Economics and Globalisation - Desklib Study Material

This study material covers various topics related to Economics and Globalisation including demand and supply, market failure, balance of payment, fiscal policy, unemployment and more. It includes solved assignments, essays, dissertations and more. The material is relevant for various courses and universities.

ECONOMICS AND
GLOBALISATION

Question 1
Option D
Macdonald's is into the business of providing food services across the globe through creation of
franchisee. Therefore, by providing services in the form of transforming food coming from
secondary level and by paying service taxes, output obtained from Macdonald's restaurant would
be classified as tertiary production.
Question 2
Option D
Cost of food that has been consumed at the time of attending university is not an opportunity cost
of attending university because eating food is necessity and hunger is natural that would occur
even if the university was not attended.
Question 3
Option B
All firms operating in perfectly competitive market produces similar goods and there are large
numbers of buyers and sellers in the market. Accordingly, the price of goods are being
determined through market forces of demand and supply and thus both producers and consumers
are considered to be the price takers.
The following diagram indicates that price remains constant at all levels of production and
consumption within the perfectly competitive market.
Question 4
Option D

The demand curve is drawn on the basis of law of demand. The law of demand states “Keeping
all other factors as constant, quantity demanded of a commodity rises with the fall in price and
vice versa.” Therefore, when movement along the demand curve takes place, all other factors
that is, tastes & preferences, household income and price of substitute goods are kept constant.
Movement along the same demand curve
Question 5
Option C
Positively sloped supply curve implies that when the price rises, the supplier tend to produce or
supply more at higher price. Accordingly, if there are higher demand for a good in the market,
the supplier is able to charge more along with supplying more at an increased price.
Positively sloped supply curve
Question 6
Option C
Inferior goods can be best defined as the good whose demand with the rise in the income
of people. This situation occurs as inferior goods are considered to be low in quality which

people tend to buy at low income level. However, with the rise in income, people shift their
demand towards normal goods and thus, demand for inferior goods fall.
Question 7
Option C
When the supply increases as a result of change in factor other than the price of good
itself, there is a shift in the supply curve, therefore if supply rises due to change in factor other
than the price, there will be rightward shift in supply curve.
Shift in supply curve due to change in factors other than the price
Question 8
Option B
When there is an expectation of either rise or fall in the price of commodity, both demand and
supply curve affected. Supply curve shifted to right while demand curve shifted to left with the
expectation of rise in price and vice versa.
Question 9
Option B
Cost of producing a good is a factor other than the price of the good itself. Therefore, if price of
Good A fall, there would be a shift in the supply curve of Good A because now the supplier
tends to raise the quantity supplied at lower cost of production which leads to increase in their
profitability.
Question 10
Option C

Demand curve for potato crisps shifted to left because consumers tend to buy more of
Tortilla chips which is a close substitute of potato crisps and available at cheap rates. However,
supply curve for potato crisps will be shifted to rightward because now supplier would shift their
factors of production for producing that substitute good which can be sold at higher price in the
market.
Question 11
Option C
Demand is said to be elastic when the degree of elasticity of demand is greater than one which
can be derived as follows for apples:
Elasticity of demand = Percentage change in quantity demanded / percentage change in price
= 6% / -5% = -1.2.
Question 12
Option C
Equilibrium output is that state where quantity demanded equals quantity supplied. Currently,
equilibrium output is 60 units of good X. If it has been assumed that supply will increased by 40
units at all prices, the demand and supply schedule would be as follows:
Price Quantity demanded Quantity supplied
1 120 0
2 100 40

3 80 80
4 60 120
5 40 160
6 20 200
7 0 240
From the above schedule, it can be identified that equilibrium output is 80 units, therefore,
equilibrium output has risen by 20 units.
Question 13
Option A
By raising the price of electricity by 12.5%, the consumption of electricity can be reduced by 5%
at a given price elasticity of demand of -0.4. This is due to the operation of law of demand which
states that consumption falls with the rise in price.
Question 14
Option A
There would be a 4% increase in the quantity demanded of chicken with the 2% rise in the price
of fish at a given cross – price elasticity of demand which has been determined with the help of
following formula:
Cross – price elasticity of demand = % change in quantity demanded of chicken / % change in
price of fish
2 = x / 2%,
x = 4%.

Question 15
Option A
As per the law of diminishing marginal utility implies that with the consumption of additional
unit of a good, the marginal utility derived from it falls which leads to increase in total utility at
slower rate on consumption of each subsequent unit. However, total utility cannot be negative
and also it increases at first stage and reduced only when marginal utility become negative.
Question 16
Option C
Adverse selection occurs due to unavailability of relevant information to one party that the other
party holds on the basis of which the former made the wrong decision or selection of alternative.
Question 17
Option A
With the increase in output, AC tends to fall where MC is lower than AC or in other words, AC
exceeds MC. Accordingly, AC curve lies above MC curve. However, it is not necessary that MC
keeps on falling throughout this stage because in reality MC started rising before AC.
Question 18
Option C
When total revenue is divided by the number of units sold, average revenue can be derived. The
formula for the same is as follows:
Average revenue = Total revenue (Price * Quantity Sold) / Quantity sold
Question 19
Option B

Average revenue curve would shift to the left with the rise in cost of raw material because
average revenue curve is nothing but the demand curve and it gets shifted to the left with the fall
in demand. The reason behind fall in demand is due to the rise in price with the corresponding
rise in cost of raw materials.
Question 20
Option C
In a perfectly competitive market, MR = Price. Accordingly, a firm which aims to seek profit
will keep expanding its production as long as MR exceeds MC or marginal cost is below the
price.
Question 21
Option D
As per the statistics obtained for the flow of FDI towards least developed countries of the world
in 2018 amounted to US $23.8 billion which represents 1.8% of global FDI.
Question 22
Option C
Horizontally integration implies an expansion strategy where corporations acquire another
company in different nations which is in the same business and also operating at the same level
of supply value chain. Therefore, horizontally integrated multinational is that which is producing
same product in more than one country.
Question 23
Option B
Lower production cost in terms of labour cost is the primary reason for which businesses wants
to become multinational because firm's ability to “divide and rule” gets enhanced as by
producing in different countries, businesses are able to divide their workforce which leads to
lower labour costs for them.
Question 24
Option B
Rural – urban migration which is also known as urbanization involves movement of people to
city areas from countryside due to better economic opportunities resulting from the establishment
of MNCs in cities.

Question 25
Option D
Transfer pricing can be defined as that accounting practice which indicates a price at which one
division transfer goods and services to another division. Also, multinational corporations
attempts to transfer the price of its income and expenses from a high tax jurisdiction to a low tax
jurisdiction, so that they can ensure either avoidance or reduction in taxation.
Question 26
D
Perfect competitive labour market favour the employment opportunity as all such people
looking for an employment would find a job. This concept does not talk about the level of wage
which create an indifference between employees. All such people who re more intellectual will
get better salaries. There are some people hold more property also influence to the income.
Power also influence to the income in such a situation.
Question 27
Option B
Inflation rate between period 4 and 3 is -4% which indicate a fact that the inflation could
go down in the next year. Negative inflation indicate that inflation rate has declined which means
that currency value or rate could go up.
Question 28
Option A
Market failure is a result of misallocation of the resources and also of inefficiently
allocation of the available resources. All this result into the failure of market completely.
Question 29
Option D
Balance of payment account is a complete record of country's translocations related to
goods, services and assets. This account disclose all the transactions country has made related to
goods, services and assets hold by the country.
Question 30
Option B

Consumption of goods and services are demonstrated as a single largest component in
the gross domestic product. This component carry the maximum value proportion in the GDP
valuation of the country.
Question 31
B
Recession is a period denoted with the situation when aggregate output of the country
decline. This is a situation when consequently two years or more the overall output of the
country get decline. Recession also denoted with decline in total demand of product that could
cause to the downfall in the output produced. Les output also effect the GDP growth of the
economy.
Question 32
Option A
Government hold an option where government allocate funds to businesses at a lower
rate of interest so that more finances can be taken by the organisation in order to rise the
production of country. This is a situation when government allocate funds to the business houses
and entities so that they can increase the production cycle. Funds can further be invested in
building or developing new factories or promises where production can be done. All this will
create a positivize impact over national income of the economy.
Question 33
Option A
Circular flow of income allow withdraws to composed of saving, net taxes and import
expenditures. All this factors associated with the withdrawals done in context to the circular flow
of income in the society.
Question 34
Option A
Liquidity ratio has a direct connection with cash and equivalent assets. All such assets
play role in generating liquidity in the business.
Question 35
Option B

Temporarily absence from employment is not termed as unemployment. Permanent
absence from job is considered as an unemployment.
Question 36
Option C
8% would consider as unemployment rate.
Question 37
Option D
Unemployed is a term used only for the people who have evert been in employment and
currently not having any job to do. The current situation state that earlier man did not have any
job and currently he is looking for the job hence he is not unemployed.
Question 38
C
Equilibrium unemployment is a terminology that is used when the aggregate demand for
labour is equal to the aggregate supply.
Question 39
Option A
Deficit is a term used to denote a situation where outflow of funds are more than inflow.
IN the current situation expenditure is of £400bn against the income of £250bn which further
create a deficit situation for the government.
Question 40
Option B
Fiscal stance is denoted as a situation when government is pursuing an expansionary or
contractionary fiscal policy.
Question 41
C (Increased, Increased)
In case the government focus on reducing the level of unemployment in economy than
the spending of the government will be more to generate employment in the society. Government

need to focus on different ways and approaches that can generate more employment for the
society. Increased employment will further increases the taxes.
Question 42
C ( Tax system)
Central bank do not control the taxation policy as it is controlled by the government and
its financial department. As the taxation policy of country is not in a control of the central bank it
cannot be taken as a support to establish control with the use of monetary policy.
Question 43
C (Comparative advantage)
Comparative advantage is a term that is used when a country employed an advantage
over another country due to the lower opportunity cost in producing the products.
Question 44
B ( China, USA, Germany)
In 2015 all these are the top three largest exporter in the world.
Question 45
D
Both the countries get to consume beyond to the previous available resources and
productivity concerns.
Question 46
A
Balance of payment contain four elements which involve goods, service, income and
current transfer. Selling computer software will derive an income for the United Kingdom that
will further add on in the credit side of the balance of payment.
Question 47
D
The 10% of £600 million is £60 million which it require keeping in liquidity. The
liquidity ratio of Northland Bank Plc is 10% which motivate the organisation to keep the
respective Ballance in liquidity.
Question 48
Option D

Higher interest rate leads to reduction in inflation rate and accordingly, exports became more
competitive which improves current account of the nation. Therefore, with an attempt to raise
interest rates, there will be no fall in US exports.
Question 49
Option B
Net errors and omission within the balance of payment indicates imbalances arises on account of
imperfectly sourced data & their compilation in the balance of payment account.
Question 50
Option D
With the sell of government securities in open market, Bank of England tend to reduce
the money supply within the economy. This is an example of tight monetary policy.