Referencing Styles : APA Question 1: Refer to Chapter 6- Imperfect Competition (a) Define monopolistic competition. Explain graphically (use 2 graphs) the short run and long run equilibrium of a firm under monopolistic competition. Think of 2 different products or services belonging to monopolistic competition and estimate roughly how many firms there are in the market. You will need to decide whether the market is a local one, a national one or an international one. In what ways do the firms compete in each of the cases you have identified? (b) What do you understand by Economic efficiency? Illustrate graphically and explain. Is monopolistic competition efficient? Justify your answer. Question 2: Refer to Chapter 7- Market Failure and Government Policy (a) The table below gives the costs and benefits of an imaginary firm operating under perfect competition whose activities create a certain amount of pollution (It is assumed that the costs of this pollution to society can be accurately measured Table-1 Output (units) Price per unit (MSB) ($)Marginal (private) costs to the firm (MC) ($) Marginal external (pollution) costs (MEC) ($) 1 80 20 20 2 80 25 22 3 80 30 25 4 80 40 40 5 80 60 45 6 80 80 55 7 80 100 70 8 80 130 120 (i) What is the profit maximizing level of output for this firm? (1 mark) (ii) What is the socially efficient level of output? (1 mark) (iii) Why might the marginal pollution costs increase in the way illustrated in this example? (1 mark) (b) What do you understand by externalities? (1 mark) (c) Give 2 examples of each of the four types of externalities given below: (i) External cost of production (0.75 mark) (ii) External benefit of production (0.75 mark) (iii) External costs of consumption (0.75 mark) (iv) External benefits of consumption (0.75 mark) Total = 7 marks Question 3: Refer to Chapter 9- Introduction to Macroeconomics (a) What would be the main costs of an increase in the GDP growth rate? (2 marks) Table-2 Amount ($m) Gross Private Domestic Investment 850 Government Consumption Expenditure 530 Government Investment Expenditure 225 Household Consumption Expenditure 3250 Taxes 550 Import 600 Exports 650 Savings 250 Total = 7 marks Question 4: Refer to Chapter 10- The Determination of GDP (a) Refer to the above Table-2 in Q3 (c) and calculate the level of Injection (J) and Withdrawal (W) for the hypothetical economy. Based on your calculation of W and J, what can you say about the GDP growth? (1.5 marks) (b) Say the rate of economic growth in a country had averaged 3% a year for 5 years and the next year increased to 5%. What effect do you think this would have on the following: (a) the rate of inflation? (b) the unemployment rate? (c) the balance of payments? (1.5 marks) (c) What effect would each of the following have upon the full employment level of unemployment? (a) a fall in the average level of tariffs (b) an improved labour information service (c) a substantial increase in the actual rate of unemployment (d) a fall in income tax rates (2 marks) (d) Using either the withdrawals/injections or the income/expenditure approach, show with the help of a graph and also explain the effects on GDP, consumption and unemployment of a substantial rise in exports. (2 marks) Total = 7 marks --- The End --- (b) Define inflation? What are the costs of inflation to an individual and an economy? Explain with the help of an example. (2 marks) (c) Table-2 below gives the national accounts data for a hypothetical economy in 2015. Study the table and calculate GDP, and Gross National Expenditure (GNE) using the expenditure approach