Economics and International Trade Tutorial Questions (Weeks 6-10)

This document provides solutions to tutorial questions from the Economics and International Trade course (HC1072) spanning weeks 6-10. The assignment addresses key macroeconomic and microeconomic concepts. Week 6 explores oligopoly markets, including their characteristics and firms' behaviors. Week 7 examines public goods, non-rivalry, and non-excludability. Week 8 focuses on Gross Domestic Product (GDP), its components, and what is not included in its calculation. Week 9 delves into unemployment, its types (frictional, cyclical, and structural), and government policies to address it. Week 10 analyzes the impact of the coronavirus pandemic on economies, government fiscal policy responses, and the consequences of the outbreak, including effects on aggregate demand and supply chains. References are included.

Economics and International Trade

Table of Contents
Week 6.............................................................................................................................................1
Question 2....................................................................................................................................1
Week 7.............................................................................................................................................1
Question 2....................................................................................................................................1
Week 8.............................................................................................................................................1
Question 3....................................................................................................................................1
Week 9.............................................................................................................................................3
Question 3....................................................................................................................................3
Week 10...........................................................................................................................................4
Question 3....................................................................................................................................4
REFERENCES................................................................................................................................6

Week 6
Question 2
In an oligopoly market, the three parameters on which a firm is operated includes
Interdependence; Barriers to entry; and prevalent advertising. Oligopoly firms comparatively
with other market structure like monopoly, operated at large level (Fajgelbaum, 2020).
Therefore, changes in price of one company’s product, affect marketing or pricing strategies of
others also. Along with this, in such market, firms also advertising on national scale also like in
World Cup matches, sports tournaments and more, to gain competitive advantages. Furthermore,
to gain competitive advantages and individualistic profitability, oligopoly firms also cheat on
cooperative agreement of cartels in unlawful manner, at the group profits expense.
Week 7
Question 2
The public goods include two basic features that are non-rivalry and non-excludability,
which states people no more can be deprived from using basic necessities goods, even if they
have no means for paying to get same. Therefore, such goods are prepared to meet basic
requirements of public instead of creating any rivalry within economy, like public road,
hospitals, parks and more (Kramarz, Martin and Mejean, 2020). In this regard, eliminating
poverty not refers as a type of goods which private firms provide at market, because no single
entity can resolve problems related to poverty, especially those who not concern on making
investment in CSR activities, charity and more. So, failure of private firms in If all entities prefer
to live in such a society where no poverty is found, then taxing the wealthy will lead to raise
living standards of people, belongs to poor communities, by making them able to make better off
for their livelihood.
Week 8
Question 3
a)
GDP refers to Gross Domestic Product that helps in measuring well-being state of a
country, in terms of total market value of domestic items in local and international market. By
comparing economic growth rate of current year with previous one, economist can make analysis
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if economy will expand by producing more products or it may contract due to inefficient or less
output (Mankiw, 2020). It is essential for every nation to measure its GDP rate every year, to
make adjustment in fiscal and monetary policies for eliminating risk of inflation on market. It
can be measured as –
GDP = C + I + G + (X – M)
where,
C = Consumer spending or Personal Consumption Expenditures
I = Gross Private Investment or Business Spending
G = Government Spending
X – M = net export value
b)
Given, components of New Zealand economy as –
Personal consumption (C) = $680
Private investment (I) = $370
Government expenditure (G) = $430
Exports (X) = $710
Imports (M) = $295
Then,
GDP of New Zealand = C + I + G + (X – M)
= 680 + 370 + 430 + (710 – 295)
= 1480 + 415
= $1,895
(c)
While calculating GDP, there are various components or transactions present that are not
included, like Sales of used products; intermediate goods which are used for producing finished
items; transfer payments that are made by government etc.
Public and private transfer of payments – Such transactions are generally made for
remaining loyal towards moral obligations, instead with purpose of purchasing a product or
service. Therefore, it is not included in calculating GDP (Mei, 2020). For an instance, state
doesn’t grant benefits to low-income families, unemployed, or people having disabilities while
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considering the production, but due to regulations that made for citizens' welfare, they concern
on the same.
Underground Economy – it is that sector which includes the profitable illegal activities,
like gambling, human trafficking, extortion, illegal immigration, drug trade and more. As
offenders in such cases, usually not declare the profits, therefore, it is not included in GDP
calculation. Along with this, unreported earnings that are used for tax evasion purpose in this
category. For an instance, a dentist for whitening or repairing teeth charges $400 might, but
considering poor condition of some patient, agree to take lower cash payment by avoiding issue
related to a receipt, then such money is report as income.
Week 9
Question 3
a)
Unemployment depicts a condition of jobless society, particular group or individual, who
have potential to get employment but still unable to find. In general, there are three types of
unemployment occurs – frictional, cyclical and structural. In cyclical unemployment, economy
generally experience high ups and lows, due to recession period, where lots of people lost their
jobs or many one are unable to get jobs (Kramarz, Martin and Mejean, 2020). While frictional
unemployment occurs due to normal labour turnover in companies and time taken by workers to
get new jobs or match up their profile with other firms’ requirement. Other than this, structural
unemployment mainly causes due to absence of demand for particular type of labours like highly
skilled and professional ones majorly in technology department.
b)
Example of Cyclical unemployment – Laying off the automobile workers by firms to cut labour
costs during downturn of economy.
Example of Structural unemployment – Emergence of new industries with declination of old ones
like IT, internet based firms, High-tech manufacturing companies etc.
Example of Frictional unemployment – Workers left job to find new ones, people return to
workforce, temporary employment and so on.
c)
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For addressing above type of unemployment problems, government needs to take major
steps by developing fiscal and monetary policies (Mankiw, 2020). It includes investment in
education and training to make people able for getting employment; geographical subsidies for
helping labours and business entities to move; increase flexibility by removing labour market
regulations; reduce interest and tax rates to boost aggregate demand, etc.
Week 10
Question 3
a)
Government after the recent outbreak of pandemic attack i.e. spread of coronavirus, play
an important role in protecting well-being state of people. The main priority is given to prevent
global community from contracting this disease, as well as cure infected ones by spending more
on hospital services and meet household necessities of them. But outbreak of pandemic highly
effects economy and growth rate in adverse manner (Abodunrin, Oloye and Adesola, 2020).
Therefore, it is essential for government to make fiscal policy for addressing economy decline,
by considering those people who are hit hardest and on high risk to go bankrupt, lose livelihood
and more. It includes minimising the spreading rate of COVID-19 (Coronavirus); aiding people
and companies who are majorly affected via economic shutdown by making investment in terms
of disaster relief; give priority to support for increasing aggregate demand through tax cuts for
households and business entities; etc.
b)
To mitigate the declination of economy due to outbreak of Covid-19, new fiscal policies and
decisive actions are needed to be employed. In this regard, to protect firms and public from
bankruptcy, actions that needs to be taken includes providing right incentives, funding to federal
agencies, develop vaccines and explore drugs (Bholane, 2020). However, these actions might be
expensive, but consider as small in budgetary and macroeconomic terms (less than 1% of GDP).
Similarly, for disaster relief where economic losses seem to be tremendous, actions can be taken
by considering CARES act. It will provide people and business entities, a combination of
increased benefits from unemployment, i.e. provide funds to make loans by increasing
probability of needy ones. Along with this, also need to include aid for local and state
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government for public health improvement (Mei, 2020). Similarly, for supporting aggregate
demand, which is one the most priority for new fiscal policy under this recession period, demand
needs to be sustained above the output. For this purpose, tax on households, business entities and
more, must be reduced.
c)
Outbreak of corona, leads to highly effect the economic conditions that results in
reduction in consumer spending, supply disruption but will help in protecting people’s life from
possible damages of pandemic attack (Bholane, 2020). Along with this, downward shift in curve
of aggregate demand also lead to reduce output and price rates, that lowers the growth rate of
economy, with a series of layoff as well as rise in rate of unemployment. Therefore, providing
funds to individuals, reduction in tax rates on households and firms, etc. type of actions include
under new fiscal policies, results in making improvement in potential output of aggregate
demand.
d)
The consequences of coronavirus outbreak also cause an adverse supply shock to the
global economy, by forcing industries to shut down, that disrupt entire global supply chains. In
this regard, making changes in fiscal policies and taking actions to improve potential output of
aggregate demand, will help in reducing such consequences (Abodunrin, Oloye and Adesola,
2020). Giving support to entities to overcome from threat of bankruptcy, lead to increase
production rate to meet demand of public, by supplying them on time, on least costs.
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REFERENCES
Books and Journals
Abodunrin, O., Oloye, G. and Adesola, B., 2020. Coronavirus pandemic and its implication on
global economy. International journal of arts, languages and business studies. 4.
Bholane, K. P., 2020. Impact of Corona Outbreak on Global Economy. Purakala with ISSN
0971-2143 is an UGC CARE Journal. 31(9). pp.126-133.
Fajgelbaum, P. D., 2020. Labour market frictions, firm growth, and international trade. The
Review of Economic Studies. 87(3). pp.1213-1260.
Kramarz, F., Martin, J. and Mejean, I., 2020. Volatility in the small and in the large: The lack of
diversification in international trade. Journal of International Economics. 122. p.103276.
Mankiw, N. G., 2020. Essentials of economics. Cengage learning.
Mei, Y., 2020. Sustainable cooperation in international trade: A quantitative analysis. Journal of
International Economics. 123. p.103305.
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