Macroeconomics Answers

QUESTION ELEVEN

Suppose Zambia is a small, open economy that has a competitive market for soya beans with a

domestic supply curve is, P = 2Qs and the domestic market demand curve is P+ Qd = 120. On the

world market, soya beans sells for $30 a unit (50kg bag). (Hint: 10 hectograms=1000grams)

a. How much hectograms of soya beans does Zambia import?

b. How much revenue will be raised by a tariff of $10 per unit of soya beans?

c. What is the deadweight loss associated with the tariff?

d. Suppose that instead of a tariff, Zambia creates a quota limiting the number of imports

to only 15 units. How much grams of soya beans will be consumed in Zambia? [15 marks]

QUESTION TEN

a. Muchuu’s old corolla emits a lot of carbon such that it contaminates the entire compound. This

carbon emission state is closely related to two (2) depravities that are closely related to what was

coined by Arthur Okun sometime in the 1970s to measure America’s economic health. Recall

yourlecture notes and comprehensively show how America would benefit through policy

coordination.

b. Kindly use any suitable model that you learnt in class to give an intuitive economic

illustration/interpretation of bilateral trade and how some parameters are econometrically

measured.[15 marks]

QUESTION NINE

Malawi and Zambia both produce masks and sanitisers. Suppose that a Malawian worker can produce

50 masks per hour or 1 sanitiser per hour. Suppose that a Zambian worker can produce 40 masks per

hour or 2 sanitisers per hour.

a. Which country has the absolute advantage in the production of each good?

b. Which country has the comparative advantage?

c. If Malawi and Zambia decide to trade, which commodity will Zambia trade to Malawi? Explain.

d. If a Zambian worker could produce only 1 sanitiser per hour, would Zambia still gain from trade?

Would Malawi still gain from trade? Explain.[15 marks]

QUESTION SEVEN

Use the following labour input requirements to answer the questions below:

Mask Sanitizer

Zambia 2 hours 6 hours

Malawi 3 hours 2 hours

a. What is the relative price of masks in terms of sanitizers in Zambia? In Malawi?

b. Where will the free trade price settle post trade? Who will export which good?

c. If the post-trade relative price of mask in terms of sanitizer is equal to 2/3, show what

happens to consumption of masks and sanitizers in Malawi and Zambia pre- and post-trade. Use

this information to calculate the wage in Malawi relative to Zambia post-trade.

d. Show that unit labor costs post-trade are consistent with the pattern of trade.

e. If you are able to graph the relative world demand and supply curves using all the above

information and solutions, kindly do so.

[15 marks]

QUESTION ONE

Given two countries, Zambia and Malawi that produce iron sheets and key holders. Zambia exports

iron sheets and imports key holders. Use an appropriate trade model to illustrate how national welfare

in Malawi is affected or changes. Suppose Zambia undergoes some recession and fails to produce iron

sheets such that her capacity to export gets affected drastically such that she becomes an importer of

iron sheets. What would be the effect of such a slump on ToT for Malawi? [10 marks]

Explain the term “exchange rate pass-through”.

QUESTION ONE

Use a well labelled graph to briefly illustrate the effect of an import tariff imposed by a large country.

Hint: show how various economic agents gain or lose.[15 marks]

QUESTION ONE

A milling company tripled its respective proportions of labourers as well as raw materials in the hope

of mounting its productivity. However, the amount of mealie meal produced also tripled. Identify a

model that you physically learnt in class and briefly relate it to the above scenario. [15 marks]

QUESTION ONE

Let’s assume there are no labour migration obstacles in Zambia and Malawi. A milling plant in Malawi

pays its workers K50.00/hour whereas in Zambia, it pays K10.00/hour. Graphically show how

international labour mobility would affect output, workers and land owners in both countries. [15 marks]

QUESTION ONE

In Zambia, climate change affects the food security of many Zambians especially farmers. Such effects

as prolonged droughts affect Zambia’s self-sufficiency level in staple food, maize. Consequently, she

engages in free trade especially within Sub-Saharan African countries, and ultimately changes her

efficient consumption and production outcomes. As a student of International Economics, give a

comprehensive and relevant discussion of the above scenario. [15 marks]