ECS3705 Exam Preparation: with all the questions (according to sections) of the last 6 exam papers

Exam Preparation: Herewith all the questions (according to sections) of the last 6 exam papers. Section A: This section counts 40 marks – have to explain 8 concepts counting 5 marks each.  The fear of goods One of the principles of the Mercantilist school is duty free importation of raw materials that could not be produced domestically, protection for manufactured goods and raw materials that could be produced domestically and export restrictions on raw materials. Emphasis on exports & a reluctance to import has been called the fear of goods.  The division of labour Petty did not develop this idea in details but he did recognize the economies associated with the specialization of labour and division of tasks. Adam Smith later further developed the idea. Smith said the division of labour increased the quantity of output produced for 3 reasons – 1. Each worker develops increase dexterity in performing on single task repeatedly. 2. Time is saved as workers need not go from one task to the other. 3. Machinery can be designed to increase productivity once tasks have been simplified & made routine.  Why, according to Marx, capitalists exploit labourers According to Marx all commodities sell at their value and thus to make a profit capitalists had to purchase a commodity that can create value greater than its own – labour. Exploitation only arise when workers can produce more in a day than they must consume in order to maintain themselves and their families. Employers (capitalists) pay the worker the full market value of their labour power but the daily pay equals only part of the value the labourers create. Thus there is a surplus. This surplus is then the profit for the capitalist while the labourers are exploited.  Inductive, historical method vs abstract, deductive method Inductive, historical method is the German Historical school. Economists of this school emphasized the importance of studying the economic historically as part of the integrated whole. Abstract, deductive method is the Marginalist school. Marginalists rejected the historical method in favor of abstract, deductive, analytical approach pioneered by Ricardo and other classicist.  Partial equilibrium analysis vs general equilibrium analysis Partial equilibrium analysis was used by Marshall. It only considers one aspect while leaving all other aspects constant. Example: If the price of oil increases, demand will decrease cetris paribus. General equilibrium analysis considers the interrelationship among many variables in the economy and was developed by Leon Walras. The GEA looks at every aspect this increase in the price will have – substitute demand will rise, other products prices will rise due to this increase thus reducing their demand, complementary goods demand will fall etc. The GEA looks at the bigger picture while PEA only looks at one piece of the picture.  The long-run Phillips curve Each short run Phillips curve shows the combinations of inflation and unemployment that are possible when the actual rate of inflation diverges from the expected rate. In the long run there is no trade off between inflation & unemployment. The long run Phillips curve is vertical, indicating that any one of several rates of inflation is compatible with the natural rate of unemployment.  “It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own interest” This statement was made by Adam Smith who was one of the major contributors of the Classical School. The consumer looks to find the lowest price for a good, given its quality. The worker tires to find the highest pay, given the nonwage aspects of the job. Each of these members of the market look out for themselves (self-interest) by first meeting their own needs but still give the client a far deal. Thus they are still being moral and everyone is better off in the end.  Functional distribution of income according to Ricardo Ricardo wanted to understand the force that determine the shares of the national income accruing as wages, profits & rents (interest was combined with profit). Wages – natural price is given the habits & customs of the people, enables workers to subsist and to perpetuate themselves without a change in their numbers. Market price depends on supply