2024 NABTEB Economics Obj & Essay Answers

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2024 NABTEB ECONOMICS
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(3)
(PICK ANY FIVE)
(i) Wages: The wage rate is a crucial factor. Generally, higher wages tend to reduce the demand for labor because they increase the cost of production for employers. Conversely, lower wages can increase the demand for labor.

(ii) Product Demand: The demand for labor is derived from the demand for the goods and services that labor helps to produce. If the demand for a company’s product increases, the company will likely need to hire more workers to increase production.

(iii) Technology: Technological advancements can either increase or decrease the demand for labor. Automation and improved machinery might reduce the need for manual labor, while new technologies can also create new job opportunities and increase the demand for skilled labor.

(iv) Productivity: The productivity of labor affects its demand. If workers become more productive due to better training, tools, or technology, employers might demand more labor because the cost per unit of output decreases.

(v) Cost of Capital: The cost of capital (e.g., machinery, equipment) can influence labor demand. If the cost of capital is high, employers might prefer to hire more labor instead of investing in expensive equipment. Conversely, if capital becomes cheaper, employers might substitute labor with machines.

(vi) Government Policies: Regulations such as minimum wage laws, labor protections, and taxes can influence the demand for labor by affecting the cost of hiring and employing workers.

(vii) Economic Conditions: The overall economic climate affects business confidence and investment in hiring. During economic booms, the demand for labor tends to increase, whereas during recessions, it tends to decrease.

(viii) Availability of Substitutes: The availability of substitutes for labor, such as automation, outsourcing, or part-time workers, can reduce the demand for traditional labor if these alternatives are more cost-effective.

(4a)
Deficit financing refers to the methods a government uses to fund its expenditures that exceed its revenues. Essentially, when a government spends more money than it earns through taxes and other income, it needs to cover this shortfall by borrowing money, printing new money, or finding other sources of funds.

(4b)
(PICK ANY FOUR)
(i) Borrowing from the public: Governments issue bonds, treasury bills or notes to raise funds from citizens, businesses, and institutions. This method allows the government to tap into domestic savings and spread the debt burden among the population.

(ii) Borrowing from banks: Central banks or commercial banks lend money to the government to finance its deficit. This method provides quick access to funds but can lead to inflation if the money supply increases too rapidly. Banks may also charge interest rates that add to the government’s debt burden.

(iii) Printing money: The central bank prints more money to finance the deficit, increasing the money supply. This method risks causing inflation, as excessive money circulation can erode the currency’s value. It can also lead to hyperinflation if not managed carefully.

(iv) Foreign borrowing: Governments borrow from foreign governments, institutions, or investors through foreign currency-denominated bonds or loans. This method allows access to global capital markets but exposes the government to exchange rate risks and potential currency fluctuations. Foreign borrowing can also increase the country’s reliance on external debt.

(v) Asset sales: Governments sell state-owned assets, such as land, buildings, or enterprises, to raise funds and reduce debt. This method provides a one-time influx of capital but can lead to loss of control over strategic assets. Asset sales can also be politically sensitive or controversial.

(vi) Drawdown of reserves: Governments use accumulated reserves or surpluses from previous years to finance the current deficit. This method provides a readily available source of funds but reduces the government’s safety net and may not be sustainable in the long term. It can also indicate a lack of fiscal discipline if relied upon too heavily.

6a. Market in economics can be defined as any arrangement, system or medium where buyers and sellers of goods and services are brought into commercial contact with one another for the purpose of transaction business.

6b.Features of Perfectly Competitive Market

1) A large number of buyers and sellers

There exist a large number of buyers and sellers in a perfectly competitive market. The number of sellers is so large that no individual firm owns the control over the market price of a commodity.

Due to the large number of sellers in the market, there exists a perfect and free competition. A firm acts as a price taker while the price is determined by the ‘invisible hands of market’, i.e. by ‘demand for’ and ‘supply of’ goods. Thus, we can conclude that under perfectly competitive market, an individual firm is a price taker and not a price maker.

2) Homogenous products

All the firms in a perfectly competitive market produce homogeneous products. This implies that the output of each firm is perfect substitute to others’ output in terms of quantity, quality, colour, size, features, etc. This indicates that the buyers are indifferent to the output of different firms. Due to the homogenous nature of products, existence of uniform price is guaranteed.

3) Free exit and entry of firms

In the long run there is free entry and exit of firms. However, in the short run some fixed factors obstruct the free entry and exit of firms. This ensures that all the firms in the long-run earn normal profit or zero economic profit that measures the opportunity cost of the firms either to continue production or to shut down. If there are abnormal profits, new firms will enter the market and if there are abnormal losses, a few existing firms will exit the market.

4) Perfect knowledge among buyers and sellers

Both buyers and sellers are fully aware of the market conditions, such as price of a product at different places. The sellers are also aware of the prices at which the buyers are willing to buy the product. The implication of this feature is that if any individual firm is charging higher (or lower) price for a homogeneous product, the buyers will shift their purchase to other firms (or shift their purchase from the firm to other firms selling at lower price).

5) No transport costs

This feature means that all the firms have equal access to the market. The goods are produced and sold locally. Therefore, there is no cost of transporting the product from one part of the market to other.

6) Perfect mobility of factors of production

There exists geographically and occupationally perfect mobility of factors of production. This implies that the factors of production can move from one place to other and can move from one job to another.

7) No promotional and selling costs

There are no advertisements and promotional costs incurred by the firms. The selling costs under perfectly competitive market are zero.

7a.

International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services.

7b .

(i) Immobility of Factors of Production:

Labour and capital do not move freely from one country to another as they do within the same country. “Man”, declared Adam Smith, “is, of all forms of luggage, the most difficult to transport”. Much more so when a foreign frontier has to be crossed. Hence differences in the cost of production cannot be removed by moving men and money, the result is the movement of goods.

On the contrary, between regions within the same political boundaries, people distribute themselves more or less according to opportunities. Real wages and standard of living tend to seek a common level, though they are not wholly uniform. As between nations, however, these differences continue to persist for wages and check population movements. Capital also does not move freely from- one country to another. Capital is notoriously shy.

(ii) Different Currencies:

Each country has a different currency. India for instance, has the rupee, the U.S.A. the dollar, Germany the mark, Italy the lira, Spain the peso, Japan the yen, and so on. Hence, buying and selling between nations give rise to complications absent in internal trade.

(iii) Restrictions on Trade:

Trade between different countries is not free. Very often there are restrictions imposed by custom duties, exchange restric­tions, fixed quotas or other tariff barriers. For example, our own country has imposed heavy duties on import of motor cars, wines and liquors and other luxury goods.

(iv) Ignorance:

Knowledge of other countries cannot be as exact and full as of one’s own country. Differences in culture, language and religion stand in the way of free communication between different countries. On the other hand, within the borders of a country, labour and capital freely move about. These factors, too, make internal trade different from international trade.

(v) Transport and Insurance Costs:

Then costs of transport and insurance also check- free international trade. The greater the distance between the two countries, the greater are these costs. Wars increase them still more.