ECO0006 Economics for Managers

Diploma in Banking and Finance

Diploma in International Business
October 2020
Continuous Assessment 1 (Individual Assignment: 50 marks)
30% of Final Grade

INSTRUCTIONS TO STUDENTS:

1. This assignment consists of THREE questions and 6 pages. Answer ALL questions.

2. Type your answers in a Word document using Times New Roman, font size 12 and
submit via eGlobal. Assignments submitted through other ways (e.g. through email or
hardcopy to the lecturer) will not be accepted.

3. Open your document in eGlobal after upload to ensure that the document submitted is
complete and in order.

4. You should receive a confirmation email from eGlobal after submission.

5. Your submission should include a cover page that follows the following format:

Module Code & Module Name

Diploma Name
CA 1 (Individual Assignment)
Name
SIM Identity Number

6. Do not type the questions into your submission.

7. Deadline: 20 October 2020 (Tuesday), 11 59am.

8. Be reminded that a one day late submission is subject to a 20% mark deduction.
Submissions that are late by more than one day will NOT be graded.

9. CA1 is an individual assignment and should be worked upon independently. Any form
of plagiarism and/or collusion will be penalised.
Important Note:
Students caught for Plagiarism and/or Collusion will be subjected to heavy penalties.
Plagiarism & Collusion
(extracted from Student Handbook)
3.7.2 Plagiarism/Collusion
Plagiarism is theft of intellectual property. It is a form of lying, stealing and mistreating
others. Students are reminded that plagiarism is a serious offence subject to the Institute’s
disciplinary procedures.

Plagiarism can mean any one of the followings:

• direct copying of phrases and/or passages without a reference and/or quotation marks;
• paraphrasing another writer’s work in your written work without citing the reference;
• making a direct reference to an author you have not read although you may have read about
him. The correct way is to reference the secondary source you have actually read rather
than referencing the original which you have not read;
• copying the work of another student, in part or in whole;
• handing in assignment that has already been submitted for assessment in the same or any
other course.

Please note that it is also a disciplinary offence for students to allow their work to be plagiarised
by another student.

A student found guilty of any of the above offences will render the student liable for
disciplinary actions which may result in the voiding and adjustments to the continuous
assessment grade, and may result in expulsion from the Institute.

2
Question 1 (15 marks)

(a)

Rice land conversion into plantation crop …….

Rice land conversion into palm oil and rubber in the Regency of East Tanjung Jabung
has come to the fore. There was massive conversion of rice land into palm oil
plantations. The land rent of palm oil is higher than that of paddy. The higher revenue
together with some difficulties faced by the rice farmers contributed to this.

Extracted from the abstract of “Rice land conversion into plantation crop and
challenges on sustainable land use system in the East Tanjung Jabung Regency”.

The following production possibility curve (PPC) represents the production of rice and
palm oil by a farmer on 10 acres of land in the Regency of East Tanjung Jabung. A, B
and C represent combinations of rice and palm oil that the famer could produce using
the same amount of resources.

Rice (Ton)

A
30
0
B
20

10 C
0
Palm Oil (Barrel)
8 12 13

(i) The farmer currently produces combination A of rice and palm oil. Identify and
explain a possible change in production combination that would illustrate the “rice
land conversion to palm oil plantations”.
(2 marks)

(ii) Based on your answer to part (i), calculate the opportunity cost incurred.
(2 marks)

(iii) Predict the change in opportunity cost incurred if further conversion of rice land to
palm oil plantations occurred. Provide an explanation for this.
(3 marks)

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 (iv) If the farmer inherited another 5 acres of land, use a diagram to illustrate and
explain the change in the PPC above.
(4 marks)

(v) If new technology discovered increases the yield of oil from the palm tree
plantation, use a diagram to illustrate and explain the change in the PPC above.
(4 marks)

Question 2 (18 marks)

(a)

Pandemic gives pedal power a boost here

The Covid-19 outbreak has made cycling more popular - not only as a leisure activity,
but also as a mode of transport for those who wish to avoid buses and trains. So much
so that bicycle shops are running out of stock, and prices of popular brands have shot up.

Second-hand Brompton bicycles, for instance, are advertised for as much as $5,000 to
$8,000 apiece because new ones - which cost around $2,500 - are in short supply.
Mr Paul Fam, 55, who owns a bicycle shop in Paya Lebar, said the clampdown on the
use of personal mobility devices (PMDs) since last year had also contributed to the surge
in bike sales. He noted, though, that most PMD users have moved to e-bikes rather than
conventional ones.

Extracted from The Straits Times, 11 Aug 2020

(i) Use the market equilibrium diagram to illustrate the scenario where bicycle shops
are “running out of stock”.
(4 marks)

(ii) With the aid of a demand and supply diagram, use a factor of demand to explain
the rise in the price of bicycles.
(4 marks)

(iii) Based on your answer to part (ii) explain how the total revenue of bicycle sellers
is likely to change.
(2 marks)

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 (iv) Suggest a value that can represent the price elasticity of demand for bicycles. Use
a factor of price elasticity of demand to justify the value chosen.
(4 marks)

(v) If the rise in the price of a Bromptom bicycle from $2,500 to $5,000 causes the
demand for e-bikes to rise from 600 units to 800 units, calculate the cross elasticity
of demand between the two goods. Based on your answer, identify the relationship
between the two goods.
(4 marks)

Question 3 (17 marks)

The Digital Pioneer Company produces webcams and uses both skilled workers and machines
in its production process.

Labour Capital Total Product Marginal

Product
0 5 0 -
1 5 15 15
2 5 17
3 5 54 22
4 5 74
5 5 86 12
6 5 96 10

(a) Calculate the missing variables in the table above. Show all working and label each
variable correctly.
(2 marks)

(b) Explain if the firm is in the short run or the long run period of production.
(2 marks)

(c) Identify the worker that causes the law of diminishing marginal returns to set in.
Explain your answer.
(2 marks)

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(d) The following diagram illustrates the cost and revenue curves of the firm producing
the webcams. Answer the following questions based on this diagram.
Price

MC

ATC

50 AR=MR
35
30

Quantity
17 20

(i) Identify the market structure that the firm operates in. State the THREE (3)
characteristics of this market structure.
(4 marks)

(ii) If the firm produces at the optimal output of 20 webcams, calculate the profit of
the firm.
(2 marks)

(iii) Explain in detail how the profit of the firm, computed in part (ii), will change in
the long run.
(4 marks)

(iv) Predict the price of the firm in the long run.

(1 mark)

The End