Description

Micro Economics & Macro Economics

Apr 2025 Examination

 

 

 

PLEASE NOTE:  This assignment is application based, you have to apply what you have learnt in this subject into real life scenario. You will find most of the information through internet search and the remaining from your common sense. None of the answers appear directly in the textbook chapters but are based on the content in the chapter

Q1. Analyze    how a company can utilize consumer demand analysis to explore potential markets for new eco-friendly products. Discuss factors such as identifying consumer preferences, segmenting the market, evaluating external trends, and adapting strategies. Discuss how these factors influence the company’s interpretation of consumer behavior and strategy formulation. Support your analysis with    examples. (10 Marks)

Ans 1.

Introduction

In the modern business landscape, sustainability has become a significant factor influencing consumer choices, pushing companies to develop eco-friendly products. To ensure the successful introduction of such products, businesses must conduct a thorough consumer demand analysis. This involves understanding consumer preferences, segmenting the market, assessing external trends, and adapting strategies accordingly.

Consumer demand analysis helps firms identify potential markets by examining purchasing patterns, lifestyle choices, and the willingness of customers to pay a premium for sustainable goods. Companies must also consider macroeconomic and microeconomic

 

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Q2. During the COVID-19 pandemic, the demand for personal protective equipment (PPE) masks surged dramatically due to heightened health concerns. However, contrary to the typical behavior predicted by the law of demand, the price of PPE masks also increased despite the high demand. In some cases, the price even rose exponentially as suppliers struggled to meet the increasing demand. On the other hand, in certain regions, there were instances where masks were in abundant supply, yet prices remained relatively high due to hoarding and panic buying. Analyze the exceptions to the law of demand and supply observed in this scenario concerning PPE masks. How do these exceptions challenge traditional economic theories, and what factors contribute to this deviation from the standard demand-supply relationship? (10 Marks)

Exceptions to the Law of Demand and Supply: The Case of PPE Masks During COVID-19

Ans 2.

Introduction

The COVID-19 pandemic caused an unprecedented surge in the demand for personal protective equipment (PPE) masks as global health concerns escalated. Typically, according to the law of demand, an increase in demand should lead to higher consumption and lower prices due to economies of scale. However, during the pandemic, the price of PPE masks rose significantly despite their high demand, defying traditional economic theories.

Several exceptions to the law of demand and supply emerged, including supply chain disruptions, panic buying, hoarding, and government interventions. While some regions faced acute shortages, others had an abundance of masks but at consistently high prices. This unusual behavior exposed the limitations of classical economic models, which assume

 

Q3 (A) XYZ Automobiles, a mid-sized car manufacturer, recently expanded its production facilities to increase its monthly output from 10,000 to 50,000 units. With this expansion, the company observed a reduction in the per-unit production cost. The company invested in advanced machinery, hired specialized managers for different departments, and secured better financing terms from banks. Evaluate how XYZ Automobiles benefited from economies of scale in reducing its average cost of production. In your answer, explain how technical, managerial, and financial economies of scale contributed to the reduction in costs and the company’s overall efficiency. (5 Marks)

Ans 3a.

Introduction

XYZ Automobiles, a mid-sized car manufacturer, recently expanded its production capacity from 10,000 to 50,000 units per month. As a result, the company observed a significant reduction in its per-unit production cost. This phenomenon is explained by economies of scale, which allow firms to achieve cost efficiency as production volume increases. By investing in advanced machinery, hiring specialized managers, and securing better financing terms, XYZ Automobiles leveraged technical, managerial, and financial e

 

 

Q3 (B) Imagine that the Reserve Bank of India (RBI) has set an inflation target of 4% for the upcoming fiscal year. However, during this period, India faced external shocks, such as rising global oil prices and supply chain disruptions caused by a natural disaster. Domestic inflation rises to 6% due to increased food prices and wages. In response, the RBI tightens monetary policy by raising interest rates to control inflation. Businesses, particularly small and medium enterprises (SMEs), are struggling to cope with the higher borrowing costs, while consumers are feeling the strain of rising prices on essential goods. At the same time, the government is pushing for infrastructure development to fuel economic growth. Analyze the impact of inflation targeting on economic stability and growth in India, considering the challenges faced by businesses and consumers in the given scenario. How can inflation targeting contribute to economic stability, and what are the trade-offs involved? What challenges might the RBI encounter in trying to achieve the inflation target, and how could it balance between controlling inflation and promoting growth?   (5 Marks)

Ans 3b.

Introduction

The Reserve Bank of India (RBI) has set an inflation target of 4% for the fiscal year. However, external shocks such as rising global oil prices and supply chain disruptions led to inflation rising to 6%. In response, the RBI tightened monetary policy by raising interest rates to control inflation. This affected businesses, particularly SMEs, and reduced consumer spending power. At the same time, the government prioritized infrastructure