ECON1582: INTERNATIONAL INDUSTRIAL ORGANIZATION SEMESTER 1, 2022
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ECON1582: INTERNATIONAL INDUSTRIAL ORGANIZATION
FINAL ASSESSMENT
SEMESTER 1, 2022
QUESTION 1.
(a) Using this data, plot a scatter diagram in excel for the 1973-2019 period by putting FDI Inflow as a percentage of GDP on the vertical axis and Openness
as a percentage on the horizontal axis. (7 marks)
(b) Add a linear trendline to your scatter diagram and also indicate the equation for this line together with R2 value. Based on this R2 value, what percentage of the variation in FDI inflow can be explained by the openness? (5 marks)
(c) Using the data analysis tool in excel, do a linear regression analysis by setting FDI Inflow as a percentage of GDP as your dependent variable and Openness as a percentage as your independent variable. Make sure to include a constant (Intercept) to your regression. Indicate and explain whether your intercept and explanatory variable (Openness as a percentage) is significant at 95% confidence interval. Interpret the relationship between FDI inflow and Openness? (8 marks)
QUESTION 2.
Consider the child labour model that we analysed. There are two goods: Rice (R) and Manufactures (M). Consider a rural household. Assume that the only income this household earns comes from rice production. Suppose that each household has ⃞ ൌ 80 hours of adult time and ⃞ ൌ 120 hours of children’s time to allocate between ‘labour’ and ‘leisure’ . A rural household can produce one unit of rice with each unit of labour hour. (Recall that household prefers to use up all adult hours for work before using any children’s hours for work.) The price of rice, PR, is always equal to 3. Suppose that the household head’s utility function is given by:
ሺ , ሻ ൌ minሼ െ ̅, െ ⃞ ሽ , ℎ ൌ minሼ , ሽ ൌ 48,
where G represents the amount of goods consumption, which is Rice (R) and Manufactures (M) and L represents the amount of leisure consumption. Suppose that the price of manufactures, PM, is equal to 2.
(a) Write down the equation for the rural household’s budget line. Make sure
to show your work. (2 marks)
(b) Draw the rural household’s budget line by putting G on the vertical axis and L on the horizontal axis. Make sure to label each axis, indicate the
intercepts as well as the slope. (2 marks)
(c) Determine the amount of G and L consumed in equilibrium by the rural household. Make sure to show your work. (2 marks)
(d) Based on your answer in part (c), how many units of rice and manufactures consumed in equilibrium by the rural household? (2 marks)
(e) Illustrate the equilibrium amount of G and L you found in part (c) graphically using the rural household’s budget line from part (a) and rural
household’s indifference curve based on its preferences. (2 marks)
(f) Determine the total amount of labour as well as child labour done in equilibrium by the rural household. Make sure to show your work.
(2 marks)
g) Write down the equation for the rural household’s new budget line.
(2 marks)
h) Draw the rural household’s new budget line by putting G on the vertical axis and L on the horizontal axis. Make sure to label each axis, indicate the intercepts as well as the slope. (2 marks)
i) Determine the amount of G and L consumed in the new equilibrium by the rural household. Make sure to show your work. (2 marks)
j) Based on your answer in part (i) how many units of rice and manufactures consumed in the new equilibrium by the rural household? (2 marks)
k) Illustrate the new equilibrium amount of G and L you found in part (i) graphically using the rural household’s new budget line from part (g) and
rural household’s indifference curve based on its preferences. (2 marks)
l) Determine the total amount of labour as well as child labour done in the
new equilibrium by the rural household. Make sure to show your work.
(2 marks)
m) In this model from the rural household’s point of view, what effect does globalization have on child labour? Explain. (Interpret in terms of income and substitution effects and also indicate which effect dominates in this case).
(6 marks)
2022-06-01