Economics-QA18

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Answer any Six (6) from the Below Eight (8) Question

 
1. A Fuel Shortage Slows India’s Economic Growth
 
India has struggled to provide enough electricity to power its industry. New power stations have been built but the country cannot get enough fuel, mainly coal, to run the power stations. About 55% of India’s electricity is generated by the use of coal. India has one of the world’s largest reserves of coal but has not been able to exploit it. The state-owned Coal India, which has a monopoly control of 80% of production, is required by government policy to sell coal at a 70% discount below the market price.
 
There has been almost no new investment in coal production by either the Government or the private sector according to industrialists who struggle with the daily loss of electric power. Coal production increased by 1% in 2012 while electricity-generating capacity increased by 11%. Some coal is imported but this has now become very expensive as India’s chief supplier, Indonesia, has doubled prices of its coal.
 
Attempts to open new areas to mining have met with strong opposition from environmental regulators who have blocked the plans because, it is claimed, the development would destroy dense forests.
 
The electricity sector’s problems have contributed to a second year of decreasing economic growth for India. The growth rate was 10% in 2010 but only an estimated 7% in 2012. A complex system of price controls has resulted in retail electricity prices being lower than the cost of producing power, which has caused large losses at state-owned electricity-generating industries.Businesses report that frequent losses of electric power have forced them to lower production and spend significantly more on diesel fuel to run back-up generators. Analysts say that the reduced rate of economic growth could have been avoided if policymakers had addressed the problems of electricity shortage, weak infrastructure and restrictive regulations.
 
(a) Define economic growth and identify two reasons for India’s decreasing economic growth.
(b) Analyse whether the increase in electricity-generating capacity in 2012 overcame the problems reported by businesses.
(c) Consider whether the above evidence about Coal India conflicts with the economic analysis of a monopoly.
(d) Use evidence from the information given to analyse whether the government policy towards Coal India has been only disadvantageous to businesses and to economic growth in India.
 
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2. International conferences have been held to discuss the effects of global warming and to persuade governments to agree to improve efficiency in the use of resources by limiting the amount of harmful gases produced by their country.
Explain what is meant by an efficient use of resources and discuss whether efficiency can only be achieved if governments are involved.
 
3. With a perfect market and a given income, economic analysis explains how a rational consumer decides the quantities of which products to demand. It cannot, though, explain what happens when incomes change or when businesses in imperfect markets manipulate prices. Discuss whether you agree with this opinion about the economic analysis of consumer behaviour.
 
4 (a) Explain why manufacturers differentiate their products and describe the characteristics of two market structures where product differentiation occurs.
(b) Analyse and consider the extent of the link between marginal cost, diminishing returns and economies of scale.
 
5 In 2013, a new aircraft, the Boeing 787 Dream liner, was assembled in the United States (US). United Airlines, an American private company, ordered 50 of these aircraft, each costing over US$200 million.
 
(a) Imagine that the US was a closed economy with no government intervention. Analyse why the increase in national income from this investment in new aircraft might be different than if it were an open, mixed economy.
(b) Discuss the policies that a government might use to influence the level of investment in an economy.
 
6. (a) A firm in a perfectly competitive market and a firm with a monopoly both seek to maximise their profit. Explain, with the help of a diagram, why the levels of price and output might be different in the two markets.
(b) Discuss whether it is always true that a firm, rather than maximising its profits while remaining small, will seek to grow in size.
 
7. Lack of consumer spending causes recessions. Recessions do not improve a country’s standard of living. It is always better, therefore, to encourage consumer spending for this improves a country’s standard of living.’ a. What is a recession and is it always caused by a lack of consumer spending? b. Discuss what policies a government may use to try and end a recession.
 
8. Zambia bears the brunt of China’s economic slowdown
 

The government has spoken of the need for economic diversification to reduce the country’s dependence on copper. This is a tough task which China’s slowdown has highlighted for many resource rich African nations.
 

(a) (i) What is the overall trend in the value of the Zambian kwacha from January 2014 to September 2015 shown in Fig. 1?
 
(ii) Explain why the economic slowdown in China has resulted in this change in the value of the kwacha.
(iii) Explain how the change in the value of the kwacha might feed into inflation in Zambia.
 
(b) Explain how the fall in China’s demand for copper would be likely to affect each of the components of aggregate demand in Zambia.
 
(c) Consider whether economic theory would support the view that diversification of the Zambian economy is the most effective way of tackling the problems it faces as a result of the slowdown of China’s economy.
 
Product code: Economics-QA18
 
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