ANSWERS for Section A and Section B MUST be attached together at the end of the exam with the tag provided.

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1 UNIVERSITY OF EAST ANGLIA Norwich Business School Main Series UG Examination ECONOMICS FOR BUSINESS NBS-4003Y Time allowed: 2 hours Answer ALL questions from Section A using the separate ANSWER GRID provided. Please print your student registration number in the box provided on the ANSWER GRID. Answer any TWO questions from section B. ANSWERS for Section A and Section B MUST be attached together at the end of the exam with the tag provided. Notes are not permitted in this examination. Do not turn over until you are told to do so by the Invigilator. NBS-4003Y Module Contact: Dr Nicholas Vasilakos, NBS Copyright of the University of East Anglia Version 3

2 Page 2 SECTION A (50% of total mark) Answer all questions, using the separate answer grid provided. All questions carry equal marks. No negative marking and no justification of your choice is required. 1) A firm in a perfectly competitive market has no control over price because: A) every firm's product is a perfect substitute for every other firm's product, and there is a very large number of firms in the industry. B) the market demand for products produced in perfectly competitive industries is perfectly elastic. C) the government imposes price ceilings on the products produced in perfectly competitive industries. D) there is free entry and exit from the industry. 2) A new fertiliser has led to an increase in the number of tomatoes harvested and a decrease in the income of tomato growers. Therefore, the demand for tomatoes must be A) elastic. B) inelastic. C) perfectly elastic. D) perfectly inelastic. 3) Which of the following is the best definition of economics? A) The study of how consumers spend their income B) The study of how the government allocates tax revenue C) The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided D) The study of how firms decide what inputs to hire and what outputs to produce 4) The long run is defined as: A) the period of time over which at least one factor is fixed. B) a period of time greater than one year. C) the period of time long enough for all factors to be varied. D) the longest length of time it takes to complete the production process.

3 Page 3 5) Consider the market for DVDs. What will happen to the demand and supply curves if people expect that the price of DVDs will fall? A) Leftward shift in demand and supply B) Leftward shift in demand and rightward shift in supply C) Rightward shift in demand and supply D) Rightward shift in demand and leftward shift in supply 6) A firm that is making normal profits in the long run will have the incentive to: A) remain in production. B) produce a different product. C) shut down. D) expand output. 7) Opportunity cost is: A) a cost that cannot be avoided, regardless of what is done in the future. B) the additional cost of producing an additional unit of output. C) the additional cost of buying an additional unit of a product. D) that which we forgo, or give up, when we make a choice or a decision. 8) The assumption of free entry implies that: A) the government regulates the number of firms that are allowed in an industry. B) firms will always earn a profit since new firms can enter the industry at any time they like. C) a perfectly competitive firm can never earn a profit. D) if firms in an industry are making excessively high profits, new firms are likely to enter the industry. 9) The law of demand states that, other things being equal, a decrease in the price of a good will result in: A) a decrease in income. B) an increase in the quantity consumed. C) greater production of the good. D) a decrease in the quantity willingly purchased. 10) A price-taker is a firm which has: A) control over its prices. B) a strong incentive to advertise. C) its prices fixed by a regulatory body. D) no control over its prices. TURN OVER

4 Page 4 11) Government payments made to farmers because they feel that the market price may be too low are called: A) subsidies. B) import levies. C) bribes. D) quotas. 12) For a monopoly to be a natural monopoly: A) economies of scale must be realised at a scale that is small relative to the market. B) the long-run average cost curve must continue to increase until it hits the market demand curve. C) there must be constant returns to scale. D) economies of scale must be realised at a scale that is close to total demand in the market. 13) Macroeconomics is concerned with: A) only short-run fluctuations in the business cycle. B) only with changes in the overall price level. C) both long-run trends and short-term fluctuations in economic activity. D) only long-run trends in economic activity. 14) Under perfect competition, which of the following is NOT true? A) Resources are allocated among firms efficiently. B) The system produces the things that people want. C) Final products are distributed among households efficiently. D) Firms earn a positive economic profit in the long run. 15) The total market value of all final goods and services produced within a given period by factors of production located within a country is: A) net national product. B) net national income. C) gross national product. D) gross domestic product. 16) An individual who has a job but has been temporarily absent, with or without pay, is classified as: A) a discouraged worker. B) unemployed. C) not in the labour force. D) employed.

5 Page 5 17) An example of a tight monetary policy is: A) a decrease in the tax rate. B) the Bank of England buying government securities in the open market. C) a decrease in the bank rate. D) an increase in the liquidity ratio. 18) The term business cycle refers to the: A) long-term trends in the level of economic activity. B) short-term ups and downs in the economy. C) long-term trends in the price level. D) short-term ups and downs in the price level. 19) The 1970s combination of high unemployment and high inflation was called A) hysteresis. B) stagflation. C) the Great Depression. D) monetarism. 20) Fiscal policy refers to: A) the spending and taxing policies used by the government to influence the economy. B) the government's ability to regulate a firm's behaviour in the financial markets. C) the techniques used by a firm to reduce its tax liability. D) the behaviour of the nation's central bank, regarding the nation's money supply. 21) A country enjoys a comparative advantage in the production of a good if: A) that good can be produced at a lower monetary cost. B) it uses fewer resources to produce that product than the other country does. C) that good can be produced at a lower cost in terms of other goods. D) it uses more resources to produce that product than the other country does. 22) Banks can create money: A) by making loans that result in additional deposits. B) by paying interest to their depositors. C) by offering financial services, such as money market accounts. D) only by illegally printing additional currency notes. 23) If the government wants to reduce unemployment, government spending should be and/or taxes should be. A) decreased; increased B) decreased; decreased C) increased; increased D) increased; decreased TURN OVER

6 Page 6 24) The hysteresis which caused high unemployment to persist from the 1980s into the 1990s can be explained by: A) firms being able to increase output by pressurising existing employees. B) the long term employed had become unemployable. C) lack of capital, due to low investment in the 1980s. D) A, B and C 25) The economists who emphasised wage-flexibility as a solution for unemployment were: A) Classical economists. B) New-Keynesians. C) Keynesians. D) Monetarists. SECTION B (50% of total mark) Answer any TWO questions. Fully justify your answer using examples where appropriate. All questions carry equal marks. 1. A. Explain the concept of unemployment. What are the key costs of unemployment to individuals and society? B.. Economists distinguish between three different types of unemployment: frictional structural and cyclical. Define each one of them and discuss the key differences between them. C. Is there a connection between unemployment and inflation? Relate your answer to the Phillips curve. 2. Assume there are only two countries in the world, Finland and Norway, both producing and consuming only two commodities: cloth and computers. Initially both countries live in autarchy (i.e. they consume what they produce - there is no trade). The two countries have different opportunity costs for the production of each commodity, as shown in the table below:

7 Page 7 Country/Commodity Cloth Computers Finland Norway Therefore, Finland in order to produce 200 bolts of cloth it needs to forego the production of 100 computers; and similarly Norway, in order to produce 50 bolts of cloth has to forego the production of 50 computers. A. Using economic theory, discuss possible reasons why the two countries face different opportunity costs for the production of the same commodity. Would trade be beneficial or not for the two countries? Explain. B. State and explain the law of absolute advantage. Using the figures from the table above, does any of the two countries have an absolute advantage? C. State and explain the law of comparative advantage. Using the figures from the table above, which country has a comparative advantage in the production of what? 3. A. What is a monopoly and how does it set prices? Why monopolies are harmful for consumers? Use examples to support your answer. B. What is a "perfectly competitive" market? Why firms operating in such markets are said to be price takers? C. Are there any circumstances under which a monopoly may be economically unavoidable? Use examples to support your answer. 4. A. Draw a market demand curve for eggs and label it D1. Add a market supply curve and label it S1. Label the equilibrium price and quantity P1 and Q1. Fully explain your diagram. Assume that egg is a normal good. B. Suppose farmers launch an advertising campaign to promote the positive health effects of eating eggs. Assuming that the campaign was successful, use the diagram from part A, to show the effect of the campaign (if there should be any) on demand and supply of eggs. Label the new equilibrium price and quantity P2 and Q2. Fully justify your answer. TURN OVER

8 Page 8 C. As a result of the campaign are the equilibrium price and quantity higher or lower? Why? D. Using again the diagram from part A, show what would happen to the demand for eggs if there was a health scare attributed to eggs. Label the new demand curve D3. As a result of the health scare, are the equilibrium price and quantity higher or lower? Fully explain your answer. END OF PAPER

9 Registration Number: SECTION A- ANSWER GRID Section A PUT A CROSS, X, OVER YOUR CHOSEN ANSWER 1 A B C D 2 A B C D 3 A B C D 4 A B C D 5 A B C D 6 A B C D 7 A B C D 8 A B C D 9 A B C D 10 A B C D 11 A B C D 12 A B C D 13 A B C D 14 A B C D 15 A B C D 16 A B C D 17 A B C D 18 A B C D 19 A B C D 20 A B C D 21 A B C D 22 A B C D 23 A B C D 24 A B C D 25 A B C D NBS-4003Y Module Contact: Dr Nicholas Vasilakos, NBS Copyright of the University of East Anglia Version 3