Final Assessment
Unit
Details
Name
Economics for Business
Code
HI5003
Trimester, Year
Trimester 1, 2023
Assessment
Details
Name
Final Assessment
Due Date
16 June, 2023
Due Time
3.00 pm
Weight
50%
Student Number
First Name
Family Name
INSTRUCTIONS
Duration
· 24 hours
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Information
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Information
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Penalties
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BEFORE ANSWERING THE QUESTIONS IN THIS PAPER, PLEASE READ THE CASE STUDY PROVIDED
Question 1 (11 Marks)
Assume before the June 2022 floods, Pakistan could produce only two commodities: electric cars and wheat. Also assume that Pakistan can produce at any of the positions represented by the production possibility schedule below.
R
S
T
U
V
W
X
Y
Electric cars
0
35
50
60
75
90
105
110
Wheat (in tons)
550
475
400
350
275
250
200
0
Assume in 2023 the Pakistan economy is producing at point T. Also assume you are the adviser to the Minister of Finance in Pakistan. Following the Pakistan 2022 Floods and Food Crisis, answer the questions below.
Would you advise the Minister of Finance to increase electric car production or wheat production immediately after the floods? 1 mark
Support your answer.
ANSWER a (i): answer boxes will enlarge as you enter your responses
What is the opportunity cost of producing 25 more electric cars in 2024? 1 mark
ANSWER a (ii):
Suppose Pakistan resources were enough to produce at position W in 2024, but the Minister of Finance decided to reduce electric car production by 90. Examine the effects of the Minister’s decision to reduce electric cars production by 90. 2 marks
ANSWER a (iii):
Use the table to explain what you understand by the term ‘increasing opportunity cost’.
1 mark
ANSWER a (iv):
Suppose you advise the Minister to increase production of electric cars to 150 while wheat production to 700 tons. Examine the measures the Minister would adopt that would enable Pakistan to increase production of electric cars and wheat. 2 marks
ANSWER a (v):
Choose a product or service. Considering the case study provided, assume you are a manager of a firm. Examine the effects of the floods in Pakistan on the supply of your product or service. 4 marks
ANSWER b:
Question 2 (11 Marks)
Due to lack of food after the flood devastation in Pakistan, Khan, a Secondary School teacher decided to start a milk and bread business in July 2022. Assume Khan’s business expenditure and income is converted from Pakistani Rupee to Australian Dollar (AUD). Khan started his business by utilising his bank savings worth AUD 120,000 from which he was earning 5% interest per month. Also, Khan uses his own premises from which his rental earnings are AUD 5,000 per month. Further, in order to manage his business Khan decided to quit his job from which he was earning AUD 5000 per month. Finally, the table below represents Khan’s July business summary.
Item
Cost (AUD)
Milk section cashflow
1 Milk truck
90,000
Milk stainless cans
20,000
Milk cooler
50,000
2 litre milk packs (Cost depends on milk bought. Assume average per month)
5,000
Office desk
300
2 computers (Assume each computer costs 2500)
2,500
2 cashiers (wages depend on hours worked. Assume this is the average monthly wage per worker)
4,000
Bread Section cash flow
2 Bread Mixers (Cost per bread mixer of 14,000 per machine)
14,000
Commercial refrigerator
4,000
2 Support Workers (wages depend on hours worked. Assume 3000 is the average monthly wage per worker)
3000
Cost of monthly bread dough sweeter ingredients (Depend on demand – Assume this is the average expenditure per month)
5,000
Bread van
25,000
Dough proofer machine
15,000
Bread heavy duty oven
6,000
2 Sheet pan racks (Cost per sheet pan rack is 1000)
1000
Bakeware tools (Assorted bakeware tools include: bread pans, muffin tins, cake pans, knives and spatulas)
5,000
i. Assume on average 95,000 litres of milk are purchased and sold for the month of July. Also assume that the selling price per litre of milk is AUD 2.00
ii. Assume on average 20,000 loaves of bread are produced and sold per month for month of July. Also assume that the selling price per loaf of bread is AUD 2.50
REQUIRED:
Use the table to answer the following:
Calculate Khan’s fixed cost and average fixed cost for each section. Exclude implicit cost. 2 marks
ANSWER a:
Calculate Khan’s total cost and average total cost for each section. Exclude implicit cost. 2 marks
ANSWER b:
Calculate Khan’s accounting profit and economic profit for the month of July. 7 marks
ANSWER c:
Question 3 7 Marks
Assume you start a business in Pakistan after graduating from Holmes Institute. At the end of your first business year you receive your business summary as below from your economic advisor. Assume you convert the Pakistani Rupees into Australian dollars. Answer the questions that follow.
Item
Fixed cost
Variable cost
Economic cost
Accounting profit/ (loss)
Economic profit (loss)
Cost (AUD)
80,000
10,000
91,000
(5000)
(6000)
Calculate your firm’s revenue, accounting cost and implicit cost. 3 marks
ANSWER i:
Explain what you understand by the term shutdown. 1 mark
ANSWER ii:
Would you shut down your business. Explain you answer. 1 mark
ANSWER iii:
Examine the market entry barriers that deter other firms from entering the market structure for distribution of consumer goods and services in Pakistan. 2 marks
ANSWER iv:
Question 4 (7 Marks)
Assume the Pakistan Bureau of Statistics publication indicated that Consumer Price Index (CPI) increased to 115.2 in August 2022 from 107.5 in May 2022. Calculate the Pakistan’s inflation rate for the period May to August 2022. Also, examine the effect of inflation on consumers. 2 marks
ANSWER a:
The Pakistan Population Secretariat and Pakistan Bureau of Statistics published the following information in 2022:
Total population: 235,824,862 million
Labor force: 85% of the total population
Employed population due to floods was only 75% of the labour force.
Use the information provided to answer the following questions:
Calculate the population that is excluded from the labour force in Pakistan in 2022 and indicate at least 4 sectors that are excluded from labour force. 3 marks
ANSWER i:
Calculate the Pakistan Republic’s unemployment rate in 2022. 2 marks
ANSWER ii:
Question 5 (7 marks)
Use three (3) coincidental indicators to explain the conditions that existed in Australia before the 2020 COVID 19 recession. 3 marks
ANSWER a:
Examine the causes of business cycle fluctuations in a nation. 4 marks
ANSWER b:
Question 6 (7 Marks)
Evidence from previous natural disasters in Pakistan suggests that economic impacts may persist. Examine the economic impacts of the floods in Pakistan. 5 marks
ANSWER a:
Assume due to the severity of the June 2022 floods on households, the government of Pakistan received a USD 200 million grant from USA as Household Upkeep Fund. Calculate the effect of the government spending multiplier in Pakistan assuming the marginal propensity to save is 10%. 2 marks
ANSWER b:
END OF FINAL ASSESSMENT
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