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Factors to consider before increasing priçe of commodities
a) An auto-parts company of Australia wants to establish a plant outside Australia. The alternatives are Fiji, PNG, Samoa and NZ. Given its financial situation, the company is constrained to set up only one plant outside Australia. Assume that the setting-up costs and the operating costs of a plant in any of these four countries are the same. The marketing research department offers a projection that if the plant is set up in Fiji, PNG, Samoa or NZ, it will fetch a turnover (revenue) of $2.5 million, $2 million, $2.3 million and $2.8 million respectively. Of course, given these choices the company will opt to set up a plant in NZ. What is then its opportunity cost?
a) John is an economist working for Ministry of Tourism in Suva, earning $30,000 per year. There are, say, three alternative careers available for John. He can work for Reserve Bank or Ministry of Economy in Suva for $25,000 and $28,000 per year respectively. Still another alternative is that he can set up his own economic consultancy firm, expecting to make a profit of $27,500 a year for himself. What is John’s opportunity cost of working in Ministry of Tourism?
Briefly, discuss how economist test theoretical economic models?
Discuss the following statement: “Since supply and demand curves are always shifting due to various demand and supply-side disturbances, markets never actually reach an equilibrium. Therefore, the concept of equilibrium is useless.”
Why do economists undertake comparative statics analysis? What role do endogenous variables and exogenous variables play in comparative statics analysis?
Differentiate between an exogenous variable and an endogenous variable in an economic model? Why isn’t it useful to construct an economic model that contains only exogenous variables (and no endogenous variables)?
Suppose there is a covered bowl with 3 red balls and 6 other balls, which could be black or yellow. The Decision Maker [DM] doesn’t know how many black or yellow balls there are, other than there are 6 in total. The DM will choose one ball from the bowl; each ball is equally likely to be chosen. The DM is offered a choice between Option A, which pays off LKR1000 if a red ball is drawn (0 otherwise) or Option B, which pays off LKR1000 if a black ball is drawn (0 otherwise). The DM is then offered a choice between Option C, which pays off LKR1000 if a red or yellow ball is drawn (0 otherwise), or option D, which pays off LKR1000 if a black or yellow ball is drawn (0 otherwise).
Find the expected utility basics of the theory of expected utility.
Comparative advantage and absolute advantage in the Philippines, 5 examples of each using your own words.
