UNIVERSITY OF MALTA
ISLANDS AND SMALL STATES INSTITUTE
MA (ISLANDS AND SMALL STATES STUDIES)
June 2011 SESSION
ISS-5026: Aspects of Microeconomics and Macroeconomics with Special Focus on
Size and Insularity Factors
Date: Wednesday 8th June
Time: 15:30 – 18:30
Answer four questions, two from each section. Use a separate booklet for each
question.
SECTION A: Microeconomics
Question 1
(a) What do you understand by market equilibrium?
(b) What is the likely effect of an increase in household income on the equilibrium price
and quantity supplied of a commodity?
(c) What is the likely effect of an increase in the cost of production of a commodity on
its equilibrium price and quantity supplied?
(d) What is the likely effect of an imposition of a maximum price on the demand and
supply of a commodity?
(e) Why do you expect to find more incidence of market failure in small states when
compared to large states?
(25 marks)
Question 2
(a) What do you understand by costs of production of a firm?
(b) Distinguish between normal profits and super-normal profits.
(c) Why and how do per unit costs change in the short run?
(d) Why and how do per unit costs change in the long run?
(e) Why is an understanding of costs of production important when discussing the
competitiveness of small states?
(25 marks)
Question 3
(a) Briefly discuss the underlying assumptions underpinning perfect competition.
(b) Briefly discuss the underlying assumptions underpinning monopoly.
(c) Briefly discuss the underlying assumptions underpinning imperfect competition.
(d) Compare perfect competition with a monopoly, explaining the benefits of
competition.
(e) Why do oligopolistic or monopolistic market structures tend to prevail in small
states?
(25 marks)
Question 4
(a) What factors influence demand for and supply of labour?
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(b)
(c)
(d)
(e)
What is the likely affect on labour demand by a firm if a minimum wage is imposed?
What is the likely effect on the labour market if real GDP increases?
Distinguish between excess supply unemployment and frictional unemployment?
Why is export competitiveness an important factor when discussing unemployment
in a small state?
(25 marks)
SECTION B: Macroeconomics
Question 5
(a) How can nominal GDP be measured?
(b) How is nominal GDP adjusted to estimate changes in real GDP over time?
(c) What are the major shortcomings of GDP as an indicator of economic activity in a
country?
(d) What do you understand by the circular flow of income?
(e) What features distinguish the circular flow of income of a small state when
compared to that of a large state?
(25 marks)
Question 6
(a) Explain the relationship between consumption and disposable income.
(b) Briefly discuss two hypotheses relating to consumption.
(c) What factors other than income are expected to influence consumption
expenditure?
(d) Do you expect value added of aggregate consumption expenditure in a small state
to be, generally speaking, different from that of a large state? Why?
(e) Discuss a major economic implication arising from your reply to question 6(d).
(25 marks)
Question 7
(a) What do you understand by economic vulnerability?
(b) Why do small states tend to be economically vulnerable?
(c) What do you understand by economic resilience?
(d) What factors enable a country to build its economic resilience?
(e) Discuss a framework that juxtaposes economic vulnerability and economic
resilience.
(25 marks)
Question 8.
(a) What do you understand by the multiplier process?
(b) Why do you expect the multiplier process to work differently in a recession when
compared to a full-employment situation?
(c) What factors are likely to lead to a low multiplier coefficient?
(d) Why do you expect small states to have a low multiplier coefficient?
(e) What injections are likely to be larger in small states when compared to larger states?
(25 marks)
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