Assignment # 1

Assignment # 1
[Type the document subtitle]


Economic Analysis For Managers
Thursday
6:30 P.M. 9:00 P.M.
Date : 18/09/2014
Assignment # 1

Q.1 (A) What are the four major types of market in micro-economics analysis?
ANS:
1) Perfect Competition
2) Monopolistic Competition
3) Oligopoly
4) Monopoly

Q.1 (B) what are the key characteristics that distinguish the market?
ANS:
1) Perfect Competition: A market in which there are many buyers and many sellers of an identical
product so that each has a negligible impact on the market price.

2) Monopolistic Competition : A market in which there are many sellers, each offering a slightly
different product.

3) Oligopoly : A market in which there are a few sellers that do not always compete aggressively.

4) Monopoly: A market in which there is only one seller.
OR
A market in which a one big supplier controls the market

Q.2 why do economist assume the firms are price takers in middle of perfect competition? How does
the pricing behavior different from that in other market model?
ANS:
Perfect competition a market structure characterized by a large number of firms so small relative to the
overall size of the market, such that no single firm can affect the market price or quantity exchanged.
Perfectly competitive firms are price takers. They set a production level based on the price determined
in the market. If the market price changes, then the firm re-evaluates its production decision.


Assignment # 1

Q.3 In Microeconomics, what are five major categories of spending that make up GDP? Are all five
category added together to determine GDP?
ANS:
Following are the five major categories of spending that make-up GDP in Micro Economics
1) Consumption ( C )
2) Investment (I)
3) Government Spending & Purchases (G)
4) & 5 Net Exports ( X IM )

1) Consumption ( C ) : Consumption, represented by the letter C, is the amount that households
(i.e. not businesses or the government) spend on new goods and services. The one exception to
this rule is housing, since expenditure on new housing is placed in the investment category. This
category counts all consumption spending regardless of whether the spending is on domestic or
foreign goods and services, and the consumption of foreign goods is corrected for in the net
exports category

2) Investment ( I ) represented by the letter I, is the amount that households and businesses
spend on items that are used to make more goods and services. The most common form of
investment is in capital equipment for businesses, but it's important to remember that
households' purchases of new housing also counts as investment for GDP purposes. Like
consumption, investment expenditure can be used to purchase capital and other items from
either domestic or foreign producers, and this is corrected for in the net exports category.

3) Government Spending & Purchases ( G) : In addition to households and businesses, the
government can also consumer goods and services and invest in capital and other items. These
government purchases are represented by the letter G in the expenditure calculation. It's
important to keep in mind that only government spending that goes towards producing goods
and services is counted in this category, and "transfer payments" such as welfare and social
security are not counted as government purchases for the purposes of GDP, mainly because
transfer payments do not directly correspond to any type of production.

4) Net Export (X IM ) : Net Exports, represented by NX, is simply equal to the amount
of exports in an economy (X) minus the number of imports in that economy (IM), where exports
are goods and services produced domestically but sold to foreigners and imports are goods and
services produced by foreigners but purchased domestically. In other words, NX = X - IM.



Yes, As the GDP is calculated by adding these categories

GDP = C + I + G + ( X- IM)



Assignment # 1



Application Part

ANS:

1) Perfect Competition
2) Oligopoly
3) Monopoly
4) Monopolistic Competition