ANSWER 1 -

Gross Domestic Product (GDP)

GDP of a country is the total value of all final goods and services produced within that country
over a period of time (financial year)

GDP is used to measure the state of the economy of a country by taking into consideration
personal consumption, government spending, exports(minus imports), and private investments.
Through measurement of the status of the economy, economists can determine whether the
economy of a country is growing or is under recession.

GDP estimates are used to determine the economic performance of a whole country, and to make
international comparisons Businesses can also use GDP as a guide to decide how best to expand
or contract their production and other business activities. And investors even watch GDP since it
provides a framework for investment decision-making.

GDP is a key factor in determining the interest rates in an economy by the financial institution.
Nominal GDP does not factor inflation and deflation rates of a country but is useful when
tracking the gradual increase of the value of the economy for a certain period in the international
market. Real GDP factors in inflation differences, to avoid assuming that a country is producing
more except that it is only the prices that have gone up. Real GDP is most useful when
comparing the growth rate of an economy. For example, assume the nominal GDP of a country
in 2010 was $200 billion and 2020 the country's nominal GDP has grown to $300 billion. Also
over that period, the prices have risen by %100. If you examine the nominal GDP, it might
appear to be the economy is doing well. But, the real GDP in 2010 would only be $150 billion,
showing that there was an overall decline in actual economic performance over this period.

Gross National Product (NGP)

Gross National Product (GNP) is a estimates of the value of all goods and services produced by a
country’s residents and businesses. It measures the value of the final products and services
manufactured by a country’s residents, regardless of the geographical location.

GNP is calculated by adding personal expenditures, government expenditures, private domestic

investments, net exports (minus imports), and all income earned by the residents in foreign
countries, minus the income earned within the domestic economy by foreign residents. GNP can
also be calculated by only taking the GDP figure and adding to it the net income of residents in
foreign economies.

Difference between GDP and GNP

 Parameters GDP
Concept GDP is an estimated value of
total goods and services
produced within the country
Formulation GDP = Consumption +
Investment + (Government
spending) + (Exports –
Imports)
Application To assess the strength of
country’s local economy
GNP
GNP is an estimatd value of
total goods and services
produced by a citizen of the
country without constraint
on geographical boundaries.
GNP = GDP + NR (Net
income inflow from assets
abroad or Net income
receipts) – NP (Net
payments outflow to foreign
assets)
To assess how the nationals
of a country are doing
economically

ANSWER 2 –

At equilibrium price, the quantity demanded is equals to the quantity supplied to the market.

This suggest that Demand=Supply,

Qd=Qs

1200-P = 120+3P

Solving the above

4P = 1080

Hence Equilibrium price

P = Rs 270

When price Rises to Rs 400

Qs=120+(3×400)

Qs = 1320

and

Qd = 1200 - 400 = 800

Price = Rs 400,
We can say that There is more supply than Demand because the price is high.

When Price rises to Rs 120

Qs=120+(3×120)

Qs = Rs 480

And

Qd = 1200 - 120 = Rs 1080

The above price change implies that there is more demand than supply as the price is low.

ANSWER 3 –

Part (A)

Price elasticity of demand is the measurement of a change in goods demanded with the price
change. If the change is far from the original point, it is referred to as being elastic;
simultaneously, if there is little change in the relationship between purchases and price change,
we refer to it as being inelastic.

For this problem, I will use arc elasticity which is similar to the simpler price elasticity of
demand (PED) but adds in the index problem. Arc elasticity uses a midpoint between the two
points of a curve to measure the elasticity of a commodity.

To calculate PED, we first calculate the two midpoints;

Midpoint Quantity(Q) = (Q1+Q2)/2

Q = (25000+35000)/2 = 30000

Midpoint Price(P) = (P1+P2)/2

P = (450+350)/2=400

To calculate PED using the ordinary formula.

PED= %Change in Quantity (Q2-Q1)/Midpoint Q

%Change in Price (P2-P1)/Midpoint P

= (35000-25000)/30000

(350-450)/400

=0.33/-0.25
 = -1.32

Part (B) –

Cross elasticity of demand measures the degree of responsiveness of the demand for a
certain product to a given change in the price of another product.
Many of the companies utilize cross-elasticity of demand to establish prices to sell their
goods. Products with no substitutes have the power to be sold at higher prices
because there's no cross-elasticity of demand to think about .
There exists a high cross elasticity of demand between new and old cars since the demand
for old cars is highly elastic. Old cars will sell at relatively low prices compared to new cars
as they need been used for a short time and this means how their demand is very elastic. An
elastic demand is that the type during which the elasticity is bigger than one which is a
sign of high responsiveness to changes in prices. Conversely, inelastic demand refers to the
demand whereby elasticity is a smaller amount than one showing that it's low
responsiveness to changes in prices.