MGTA03 Introduction to Management I

Model Answers
1a. From the news story on the previous page, which of the four types of
economic system discussed in the lectures is in place in the nation of Granisima?

1 mark

Answer
Granisma is a type of planned or (alternatively) command economy. The
very first sentence of the case describes Granisima as having centrally
controlled economic policies. The case then describes how the political leader,
General Sanchez will allow people to run small restaurants but continues to
impose limits on their size.
We recognise two kinds of planned economy:
Communist: Where all (100%) of the factor of production are owned and
controlled by the government
Socialist: Where most of the factor of production are owned and controlled by
the government
Of the two, Granisima appears to be socialist. This is because some small
businesses are permitted to exist.

1b. Justify and explain your answer by describing the main characteristic(s) of
this kind of economic system and provide evidence from the case

4 marks

Answer:
Economic decision making is highly centralised, in this case in the hands
of a powerful autocrat.
The government appears to have all of the economic decision-making
authority through a Central Board of Economic Advisers.
Major industries are owned by the government (bus transportation,
hotels)
The government sets prices (buses cant set their own fares)
Some small businesses are owned by private individuals (taxis and small
restaurants) but these are heavily regulated by the government.

Question 2
5 marks
2a Based on the above information, what is the degree of competition in
the broom manufacturing industry in Calexico?

1 mark

Only possible correct answer: Monopolistic competition

2b. Explain and justify your answer, by giving at least four important
characteristics of this degree of competition, and provide evidence from the case

4 marks

Relatively large number of competitors: 30+

No obvious barriers to entry: two new entrants this year
No obvious barriers to entry: brooms are simple and relatively
inexpensive to make
A large number of competitors are small: 30+
A small number of competitors (2) are large
The large competitors are much more profitable than the small
competitors (profit more than 10% of revenues versus less than 5% for the
others).

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Question 3
parts - 7 marks

The chart below shows Greek GDP growth over the period from 2008 to 2013.
The table at the bottom of the chart shows the population of Greece during
those years. .
Greece
GDP Growth and Population

2008 2013

2008
-0.2

2009

2010

2011

2012

2013

-3.1
-3.9
-4.9

-7.1

Pop.

11.2
million

11.2
million

11.2
million

11.1
million

-7.0

11.1
million

11.0
million

3a. What do these figures tell us about the GDP per capita in Greece between
2008 and 2013? Explain and fully justify your answer.

4 marks

GDP per capita will have fallen.

GDP fell for 6 consecutive years. Total GDP is about 30% smaller in 2013 than it
was in 2008.
Meanwhile population didnt change much (declined by less than 2%).
GDP / Capita = GDP / Population
The numerator declined by MUCH more than the denominator, the GDP per
Capita will be much smaller.

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Page 4 of 5

3b. What do you expect happened to the unemployment rate in Greece

between 2008 and 2013? Explain and fully justify your answer.

3 marks

Answer: The unemployment rate almost certainly increased, i.e. a higher

percentage of the population will be unemployed
Why: Falling GDP = recession
Falling GDP = lost confidence by both business owners and consumers
Factories and businesses will lay off workers
Workers without jobs will postpone purchases (no new car sales, no kitchen
renovations)
This further causes layoffs, and business failures
Workers will lose their jobs at failed firms

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