NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Business Economics
Internal Assignment Applicable for December 2020 Examination

Assignment Marks: 30

Instructions:

• All Questions carry equalmarks.

• All Questions are compulsory.
• All answers to be explained in not more than 1000 words for question 1 and 2 and for
question 3 in not more than 500 words for each subsection. Use relevant examples,
illustrations as far as possible.
• All answers to be written individually. Discussion and group work is not advisable.
• Students are free to refer to any books/reference material/website/internet for attempting
their assignments, but are not allowed to copy the matter as it is from the source of reference.

• Students should write the assignment in their own words. Copying of assignments from other
students is not allowed.

• Students should follow the following parameter for answering the assignment questions.

For Theoretical Answer For Numerical Answer

Assessment Parameter Weightage Assessment Parameter Weightage
Introduction 20% Formula 20%
Concepts and Application 60% Procedure / Steps 50%
related to the question
Conclusion 20% Correct Answer & 30%
Interpretation

1. Rohan is appointed an economics’professor in a reputed university. In his first lecture,

students asked him to elaborate on Gross Domestic Product (GDP) and Gross National
Product(GNP). Help Rohan to prepare his first lecture on the given topic with relevant
example and highlight the differences between the two concepts. (10 Marks)
 NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Business Economics
Internal Assignment Applicable for December 2020 Examination

2. Suppose the demand equation for computers by Teetan Ltd for the year 2017 is given by
Qd= 1200-P and the supply equation is given by Qs= 120+3P. Find equilibrium price and
analyse what would be the excess demand or supply if price changes to Rs 400 and Rs
120. (10 Marks)

3.a. A business firms sells a good at the price of Rs 450.The firm has decided to reduce the
price of good to Rs 350.Consequently, the quantity demanded for the good rose from
25,000 units to 35,000 units. Calculate the price elasticity of demand. (5 Marks)

3.b. “There is a high cross elasticity of demand between new and old cars”. Discuss the
statement by explaining the features of cross elasticity of demand. Also compare and
contrast cross elasticity with other types of elasticities of demand. (5 Marks)
 NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Business Economics
Internal Assignment Applicable for December 2020 Examination

ANSWERS

Answer 1:

In economics, Gross Domestic Product (GDP) is used to calculate the total value of the goods and
services produced within a country’s borders, while Gross National Product (GNP) is used to
calculate the total value of the goods and services produced by the residents of a country, no
matter their location.Essentially, GDP looks for the amount of economic activity within a
nation’s economy, while GNP looks at the value of the economic activity generated by the
nation’s people. This means that GNP will count the economic activities of expatriates and
other citizens outside the country’s borders but GDP will not, and that GDP will consider the
activities of non-citizens within those borders, but GNP will not.

GDP:

GDP, or gross domestic product, measures the total economic value of all final goods and services
produced within a country’s borders during a specific period of time. An expression of an
economy’s relative health—an increase in GDP indicates a country’s economy is growing and
a decrease that it is shrinking—GDP is used by economic policymakers, in the United States,
and across the world, to determine interest rates and other economic policy.

There are two types of GDP:

Nominal GDP is a country’s economic output at current total market value, meaning that it is often
shaped as much by currency inflation as it is by increased economic output.

Real GDP is a country’s output adjusted for inflation. By comparing the year under study to a base
year and keeping prices consistent across both, economists isolate and then remove inflation
from the equation, providing a more accurate picture of a nation’s actual increases or decreases
in economic output.

GDP is calculated in one of two ways: the income approach, and the expenditure approach. Though
the latter is by far the more popular way to measure GDP, both methods should arrive at
roughly the same number.

In the income approach, also known as GDP(I), economists add employee compensation, gross
profits, and taxes minus subsidies to arrive at a figure representing the income an economy
generates.

In the expenditure approach, economists add total consumption, investment, government spending,
and net exports.
GDP provides us with a portrait of an economy’s wellbeing, meaning that when GDP is up, the
economy is healthy with high employment rates, wage increases, and a rising stock market.
 NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Business Economics
Internal Assignment Applicable for December 2020 Examination
For this reason, investors often pay attention to GDP increases or decreases when crafting their
investment strategies.

GNP :
GNP, or gross national product, expresses the total value of all goods (products and services)
produced by the residents of a particular country, regardless of national borders, thus including
their foreign assets.

This means that GNP measures the economic activity of a country’s residents, even if that activity
does not occur within the national economy. Similarly, it excludes non-residents’ economic
activities, even if that activity occurs within the national economy.

Also known as Gross National Income (GNI), GNP is calculated by adding personal consumption
expenditures (including health care), private domestic investment, net exports (goods exported
minus those imported), income earned by residents from overseas investments, and
government expenditures.

Because it is only concerned with the economic output of a country’s residents, the income earned
in the domestic economy by foreign residents is then subtracted from this sum.

Thus, under GNP, production of goods can occur anywhere in the world—as long as the means of
production is owned by a resident of the country under study, these goods count towards GNP.

GNP is closely related to Net National Product (NNP), which calculates the value of all finished
goods and services produced by a country’s residents minus the amount of capital required to
produce these goods such as raw materials, energy costs, and so on.

The key difference between GDP and GNP is that GNP considers the output of a country’s citizens
regardless of where that economic activity occurred. By contrast, GDP considers the activity
within a national economy regardless of the residency of the producers.

Consider the following situations, which GDP and GNP treat quite differently—the way they treat
these situations forms the core of their difference from one another.

The net income receipts of foreign companies owned by foreign residents that produce goods in
the country under study. Since GNP only considers citizens of a country and their economic
output, it does not include such companies in its measurement. However, GDP measures
economic output regardless of country of residence—so it does include such companies in its
measurement.

Companies owned by domestic residents producing goods for global consumption. Think about
companies like Apple, which produce goods for sale on the global economy and often remit
their profits to places with favorable corporate tax laws like Ireland. Since GNP considers any
and all output of domestic residents, it includes these companies and their economic activity
occurs outside the country. However, GDP only measures the economic output of a given
nation’s economy, so it does not consider this international activity, nor the money remitted to
foreign economies.
 NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Business Economics
Internal Assignment Applicable for December 2020 Examination
Similarly, GNP will always include net income receipts from the international investments made
by its residents whereas GDP will not. Conversely, GDP will always include foreign
investments within a country’s borders, whereas GNP will not.
 NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Business Economics
Internal Assignment Applicable for December 2020 Examination

Answer 2:

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

From the above price Rd 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.
 NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Business Economics
Internal Assignment Applicable for December 2020 Examination
Answer 3a :

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

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

Therefore, Q=(25000+35000)/2=30000

P=(450+350)/2=400

Next,we calculate PED using the ordinary formula.

PED=%Change in Quantity(Q2-Q1)/Midpoint Q divided by %change in Price(P2-P1)/Midpoint P

=(35000-25000)/30000 divided by (350-450)/400

=0.33/-0.25

=-1.33

Calculations :
 NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Business Economics
Internal Assignment Applicable for December 2020 Examination

Answer 3b :

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. Most companies use the concept of cross
elasticity of demand in the establishment of the prices in which to sell their products. 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 have been used for
a while and this suggests how their demand is highly elastic. An elastic demand is the type in which
the elasticity is greater than one which is an indication of high responsiveness to changes in prices.
Conversely, inelastic demand refers to the demand whereby elasticity is less than one showing that
it has low responsiveness to changes in prices.