Student Name:

Part A

1- A
2- D
3- B
4- D
Part B

i) Graph:

ii) The points on the graph show the different combinations of output of two goods (rice
and beans) that can be produced using available resources and technology. The PPF
captures the concepts of scarcity, choice, and tradeoffs. Points that lie on the PPF
illustrate combinations of output that are productively efficient
iii) Moving from points D to B means that company decides to produce more bags of rice
by forgoing production of beans. The company decreases bean production by 1400 bags
of beans to produce 600 more bags of rice.

-2

i) This point is an unattainable point since it lies outside the PPF curve and can only exist if the
company increases its available resources and technology.
ii) At this point the available resource cannot attain the goals of the economy. Unattainable point.
The company needs to increase its available resources and technology in order to achieve this
point.
iii) Point C is the best combination (900 bags of rice and 2000 bags of beans). The point C
ensure productive efficiency because its at maximum output using all available resources. Point
C ensures the best choice for allocative efficiency because it offers the best desire of society.

-3

i) The price elasticity of supply is a measure of the responsiveness of quantity supplied to a

change in price.

Percentage Change∈Quantity Supplied

ii) Price Elasticity of Supply =
Percentage Chage∈Price

% ∆ Qs
Price Elasticity of Supply =
%∆P

(Qs2−Qs1)
∗100
Qs 1
Price Elasticity of Supply = ( P2−P1)
∗100
P1

iii

P1 = £20

P2 = £30

Qs1 = 15 rugs

Qs2 = 21 rugs

(21−15)
∗100
15
Price Elasticity of Supply = (30−20)
∗100
20

= 0.8

iv
The supply of the good is inelastic since elasticity of supply is less than one. The percentage
change in price is greater than the percentage change in quantity supplied..

Relatively steep supply curve

Vi

The PES of rugs will stay inelastic in the short run however it tends to become more elastic in
the long run because in the long run all factors of production can be utilized to increase supply
however in the short run only labor can be increased.
Part C

1- 2007 to 2014, Norway had an expansion business cycle with rapid and booming
economic growth shown in the increase of GDP from 1.208 trillion to 2.665 trillion and
increase of GDP per capita from 6887 thousand to 135780 thousand. 20014 to 2021, the
economy suffered a recession and GDP decline due to pandemic where GDP decreased
from 2.665 trillion to 1.940 and GDP per capita decreased from 13570 thousand to 9717
thousand. Effects in recession are fall of income and increase of unemployment rate as
shown between 2014 and 2021 where unemployment rate increased from 7.1% to 11%.
Effects in economic growth are increase in income and decrease of unemployment rate
as shown between 2007 and 2014 where unemployment rate decreased from 8.7% to
7.1%.

(b)
2- Between 2007 and 2014, the unemployment rate falls from 8.7% to 7.1% leading to
increase in aggregate demand and increase in aggregate supply (both shift to the right).
Between 2014 and 2021, the unemployment rate increases from 7.1% to 11% leading to
decline in both aggregate demand and aggregate supply (both shift to the left).
(b)
In attempts to decrease unemployment the country invested in increasing productivity
and labor market which led in an increase in CO2 emissions from 1.9 to 2.6 between
2007 and 2014. Moreover, the country GDP has grown which led to an increase in
inflation from 3.3 to 6.6 which is double from 2007 to 2014 leading to a decrease in the
buying power of the country.
3- The increase of life expectancy between 2007 and 2021 was from 73 to 78 and the
increase in population (aging 65 and older) between 2007 and 2021 was from 6.7 million
to 9.5 million. This leads to an increase in aggregate supply due to an increase in supply
of labor. The unemployment rate increases also due to this factor. The gdp per capita
declines due to the increase of population too. The HDI growth also shows that it slowed
down its growth rate.