Economics 2008 paper 1 some tricks

[New Student]

AOA

here i am referring to some questions in the economics paper 1 2008.

1. the demand function is a static model, while shifts in demand introduce those dynamics which render the law of demand invalid. discuss and explain with diagrams.

now when first seen one wonders what that question is about. because the usual stuff studied in the text books are not that kind. but if one gave some attention then the trick becomes apparent. lets go point by point.

(demand function is a static model.)

yes certainly the demand function usually encountered in text book is. it is static because it refers to the event at a given point of time.

(while shifts in demand introduce those dynamics which render the law of demand invalid.)

here is the hint. hint is word "shift". it is because shifts in demand function can occur by change in tastes, change in income level etc. now these changes occur over a long time. thus now the demand function becomes dynamic because of introduction of time element in the theory.

thus this question simply comes out to be the comparison of simple demand function with only change in price or quantity to that of shifts caused by change in tastes or income level.

2. distinguish between profit maximization and economic profit making.( this is just part of the question).

this qs again is just again rewording of fimiliar words. the profit maximization is just where the economic agents are just earning their normal profits i.e. where MC=MR.(in reality prfit maximation point is where the economic profits are zero) now economic profit making is in other words the excess profits i.e. here qs requires the situation of excess profits. so here one just has to compare those two situations.

another question states:

3. for labor abundant countries, the comparative advantage from international trade only exists within static model, while the real world dynamics mainly benefit the countries which happen to be both capital abundant and technologically advanced. discuss in the perspective of factors responsible for Doha stalemate.

now this qs is made complicated. in simple words it would be "discuss and analyze the differing points of views of developed and developing countries which caused the Doha stalemate."

however i do appreciate the paper setter for such good use of words.

[mahmood]

Originally Posted by newstudent

AOA

here i am referring to some questions in the economics paper 1 2008.

1. the demand function is a static model, while shifts in demand introduce those dynamics which render the law of demand invalid. discuss and explain with diagrams.

now when first seen one wonders what that question is about. because the usual stuff studied in the text books are not that kind. but if one gave some attention then the trick becomes apparent. lets go point by point.

(demand function is a static model.)

yes certainly the demand function usually encountered in text book is. it is static because it refers to the event at a given point of time.

(while shifts in demand introduce those dynamics which render the law of demand invalid.)

here is the hint. hint is word "shift". it is because shifts in demand function can occur by change in tastes, change in income level etc. now these changes occur over a long time. thus now the demand function becomes dynamic because of introduction of time element in the theory.

thus this question simply comes out to be the comparison of simple demand function with only change in price or quantity to that of shifts caused by change in tastes or income level.

i agree with your analysis for the most part. however the factors you said dont necessarily change in a long period of time. they could change in a short period of time.

2. distinguish between profit maximization and economic profit making.( this is just part of the question).

this qs again is just again rewording of fimiliar words. the profit maximization is just where the economic agents are just earning their normal profits i.e. where MC=MR.(in reality prfit maximation point is where the economic profits are zero) now economic profit making is in other words the excess profits i.e. here qs requires the situation of excess profits. so here one just has to compare those two situations.

profit maximization does not always mean zero profits. it is just the point where the difference between the firm's revenues and the costs it is incurring is maximum. that does not mean that it is earning zero profits. at that point it could be earning an economic profit, a zero profit or even a loss.
another question states:

[New Student]

thanx mehmood

regarding ur reply for the first qs i also think that even in short term there could be changes. i was just mentioning the term long time for simplicity. but btw the changes in income level and tastes are not short term, generally they are long term phenomena.

regarding ur second point i agree with you. but however if u look at the question i.e. whats the difference between profit maximization and economic profit making. then it is very difficult to explain it. what i was just referring to is to make distinction between those two situations.

for example profit maximization may lead to normal (zero) profits or excess profits, then whats the point of difference between the two?