Section A

One or two of your chosen questions must be from this section

1. PepsiCo has expanded its every-day nutrition product line-up, adding nutrients like grains,
fruits, vegetables and protein, cutting levels of sugar and sodium in their products to compete
against rivals like Coca-Cola which has released similar products like Coke-Zero. Charging
higher prices for these products are strategies that worked for PepsiCo, contributing to record
high second quarter earnings that boosted its annual forecast.

(a) Explain why the price elasticity of demand varies for different products. [10]
(b) Discuss the relevance of demand elasticity concepts for a company like PepsiCo [15]

2. In March of 2011, communications giant AT&T announced its intent to acquire T-Mobile for
$39 billion. It was blocked by the Department of Justice in view of antitrust violations,
specifically, that it would substantially lessen competition if the second and fourth largest
wireless carriers in America became one company.

(a) Explain how companies like AT&T would compete against its rivals. [10]
(b) Discuss the view that mergers should not be allowed solely because it would substantially
lessen competition. [15]

3. Governments intervene in markets in order to resolve market failure.

(a) Explain the market failure associated with income inequality and market dominance [10]
(b) Discuss the view that income inequality would be resolved solely by policies targeted at
reducing market dominance. [15]
 Section B
One or two of your chosen questions must be from this section

4. In 2012, spending on energy subsidies in Indonesia claimed more than one-fifth of the
central governments budget, more than three times that of roads, water and healthcare
expenditure. In addition to crowding out high-priority spending, subsidies have created
disincentives for saving energy and developing alternative energy sources. The world Bank
has deemed reducing such subsidies to be a fair, prudent and transformative policy.
Source: World Bank, March 2014
Discuss the factors the government should consider in deciding whether or not such
reductions in subsidies are justified. [25]

5. Discuss the view that macroeconomic policies that strengthens a countrys resilience
against external risks are the best policies to boost economic growth and decrease
unemployment. [25]

6. The circular flow of income and spending shows connections between different sectors of
an economy,
(a) Explain how fiscal and monetary policy can affect the level of national income in the circular
flow of income model. [10]
(b) Discuss the view that real GDP per capita is the best way to determine standard of living
of a countrys citizens. [15]