ADDIS ABABA SCIENCE AND TECHNOLOGY

UNIVERSITY

College of Natural Sciences

Department Of FSAN

Course Economics (ECON2009)

INDIVIDUAL ASSIGNMENT

Name-AZIZA MOHAMMED

ID-ETS/0188/15

Submitted to-D.r Dugassa Mulugeta

Submission date-Jun 07,2024

1.Assume that the price-quantity equation for a given product of a firm is given as:
P = 200 – 0.25Q
A.Determine total revenue of the firm
B.Calculate the marginal revenue of the firm
Answer
A.TR = P*Q
TR = (200 - 0.25Q)*Q
TR = 200Q - 0.25Q^2

B. MR =d(TR)}/{dQ}
MR = d(200Q - 0.25Q^2)/dQ MR = 200 - 0.5Q

2.Suppose that a perfectly competitive firm produces 4000 units of a product at a total
cost of 46,000 birr. The price of each product is 20 birr.
A.Calculate the firm’s short-run profit
B.If price of each product set 15 birr, what will be the total profit of the firm?
C.Is the firm enjoys a profit or incurs a loss?
Answer
A. TR=P×Q
TR = 20 birr × 4000 units = 80,000 birr
TC = 46,000 birr
π=TR-TC
π = 80,000 birr - 46,000 birr = 34,000 birr
 The firm's short-run profit is 34,000 birr.

B. New TR=P×Q
TR = 15 birr × 4000 units = 60,000 birr
TC= 46,000 birr
- New π=TR-TC
π = 60,000 birr - 46,000 birr = 14,000 birr
With the price set at 15 birr, the firm's total profit is 14,000 birr.

C. - At a price of 20 birr per unit, the firm enjoys a profit of 34,000 birr.
- At a price of 15 birr per unit, the firm still enjoys a profit, but it is reduced to 14,000 birr.
So, in both scenarios, the firm is enjoying a profit, although the profit decreases as the price
per unit decreases.

3.Assume that a monopolistically competitive firm sales 20 units of a product at a price

of 500 birr each. The average total cost is 600 birr. Determine whether the firm enjoys
profit or incurs a loss.
ANSWER
To determine whether the firm enjoys a profit or incurs a loss, we need to compare its total
revenue with its total cost.
 Total Revenue = P×Q
TR = 500 birr/unit × 20 units
TR = 10,000 birr
 Total Cost = Average Total Cost × Quantity produced
TC = 600 birr/unit × 20 units
TC = 12,000 birr
 Profit/Loss = Total Revenue - Total Cost
Profit/Loss = 10,000 birr - 12,000 birr
Profit/Loss = -2,000 birr
Since the result is negative, the firm incurs a loss of 2,000 birr.

4.Assume that the quantity demanded (Qd) of a commodity and quantity of supply (Qs)
are given by the following equations: Qd = 3000- 60P and Qs = 500 +40P.
A.Determine the profit maximizing output (Q) and price (P).
B.Suppose that the price level (P) is adjusted to 20 birr and 30 birr. Find the new
equilibrium price for both prices and determine whether shortage or surplus exists.
ANSWER
A. Qd=Qs
3000 - 60P = 500 + 40P
3000 - 500 = 60P + 40P
2500 = 100P
P =2500/100
P = 25
Now, substitute P back into either the Qd or Qs equation to find the equilibrium quantity
(Q):
Qd = 3000 - 60(25)
Qd = 3000 - 1500
Qd = 1500
So, the equilibrium price (P) is 25 and the equilibrium quantity (Q) is 1500.

B. To determine the new equilibrium conditions when the price level (P) is adjusted to 20
birr and 30 birr, we need to calculate Qd and Qs for each price and then compare them.
For P = 20 birr:
Qd = 3000 - 60(20)
Qd = 3000 - 1200
Qd = 1800
Qs = 500 + 40(20)
Qs = 500 + 800
Qs = 1300
Since Qd > Qs, there is a shortage of 500 units.
For P = 30 birr:
Qd = 3000 - 60(30)
Qd = 3000 - 1800
Qd = 1200
Qs = 500 + 40(30)
Qs = 500 + 1200
Qs = 1700
Since Qs > Qd, there is a surplus of 500 units.

6.Define National Accounting System (NIAS) and discuss the methods of the national
accounting system.
Answer
The National Accounting System (NAS)-is a framework used by countries to measure and
analyze economic activities and performance. It systematically records all economic
transactions that occur within a country over a specific period, usually a year. The NAS helps
in understanding the overall economic health of a nation, forming the basis for economic
planning and policy-making.
The primary methods of the National Accounting System include:
1. Gross Domestic Product (GDP): This measures the total value of all goods and services
produced within a country. It can be calculated through three approaches:
- Production Approach: Summing the value added at each stage of production.
- Income Approach: Summing all incomes earned by individuals and businesses, including
wages, profits, and taxes minus subsidies.
- Expenditure Approach: Summing all expenditures or spending on final goods and
services, including consumption, investment, government spending, and net exports.
2. Gross National Product (GNP): This includes GDP plus any income earned by residents
from overseas investments, minus income earned within the domestic economy by foreign
residents.
3.Net National Product (NNP): This is GNP minus depreciation on a country's capital goods.
Depreciation accounts for the wear and tear on machinery, buildings, and other capital
goods over time.
4. National Income (NI): This is the total income earned by a nation's residents in the
production of goods and services. It is derived from NNP by subtracting indirect taxes and
including subsidies.
5.Personal Income (PI): This measures the income received by individuals and households. It
includes all sources of income, such as wages, dividends, interest, and transfer payments
like pensions and unemployment benefits.
6.Disposable Personal Income (DPI)- This is the amount of money individuals have available
for spending and saving after personal taxes have been deducted from their personal
income.
The National Accounting System is instrumental in understanding economic trends, making
international comparisons, and guiding economic policy. Exploring how different countries
apply NAS can reveal fascinating insights into global economics and the diverse approaches
to achieving economic stability and growth.
7.Given the following hypothetical data on the national accounting of a given country
as:

S/N Expenditure and income categories Million Dollar

1 Personal consumption expenditure 6759
2 Gross domestic investment 1834
3 Government spending 1743
4 Wages and salaries 5639
5 Exports 300
6 Rental income 140
7 Imports 670
8 Interest rate 571
9 Depreciation 1257
10 Indirect business taxes 682
11 Proprietors income 711
12 Net factor income from abroad 9
13 Dividends 397
14 Corporate income taxes 286
15 Undistributed corporate profit 274

Based on the above table:

A.Compute GNP of the country using the expenditure approach
B.Calculate GNP of the country based on the income approach
C.Find the net national income of the country (NNP).
D.Calculate national income of the country.
A.Compute GNP of the country using the expenditure approach
GNP = C + I + G + (X - M) +Net Factor Income from Abroad
- C = Personal consumption expenditure
- I = Gross domestic investment
- G = Government spending
- X = Exports
- M = Imports
 - Net Factor Income from Abroad
GNP = 6759 + 1834 + 1743 + (300 - 670) + 9
GNP= 6759 + 1834 + 1743 + (-370) + 9
GNP = 6759 + 1834 + 1743 - 370 + 9
GNP = 9975 million dollars
B.Calculate GNP of the country based on the income approach
GNP = Wages and Salaries + Rental Income+ Interest Income+ Proprietors
Income + {Corporate Profits + Indirect Business Taxes + Depreciation + Net
Factor Income from Abroad
Where Corporate Profits = Dividends + Undistributed Corporate Profits +
Corporate Income Taxes.
GNP = 5639 + 140 + 571 + 711 + 957 + 682 + 1257 + 9
GNP = 9966 million dollars

C.Find the net national income of the country.

Net National Product (NNP) = GNP - Depreciation.
GNP = 9975
Depreciation= 1257
NNP = GN} – Depreciation = 9975 - 1257 = 8718 million dollars

D.Calculate national income of the country (NI)

NI = NNP - Indirect Business Taxes = 8718 - 682 = 8036 million dollars

8.Define unemployment and discuss types of unemployment?

ANSWER
Unemployment-is a situation where individuals who are capable of working, and are
actively seeking work, are unable to find employment. It is an important economic indicator
that reflects the health of an economy.
There are several types of unemployment:
1.Frictional Unemployment: This occurs when people are temporarily between jobs, or are
searching for new jobs that better match their skills. It's a natural form of unemployment
that happens even in a healthy economy.
2. Structural Unemployment: This happens when there is a mismatch between the skills of
the labor force and the skills needed for available jobs. Technological advancements and
changes in consumer demand often contribute to structural unemployment.
3.Cyclical Unemployment: This type of unemployment is related to the economic cycle.
During periods of economic downturns or recessions, demand for goods and services
decreases, leading to job losses. Conversely, during periods of economic growth, cyclical
unemployment tends to decrease.
4.Seasonal Unemployment: Certain industries and jobs are dependent on the season or time
of year, such as agriculture, tourism, and retail. Workers in these sectors may face
unemployment during off-peak seasons.

9.Define Inflation and discuss the types of inflation?

ANSWER
Inflation-is the rate at which the general level of prices for goods and services rises, eroding
purchasing power over time. Essentially, when inflation occurs, each unit of currency buys
fewer goods and services than it did before.
There are several types of inflation:
1. Demand-Pull Inflation: This occurs when the demand for goods and services exceeds their
supply. Think of it as too many dollars chasing too few goods. For instance, when a new
gaming console is released and everyone wants one, prices might increase because the
supply can't keep up with the high demand.
2.Cost-Push Inflation: This happens when the costs of production increase, leading to a
decrease in the supply of these goods. For example, if the price of oil rises, it can increase
transportation and manufacturing costs, which in turn can cause the prices of many goods
to rise.
3.Built-In Inflation: Also known as wage-price inflation, this type occurs when workers
demand higher wages to keep up with rising living costs, and businesses pass on these
higher wages to consumers in the form of higher prices. It's a cycle that can perpetuate
inflation.
4.Hyperinflation: This is extremely rapid or out-of-control inflation, often exceeding 50% per
month. It can be caused by a variety of factors, including excessive printing of money by a
government. A historical example is the hyperinflation in Germany during the 1920s.
5.Stagflation: This is a situation where inflation is high, the economic growth rate slows, and
unemployment remains steadily high. It defies the usual relationship between inflation and
employment, posing a dilemma for economic policy.

10.Define Fiscal and Monetary policy.

Answer
Fiscal policy-refers to the use of government spending and tax policies to influence
economic conditions, including demand for goods and services, employment, inflation, and
economic growth. Governments may increase spending or cut taxes to stimulate the
economy, or decrease spending and raise taxes to cool it down.
Monetary policy-involves the management of a country's money supply and interest rates
by its central bank to control inflation, manage employment levels, and stabilize the
currency. This includes actions like setting interest rates, conducting open market
operations, and changing reserve requirements for banks.