Name: Norshapika Binti Masmud Matric No: BB22110942 Section No: 2

TAKE-HOME ESSAY
BT11703 MACROECONOMICS
(TOTAL MARKS 20%)

Instruction:

Please answer all the questions with your own words or fill in the blanks. The students
MUST show working calculations (If any).

Question 1

Please differentiate the following concepts:

a. Economy vs Economics (4M)

b. Efficiency vs Equity (4M)
c. Positive Statement vs Normative Statement (4M)
d. Tax Incidence vs Elasticity of Tax (4M)
e. GDP Deflator vs Consumer Price Index (4M)

(20 Marks)
Question 2

Use the graph below to answer questions a-e:

a. Based on the above graph, the price sellers and buyers receive before the tax
imposed are __. (2M)

b. Based on the above graph, the price sellers and buyers will pay after the tax
imposed are __. (2M)

c. Based on the above graph, the size of the tax that sellers would pay is __. (2M)

d. Based on the above graph, the size of the tax that buyers would pay is __. (2M)

e. Based on the above graph, the total of the tax imposed in this market is __. (2M)

(10 Marks)
The Answer:-
Question 1

a) The term economy refers to a geographical area's or country's economic state,

status, and activities. The economy is defined as the totality of a society's or nation's
mechanisms for the production, distribution, acquisition, consumption, and exchange
of products and services, as well as employment. There are three types of economies:
capitalist economies, socialist economies, and mixed economies. The economy
defines how resources are distributed among various members of society and focuses
on how a country's economic affairs are organized and performed. Economics, on the
other hand, is a discipline concerned with making the best use of existing resources.
Economics is a systematic study of an individual's, firm's, or nation's behaviour and
activities aimed at maximizing want satisfaction or advancing welfare and economic
growth through optimal production, distribution, consumption, and exchange of
scarce resources with alternative uses. Economics explains how humans make
decisions when resources are few and is focused on how economic agents behave and
interact with each other to understand how economics works.

b) Efficiency is concerned with how successfully the economy's resources are utilized
and allocated. For example, we completed all of the job in a few hours thanks to her
quickness. The factory was running at full capacity. A furnace with an efficiency of
80% wastes 20% of its fuel. The company is attempting to reduce costs while
increasing efficiency. In contrast, equity is concerned with how society's goods and
rewards are and should be distributed among its many members, as well as how the
accompanying expenses should be allocated. Equity is concerned with how society's
products and rewards are and should be distributed among its many members, as well
as how the accompanying expenses should be allocated. Equity is also concerned with
how different generations share an economy's productive capabilities for example
more investment today makes for a more productive economy tomorrow, but more
greenhouse gases today will reduce environmental quality tomorrow.

c) Positive statement, on the other hand, can be tested, even if they are not always
true. Positive statement is a statement that can be verified true or false. Positive
comments are objective, with no value judgments or personal ideas. Positive
statements include the following: In July, the average temperature in New York City
is 77 degrees Fahrenheit. The price of petrol and diesel has an inverse relationship
with demand. While Normative statement is a statement that is an opinion, it is a view
that others may agree and disagree with. Normative statement are founded on
someone's beliefs about what should be We ought to do more to help the poor. People
in the United States should save more for retirements. Corporate profit are too high.

d) The tax incidence is determined by the price elasticity of supply and demand.
Buyers absorb the majority of the tax burden when supply is more elastic than
demand. When demand is more elastic than supply, manufacturers bear the majority
of the tax burden. The greater the inelasticity of demand and supply, the greater the
tax income. Tax elasticity refers to fluctuations in tax revenue as a result of tax rate
adjustments. The degree to which an increase in the tax rate creates a shift in the tax
base is referred to as tax elasticity.
e) The CPI is calculated using the prices of goods and services purchased by
consumers from a predefined basket of items. The GDP deflator, on the other hand,
includes all domestic goods and services generated in an economy.

The answer for Question 2 :-

a) Based on the above graph, the price sellers and buyers receive before the tax
imposed are at P0Q0 with equilibrium at E0.

b) Based on the above graph, the price sellers and buyers will pay after the tax
imposed are at P1Q1 with equilibrium at E1.

c) Based on the above graph, the size of the tax that sellers would pay is P0P1E1E0

d) Based on the above graph, the size of the tax that buyers would pay is P2P0

e) Based on the above graph, the total of the tax imposed in this market is P2P1E1