Part one

Question 1

Use the Model of Demand and Supply to explain why the price of buffet dinners has decreased recently in Dhaka City. Your answer should include a well-labeled diagram.

Question 2

Two candidates, Mr A and Mr B, are running for presidency in Country Z. The people of Country Z can either vote for Mr A or Mr B.

We are interested to study and analyze the total number of votes received by each of the two candidates.

Discuss in detail how we can apply the model of Production Possibility Frontier (PPF) in this case. Your answer should include a well-labeled diagram.

Discuss how the definition of the PPF needs to be adjusted and modified in this situation.

Question 3

The president of Country Z wants to adopt the free market economic system and has come to you for advice. You are the economic advisor of Country Z.

a) What would be your advice to the president of Country Z? Discuss your point of view in detail.

b) The price of rice has been increasing rapidly in Country Z. Discuss all the possible ways Country Z can tackle (manage) the problem of increasing price of rice. No need to draw diagrams in this answer.

Question 4

You have decided to open a small business in Country Z and you want to hire some employees for your business.

a) Discuss why you will need a rationing device when hiring employees.

b) Discuss in detail about the rationing device you will use when hiring employees.

c) Discuss how your choice of rationing device might affect the society of Country Z.

d) Discuss how you can use the concept of incentives and negatives to get the best out of your employees. Is this situation related to optimization or efficiency? Discuss in detail.

Question 5

Mara and Dona are both consumers and producers of butter and bread. They are both living in a barter economy. The following are the production schedules of Mara and Dona:

Production schedule of Dona Butter (units per day) Bread (units per day) 8 0 4 4 0 8

Using the given situation show that specialization and trade can benefit individuals and societies. Show all steps in your analysis. Explain in detail.

You can assume that the terms of trade are 5 units of bread for 4 units of butter.

Question 6

Discuss in detail how the concept of transaction cost and economic growth may be connected. Try to explain the connection as clearly and precisely as you can. There is no need to draw any diagram.

Part 2

QUESTION 1

Suppose that the quantity supplied of pizza exceeds the quantity demanded for pizza. We would expect that:

the price of pizza will increase.

the price of pizza will decrease.

the supply will decrease to meet the demand.

the demand will increase to meet the supply.

QUESTION 2

Suppose that the population of a country decreases. Assuming that people in that country enjoy eating steak, we would predict that the equilibrium quantity of steak will ________ and the equilibrium price of steak will ________ in that country.

increase; increase

increase; decrease

decrease; increase

decrease; decrease

QUESTION 3

Suppose that the equilibrium rent for apartments in San Francisco is $1200 per month. If the City of San Francisco legislates that apartment owners cannot charge rent higher than $1000, then the apartment market in San Francisco will experience:

an equilibrium.

a shortage.

an excess supply.

an increase in supply.

QUESTION 4

Suppose that ramen noodles are an inferior good. When income increases, the equilibrium quantity of ramen noodles will ________ and the equilibrium price of ramen noodles will ________.

rise; rise

rise; fall

fall; rise

fall; fall

QUESTION 5

Suppose that consumers expect that the price of a product will increase in the future. The result is that:

the current demand for the product increases.

the current demand for the product decreases.

the current supply of the product increases.

the current supply of the product decreases.

QUESTION 6

Rent control is an example of the government imposing:

a price ceiling.

an equilibrium price.

a price floor.

a minimum supply price.

QUESTION 7

Peaches and cream are complements. When the price of peaches falls, the equilibrium quantity of cream will ________ and the equilibrium price of cream will ________.

rise; rise

rise; fall

fall; rise

fall; fall

QUESTION 8

Judy demands more peanuts as her income increases. From this, we can conclude that, for Judy:

peanuts are a normal good.

peanuts are an inferior good.

peanuts are a complementary good.

peanuts are a substitute good.

QUESTION 9

If the price of crude oil (an input to the production of gasoline) increases, then we will expect to see:

a movement along the supply curve for gasoline upwards.

a movement along the supply curve for gasoline downwards.

a shift in the supply of gasoline to the left.

a shift in the supply of gasoline to the right.

QUESTION 10

If the government imposes a price floor that is below the equilibrium price, then the market will experience:

an equilibrium.

a shortage.

an excess supply.

no scarcity.

Part iii.

State whether the following are primarily microeconomic or macroeconomic policy issues:

a. Should U.S. interest rates be lowered to decrease the amount of unemployment?

Microeconomic

Macroeconomic

b. Will the fact that more and more doctors are selling their practices to managed care networks increase the efficiency of medical providers?

Macroeconomic

Microeconomic

c. Should the current federal income tax be lowered to reduce unemployment?

Macroeconomic

Microeconomic

d. Should the federal minimum wage be raised?

Macroeconomic with microeconomic implications.

Microeconomic with macroeconomic implications

Macroeconomic

Microeconomic

e. Should Sprint and Verizon both be allowed to build local phone networks?

Microeconomic

Macroeconomic

Microeconomic with macroeconomic implications

Macroeconomic with microeconomic implications

f. Should commercial banks be required to provide loans in all areas of the territory from which they accept deposits?

Microeconomic

Microeconomic with macroeconomic implications

Macroeconomic

Macroeconomic with microeconomic implications