1.(a)State and explain the assumptions underlying the theory of Imperfect Competition.(25 marks)(b)Draw the demand curve which faces a firm in imperfect competition and justify its shape.(10 marks)(c)Discuss, with the aid of a clearly labelled diagram, the implications of the assumptions in (a) above, on the equilibrium of the firm in the long run under conditions of imperfect competition. (30 marks)(d)State ONE Feature of this firm in long run equilibrium which would be common to a firm in long run equilibrium under Either perfect competition OR monopoly.(10 marks)[75 marks]2.(a)Define what is meant by price elasticity of demand.(10 marks)(b)A consumerbuys80unitsofagoodwhenthepriceis1.50.Thepriceincreasesto1.75andthe consumer now buys 70 units.ii(i)Usingtheformulabelow,calculatetheconsumer'spriceelasticityofdemand.Showallyour workings.?QxP1+ P2?PQ1+ Q2i(ii)Is demand for this good elastic, inelastic or unitary elastic?(iii)Theselleroftheabovegoodwishestoearnmaximumrevenue.Whatchanges,ifany,shouldthesellermakeinthesellingpriceofthegoodtoearnmaximumrevenue?Explainyouranswer.(35 marks)(c)State and explain Four factors that affect price elasticity of demand.(30 marks)[75 marks]3.(a)State Four factors that affect the supply of a good, other than the price of the good itself, and explain how each factor affects supply.(25 marks)(b)State and explain the principal economic assumptions made about consumer behavior.(25 marks)(c)Thelawofdiminishingmarginalutilitystatesthatasadditionalunitsofagoodareconsumedthe marginal utility of this good will eventually decline.ii(i)State and explain the assumptions underlying the law of diminishing marginal utility.i(ii)GiveTwo examples of commodities which do not comply with this law. Justify each choice withal brief explanation.

Question 2 (20 points) Chapters 4 & S Home is a small open economy with perfect capital mobility. Initially, it is in its long-run equilibrium and domestic and foreign nancial assets are perfect substitutes. Suppose that voters in a large open economy elect a controversial new president. But rather than uniting the people of that country, this president enacts and proposes to enact measures that polarize the citizens of that country. Some of these measures attempt to control or limit the entry of foreigners from certain countries and refugees (om anywhere) into the large open economy. Many believe that these (foreign) developments might have positive impacts on the economy (of the small open economy) and imagine that the positive impacts might include the following: 0 Make the (foreign) large open economy a less desirable location for investment capital. 0 Raise business confidence in the domestic (home) economy. a) Use the long-run classical model of an open economy to evaluate the impact of deploying this innovation (into space) on the Home country's output, consumption, investment, net exports, real exchange rate, and price level. Explain and support your answer by ONE loanable funds market diagram (for Home) and ONE foreign exchange market diagam. (15 points). b) Based on your answer in part (a), is there anything the central bank can to if it wants to offset the effect of the change in risk premium on the country's real interest rate? Explain. (5 points). Lie concept of GDP in relation to population. Question 10 (5 points) Which of the following is true of an open economy, like that of the United States? Open economies tend to grow very slowly. Open economies do not engage in international trade. )Open economies tend to lack efficiency and productivity. Open economies are major players in international trade and tend to grow fast. Open economies lack access to technology.8 of 20 apling Learning acmilan learning Macroeconomic policy makers seek to achieve three goals: (1) Open a country's economy to flows of capital in an international setting (2) Produce a stable economy via monetary policy (3) Ensure a stable currency exchange rate. What is the trilemma they face? Only two can hold O Only one can hold O The goals are unrealistic O Monetary policy doesn't apply in international settings Which of the three goals has the U.S historically followed? (1) & (2) (2) & (3) (1) & (3) (All of the Above) Pre 5Question 7 0 pts Suppose a large importing country has the following supply and demand curve: S =5P and D = 12 - P, with a free trade world price of $1. Suppose that a tariff is imposed in the large open economy such that the price the exporter gets to keep is now 0.5 and the price the large open economy gets to pay is 1.5. The tariff imposed is ...... and the government revenue generated by the LOE 15 ...with terms of trade effect of $2:56:$3 $5: $12:$4 $1:53: $15 $1.5:$15:$1.5Open Economy. (2 points) Suppose there are two large open economies in the World - the US and Japan. Suppose also that, unlike in the standard model for large open economies you saw in lectures, now savings in both countries are positively affected by the real interest rate. 1. (0.5 points) Assume that initially the US runs trade deficit, while Japan - trade sur- plus. Draw the graphs for these two large open economies and show the equilibrium world interest rate r as well as capital inflows and outflows for these economies. 2. (0.5 points) Now, assume that the chances of a military conflict in the East Asia in- creases and the Japanese government increases expenditures for national defense and directs these extra expenditures entirely on purchasing a ballistic missile de- fense system from the US. How will this affect the world interest rate r", capital flows between the US and Japan and the real exchange rate of Japan? Illustrate you answer with graphs