Economics Answers

Answer the next question (s) on the basis of the following domestic supply and demand schedules for a product. Suppose that the world price of the product is $1.

Quantity supplied (domestic) 12,10,7,4,1. Price $5,4,3,2,1

Quantity demanded (domestic) 2,4,7,11,16

I) referring to the above data, if this nation were entirely closed to international trade, what is the equilibrium price and quantity?

The following data show the different combinations of coffee and cars that can be produced by an economy, given a particular amount of resources, and a particular state of technology. Draw the corresponding production possibility frontier to answer the questions below:

Type of Production Production Alternatives

A B C D E F

Coffee (tons) 100 80 60 40 20 0

Cars (units) 0 8 12 15 17 18

1.Given the production possibility frontier above,can the economy produce the combination of 50 tons of coffee and 5 units of cars?What does this combination suggest about the use of the resources?Are they fully utilized?

2.Given the production possibility frontier above,can the economy produce the combination of 80 tons of coffee and 12 units of cars,and why?

3.What is the opportunity cost of increasing coffee production from 40 to 60 tons per year,assuming that resources are fully utilized?

Explain the reasons an investor would prefer investing in equity securities as opposed to fixed income securities. [10 marks]

What is reinvestment rate (or price) risk? Which has more reinvestment risk, a 1-year bond or a 10 year bond?

What is interest rate (or price) risk? Which has more interest rate risk, an annual payment 1-year bond or a 10 year bond? [3 marks]

Explain the background of Proton and Honda

Differentiate between Pareto efficiency and Pareto improvement with the help of Edgeworth box.

Imagine a society that produces “guns” (military goods) and “butter” (consumer goods).

(1) Please draw a PPF for guns and butter, using the concept of opportunity cost.

(2) Suppose that the society has two political parties, called the Hawks (who want a strong military and the Doves (who want a smaller military). Show a point on your PPF that the Hawks might choose and a point that the Doves might choose.

Draw and explain a production possibilities frontier for an economy that produces milk and flowers. What happens to this frontier if a disease kills half of the economy’s cow?

Ogopa Ltd leased a section of Karura Forest to Ogoplet Ltd (charcoal makers) on 1 January 1994 at a minimum rent of Sh.30,000 merging into a royalty of Sh.150 per ton with the power to recoup short workings during the first 3 years of the lease only. Output over the next 5 years was 90, 150, 270, 170 and 280 tonnes respectively.

Requred: Show the above transactions as they would appear in the books of Ogopa Ltd.