HERIOT-WATT UNIVERSITY ECONOMICS
Case Study Maximum Word Limit 500 words
A firm gained exclusive rights to provide a bus service around a large island ten years ago. The bus service is popular with tourists and locals alike. The new government has concluded that the current situation is inefficient and has introduced a law that removes the firm’s exclusive right to provide bus services to the island at the end of this year. There are no other barriers to entry in this market but significant economies of scale exist.
Write a short report analysing the ticket prices and the level of profits for the firm now, and in the following year when the new law is introduced. Which situation is more economically efficient, and which solution will consumers prefer? (Total 20 marks)
Essay 1
Maximum Word Limit 2000 words
The new President gave his first speech in parliament. He said “The inefficiency of the market causes the inequalities in our society. I aim to reduce the excessive differences in income that exist today.”
- Do you agree with the President that the way income is determined and distributed in the market economy is inefficient?
- In what areas is the market economy inefficient?
- How might any inefficiencies be overcome? (Total 40 marks)
Essay 2
Maximum Word Limit 2000 words
The economy of a large industrialized country had experienced many years of low unemployment and very low inflation (around 2%). Unemployment had been even lower than normal in the last two years but the inflation rate had now crept up to 10%. Next year inflation is forecast to be 15%.
- What causes inflation in an economy, and what could have caused inflation to increase so dramatically over the past two years?
- What policy actions should the government and central bank take to combat this rising inflation, and how would these work?
- What desirable macroeconomic goals may have to be sacrificed to deal with the current inflationary situation? (Total 40 marks)