SECTION  “A”

1. Wholesalers buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the UAE. The demand schedule is the wholesalers’ demand, and the supply schedule is the UAE rose growers’ supply. Wholesalers can buy roses at auction in Aalsmeer, Holland, for the US $125 per container.                                                                                                                 (10 marks)

 

Price

Quantity Demanded

Quantity Supplied

(US $/container)	(millions of containers per year)
100	15	0
125	12	2
150	9	4
175	6	6
200	3	8
225	0	10

Required:

• Without international trade, what would the price of a container of roses be and how many containers of roses a year would be bought and sold in the UAE?
• At a price in your answer to part (a), does the UAE or the rest of the world have a comparative advantage in producing roses? Explain.
• If UAE wholesalers buy roses at the lowest possible price, how many do they buy from UAE growers and how many do they import.

2.)   Although he was a prolific artist, Pablo Picasso painted only 1,000 canvases during his ―Blue Period.‖ Picasso is now dead, and all of his Blue Period works are currently on   display in museums and private galleries throughout Europe and the United States.                                                                 (10 marks)

• Draw a supply curve for Picasso Blue Period works. Why is this supply curve different from ones you have seen?

• Given the supply curve from part a, the price of a Picasso Blue Period work will be entirely dependent on what factor(s)? Draw a diagram showing how the equilibrium price of such a work is determined.

• Suppose rich art collectors decide that it is essential to acquire Picasso Blue Period art for their collections. Show the impact of this on the market for these paintings.

3.)   A market failure occurs when the supply of a good or service is insufficient to meet demand. This results in an inefficient distribution of resources among market participants. Hence government needs to intervene to bring efficiencies. Explain any six tools available for government interventions to deal with the market failures with suitable examples.                                                                                                                                                            (10 marks)

4.)   A demand for a product is usually very sensitive to economic variables, such as the prices and consumer income. This responsiveness of demand is elasticity. Explain the different types of demand elasticity with appropriate formulae. Identify and defend the expected signs associated with each form of elasticity.                               (10 marks)

SECTION  “B”

Answer all the below questions.

1.)   It is dawn in Shanghai, China. Already thousands of Chinese are out cleaning the city’s streets. They are using brooms.

On the other side of the world, night falls in Washington, D.C., where the streets are also being cleaned—by a handful of giant street-sweeping machines driven by a handful of workers.

The difference in method is not the result of a greater knowledge of modern technology in the United States—the Chinese know perfectly well how to build street-sweeping machines. It is a production decision based on costs in the two countries. In China, where wages are relatively low, an army of workers armed with brooms is the least expensive way to produce clean streets. In Washington, where labor costs are high, it makes sense to use more machinery and less labor.

• Keeping the production aspect in mind, explain the relationship between Total Product (TP), Average Product (AP) and Marginal Product (MP) with the help of diagram?
• Also, describe graphically how a firm can reduce its costs in the short run and at what point the firm should stop hiring more cleaners.                                                                                                                               (20 marks)

2.)   Show in a diagram the effect on the demand curve, the supply curve, the equilibrium price, and the equilibrium quantity of each of the following events.

a) The market for newspapers in your town.

1. Case 1: The salaries of journalists
2. Case  2:  There  is  a  big  news  event  in  your  town,  which  is  reported  in  the newspapers.

b) The market for St. Louis Rams (a professional football team) cotton T-shirts

1. Case 1: The Rams win the Super Bowl competition.
2. Case 2: The price of cotton increases.

c) The market for bagels

1. Case 1: People realize how fattening bagels are.
2. Case 2: People have less time to make themselves a cooked breakfast.

d) The market for the Krugman and Wells economics textbook

1. Case 1: Your professor makes it required reading for all of his or her students.
2. Case 2: Printing costs for textbooks are lowered by the use of synthetic paper.

3.)   The Telecommunications Regulatory Authority (TRA) is the UAE’s independent industry regulator. Since its launch in 1976, Etisalat has held a monopoly in the market. That changed in 2006 with the emergence of du, which was awarded a 20-year concession to operate fixed-line,   wireless, internet, and international telecoms services. Assume after the 20 years period; a du license was terminated. You are required to –              (15 marks)

• Apply your understanding and concepts from microeconomics, to investigate and summarize the major characteristics of the above market form in the telecom industry.

• Describe and analyze the economic and pricing policies that you would expect to find in this industry.

• Explain the profit maximization strategy of this market form with the help of a suitable Graph.

• Also, write your policy recommendations for the healthy growth of the industry keeping customer interests and innovation in mind.