Micro Economics Macro Economics DEC 2026
Dec 2026 Examination
Q1 A nation is facing rising unemployment due to rapid technological advancements and shifts in its major export markets. Many workers from the manufacturing sector have been laid off, and their skills are no longer in demand. The government, seeking to address both the needs of displaced workers and long-term economic resilience, is considering policy reforms. As an economic advisor, you are tasked with recommending concrete actions based on macroeconomic models of unemployment. Given the scenario, how can the government apply the concepts of structural and frictional unemployment to design effective retraining and labor market adaptability programs? Explain how these interventions would help restore equilibrium in the labor market and support sustainable economic growth. (10 Marks)
Ans 1.
Introduction
Rising unemployment here is not only a problem with one cause. This is actually two different problem areas that share a common name. Workers in the manufacturing industry are losing their jobs through automation as well as shifting market for exports. This is a structural problem, really a mismatch between the old abilities and the demands of today. In addition regular job-search delays also add friction. As an economic advisor your first task is telling these two apart. This is the only way for the government to create retraining and match-up programs that can actually be effective. This program can improve labor market balance and support long term
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Q2 (A) A mobile phone company sells smartphones at Rs.20,000 per unit, at which price 500 units are sold per month. The company decides to reduce the price to Rs.18,000 per unit, following which monthly sales increase to 600 units. Meanwhile, a supplier of phone components increases the price of a key component from Rs.200 to Rs.240 per unit. At the original price of Rs.200, suppliers were willing to supply 1,000 units per month. Following the price increase to Rs.240, the quantity supplied increases to 1,300 units per month. Using the percentage method based on the original price and quantity, calculate: (a) the Price Elasticity of Demand (PED) for mobile phones. (b) the Price Elasticity of Supply (PES) for phone components. (c) Based on the calculated coefficients, comment on the nature of demand and supply. (5 Marks)
Ans 2(A).
Introduction
Price elasticity measures how much demand or supply responds to a price change. In this case, we determine it for phones and other phone components. This indicates how conscientious consumers and manufacturers are to this particular market.
Concept and Application
Method Used for Both Calculations
The formula for percentages is straightforward to implement here. Divide the change in
Q2 (B) During a global pandemic, the demand for personal protective equipment (PPE) such as masks and gloves skyrockets, resulting in a sharp price increase that doesn’t dampen demand due to widespread health concerns. Both new and established manufacturers increase production, but raw material shortages and logistical bottlenecks hinder supply. As the crisis continues, the government introduces subsidies to manufacturers, ensures priority transportation access, and updates safety standards to encourage local innovation. Despite these measures, challenges persist, including uneven distribution and possible product quality issues. Evaluate the range of government interventions in boosting the supply of essential goods during a crisis. Critique their effectiveness with respect to supply determinants such as technology, transportation, pricing, and quality. Which intervention(s) would you consider most effective in both the short and long term, and why? (5 Marks)
Ans 2(B).
Introduction
The pandemic caused a huge rise in PPE demand. There was no way to keep up. Government responded by providing subsidies in the form of transport priorities, as well as new safety standards. All of these tests are the classic supply test directly against a genuine crisis.
Concept and Application
Subsidies and the Pricing Determinant
Subsidies lower the real cost of production for manufacturing companies. They can profitably