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4. (a) Explain, with the aid of an example, each of the following terms: Derived Demand Transfer Earnings . Supply Price Economic Rent. (20) (b) (i) Outline two economic characteristics of "land". (ii) Discuss three economic factors which influence a firm's decision on where to locate its operations within Ireland. (25) (c) (i) State and explain three factors that caused the price of residential property to fall considerably in Ireland in the years following 2007. (ii) Mortgage arrears (i.e. the inability to meet mortgage loan obligations) is the biggest single personal debt issue for many households. Discuss one possible economic impact of mortgage arrears on each of following: the household the banking sector the Irish Government. (30) [75 marks] Page 6 of 8 5. (a) The following table shows the level of National Income (Y), Consumption (C), Investment (1), Government Spending (G), Exports (X) and Imports (M) for 2013 and 2014. Y C G X M 2013 E80,000 E? E10,000 640,000 (100,000 (120,000 2014 E90,000 (56,000 E15,000 634,000 E1 10,000 E? Use this data to calculate the following: (Show all your workings.) The level of Consumption in 2013 (ii) The Marginal Propensity to Consume (MPC) (iii) The level of Imports in 2014 (iv) The Marginal Propensity to Import (MPM). (20) (b) "Ireland heads Forbes' list of the best countries for business." (Forbes Magazine Dec 4 2013) Discuss the economic benefits Multinational Companies (MNCs) can bring to a small economy such as Ireland. (20) (c) Economists use Gross Domestic Product (GDP) and Gross National Product (GNP) as measures of economic activity. (i) Define each of the underlined terms. (ii) Which of these terms do you consider to be a more useful measure of economic activity for Ireland? Explain your answer. (iii) Discuss three limitations of national income statistics. (35 [75 marks] 6. (a) (i) State and explain four current economic aims/objectives of the Irish Government. (ii) Outline two possible conflicts that could arise between some of these Government aims/objectives. (30) (b) Discuss arguments for and against the privatisation of state assets. (20)3 Demand for Video Games (16 points) We have the following weekly demand data for the video game Grand Theft Auto in a US town. We also have the price data for a Playstation at the same time. Price of Playstation (in $) |Price of Grand Theft Auto (in $) | Quantity of games demanded 300 10 100 310 10 95 320 10 90 300 11 99 310 96 1. (6 points) Write down the equation for the demand for Grand Theft Auto in the following form: QD = a+BP, + BpPp where Q2 and P, are quantity demanded and price of Grand Theft Auto, Po is the price of Playstation, and o, 3., 8, are constants.Q1. (20 points) For each of the following statements, answer whether it is True or False and explain your reasoning in detail with necessary graphs to support your answer. (Note: If your answer is just True or False, without any explanation, then you will receive only 1 out of 4 points) (a) (4 points) Consumer surplus for each unit of a good is the difference between marginal benefit to the buyer from that unit of the good and marginal cost to the seller for that unit of the good. (b) (4 points) As the time horizon increases, market demand for a good becomes more and more inelastic. (c) (4 points) Graphically, when market demand is downward sloping and market supply is perfectly inelastic, shortages will always occur at prices above the equilibrium price. (d) (4 points) When a quota is placed on a market, the new price will be regulated by the government. (e) (4 points) With a price regulation (i.e. price ceiling or price floors), the new price will be whatever buyers are willing to pay for the amount being sold. Q2. (10 points) Consider each of the statements in this three-stage chain of events - lan's research indicates that at a price of $12, his firm would sell 100,000 units of output. He determines that the sales of 100,000 units is too low for his preferences. He then explores his options to increase sales. For each statement, identify whether it is positive analysis or normative analysis. Briefly explain your reasons supporting your answer.2.2. ** The continuously compounded interest rate formula can be derived by (a) splitting the time interval [0, ] into subintervals [0, 8t], [8t, 28t], .... [(L - 1) 8t, Lot], where at = t/L, and 2.8 Program of Chapter 2 and walkthrough 17 (b) assuming that the value of the investment increases by a relative amount pro- portional to rot over each subinterval. Letting fi = ist, this means D(ti+1) = (1 + rot) D(t;), (2.7 ) and hence D(1 = tz) = (1 +rot) Do. By writing this as D(t) = el log(1+ri/2)Do and using log(1 + e) = e + O(2) as e - 0, show that this model reproduces the formula (2.1) in the limit L - co (i.e. 8t - 0). Show that the models D(;+1) = (1+r81) D(1;) (2.8) and D(ti+1 ) = (1 + r (81)=) D(ti) (2.9) are not consistent with continuous compounding in the limit L - co. 2.3. ** Give an argument based on the no arbitrage assumption that justifies (2.3). 2.4. ** Establish (2.6) (a) by setting up suitable portfolios and applying the argu- ments used to get (2.4)-(2.5), and (b) separately, by using (2.4)-(2.5) plus put-call parity (2.2). 2.5. * * * Show that a butterfly spread with exactly the same payoff as that in Exercise 1.3 can be obtained using only a combination of European put op- tions. Use put-call parity (2.2) to confirm that the two spreads have the same set-up cost. 2.6. A forward contract, which is similar to a futures contract, operates as follows. Now, at time / = 0. Party A agrees to purchase an asset from Party B at a specified delivery time / = 7 for a specified price F. (Note that Party A is committed to the future purchase - by contrast, with a European call option the holder has the right, but not the obligation, to buy at the prescribed price.) Appealing to the no arbitrage assumption, show that a fair value for F is S(0)er
