) the implications of collusion in oligopoly markets.
Statement
There used to be a monopolist in the market for diamonds facing the market demand curve
Q = 1600 – 5 ´ P
The graphical representation of this demand curve is shown in Figure 2. Using the criterion for profit maximization, the monopolist established that the profit-maximizing output level was 600 diamonds. The profit-maximizing price charged by the monopolist was exorbitant and the government allowed three new firms to enter the market. Each of the four (4) firms was independently producing and selling 350 diamonds. There was a drastic reduction in the market price. Unfortunately, the quadropoly colluded and agreed to produce 150 diamonds each.
- What was the quadropoly market price without collusion? [5 marks]
- What was the market price emerging from the cartel? [5 marks]
- What is the fundamental implication emerging from a market switching from monopoly to quadropoly with collusion? Use of the numbers resulting from the information provided in the statement is compulsory. [30 marks]
Figure 2
PART B
Each question is worth 60 marks
ANSWER ONLY ONE QUESTION
Question 3 [60 marks]
This question refers to Table A. The country in question has based its economic growth on population growth –which includes immigration. Population increased from 20 million people (in the year 2010) to 30 million people (in 2020). The rate of inflation during the ten-year period has been zero (0) so that nominal GDP and real GDP are identical. The real wage remained constant during the ten-year period. The Gini ratio increased from 0.40 to 0.90. This is all the information available.
- Compute GDP for 2010 and 2020 [10 marks]
- Compute the economy’s growth rate [10 marks]
- Did the standard of living improve? Explain carefully (it is not a “yes or no” question) [20 marks]
- Did the country experience “inclusive growth”? Explain carefully (it is not a “yes or no” question) [20 marks]
| Items | Year 2010 Amount ($ billion) | Year 2020 Amount ($ billion) |
| Household Consumption | 9.0 | 18.0 |
| Gross Private domestic Investment | 3.0 | 6.0 |
| Total Government Spending | 4.0 | 8.0 |
| Exports | 7.0 | 14.0 |
| Imports | 5.0 | 10.0 |
| Gross Domestic Product (GDP) | ? | ? |
Table A
Question 4 [60 marks]
This question refers to the following information.
An economy is experiencing high inflation. In this economy, the initial price level has doubled after one year. As a result, the new price level is at the end of year .
Your endowment of cash at the beginning of year is .
- What is your initial purchasing power of your ? [15 marks]
- You kept the money idle (e.g. under the mattress) for the whole year. What is the new purchasing power of your ? [15 marks]
- How much were you taxed by inflation, assuming that you kept the under your mattress during the whole year? [30 marks]
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