Managerial Economics

Final Exam

Student Name:
AHMED ABDELAAL ELSAYED ELZAREI

Student Reg. No:

21227351
Question 1: (10 Marks)

Assume there is a well-defined geographic area of a city. The area is composed

exclusively of apartments and is populated by low-income residents. The people who
live in the area tend to stay in that area because (1) they cannot afford to live in other
areas of the city, (2) they prefer to live with people of their own ethnic group, or (3)
there is discrimination against them in other areas of the city

(1) Would the demand for apartments in this area be relatively inelastic or relatively
elastic? State why.
(2) Would the supply of apartments in this area be relatively inelastic or relatively
elastic? State why.
(3) Draw the demand and supply curves as you have described them, showing the initial
equilibrium price and quantity.

ANSWER:

(1) The Demand for apartments in this area should be RELATIVELY INELASTIC.
This is because there are a few substitutes for the apartments in this area.
Residents will not leave the area where they are currently staying because:
a. These are residents of low-income and they cannot afford to move to other
areas -of higher prices- of the city.
b. Residents prefer to live with those of their own ethnic group.
c. They will not leave the city and go to areas with discrimination.
Hence, a percentage change in the price will result in very low change in
quantity demanded as due to the above reasons.

(2) The Supply in this case will also be RELATIVELY INELASTIC. As the residents are
of low-income, the suppliers know that these people cannot afford to live in
other areas so they will not increase the quantity supplied. So, a change in
price will not affect the quantity supplied so much.
(3) The Demand and Supply curves will be look normal as there are no given values
however, they will tend to skew towards the Y-Axis (Price) since the change in
Price is > Change in Quantity (Demanded or Supplied) for Inelastic Demand and
Supply.

Price

Demand Supply

PE Point of Equilibrium

QE Quantity
Question 2 (10 Marks)

Select and name a market of any well-known product (left upon your imagination),
draw its market diagram, state and name four different factors that might cause
changes, showing the changes in equilibrium price and quantity.

ANSWER:

(1) The Product: Airline Tickets

(2) Market Type: Oligopoly Market
(3) Market Diagram:

Price

Demand Supply

PE

QE Quantity

(4) Four Factors that can cause changes:

a. Demand:
Question 3 (20 Marks)

"The International Monetary Fund has put some conditions to address Monetary,
Fiscal and Structural problems that faced the Egyptian economy."

Discuss the last sentence, addressing the main problems at the Egyptian economy, and
Egypt Compliance with the conditions, under IMF extended Fund Facilities.

ANSWER:

Egyptian economy has witnessed clear issues after the January 2011 revolution. The
Egyptian revolution carried a challenging transition phase, starting out with problems
such as:
1. Low foreign direct investments (FDI).
2. High budget deficit.
3. High debt rate.
4. High unemployment rate.
5. High poverty rate.
6. Low standard of living.

To address economic challenges, the Egyptian authorities have developed a program of

policies and structural reforms that is supported by the Extended Fund Facility (EFF). The
IMF has put some conditions to address the Egyptian economic issues and validate a
US$ 12 Billion loan to Egypt.
On November 11, 2016, the International Monetary Fund (IMF) and Egypt signed a $12
billion loan agreement with the aim of “addressing macroeconomic vulnerabilities and
promoting inclusive growth and job creation.

Issues with Egyptian Economy are in THREE key areas:

1. Monetary Issues:
 Fixed Exchange Rate.
 Shortage of foreign exchange and low reserves.
2. Fiscal Issues:
 High government deficit and public debt.
 Strengthening social protection programs.
3. Structural:
 Low growth and high unemployment
Conditions of IMF’s 2016 Loan to Egypt:
The IMF has put some demands to agree to loan Egypt in 2016

1. Monetary Demands:
a. Exchange rate liberalization
b. Limit the increase in money supply
c. Contain the inflation and bring down to mid unit digits

2. Fiscal Demands:
a. Strengthen government revenues
b. Cuts in fuel
c. Control the public sector wage bill
d. Increase social spending amounting to about 1% of GDP
e. Vocational training for youth people
f. Cover subsided transportation for children and children’s medicines.
g. Set up free school meals.

3. Structural Demands:
a. Streamline industrial licensing system
b. Facilitate access to finance for small and medium enterprises
c. Reform bankruptcy law
d. Make it easier for women to go into workforce
e. Improve public transportation safety

Egypt compliance with the Conditions of IMF’s 2016 Loan:

1. Monetary compliance:
a. Egypt has introduced a market determined exchanged rate system:
On 3 November 2016, the Central Bank of Egypt (CBE) announced in a
surprise move that it had fully floated the Egyptian pound.
2. Fiscal compliance:
a. Parliament passed and confirmed the Value Added Tax (VAT) of 14%
b. Energy prices raised in June and November 2017
c. The government has cut food subsidies
d. The government has introduced its program and increase for spending
3. Structural compliance:
a. Legalization on investment law ratified.