Principles of Management

Kingdom of Saudi Arabia Ministry of Education Saudi Electronic University

المملكة العربية السعودية وزارة التعليم الجامعة السعودية الإلكترونية

College of Administrative and Financial Sciences

Assignment 2

Macroeconomics (ECON 201)

Release Date is 01/10/2023

Course Name: Macroeconomics	Student’s Name:
Course Code: ECON201	Student’s ID Number:
Semester: 1st	CRN: 11669
Academic Year:2023-24-Ist

For Instructor’s Use only

Instructor’s Name: Dr. Mohd Naved Khan
Students’ Grade: / 10	Level of Marks: High/Middle/Low

General Instructions – PLEASE READ THEM CAREFULLY

· The Assignment must be submitted on Blackboard ( WORD format only) via the allocated folder.

· The due date for Assignment 1 is 28/10/2023.

· Assignments submitted through email will not be accepted.

· Students are advised to make their work clear and well-presented, marks may be reduced for poor presentation. This includes filling in your information on the cover page.

· Students must mention the question number clearly in their answers.

· Late submissions will NOT be accepted.

· Avoid plagiarism, the work should be in your own words, copying from students or other resources without proper referencing will result in ZERO marks. No exceptions.

· All answers must be typed using Times New Roman (size 12, double-spaced) font. No pictures containing text will be accepted and will be considered plagiarism).

· Submissions without this cover page will NOT be accepted.

Assignment 1 Questions: Week 4, 5 & 6

Q1:

Consumer surplus is the difference between the actual price of a particular product and what consumers are willing to pay at a given time. It's basically the benefit that consumers enjoy by buying a certain product at a lower price (Cohen et al., 2022).

On the other hand, producer surplus is the difference between the minimum price that producers are willing to accept for a product and the product's actual price. It's the benefit that producers enjoy by selling a product above the actual price.

Total surplus is the summation of both the consumer and producer surpluses. It summarizes the markets economic efficiency (Cohen et al., 2022).

Deadweight loss, caused by factors such as subsidies, externalities, price controls, and taxes, depicts loss of total surplus as a result of market inefficiency (Farrell & Humes, 2022). From the graphs below, the deadweight loss is depicted by the triangular area between the equilibrium quantity and supply curves. The triangular area depicted by letter F in the graph shows the consumer surplus. The graph shows that the equilibrium price was less than what the consumers were willing to pay. On the other hand, the area labeled G depicts the producer surplus which shows that the equilibrium price received in the market was higher than what the producers were willing to accept for the product in question.

The total surplus can be obtained by summing up the triangular areas labeled G + F.

Q2:

The consumer surplus, producer surplus, and total surplus will in the case study will be calculated as follows,

Consumers Surplus:

Consumer Surplus (CS) = 0.5 * (Equilibrium Price - Lower Intercept of Demand Curve) * Equilibrium Quantity

CS = 0.5 * (160 - 0) * 80 = 0.5 * 160 * 80 = SAR 6,400

Producer Surplus (PS):

Producer Surplus (PS) = 0.5 * (Upper Intercept of Supply Curve - Equilibrium Price) * Equilibrium Quantity

PS = 0.5 * (400 - 160) * 80 = 0.5 * 240 * 80 = SAR 9,600

Total Surplus (TS):

Total Surplus (TS) = CS + PS TS = 6,400 + 9,600 = SAR 16,000

DWL = 0.5 * Tax per Ticket * Change in Quantity

Change in Quantity = Initial Equilibrium Quantity - New Equilibrium Quantity Change in Quantity = 80 - 80 = 0

DWL = 0.5 * 40 * 0 = SAR 0

Therefore, there is no deadweight loss in this case study when the tax is shared equally between the sellers and buyers.

Q3:

Tariffs are levies imposed by a government on imports. Such levies are imposed by passing on the taxes to final consumers through heightened prices. On the other hand, an import quota is the numerical limit that is set to limit the quantity of a product that can be imported at a particular period. Tariffs and quotas can further be explained through the following graph.

In an attempt to protect domestic market a quota of q1 to q3 may be imposed on imports. Therefore, the domestic share of outputs will rise from 0 to q1 and q2 to q4. This shortage in imports will ensure that the price rises to P4 with total output reducing to q4.

Without any trade, the prices and quantity imported are at P and q respectively. However, when the country opens up to imports, the prices falls to p2 and quantity supplied rises to q2. The imposition of a tariff shifts up the world supply curve to World Supply + Tariff.

Q4:

GDP is given by

is: GDP = C + I + G + (X-M).

Where,

C is the consumer spending.

I is the business investment

G is the government spending

X represents the exports

M represents the imports

(X-M) represents the trade balance

Consumption is the total expenditure of goods and services by households.

Investment entails spending by businesses on capital goods and changes in business inventories.

Government expenditure involves the amount the government spends on public services and other activities.

(X-M) represents the trade balance as it depicts the difference between the value of a country's exports and imports (STEWART & BUDNIKOVA, 2022).

References

Cohen, M. C., Perakis, G., & Thraves, C. (2022). Consumer surplus under demand uncertainty.  Production and Operations Management,  31(2), 478-494.

Farrell, N., & Humes, H. (2022).  Diminishing deadweight loss through energy subsidy cost recovery (No. 727). ESRI Working Paper.

Liu, K., Yamazaki, M., Koike, A., & Mu, Y. (2022). Corn trade simulations of China: reduction in tariffs versus expansion in tariff-rate quotas.  Journal of Economic Studies,  49(7), 1284-1303.

STEWART, E. T., & BUDNIKOVA, A. S. (2022). Methods of calculating GDP. In  ПРОБЛЕМЫ РАЗВИТИЯ СОВРЕМЕННОГО ОБЩЕСТВА (pp. 20-22).