Part A.

3 An Anticipated Output Shock [30 points] Consider a two-period small open endowment economy populated by a large number of households with preferences described by the lifetime utility function: 11 U = C 10 C 11 (1) Suppose that households receive exogenous endowments of goods given by Q1 = Q2 = 10 in periods 1 and 2, respectively. Every household enters period 1 with some debt, denoted B0, inherited from the past. Let B0 = 5. The interest rate on these liabilities, denoted r0, is 20 percent. Finally, suppose that the country enjoys free capital mobility and that the world interest rate on assets held between periods 1 and 2, denoted r, is 10 percent.

a (14 points) Compute the equilibrium levels of consumption, the trade balance, and the current account in periods 1 and 2. Do not forget to show step by step your algebraic calculations. Explain in detail your reasoning. No credit without an explanation.

b (16 points) Assume now that the endowment in period 2 is expected to increase from 10 to 15. Calculate the effect of this anticipated output increase on consumption, the trade balance, and the current account in both periods. Provide intuition. Do not forget to show step by step your algebraic calculations. Explain

Part ii.

Task06

Consider the market structure of pharmacies, given the current Covid - 19 situations.

a)Considering only local medicines, under which market structure do pharmacies fall under? Explain your answer linking pharmacies with the assumptions of the market structure.

b)As demand for medicines is going up, hence the demand for pharmacies is also going up. What will happen to the profits in the short run?

c)How will the market adjust in the long-run equilibrium? Draw the relevant diagrams and explain in terms of pharmacies.

Task07

Consider the market structure of the restaurants in Dhaka City.

a)What type of market structure can this be characterized as? Explain your answer by linking the case of restaurants with the assumptions of the market structure.

b)As demand goes up, what happens to the profits of the restaurants in the short run?

c)If this leads to new entry, how will the market return to long-run equilibrium to attaining normal profit? Show the diagram of profit and normal profit.

d)How can a restaurant continue to keep profits in the long run? Suggest two strategies they can apply.

e)To achieve productive efficiency in relation to their excess capacity problem, what can a restaurant do? Will it be a wise strategy to do so?

Task08

Consider the garments industry in Bangladesh.

a)Given that most of the companies in this industry work with similar brands with similar requirements at similar prices, which market structure can you approximately associate it with? Why?

b)Under what circumstances will a monopolistic structure be preferred to the market structure you have mentioned above? Draw a diagram to explain.

What is the concentration ratio? If the concentration ratio is high, what is it mean for the size of the industry in terms of the number of firms in the industry?