Micro Economics & Macro Economics December 2026
Q.1: A nation is facing rising unemployment due to rapid technological advancements and shifts in its major export markets. Many workers from the manufacturing sector have been laid off, and their skills are no longer in demand. The government, seeking to address both the needs of displaced workers and long-term economic resilience, is considering policy reforms. As an economic advisor, you are tasked with recommending concrete actions based on macroeconomic models of unemployment. Given the scenario, how can the government apply the concepts of structural and frictional unemployment to design effective retraining and labor market adaptability programs? Explain how these interventions would help restore equilibrium in the labor market and support sustainable economic growth.
Answer:
Introduction:
Structural and frictional unemployment are two types of unemployment resulting from the economy being in a normal state. In the given case, rapid technological advances make some manufacturing techniques obsolete while the reduced demand for some goods due to the loss of export opportunities reduces the need for some manufacturing jobs. These two factors contribute to structural unemployment as they require workers to acquire new sets of skills for the same type of job or move to a different industry and occupation to find a suitable job, which is frictional unemployment. The skill gap issue can be resolved through increased retraining and recruitment while the problem of increased time searching for a new job can be resolved through increased career counselling and time spent finding a new job. Overall, along with other policies, the aforementioned measures might ensure that the workforce is responsive to the economy’s needs without being deprived of resources to search for a new job.
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Q.2 (A): A mobile phone company sells smartphones at Rs.20,000 per unit, at which price 500 units are sold per month. The company decides to reduce the price to Rs.18,000 per unit, following which monthly sales increase to 600 units. Meanwhile, a supplier of phone components increases the price of a key component from Rs.200 to Rs.240 per unit. At the original price of Rs.200, suppliers were willing to supply 1,000 units per month. Following the price increase to Rs.240, the quantity supplied increases to 1,300 units per month. Using the percentage method based on the original price and quantity, calculate:
(a) the Price Elasticity of Demand (PED) for mobile phones.
(b) the Price Elasticity of Supply (PES) for phone components.
(c) Based on the calculated coefficients, comment on the nature of demand and supply.
Answer:
Introduction:
Elasticity of Price refers to the responsiveness of either supply or demand to changes in price. It is mainly used to analyse the market demand and supply and how sensitive they are to change in price. In the given scenario, we have a mobile phone company which lowers its selling price from Rs.20,000 to Rs.18,000, thus increasing the demand from 500 to 600 units per month. On the other hand, we have a supplier of components to the phone company who raised the price of components from Rs.200 to Rs.240, therefore, raising the supply from 1,000 to 1,300 units. Using percentage formula with the original price and quantity, we can find out their respective elasticity coefficients.
Q.2 (B): During a global pandemic, the demand for personal protective equipment (PPE) such as masks and gloves skyrockets, resulting in a sharp price increase that doesn’t dampen demand due to widespread health concerns. Both new and established manufacturers increase production, but raw material shortages and logistical bottlenecks hinder supply. As the crisis continues, the government introduces subsidies to manufacturers, ensures priority transportation access, and updates safety standards to encourage local innovation. Despite these measures, challenges persist, including uneven distribution and possible product quality issues. Evaluate the range of government interventions in boosting the supply of essential goods during a crisis. Critique their effectiveness with respect to supply determinants such as technology, transportation, pricing, and quality. Which intervention(s) would you consider most effective in both the short and long term, and why?
Answer:
Introduction:
During a global pandemic, masks and gloves are essential commodities that people need to protect themselves and others, as well as for healthcare purposes. A quick rise in demand for these goods will increase prices and create shortages. Meanwhile, manufacturers experience a scarcity of raw materials, a delay in transportation, increased production costs and shortages of personnel. Thus, the role of the government in increasing the supply of essential commodities and ensuring their availability is irreplaceable. Policies like subsidies, transportation priority, technology, and reform in safety standards could make a difference to the state of affairs. However, their effectiveness will depend on the speed and efficiency of the government.