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15 Aug 2019

During the 1900s, the current account deficits of several European country were financed by foreign capital inflows enabling them to grow their economies. Since the early 2000s labor productivity has, however, declined- in several Southern European countries in particular - leading to slow growth and high debt/ GDP ratios. Explain why?

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Russian case study:

Russia has long been a preeminent global producer and supplier of gas, but the recent evolution of global market dynamics has begun to erode this status. Now, it finds itself at a crossroads that could determine its fate in this evolving market. Faced with the US shale gas revolution, competition from global LNG suppliers and new pipeline projects, an uncertain demand outlook in Russiaâs once captive European market, and slow penetration of high growth Asian markets, Russia may no longer be able to thrive at status quo and must take decisive steps to devise a strategy that addresses these challenges and ensures its continued role as a leading global gas producer and exporter. Russia undoubtedly has made some early progress on this front by making forays into liberalizing its gas export market, facilitating the rise of a handful of non-Gazprom producers, and pursuing options that begin to shift its strategic focus to Asian consumers. However, given Russiaâs heavy budget dependency on oil and gas revenues, coupled with the recent introduction of tax breaks to incentivize new high-cost resource development, the countryâs success in expanding gas production and capturing key export market share will depend first and foremost on sustained high oil prices to support government spending. The current system allows Russia to muddle through, but a more drastic price shock could have significant, detrimental knock-on effects for Russiaâs gas sector (five years ago the budget could balance at $50-55/bbl oil while breakeven prices were $117/bbl in 2012 and expected to remain at over $100 through the end of the decade).

Over time, Russia will have to introduce still more reforms from additional tax incentives to greater contract pricing flexibility and increased access for foreign investors if it hopes to remain a dominant global gas player. Russiaâs market position will become more difficult and uncertain post-2017 as competition rises from global LNG and unconventional producers. Russiaâs gas modernization efforts to date do not appear adequate to brace the industry for this uncertainty, and Russiaâs position increasingly will come under pressure absent more comprehensive reform of the domestic gas sector, additional tax incentives to expedite the development of key projects, and reconsideration of pricing mechanisms in contracts.

Arguably the greatest challenge to the Russian gas market in the future is the abundance of new gas suppliers and export options coming online over the next decade that will provide significant new volumes of gas at competitive prices, which could undermine Russiaâs current supplier relationships. At the center of this gas glut is the US shale revolution and the prospects for USLNG exports, which have had an immediate impact on Russiaâs market share and pricing. First, the abundance of new US shale-derived gas supplies has resulted in Russia losing the US market as a potential customer for exports from its Arctic LNG projects. In addition, Russia has been negatively impacted by flows of cheap LNG into the European market since 2008â2009, which has triggered a series of pricing renegotiations between Gazprom and its main European customers.

Russia has faced myriad challenges in its core European market: the reputational impact of its dispute with Ukraine, the Eurozone crisis causing a decline in gas demand, growing gas competition, and change in the EU regulatory framework. These changing dynamics have triggered an ongoing antitrust investigation on the grounds that Gazprom restricts European buyersâ rights to sell gas to one another and unfairly raises costs by linking prices to oil. The investigations have heightened tensions between Russia and the European Union.

EU policymakers are eager to diversify away from Russia, but the opportunity to do so is limited until Europe experiences far more rapid demand recovery. In the interim, poor economic performance, the availability of cheap coal, environmental regulations, and promotion of renewable technologies have taken their toll on European gas demand. While Gazprom has begun to experience some demand recovery in Europe and ongoing production challenges at Statoilâs Troll field in Norway have leant some near-term support to volumes of Russian gas exports to Europe, overall European demand remains weaker than in pre-crisis years, and the outlook is still uncertain.

In September 2012, the European Union launched an investigation into anti-competitive Gazprom practices. Russia, which feeds 26 percent of European gas consumption, did what it said it never would and, motivated by a combination of weaker demand and arbitration, rewrote long-term contracts to include a new price formula for certain European buyers. This move came at the expense of several billion dollars in budget revenue at a time when Russiaâs overall economic growth has slowed and the country has had to introduce considerable tax breaks to incentivize development of more difficult hydrocarbon plays.

Now, as Russia races against the clock to seize additional Asian market share and redirect volumes to these high-growth markets ahead of its competitors (namely LNG from incumbents like Australia and Qatar as well as new participants from North America and East Africa and pipeline gas suppliers like Turkmenistan, Uzbekistan, and Kazakhstan), its strategy is to employ both pipeline and LNG export options to tap into as much additional Asian market capacity as possible. But Russia faces a challenge on the implementation front. LNG projects have faced delays and even indefinite postponement in the case of Shtokman, and Russia has been unable to close on the Power of Siberia pipeline due to its challenges securing a pricing agreement with China. Other options include direct pipeline options to Japan and Korea, but these proposals also face political and security risks that could delay or prevent realization of these plans. Putin gradually has pivoted to Asia, both politically and economically, and Russia hopes to expand energy and trade ties not just with China, but also more broadly with Asia. However, the impact of changes in energy markets could subtly alter the relationship between Russia and China in ways that also could escalate tensions in the bilateral ties. While Russia sees China as a key partner in constraining US prerogatives, China sees Russia mostly as a source of energy and natural resource supply and a great power in decline.

Gas exports remain one of Russiaâs most effective political weapons. But the power Russia wields through its gas sector also comes at a tremendous cost. Gazpromâs relative stranglehold over the domestic and export market until relatively recently has hindered entry of foreign investors who could bring capital and technical expertise and limited sources of Russian budget revenue. On the export side, Russiaâs disregard for disruptions and the impact on customers further down the line in Western Europe has driven a wedge in the Russian-European gas relationship and compelled Europe to look into alternative supply sources from abroad as well as to its own un-conventionals potential to displace Russian supply over the next decade. Despite widespread bans on fracking in Europe, even the partial development of European shale resources or a growth in LNG imports could force further contract pricing revisions on Gazprom, underscoring the increasingly brittle state of Russiaâs traditional gas sector development model.

The Russian budget is nearly 50 percent dependent on oil and gas revenues, and while the dependence is far greater on the oil sector, the recent push by oil companies into more challenging plays, including tight oil and the Arctic, has required significant tax concessions from the government. By default, heavier burden has been transferred to the gas industry and expressed in the form of MET hikes to prevent a significant blow to budget revenues.

Case Study 1

What is the Russian political climate? How it is going to impact its LNG exports?(50 words)

How the government policies are hindering development of the LNG industries? ?(50 words)

If you were an investor would you invest in Russian LNG? ?(100 words)

Q3. The assumption of rational self-interest implies that people will choose to enrich themselves even if doing so violates the rights or property of others.

a. true

b. false

Q4. If you can earn $10 an hour as a retail clerk, $12 an hour as an office assistant, $16 an hour as a house painter, and $20 an hour repairing bicycles, what is your opportunity cost of working to repair bicycles?

a. $12 an hour

b. $10 an hour

c. $20 an hour

d. $16 an hour

Q5. In the graph of a production possibilities curve, both the horizontal and vertical axes measure the annual quantities of goods produced.

a. true

b. false

Q6. Scarcity arises because

a. international companies are slow to explore for new resources.

b. resources are finite and unable to meet all human wants and needs.

c. many countries waste goods because of inefficient political systems.

d. import taxes retard production.

Q7. A production possibilities curve with clothing and food on the axes shows which of the following?

I. A society cannot have an unlimited amount of each good.

II. For an efficient society, an increase in clothing production will necessitate a decrease in food production.

III. A society will always produce the maximum amount of both clothing and food.

a. II only

b. I only

c. III only

d. both I and II

Q8. All points on the production possibilities curve are efficient.

a. true

b. false

Q9. Economic growth can be pictured in a production possibilities curve diagram by

a. shifting the production possibilities curve out.

b. moving from right to left along the curve.

c. moving from left to right along the curve.

d. shifting the production possibilities curve in.

Q10. Suppose the current unemployment rate is 15 percent. If it rises to 20 percent,

a. the production possibilities curve will shift inward.

b. the economy will move closer to the production possibilities curve.

c. the economy will operate further inside the production possibilities curve.

d. the economy will move up along the production possibilities curve.

Q11. Clean air is a scarce resource.

a. true

b. false

Q12. Which of the following statements is FALSE?

a. A good is anything that gives satisfaction or happiness to individuals.

b. Wants may include humanitarian and altruistic goals.

c. Wants are unlimited and include all material and nonmaterial desires.

d. Economic goods are available in desired quantities at a zero price.

Q13. The current size of the U.S. labor force is less than 100 million workers.

a. true

b. false

Q14. The factors of production are

a. never as useful as people expect them to be.

b. valuable only because they are owned by corporations seeking to make a profit from them.

c. scarce resources.

d. abundant without limit on the planet.

Q15. Why do firms seek to use the least-cost combination of inputs?

a. because they won't be able to stay in business if they don't

b. because that is the combination that their employees prefer

c. because managers and supervisors find their jobs are easiest when the least-cost combination is used

d. because they want to keep costs low in order to appear to the media as a well-run business

Q16. Which one of the following best describes how economists view prices?

a. Low prices are good; high prices are bad.

b. High prices are good; low prices are bad.

c. The best price is a fair price.

d. Prices are signals of relative scarcity.

Q17. The person who creates a product innovation and brings it to market is providing the resource of

a. labor.

b. land.

c. entrepreneurship.

d. capital.

Q18. Gifts of nature used in the production process are considered

a. entrepreneurship.

b. labor.

c. land.

d. capital.

Q19. In a free market economy,

a. government decides what is produced, and producers decide who gets to consume it.

b. as a good becomes relatively more scarce, its price declines.

c. firms choose only to produce the most fashionable goods, regardless of the cost of production.

d. goods and services are allocated by a price system.

Q20. Resources are also known as

a. stocks, bonds, and other financial instruments.

b. minerals.

c. factors of production.

d. factories.

Q21. The size of the U.S. labor force has declined over the past 20 years as many jobs have been outsourced from the United States to other countries.

a. true

b. false

Q22. Which one of the following is TRUE?

a. The growth of the U.S. population over the next several decades will come from immigration.

b. Population growth makes a country poorer, because there are more mouths to feed.

c. Real per capita GDP can increase only if there is inflation.

d. Real per capita GDP can increase only if there is no inflation.

Q23. Which one of the following is FALSE?

a. The U.S. labor force will continue to grow through immigration.

b. Inflation stops economic growth.

c. Increased availability of reliable communication channels at lower and lower costs have led to companies relocating their manufacturing operations offshore.

d. The size of the U.S. labor force continues to grow despite many jobs being moved off-shore.

Q24. What is the purpose of a market system?

a. to facilitate efficient exchange

b. to encourage consumers to buy goods on credit

c. to ensure an equal distribution of income

d. to ensure that everyone is treated fairly

Q25. The market system is also called the price system because

a. people pay money in markets.

b. everything has a price tag.

c. rising prices are the signal to producers to make more of a particular good.

d. inflation is a disturbing problem.

Q26. Production refers to

a. any activity that causes a material conversion of an object.

b. any activity that results in the conversion of resources into goods and services that can be consumed.

c. any activity carried on by a firm, whether a corporation, partnership, or sole proprietorship.

d. physically producing material goods only.

Q27. An increase in the price of coffee, holding other things constant, will

a. decrease the demand for coffee.

b. increase the demand for coffee.

c. decrease the quantity of coffee demanded.

d. decrease the supply of coffee.

Q28. The supply curve shifts when the firm experiences a change in its production technology.

a. true

b. false

Q29. A surplus results when the quantity supplied exceeds the quantity demanded.

a. true

b. false

Q30. Table 3.1

Price per Constant-Quality Unit Quantity Demanded of Constant-Quality Units per Year Quantity Supplied of Constant-Quality Units per Year

$1.00 1,000 200

2.00 800 400

3.00 600 600

4.00 400 800

5.00 200 1,000

What condition characterizes a surplus?

a. Quantity supplied exceeds quantity demanded.

b. Quantity demanded exceeds quantity supplied.

c. Consumers are unhappy with the price.

d. Producers are unhappy with the price.

Q31. An increase in quantity demanded is caused by

a. an increase in income.

b. a decrease in the price of a complement.

c. a change in expectations about price in the future.

d. a decrease in the price of the good.

Q32. The demand curve is downward sloping because

a. price and quantity have a direct relationship.

b. price is always constant.

c. demand is based on supply.

d. price and quantity have an inverse relationship.

Q33. An increase in the price of one good will decrease the demand for a substitute good.

a. true

b. false

Q34. The market demand curve is the vertical summation of the demand curves of all the individuals in the market.

a. true

b. false

Q35. The equilibrium price of a good is a price that everyone is happy with.

a. true

b. false

Q36. Which one of the following would cause a rightward shift of the supply curve?

a. A new tax is imposed on production of the good.

b. Some firms that have been producing the good go out of business.

c. Firms producing the good find ways of lowering their production costs.

d. There is an increase in demand for the good.

Q37. Which of the following is a determinant of demand?

a. cost of production

b. number of suppliers

c. technology of production

d. income

Q38. The market demand curve for a particular good

a. will not be affected by any of the determinants of individual demand.

b. is the horizontal sum of each individual demand curve for the good.

c. will show a direct relationship between price and quantity demanded.

d. may be less than an individual demand curve for the good.

Q39. Table 4.4

Quantity of CDs Purchased Total Utility Marginal Utility

1 75

2 135

3 185

4 35

5 25

6 15

According to Table 4.4, what is the total utility when six CDs are purchased?

a. 65

b. 260

c. 120

d. 220

Q40. A rational consumer will never purchase a product when its

a. marginal utility is decreasing.

b. total utility is decreasing.

c. marginal utility is slightly positive.

d. marginal utility is negative.

Q41. The price elasticity of demand becomes relatively greater as more substitutes are easily available.

a. true

b. false

Q42. Which of the following statements is true with respect to total utility and marginal utility?

a. Marginal utility is always equal to total utility.

b. Total utility will always be negative when marginal utility is positive.

c. Total utility is minimized when marginal utility is zero.

d. Marginal utility can decline as total utility rises.

Q43. Table 4.3

Quantityof Soda Marginal Utility of Soda Quantityof Pizza Marginal Utility of Pizza

1 50 1 100

2 25 2 80

3 0 3 60

4 -25 4 40

After consuming what quantity of soda does the consumer in Table 4.3 experience diminishing marginal utility?

a. 2

b. 3

c. 1

d. 4

Q44. If the price elasticity of demand is 0.5, a 10 percent increase in the price will cause

a. the quantity demanded to decrease by 20 percent.

b. the quantity demanded to decrease by 50 percent.

c. the quantity demanded to increase by 50 percent.

d. the quantity demanded to decrease by 5 percent.

Q45. Which one of the following would make the demand for satellite subscription TV relatively less elastic?

a. The cost of administering the satellite service is lowered.

b. Cable TV service becomes less widely available.

c. Other networks of wireless entertainment become more widely available.

d. The cost of transmitting satellite signals is lowered.

Q46. A price increase will cause a relatively large drop in quantity demanded when

a. demand is perfectly inelastic.

b. the price elasticity of demand is 0.

c. there is very little time allowed for consumers to react.

d. the consumer has easy access to a number of substitute goods.

Q47. Table 4.6

Price Quantity Demanded

$20 90

$16 110

$12 130

$ 8 150

According to the data in Table 4.6, what is the elasticity of demand between a price of $20 and a price of $16?

a. 0.60

b. 0.75

c. 0.90

d. 1.25

Q48. Price elasticity of demand is the responsiveness

a. of the quantity demanded to changes in supply.

b. of the quantity demanded to changes in income.

c. of the quantity demanded to changes in price.

d. of the quantity demanded to changes in quantity.

Q49. Everyone who views the latest adventure movie in theaters will derive the same utility from seeing it.

a. true

b. false

Q50. The law of diminishing marginal utility asserts that total utility becomes negative when marginal utility begins to diminish.

a. true

b. false

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