Part 1: Firm Perspective [20 marks]
1. Explain using a diagram what would happen in the market for car tires if at the
same time there was an increase in the prices of rubber used in the
production of tires and a decrease in the price for cars. Explain the effects on
price and quantity. (10 marks)
2. In a perfectly competitive market for apples explain would happen in the shortrun
to the market and to individual producers if the price for pears went up.
Demonstrate your answer using a diagram. With reference to the same
diagram show what would happen to the market and individual producers in
the long-run. (10 marks)
a) What phase of the business cycle was Italy going through in 2012? Refer to
the above sources and economic theory in your answer and demonstrate the
phase of the business cycle using an aggregate demand and supply model.
b) Based on the sources above and using your aggregate demand and supply
model from a) describe what happened to the Italian economy from 2012 to
2013? Explain your answer with reference to theory. (10 marks)
3. Go to the following website http://www.tradingeconomics.com/ . Find your
country (or a country close to yours) by going to the country tab at the top of
the page and briefly answer the following questions. (You will need to find
relevant economic data on your country’s page)
a) What are the key macroeconomic indicators in your country now? (2
b) What phase of the business cycle is your country’s economy most
likely in now? (Hint: Look at the components of aggregate demand)
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