Choose 1 question from Micro section (block a). Choose 1 question from Macro section (block b). Upto 900 words per question. Define all concepts and key terms Harvard Referencing Give titles to sections of the essays to give clear structure. Use diagrams

SOAS University of London

Open Book Online Examination for Undergraduate students – May/June 2021

INTRODUCTION TO ECONOMIC ANALYSIS 153400003-A20/21

This paper is suitable for current students.

Time Allowed: 48hs from the release time in BLE

The marks for this paper constitute 50% of the total marks for this course.

Permitted materials/equipment Calculator

Special stationery/equipment required None

Instructions:

Answer 1 question from the 3 questions in Block A and 1 question from the 3 questions in Block B.

Please write in BLACK ink only and write as clearly as possible. Candidates are advised that the marking of illegible scripts is at the discretion of the examiner.

Credit will be given for a useful range of relevant illustrations

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BLOCK A: MICROECONOMICS Answer 1 of the following 3 questions.

1. Consider the following monthly demand and supply schedules for generic AAA batteries in the UK:

𝑄 𝐷

= 120 − 10𝑃, 𝑄𝑠 = 30𝑃 − 80

where Q is measured in millions of batteries, and P in pound sterling. Answer ALL parts below.

a) What is the equilibrium quantity, and what is the equilibrium price? Show your calculations and draw an illustrative diagram.

b) Suppose that the government imposes a unit tax, t, on suppliers equal to 2. Find the new equilibrium quantity and price.

c) Calculate the price elasticity of demand at the equilibrium price when the tax is imposed.

d) Explain how the shape of the demand for batteries influences the effectiveness of the tax. Illustrate your point with an example.

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2. A firm faces the following cost and price structure, with total cost (TC), marginal cost (MC), total revenue (TR), marginal revenue (MR), average revenue (AR), total profit (TP), average cost (AC), average variable cost (AVC), and average fixed cost (AFC):

Output TC MC Price TR MR AR TP AC AVC AFC 0 100 - 4.5 - - - - - 10 20 4.0 20 19 3.5 30 18 3.0 40 17 2.5 50 16 2.0

a) Identify what kind of market structure the firm operates in and explain what led to your conclusion.

b) Fill in the empty cells of the table above.

c) Identify the profit maximizing output and explain what led to your conclusion.

d) Produce a diagram with MR, MC, and AR. Identify the profit maximizing quantity and price.

e) From your diagram, demonstrate the allocation inefficiencies and identify the deadweight loss.

f) Explain how price discrimination can reduce the deadweight loss. What are the implications for producer and consumer surplus?

3. Answer ALL the following questions:

a) What are public goods? Provide TWO examples and explain which properties make them public goods. Why can these goods not be provided by the market?

b) Explain the concept of negative externalities on the example of air pollution.

c) Suggest TWO policy solutions and carefully explain how they tackle the problem of negative externalities. Use appropriate diagrams to support your explanation.

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BLOCK B: MACROECONOMICS Answer 1 of the following 3 questions.

1. Define and explain the multiplier process. Discuss the implications of the multiplier for an economy in recession.

2. Answer these two questions:

a) How is the current account related to national saving? Explain by using the national income identity for an open economy.

b) To what extent is a current account deficit problematic?

3. Answer these three questions:

a) Outline the theory of the Phillips curve.

b) Explain the distinction between the short-run and the long-run Phillips curves. What is the “expectations-augmented Phillips curve”?

c) Discuss the relevance of the Phillips curve for macroeconomic policy making.

© SOAS University of London, 2021

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