The Institute of Cost And Management Accountants of Bangladesh

An Assignment on
EF113
BUSINESS ECONOMICS & INTERNATIONAL BUSINESS

Submitted by:

Name:
Registration Number:
 Answer to the Question No:1

(A)

Economists use theories and models as analytical tools to understand and explain economic issues.
Here's how they typically utilize them:
1. Theory Development: Economists develop theories based on observations of economic
phenomena. These theories aim to simplify and generalize real-world economic relationships.
2. Model Building: Economists create models based on economic theories. These models are
simplified representations of the real economy, typically consisting of equations or diagrams
that capture the essential elements of economic behavior.
3. Assumptions: Models are built on a set of assumptions. These assumptions simplify reality and
allow economists to focus on specific economic relationships. While assumptions may not
always hold in the real world, they are necessary for the model's analytical tractability.
4. Prediction and Explanation: Economists use models to make predictions about economic
outcomes or to explain past events. By manipulating variables within the model, economists can
simulate different scenarios and understand how changes in one variable affect others.
5. Policy Analysis: Models are often used to analyze the potential effects of economic policies.
Economists can use models to assess the likely outcomes of policy interventions, such as
changes in taxes, government spending, or regulations.
6. Understanding Trade-offs: Models help economists understand the trade-offs involved in
economic decision-making. For example, they can analyze the trade-off between inflation and
unemployment using the Phillips curve, or the trade-off between efficiency and equity in
welfare economics.
7. Testing Hypotheses: Economists use models to test hypotheses about economic behavior. By
comparing model predictions with real-world data, economists can evaluate the validity of their
theories and refine their understanding of economic phenomena.
8. Communication: Models provide a common language for economists to communicate with
each other and with policymakers. By presenting their analysis in a structured and formalized
way, economists can convey complex ideas more clearly and rigorously.
Overall, theories and models serve as powerful tools for economists to organize their thinking, analyze
economic issues, and provide insights that inform both academic research and policy decisions.
However, it's important to recognize the limitations of models and the need for careful interpretation
when applying their findings to real-world situations.
 (B)
Below is a simple graphical representation of supply and demand curves:

Price (P)
|
S | D
u | \
p | \
p | \
l | \
y | \
| \
| \
-----|--------------|-----
| Quantity (Q)
|
|
In this graph:
• The horizontal axis represents Quantity (Q).
• The vertical axis represents Price (P).
• "S" denotes the Supply curve, which typically slopes upward from left to right, indicating that
as the price increases, the quantity supplied increases.
• "D" denotes the Demand curve, which typically slopes downward from left to right, indicating
that as the price decreases, the quantity demanded increases.
• The point where the supply and demand curves intersect is the equilibrium point.
• The equilibrium price is the price at which the quantity demanded equals the quantity supplied.
• The equilibrium quantity is the quantity bought and sold at the equilibrium price.
 (C)

Equilibrium in the market refers to a state where the quantity demanded by consumers equals the
quantity supplied by producers at a particular price level. In other words, it is the point where the
demand curve intersects with the supply curve. At equilibrium, there is no shortage or surplus of goods
or services in the market, and both buyers and sellers are satisfied with the prevailing price and
quantity.
There are several forces or mechanisms that push the price and quantity towards equilibrium:
1. Price Adjustment: If the price is higher than the equilibrium price, there will be a surplus of
goods or services as the quantity supplied exceeds the quantity demanded. In response to this
surplus, sellers will lower their prices to attract more buyers. Conversely, if the price is lower
than the equilibrium price, there will be a shortage, and sellers will raise their prices to
capitalize on the excess demand. Through this process of price adjustment, the market moves
towards equilibrium.
2. Consumer Behavior: When prices are higher than the equilibrium level, consumers tend to
demand less because goods or services become relatively expensive. Conversely, when prices
are lower than equilibrium, consumers are incentivized to buy more because goods or services
are perceived as relatively cheap. This change in consumer behavior helps to adjust the quantity
demanded towards equilibrium.
3. Producer Behavior: Similarly, when prices are higher than equilibrium, producers are inclined
to supply more goods or services to take advantage of higher profits. On the other hand, when
prices are lower than equilibrium, producers may reduce production or supply less because
selling at lower prices may lead to losses. This change in producer behavior helps to adjust the
quantity supplied towards equilibrium.
4. Market Signals: Prices act as signals in the market, conveying information about scarcity,
demand, and supply conditions. When prices deviate from equilibrium, these signals prompt
adjustments in behavior from both buyers and sellers, as they seek to optimize their welfare or
profits. These adjustments eventually lead the market back towards equilibrium.
Overall, the tendency towards equilibrium in the market is driven by the self-interested actions of
buyers and sellers, responding to changes in prices and market conditions to maximize their utility or
profits. This process of adjustment ensures that markets clear, meaning that the quantity demanded
equals the quantity supplied, resulting in an efficient allocation of resources.
 Answer to the Question No:2
(A)
The relationship between diminishing returns (or increasing marginal cost) and the supply curve is
crucial in understanding how producers determine the quantity of goods or services they are willing to
supply at various price levels. Diminishing returns and increasing marginal costs both affect the shape
and slope of the supply curve.
1. Diminishing Returns: This economic concept suggests that as a firm increases the input of one
factor of production (such as labor or capital), while keeping other factors constant, the
marginal output or productivity of that input will eventually decrease. In simpler terms, each
additional unit of input contributes less and less to total output. This phenomenon is often
depicted by a production function where the marginal product of labor, for example, starts to
decrease beyond a certain level of employment.
2. Increasing Marginal Cost: Increasing marginal cost refers to the additional cost incurred by a
firm to produce one more unit of output. When a firm experiences diminishing returns, it means
that to produce each additional unit of output, it needs to use more resources, which translates
into higher costs. This leads to an upward-sloping marginal cost curve.
Now, let's see how these concepts relate to the supply curve:
• Supply Curve: The supply curve represents the relationship between the price of a good or
service and the quantity supplied by producers. Generally, the supply curve slopes upward from
left to right, indicating that as the price increases, producers are willing to supply more goods or
services.
• Impact of Diminishing Returns/Increasing Marginal Cost on Supply Curve: Diminishing
returns and increasing marginal costs influence the shape and slope of the supply curve in the
following ways:
• As the firm produces more output, it may encounter diminishing returns, meaning that
additional units of output become more costly to produce.
• Increasing marginal costs lead to higher production costs for each additional unit of
output, causing firms to require higher prices to justify supplying more goods or
services.
• Consequently, as the price of the good or service increases, firms are willing to supply
more to cover the rising costs and earn a profit.
• This relationship results in an upward-sloping supply curve, reflecting the positive
relationship between price and quantity supplied, while also considering the influence of
diminishing returns and increasing marginal costs on production decisions.
In summary, diminishing returns and increasing marginal costs are fundamental concepts that influence
the behavior of producers and the shape of the supply curve. As firms encounter diminishing returns
and face higher marginal costs, they require higher prices to supply additional units of output, leading
to an upward-sloping supply curve in most cases.
 (B)

Allocative efficiency and productive efficiency are two important concepts in economics that describe
different aspects of resource allocation and production.
1. Productive Efficiency:
• Productive efficiency occurs when goods and services are produced at the lowest
possible cost. In other words, it means producing goods and services using the fewest
possible resources, or producing the maximum output from a given set of inputs.
• Productive efficiency is achieved when firms operate on the production possibility
frontier (PPF), also known as the production frontier or production efficiency curve.
This represents the maximum output that can be produced with the available resources
and technology.
• When a firm is producing at a point on the PPF, it means that resources are being used
efficiently, and there is no way to produce more of one good without sacrificing the
production of another good.
2. Allocative Efficiency:
• Allocative efficiency refers to the allocation of resources in a way that maximizes
society's welfare or utility. It occurs when resources are allocated to produce the mix of
goods and services that best satisfies society's preferences or desires.
• Allocative efficiency is achieved when the marginal benefit (utility or satisfaction) of
consuming a good or service is equal to its marginal cost (the opportunity cost of
producing it). In other words, it means that resources are allocated in such a way that the
value society places on the last unit of a good or service produced is equal to the cost of
producing it.
• Achieving allocative efficiency requires that resources be allocated among different
goods and services in a manner that reflects consumer preferences and demand.
Relationship between Allocative and Productive Efficiency:
• Productive efficiency is a prerequisite for allocative efficiency. In order to achieve allocative
efficiency, it is necessary to first achieve productive efficiency. This is because allocative
efficiency requires producing goods and services at the lowest possible cost, which is what
productive efficiency ensures.
• However, achieving productive efficiency does not guarantee allocative efficiency. Even if
goods are produced at the lowest possible cost, they may not be the goods that society desires
the most. Allocative efficiency requires that the mix of goods and services produced matches
society's preferences, which may not always align with what can be produced most efficiently.
• Therefore, while productive efficiency is necessary for allocative efficiency, achieving
allocative efficiency also involves considerations of consumer preferences, demand, and social
welfare, in addition to production efficiency.
 C

The cost of capital is a critical concept for firms as it represents the cost of obtaining funds to finance
their operations and investments. It's the rate of return that the firm must earn on its investments to
satisfy its investors or creditors.
Significance of the firm's cost of capital:
1. Investment Decisions: The cost of capital is used as a benchmark for evaluating investment
projects. Firms compare the expected return on investment with the cost of capital to determine
whether the project is economically viable. Projects expected to generate returns higher than the
cost of capital are typically pursued, as they add value to the firm.
2. Capital Structure Decisions: Firms must decide how to finance their operations, whether
through equity (stock) or debt (bonds or loans). The cost of capital helps in determining the
optimal mix of equity and debt financing to minimize the overall cost of capital and maximize
the firm's value.
3. Financial Performance Evaluation: The cost of capital serves as a measure of the firm's
financial performance. If the firm earns returns above its cost of capital, it creates value for its
investors. Conversely, if the returns fall below the cost of capital, the firm may be destroying
value.
Factors determining the cost of capital:
1. Risk-Free Rate: The cost of capital often begins with the risk-free rate, such as the yield on
government bonds, which represents the minimum return investors expect for investing in a
risk-free asset.
2. Market Risk Premium: Investors demand an additional return for bearing market risk, which
is captured by the market risk premium. This premium reflects the excess return that investors
expect from investing in stocks over risk-free assets.
3. Beta: Beta measures the sensitivity of an asset's returns to changes in the overall market. The
higher the beta, the greater the risk and hence the higher the required rate of return.
4. Cost of Debt: For firms that use debt financing, the cost of debt is the interest rate the firm must
pay on its debt obligations.
5. Weighted Average Cost of Capital (WACC): WACC is the weighted average of the cost of
equity and the after-tax cost of debt, weighted by the proportion of equity and debt in the firm's
capital structure.
Estimating the cost of capital:
1. Cost of Equity: This can be estimated using various models such as the Capital Asset Pricing
Model (CAPM), Dividend Discount Model (DDM), or the Arbitrage Pricing Theory (APT).
2. Cost of Debt: The cost of debt is typically the yield to maturity on the firm's existing debt or the
current interest rate on new debt issuance.
 3. Weighted Average Cost of Capital (WACC): Once the cost of equity and cost of debt are
estimated, WACC can be calculated using the weights of equity and debt in the firm's capital
structure.
Overall, estimating the cost of capital accurately is crucial for firms to make informed investment and
financing decisions, thereby maximizing shareholder value.
 Answer to the Question No:3
(A)
The kinked demand curve model of oligopoly is a theoretical framework that suggests firms in an
oligopolistic market face a demand curve with a kink at the current price level. Below the kink, the
demand curve is relatively elastic because if one firm lowers its price, others will likely follow suit to
avoid losing market share, leading to a significant decrease in quantity demanded. Above the kink, the
demand curve is relatively inelastic because if one firm raises its price, others will not necessarily
follow suit, resulting in a smaller decrease in quantity demanded.
However, as the statement suggests, the kinked demand curve model has faced criticism both
theoretically and empirically:
1. Empirical Criticisms:
• Empirical evidence supporting the kinked demand curve model is limited. It's
challenging to observe and measure the precise shape of demand curves in oligopolistic
markets due to the complexity of market interactions and strategic behavior among
firms.
• Additionally, real-world markets often exhibit a variety of pricing behaviors that do not
neatly fit the assumptions of the kinked demand curve model.
2. Theoretical Criticisms:
• The kinked demand curve model relies on several simplifying assumptions, such as
identical cost structures among firms, fixed demand, and no capacity constraints, which
may not hold in real-world markets.
• Critics argue that the model lacks a solid foundation in economic theory and is more of
an ad hoc explanation for observed pricing behavior in certain cases.
Alternative models of oligopoly have been proposed to address some of these criticisms and provide a
more robust framework for understanding oligopolistic behavior:
1. Game Theory Models:
• Game theory provides a powerful framework for analyzing strategic interactions among
firms in oligopolistic markets. Models such as the Cournot, Bertrand, and Stackelberg
models allow for more nuanced analyses of firms' pricing and output decisions based on
their strategic interactions.
2. Price Leadership Models:
• Price leadership models posit that one firm in the oligopoly sets the price, and other
firms follow suit. This can be either explicit, where a dominant firm sets the price, or
implicit, where firms tacitly follow the price changes of a leading firm.
 3. Collusion and Cartel Models:
• These models examine situations where firms collude to restrict output and raise prices,
such as in cartel arrangements. While collusion is often illegal and subject to
enforcement, it remains an important aspect of oligopolistic behavior.
4. Entry and Exit Models:
• These models analyze how the threat of entry or exit of firms affects market behavior
and outcomes. Entry of new firms can disrupt existing market structures and change
competitive dynamics.
In conclusion, while the kinked demand curve model has been criticized for its empirical and
theoretical limitations, alternative models of oligopoly offer more sophisticated and nuanced
explanations of oligopolistic behavior. These models draw upon game theory, strategic interactions, and
market dynamics to provide a more comprehensive understanding of how firms in oligopolistic markets
make pricing and output decisions.
 (B)
The decision-making process of a firm regarding its machinery would be influenced by various factors,
including its financial position and the knowledge that the machinery is to be scrapped after the next
production run:
(i) The firm's precarious financial position:
• If the firm is in a precarious financial position, it may prioritize short-term cost-saving measures
to improve its financial stability.
• The decision regarding the machinery may be influenced by considerations such as the
immediate availability of funds, the cost of repairs or maintenance, and the impact on cash flow.
• The firm may opt to delay or avoid investing in new machinery if it cannot afford the upfront
costs or if it needs to preserve cash for other critical expenses.
• Alternatively, if the machinery is essential for maintaining operations or enhancing productivity,
the firm may seek financing options or explore cost-effective alternatives to address its financial
constraints.
(ii) The knowledge that the machinery is to be scrapped after the next production run:
• If the firm knows that the machinery will be scrapped after the next production run, its decision-
making process may focus on short-term optimization rather than long-term investment.
• The firm may choose to continue using the machinery until the end of its useful life, prioritizing
immediate production needs over long-term investment in new equipment.
• However, if the machinery's performance is deteriorating or if it poses safety risks, the firm may
need to consider alternative options, such as leasing or renting equipment, to ensure continuity
of operations while minimizing costs.
• Additionally, the firm may explore strategies to maximize the remaining value of the machinery,
such as selling it for salvage or repurposing it for other uses, before it is scrapped.
In summary, the firm's decision regarding its machinery would be influenced by its financial position,
immediate production needs, and the knowledge of the machinery's impending scrappage. Balancing
short-term cost considerations with long-term operational requirements is essential for making
informed decisions that align with the firm's overall objectives and financial constraints.
 C
To find the required values, we'll use the following definitions and formulas:
1. GDP (Gross Domestic Product) = C + I + G + (X - M) Where:
• C = Personal Consumption Expenditures
• I = Gross Private Domestic Investment
• G = Government Expenditures for Goods and Services
• X = Exports
• M = Imports
2. Net Exports = X - M
3. GNP (Gross National Product) = GDP + Net Income from Abroad (Income Receipts - Income
Payments)
4. Depreciation (Capital Consumption Allowance) = Gross Private Domestic Investment - Net
Private Domestic Investment
5. National Income = Net National Product + Indirect Business Taxes
6. Wages and Salaries = Personal Income - (Rental Income + Net Interest + Corporate Profits
Taxes + Corporate Profits + Proprietors' Income)
7. Percentage of Wages and Salaries of National Income = (Wages and Salaries / National Income)
* 100
8. Personal Income = Disposable Personal Income + Personal Taxes + Personal Saving
9. Personal Saving = Disposable Personal Income - Personal Consumption Expenditures
10.Percentage of Personal Saving of Disposable Personal Income = (Personal Saving / Disposable
Personal Income) * 100
Let's calculate each value using the provided information:
1. GDP: GDP = $9785.7 (Personal Consumption Expenditures) + $2162.9 (Gross Private
Domestic Investment) + $2716.5 (Government Expenditures for Goods and Services) +
($1685.7 - $2380.4) (Exports - Imports) GDP = $9785.7 + $2162.9 + $2716.5 - $694.7 GDP =
$14370.4
2. Net Exports: Net Exports = Exports - Imports Net Exports = $1685.7 - $2380.4 Net Exports = -
$694.7
3. GNP: GNP = GDP + (Income Receipts from rest of world - Income Payments to rest of world)
GNP = $14370.4 + ($855.6 - $754.9) GNP = $14370.4 + $100.7 GNP = $14471.1
 4. Depreciation (Capital Consumption Allowance): Depreciation = Gross Private Domestic
Investment - Net Private Domestic Investment Depreciation = $2162.9 - $330.8 Depreciation =
$1832.1
5. National Income: National Income = Net National Product + Indirect Business Taxes National
Income = $12380.8 + $919.0 National Income = $13399.8
6. Wages and Salaries: Wages and Salaries = Personal Income - (Rental Income + Net Interest +
Corporate Profits Taxes + Corporate Profits + Proprietors' Income) Wages and Salaries =
$10257.5 - ($62.1 + $1171.1 + $469.4 + $1208.9 + $1038.4) Wages and Salaries = $10257.5 -
$4949.9 Wages and Salaries = $5307.6
7. Percentage of Wages and Salaries of National Income: Percentage of Wages and Salaries =
(Wages and Salaries / National Income) * 100 Percentage of Wages and Salaries = ($5307.6 /
$13399.8) * 100 Percentage of Wages and Salaries = 39.6%
8. Personal Income: Personal Income = Disposable Personal Income + Personal Taxes + Personal
Saving Personal Income = $10257.5 + $981.5 + Personal Saving (which needs to be calculated)
9. Personal Saving: Personal Saving = Disposable Personal Income - Personal Consumption
Expenditures Personal Saving = $10257.5 - $9785.7 Personal Saving = $471.8
10.Percentage of Personal Saving of Disposable Personal Income: Percentage of Personal Saving =
(Personal Saving / Disposable Personal Income) * 100 Percentage of Personal Saving = ($471.8
/ $10257.5) * 100 Percentage of Personal Saving = 4.6%
These calculations provide the values requested.
 Answer to the Question No.4:
(A)
The business cycle refers to the recurring pattern of expansion and contraction in economic activity
over time. It represents fluctuations in real GDP (output), employment levels, and the general price
level (inflation) within an economy. The business cycle consists of four main phases: expansion, peak,
contraction, and trough.
1. Expansion:
• Output: During the expansion phase, economic activity is increasing, leading to rising
levels of real GDP. Businesses experience higher demand for goods and services,
leading to increased production and investment.
• Employment: As output increases, firms hire more workers to meet growing demand.
Employment levels rise, and unemployment rates typically decline as more people find
jobs.
• Inflation: With increasing demand for goods and services and tighter labor markets,
prices may begin to rise. However, inflation tends to be moderate during the early stages
of expansion.
2. Peak:
• Output: The peak represents the highest point of economic activity in the business cycle.
Real GDP reaches its maximum level, and the economy operates at or near full capacity.
• Employment: At the peak, employment levels are high, and labor markets may become
tight as businesses struggle to find skilled workers. Unemployment rates are typically
low.
• Inflation: Inflationary pressures may intensify as demand for goods and services exceeds
supply. Prices begin to rise more rapidly as businesses pass on higher production costs to
consumers.
3. Contraction:
• Output: During the contraction phase, economic activity begins to slow down, leading to
a decline in real GDP. Demand for goods and services weakens, leading to reduced
production and investment.
• Employment: As output falls, firms may cut back on production and lay off workers to
reduce costs. Employment levels decline, and unemployment rates start to rise as more
people lose their jobs.
• Inflation: Inflationary pressures ease as demand weakens and businesses reduce prices to
attract customers. In some cases, prices may even fall, leading to deflation.
4. Trough:
 • Output: The trough represents the lowest point of the business cycle, where economic
activity reaches its lowest level. Real GDP is at its minimum, and the economy operates
well below full capacity.
• Employment: At the trough, unemployment rates are high as businesses continue to cut
jobs to adjust to lower demand. Workers may struggle to find employment, leading to
increased economic hardship.
• Inflation: Inflationary pressures remain subdued as demand remains weak and
businesses continue to lower prices. In some cases, deflationary pressures may persist as
prices continue to fall.
Here's a hypothetical graph of a business cycle, with the four phases labeled:

| Expansion | Contraction |
| | |
Output/Employment|----------------------------|--------------------------------|
| | |
Inflation| /\ Peak /\ | Trough /\ |
| / \ / \ | / \ |
| / \ / \ | / \ |
| / \ / \ | / \ |
|_____/________\___/________\_|____________/________\__________|
| |
| |
Time Time
In summary, the business cycle describes the fluctuations in economic activity over time, with distinct
phases characterized by changes in output, employment, and inflation. Understanding the business
cycle is essential for policymakers, businesses, and investors to anticipate and respond to economic
changes effectively.
 (B)
Here are the definitions of each type of unemployment:
1. Frictional Unemployment:
• Frictional unemployment refers to the temporary unemployment that occurs when
individuals are transitioning between jobs or entering the workforce for the first time.
• It is often considered a natural and inevitable part of a healthy labor market as workers
search for better job opportunities that match their skills and preferences.
• Frictional unemployment can also result from changes in demand for certain skills or
occupations, leading to mismatches between available jobs and workers' qualifications.
• Examples include recent graduates searching for their first job, workers relocating to
new cities, or individuals taking time off to search for a better job match.
2. Structural Unemployment:
• Structural unemployment occurs when there is a mismatch between the skills and
qualifications of workers and the requirements of available jobs.
• This type of unemployment typically arises due to long-term changes in the economy,
such as technological advancements, shifts in consumer preferences, or changes in the
structure of industries.
• Structural unemployment may result in certain industries or occupations experiencing
declining demand for labor, leading to persistent unemployment among workers with
obsolete skills or in declining sectors.
• Addressing structural unemployment often requires policies aimed at retraining and
reskilling workers to match the evolving needs of the labor market or promoting
mobility across regions and industries.
3. Cyclical Unemployment:
• Cyclical unemployment is associated with fluctuations in the business cycle and occurs
when there is a downturn in economic activity, leading to a temporary decline in demand
for goods and services.
• During economic recessions or contractions, businesses may reduce production and lay
off workers due to weak demand, leading to an increase in cyclical unemployment.
• Cyclical unemployment tends to be closely related to the overall state of the economy,
with unemployment rates rising during periods of recession and falling during periods of
economic expansion.
• Policy responses to cyclical unemployment often focus on stimulating aggregate demand
through fiscal and monetary measures to spur economic growth and job creation.
4. Natural Unemployment:
• Natural unemployment refers to the level of unemployment that exists in the economy at
full employment or when the economy is operating at its potential output level.
• It consists of frictional unemployment and structural unemployment and reflects the
normal level of job turnover and mismatch between available jobs and workers' skills.
• Natural unemployment is also sometimes referred to as the non-accelerating inflation
rate of unemployment (NAIRU) or the full employment unemployment rate.
• Policy efforts to reduce natural unemployment typically focus on addressing structural
impediments to labor market efficiency, such as improving education and training
programs, reducing regulatory barriers to employment, and promoting labor market
flexibility.
 Answer to the Question No.5
(A)
Bangladesh, like many other countries, employs various economic policies to achieve its economic
goals and address specific challenges. Some of the key economic policies of Bangladesh include:
1. Industrial Policy:
• Bangladesh has implemented industrial policies aimed at promoting industrialization and
economic diversification. These policies include providing incentives for investment in
key sectors, such as textiles and garments, pharmaceuticals, and information technology.
• The government also supports the development of Special Economic Zones (SEZs) to
attract foreign investment and promote export-oriented industries.
2. Export Promotion:
• Bangladesh places a strong emphasis on export promotion as a key driver of economic
growth. The country's ready-made garment (RMG) industry is a major contributor to
exports, accounting for a significant portion of total export earnings.
• The government provides various incentives and support measures to encourage exports,
such as export subsidies, duty drawbacks, and trade facilitation initiatives.
3. Infrastructure Development:
• Bangladesh recognizes the importance of infrastructure development in supporting
economic growth and improving living standards. The government invests in
infrastructure projects such as roads, ports, airports, and power generation to enhance
connectivity, reduce transportation costs, and attract investment.
4. Agricultural Development:
• Agriculture plays a vital role in Bangladesh's economy, employing a significant portion
of the population and contributing to food security and rural livelihoods. The
government implements policies to support agricultural development, including
investment in irrigation, mechanization, and agricultural extension services.
• Initiatives to increase crop productivity, promote diversification, and improve access to
credit and technology are also prioritized.
5. Social Safety Nets:
• Bangladesh has implemented various social safety net programs to address poverty,
vulnerability, and social inequality. These programs include cash transfer schemes, food
assistance programs, and employment generation initiatives targeting the poorest and
most vulnerable segments of society.
 6. Financial Inclusion:
• The government promotes financial inclusion and access to financial services,
particularly for underserved rural and low-income populations. Initiatives such as
microfinance programs, mobile banking, and rural credit schemes aim to expand access
to finance, promote savings, and support entrepreneurship and small-scale enterprises.
7. Investment Climate Improvement:
• Bangladesh is committed to improving its investment climate to attract both domestic
and foreign investment. Efforts to streamline regulatory processes, reduce bureaucratic
hurdles, enhance investor protection, and strengthen intellectual property rights are
ongoing.
Overall, these economic policies reflect Bangladesh's commitment to achieving sustainable and
inclusive economic growth, reducing poverty, and enhancing the well-being of its citizens. However,
challenges such as infrastructure constraints, governance issues, and natural disasters continue to pose
obstacles to economic development in the country.
 (B)
Addressing corruption and political instability in Bangladesh requires comprehensive political and
judiciary reforms aimed at promoting transparency, accountability, and the rule of law. Some necessary
reforms include:
1. Anti-Corruption Measures:
• Strengthening anti-corruption institutions and bodies, such as the Anti-Corruption
Commission (ACC), by providing them with adequate resources, authority, and
independence to investigate and prosecute corruption cases.
• Implementing strict laws and penalties for corruption offenses, including measures to
hold both public officials and private individuals accountable for corrupt practices.
• Promoting transparency and accountability in government procurement processes, public
spending, and financial transactions through mechanisms such as open bidding, public
disclosure of contracts, and auditing procedures.
2. Judicial Reforms:
• Ensuring the independence and impartiality of the judiciary by reducing political
interference, improving judicial appointments and promotions based on merit, and
strengthening judicial ethics and accountability mechanisms.
• Enhancing the capacity and efficiency of the judicial system by investing in
infrastructure, technology, and training for judges, court staff, and legal professionals.
• Expediting the resolution of legal cases and reducing backlog through procedural
reforms, alternative dispute resolution mechanisms, and specialized courts for handling
corruption and other high-profile cases.
3. Electoral Reforms:
• Implementing electoral reforms to ensure free, fair, and transparent elections, including
measures to prevent vote rigging, electoral fraud, and political violence.
• Enhancing the independence and effectiveness of the Election Commission by
strengthening its regulatory powers, improving voter registration processes, and ensuring
equal access to media for all political parties.
• Promoting political pluralism, inclusivity, and participation by fostering a conducive
environment for opposition parties, civil society organizations, and independent media.
4. Political Party Reforms:
• Promoting internal democracy and accountability within political parties by establishing
transparent nomination processes, intra-party elections, and mechanisms for disciplinary
action against members involved in corruption or misconduct.
 • Encouraging greater transparency and disclosure of political party finances, including
sources of funding, campaign expenditures, and assets owned by party leaders and
officials.
5. Civil Society Engagement:
• Facilitating active participation and oversight by civil society organizations, human
rights groups, and the media in monitoring government activities, exposing corruption,
and advocating for reform.
• Protecting the rights of activists, journalists, and whistleblowers who expose corruption
and abuse of power by ensuring their safety, freedom of expression, and access to legal
recourse.
These reforms require political will, institutional commitment, and active engagement from all
stakeholders, including government institutions, political parties, civil society, and the international
community. A concerted effort to implement these reforms can contribute to strengthening democratic
governance, enhancing the rule of law, and combating corruption and political instability in
Bangladesh.
 C
A strong and effective taxation system can play a crucial role in ensuring the implementation of future
socio-economic development in Bangladesh based on internal resources. Here's how:
1. Increased Revenue Generation:
• A well-designed taxation system can help the government generate substantial revenue,
which can be allocated towards funding various development projects and programs.
This revenue can be used to invest in infrastructure development, education, healthcare,
social welfare, and other priority areas for socio-economic development.
2. Reduced Dependency on External Financing:
• By relying on internal resources through taxation, Bangladesh can reduce its dependency
on external financing sources such as foreign aid and loans. This reduces the country's
vulnerability to external shocks and fluctuations in global financial markets, enhancing
economic stability and sustainability.
3. Equitable Distribution of Wealth:
• A progressive taxation system can contribute to a more equitable distribution of wealth
and income in society. By imposing higher tax rates on the wealthy and providing tax
breaks or exemptions for low-income individuals and vulnerable groups, the government
can redistribute resources to reduce poverty and inequality.
4. Incentives for Investment and Growth:
• Tax policies can be used to provide incentives for investment, entrepreneurship, and
economic growth. For example, offering tax credits or deductions for investments in
priority sectors, research and development activities, and job creation can stimulate
private sector participation and innovation, driving economic development.
5. Improved Governance and Accountability:
• A transparent and accountable taxation system fosters good governance by promoting
fiscal responsibility, accountability, and transparency in public financial management.
Tax revenues collected from citizens create a sense of ownership and accountability
among government officials, ensuring that resources are allocated efficiently and
effectively towards development priorities.
6. Enhanced Public Services and Infrastructure:
• Adequate tax revenue enables the government to invest in public services and
infrastructure essential for socio-economic development, such as education, healthcare,
transportation, utilities, and sanitation. Improving access to quality public services
enhances human capital development, boosts productivity, and improves living standards
for the population.
7. Fiscal Stability and Resilience:
 • A well-functioning taxation system contributes to fiscal stability and resilience by
providing a steady and predictable source of revenue for the government. This enables
the government to better manage fiscal deficits, maintain debt sustainability, and respond
to economic shocks or emergencies without resorting to excessive borrowing or austerity
measures.
Overall, a strong and effective taxation system can serve as a cornerstone for sustainable socio-
economic development in Bangladesh by mobilizing internal resources, promoting equitable growth,
fostering good governance, and improving the quality of life for its citizens. However, it's essential to
ensure that taxation policies are fair, transparent, and aligned with development objectives to maximize
their positive impact on the economy and society.
 Answer to the Question No.6:
(A)
Perceived external export stimuli encompass various factors that influence a firm's decision to engage
in export business. These factors include:
1. Market Potential: The perceived demand and growth potential in foreign markets play a
significant role in encouraging firms to export. Assessments of market size, purchasing power,
and consumer preferences are crucial.
2. Competitive Pressures: Competitors' activities and market shares in both domestic and
international markets can push firms to explore export opportunities to remain competitive or
gain an edge.
3. Government Policies and Incentives: Government policies, such as trade agreements, export
subsidies, tax incentives, and supportive regulatory frameworks, can encourage firms to enter
export markets.
4. Trade Barriers and Tariffs: Reductions in trade barriers and tariffs through international
agreements or government initiatives can make exporting more attractive by lowering costs and
increasing market access.
5. Technological Advancements: Advances in communication, transportation, and information
technologies have made it easier for firms to engage in international trade, facilitating access to
foreign markets and reducing transaction costs.
6. Resource Availability: Factors such as availability of raw materials, skilled labor, and
production capacity may influence firms to explore export opportunities, especially if domestic
demand is saturated or resources are underutilized.
7. Economic Conditions: Economic factors such as exchange rates, inflation rates, interest rates,
and economic stability can impact the attractiveness of exporting by affecting costs, pricing
competitiveness, and market demand.
8. Market Risks and Opportunities: Assessments of risks associated with domestic market
saturation, economic downturns, or political instability may motivate firms to diversify their
markets through export activities, seizing opportunities for growth and expansion.
9. Customer Demand: In response to inquiries or requests from foreign customers or distributors,
firms may consider exporting as a means to fulfill demand and expand their customer base.
10.Globalization and Market Integration: Increasing globalization and market integration trends
have led firms to explore export opportunities as a way to tap into global supply chains, access
new markets, and benefit from economies of scale.
These factors interact in complex ways and can vary depending on industry, company size, and specific
market conditions. Firms typically evaluate a combination of these stimuli when making decisions
about entering or expanding their presence in export markets.
 (B)
The R&D (Research and Development) and Product Life Cycle theories are influential frameworks in
the field of international business, offering insights into how firms innovate, develop, and market
products globally. Here's a brief overview of each:
1. R&D Theory:
The R&D Theory posits that firms engage in international business to exploit their research and
development capabilities and gain a competitive advantage. Key points of this theory include:
• Innovation as a Driver: R&D Theory emphasizes innovation as a fundamental driver of
international expansion. Firms invest in R&D to develop new products, processes, or
technologies that can be commercialized and exported to international markets.
• Technological Superiority: Firms with advanced R&D capabilities can create products with
unique features, superior quality, or cost advantages, allowing them to penetrate foreign markets
and compete effectively against domestic and international rivals.
• Globalization of R&D: In today's interconnected world, firms increasingly engage in global
R&D activities, establishing research centers, partnerships, or collaborations across borders to
access talent, knowledge, and resources, and to adapt products to diverse market needs.
• Knowledge Spillovers: International R&D activities can lead to knowledge spillovers, where
insights and technologies developed for one market can be applied or transferred to other
markets, enhancing a firm's competitiveness globally.
• Strategic Alliances and Networks: Firms often form strategic alliances or networks with
universities, research institutions, or other companies to leverage complementary R&D
capabilities and access new markets or technologies.
2. Product Life Cycle Theory:
The Product Life Cycle Theory suggests that products go through distinct stages—introduction,
growth, maturity, and decline—and that firms' international strategies evolve accordingly. Key points
of this theory include:
• Introduction Stage: Initially, new products are introduced in domestic markets where firms
focus on product development and market penetration. Exporting may begin as firms seek to
explore foreign markets with similar preferences or early adopters.
• Growth Stage: As products gain acceptance and sales grow, firms expand internationally to
capitalize on emerging market opportunities. Exporting intensifies, and firms may establish
local subsidiaries, partnerships, or licensing agreements to support growth.
• Maturity Stage: In this phase, competition increases, and growth rates stabilize. Firms may
pursue differentiation strategies or enter new markets to prolong product life cycles.
International expansion continues, with a focus on market diversification and optimization of
production and distribution networks.
 • Decline Stage: Eventually, product demand declines due to saturation, obsolescence, or
changing consumer preferences. Firms may scale back international operations, discontinue
exports, or focus on product innovation or replacement to rejuvenate sales.
• Adaptation and Innovation: Throughout the product life cycle, firms adapt their marketing,
pricing, and distribution strategies to suit local market conditions and consumer preferences.
Innovation plays a crucial role in sustaining competitiveness and extending product life cycles.
Both R&D and Product Life Cycle theories underscore the importance of innovation, adaptation, and
strategic decision-making in firms' international expansion efforts, highlighting the dynamic nature of
global business environments and the need for continuous evolution and adaptation to succeed in
international markets.
 C
The Scale Economies Theory and the Synthesis Theory are both important frameworks in the field of
international business, providing insights into the factors that drive firms to engage in foreign
operations and the strategies they adopt to capitalize on international opportunities. Here's an overview
of each:
1. Scale Economies Theory:
The Scale Economies Theory suggests that firms engage in international business to exploit economies
of scale, achieving cost advantages through increased production volume or scope. Key points of this
theory include:
• Cost Reduction: Firms expand internationally to spread fixed costs over a larger output,
lowering average costs per unit and enhancing competitiveness. This is particularly relevant in
industries with high fixed costs, such as manufacturing or infrastructure.
• Global Production and Distribution Networks: International expansion allows firms to
establish global production and distribution networks, leveraging lower production costs, access
to cheaper inputs, or favorable labor markets in different countries.
• Market Expansion: By serving larger markets through international operations, firms can
achieve economies of scale in production, marketing, and distribution, enabling them to offer
competitive prices and capture market share from rivals.
• Risk Diversification: Diversifying operations across countries can reduce risks associated with
market fluctuations, regulatory changes, or geopolitical instability, enhancing firms' resilience
and long-term sustainability.
• Strategic Alliances and Mergers: Firms may form strategic alliances, joint ventures, or engage
in mergers and acquisitions to achieve economies of scale through shared resources,
complementary capabilities, or market consolidation.
2. Synthesis Theory:
The Synthesis Theory, also known as the Eclectic Paradigm or the OLI Framework (Ownership,
Location, Internalization), integrates various factors that influence firms' decisions to engage in
international business. Key components of this theory include:
• Ownership Advantages: Firms possess unique ownership advantages, such as proprietary
technology, brand reputation, management expertise, or access to financial resources, which
they seek to leverage in foreign markets to gain a competitive edge.
• Location Advantages: Firms select foreign locations based on factors such as market size,
growth prospects, resource availability, infrastructure, labor costs, regulatory environment, and
proximity to key suppliers or customers.
• Internalization Advantages: Firms choose to internalize their foreign operations rather than
relying on market mechanisms (e.g., licensing or outsourcing) when the benefits of control,
 coordination, and knowledge retention outweigh the costs. Internalization allows firms to
capture value from their unique advantages and maintain strategic flexibility.
• Dynamic Interaction: The Synthesis Theory emphasizes the dynamic interaction between
ownership, location, and internalization advantages, recognizing that firms continually adjust
their international strategies in response to changing market conditions, competitive pressures,
and internal capabilities.
• Strategic Decision-Making: Firms evaluate potential foreign investments based on the
alignment between their internal strengths and external opportunities, balancing the pursuit of
scale economies with other strategic objectives such as risk management, innovation, and
market differentiation.
Both the Scale Economies Theory and the Synthesis Theory highlight the multifaceted nature of
international business decisions, emphasizing the importance of strategic alignment, resource
optimization, and adaptability in firms' pursuit of competitive advantage and long-term success in
global ma
 Answer to the Question No.7:
(A)
The balance of trade and balance of payments are two key indicators used to assess a country's
economic performance in international trade and financial transactions:
1. Balance of Trade (BOT):
The balance of trade refers to the difference between the value of a country's exports and imports of
goods and services over a specific period, typically a year. It consists of:
• Trade Surplus: When the value of exports exceeds the value of imports, a country has a trade
surplus. This indicates that the country is exporting more than it is importing, leading to a
positive balance of trade.
• Trade Deficit: Conversely, when the value of imports exceeds the value of exports, a country
has a trade deficit. This implies that the country is importing more than it is exporting, resulting
in a negative balance of trade.
2. Balance of Payments (BOP):
The balance of payments is a comprehensive record of all economic transactions between residents of a
country and the rest of the world over a specified period, typically a year. It is divided into three main
components:
• Current Account: The current account records transactions related to trade in goods and
services, income (such as interest and dividends), and unilateral transfers (gifts, aid,
remittances). A surplus in the current account indicates that a country is earning more from its
exports and investments abroad than it is spending on imports and payments to foreign
investors.
• Capital Account: The capital account records transactions involving the purchase and sale of
assets, including foreign direct investment, portfolio investment, and changes in reserve assets
(such as central bank holdings of foreign currencies and gold). A surplus in the capital account
indicates that a country is receiving more capital inflows than outflows.
• Financial Account: The financial account records transactions related to changes in ownership
of financial assets and liabilities, such as foreign direct investment, portfolio investment, and
other investments. It also includes changes in reserve assets held by the central bank. A surplus
in the financial account indicates that a country is attracting more investment capital from
abroad than it is investing overseas.
Five Different Ways of Balance of Payments:
1. Surplus: When a country's total receipts from exports of goods, services, and financial
transactions exceed its total payments for imports and other international obligations, it has a
surplus in its balance of payments.
 2. Deficit: Conversely, when a country's total payments exceed its total receipts, it incurs a deficit
in its balance of payments.
3. Equilibrium: A balanced or equilibrium position occurs when a country's total receipts equal its
total payments, indicating that it neither has a surplus nor a deficit in its balance of payments.
4. Persistent Surplus: If a country consistently records surpluses in its balance of payments over
an extended period, it may accumulate large foreign exchange reserves, leading to potential
currency appreciation and concerns about trade imbalances.
5. Persistent Deficit: Conversely, persistent deficits in the balance of payments may signal
underlying weaknesses in a country's competitiveness, fiscal policy, or economic structure,
potentially leading to currency depreciation, external debt accumulation, or reliance on foreign
financing.
These different ways of analyzing the balance of payments provide insights into a country's economic
performance, external imbalances, and sustainability of international transactions. Policymakers use
this information to formulate appropriate policies to manage trade deficits, promote exports, attract
investment, and maintain macroeconomic stability.
 (B)
A Letter of Credit (L/C) is a common method of payment used in international trade transactions to
ensure that both the exporter and importer fulfill their obligations. There are various forms and
procedures of payment through L/C, each offering different levels of security and flexibility. Here's an
overview of the different forms and procedures:
1. Sight Letter of Credit: In a sight letter of credit, the payment is made to the exporter immediately
upon presentation of compliant documents. The exporter receives payment as soon as the documents
are verified by the issuing bank, ensuring quick and secure payment.
2. Usance Letter of Credit: In a usance letter of credit, the payment is made at a specified future date
after the documents are presented and verified. The exporter extends credit to the importer, typically in
the form of a time draft or bill of exchange, allowing the importer time to pay.
3. Revocable Letter of Credit: A revocable letter of credit can be amended or canceled by the issuing
bank without prior notice to the exporter. It offers flexibility to the importer but provides less security
to the exporter since the terms of the credit can be changed after shipment.
4. Irrevocable Letter of Credit: An irrevocable letter of credit cannot be amended or canceled without
the consent of all parties involved, including the exporter. It provides a higher level of security to the
exporter, ensuring that payment will be made as long as the terms and conditions of the credit are met.
5. Confirmed Letter of Credit: In a confirmed letter of credit, the issuing bank's obligation to pay is
guaranteed by a second bank, known as the confirming bank. This provides additional assurance to the
exporter, especially when dealing with unfamiliar or high-risk markets.
Procedure of Payment through L/C:
1. Opening of the Letter of Credit: The importer (buyer) requests the issuing bank (buyer's bank)
to open a letter of credit in favor of the exporter (seller). The importer provides instructions
regarding the terms and conditions of the credit.
2. Issuance and Transmission: The issuing bank issues the letter of credit and sends it to the
advising bank (seller's bank) located in the exporter's country. The advising bank notifies the
exporter about the L/C terms and conditions.
3. Shipment and Documentation: The exporter ships the goods as per the terms specified in the
L/C and prepares the required documents, such as the commercial invoice, bill of lading,
packing list, and certificate of origin, in compliance with the L/C requirements.
4. Presentation of Documents: The exporter presents the documents to the advising bank within
the specified time frame. The advising bank reviews the documents to ensure compliance with
the L/C terms and forwards them to the issuing bank.
5. Examination and Payment: The issuing bank examines the documents and verifies their
compliance with the L/C terms. If the documents are in order, the issuing bank makes payment
to the exporter as per the agreed terms (sight or usance).
 6. Settlement: The issuing bank debits the importer's account for the payment made under the
L/C. If the L/C is confirmed, the confirming bank reimburses the issuing bank for the payment.
By following these procedures, both the exporter and importer can conduct international trade
transactions with confidence, knowing that payment will be made upon fulfillment of the agreed terms
and conditions outlined in the letter of credit.
 Answer to the Question No.8:
(A)
Comparing Bangladesh's imports with those of other South Asian Association for Regional
Cooperation (SAARC) countries involves analyzing various economic indicators such as the volume of
imports, import composition, trade balance, and trade partners. Here's a general overview of how
Bangladesh's import performance compares with other SAARC nations:
1. Volume of Imports: Bangladesh's import volume has been significant within the SAARC
region. However, countries like India and Pakistan typically have higher import volumes due to
their larger economies and diverse industrial bases. Sri Lanka and Bangladesh have comparable
import volumes, while smaller SAARC nations like Nepal, Bhutan, and the Maldives have
relatively lower import volumes.
2. Import Composition: The composition of imports varies among SAARC countries based on
their economic structures and industrial capabilities. Bangladesh's imports primarily consist of
machinery and equipment, raw materials, textiles, and petroleum products. Other SAARC
countries may have different import compositions, reflecting their specific economic priorities
and industrial sectors.
3. Trade Balance: Bangladesh has often run a trade deficit, meaning its imports exceed its
exports. This trade deficit is partially offset by remittances from overseas Bangladeshi workers
and foreign aid. In contrast, countries like India and Pakistan may have more balanced trade
positions or even trade surpluses due to their larger and more diverse economies.
4. Trade Partners: Bangladesh's major import partners within the SAARC region include India
and, to a lesser extent, Pakistan. India, being a significant regional economic power, serves as a
major trading partner for most SAARC countries, including Bangladesh. However, Bangladesh
also imports from other countries outside the SAARC region, particularly China, which is a
major source of machinery, electronics, and textiles.
5. Policy Environment and Trade Agreements: Bangladesh's import performance is also
influenced by its trade policies, tariff structures, and participation in regional trade agreements.
SAARC member countries have attempted to enhance intra-regional trade through initiatives
such as the South Asian Free Trade Area (SAFTA). However, intra-regional trade within
SAARC remains relatively low compared to other regions due to various barriers such as tariffs,
non-tariff barriers, and political tensions.
In summary, while Bangladesh's import performance is significant within the SAARC region, its
volume and composition of imports, trade balance, and trade partners differ from those of other
member countries due to variations in economic size, industrial structure, and trade policies.
 (B)
The Import Policy and Reform Program of Bangladesh encompasses a set of policies and initiatives
aimed at regulating and improving the country's import trade practices to support economic
development, industrial growth, and trade competitiveness. Here's a brief overview:
1. Import Policy Objectives:
• Ensure the availability of essential goods and inputs necessary for domestic production and
consumption.
• Promote industrialization and economic growth by facilitating the importation of raw materials,
capital goods, and technology.
• Safeguard domestic industries from unfair competition and safeguarding national interests.
• Maintain a balance of payments position by managing import levels and promoting exports.
2. Trade Liberalization and Reforms:
• Bangladesh has undertaken various reforms to liberalize its trade regime, including reducing
tariff barriers, simplifying customs procedures, and promoting foreign investment.
• The government has implemented trade facilitation measures to streamline import processes,
reduce clearance times, and enhance efficiency at ports and customs checkpoints.
3. Tariff Policies:
• Bangladesh maintains a tariff structure designed to protect domestic industries while also
promoting trade and investment. Tariff rates vary across different product categories, with
higher rates applied to certain sensitive sectors.
• The government periodically reviews and adjusts tariff rates to align with economic objectives,
trade agreements, and international best practices.
4. Import Licensing and Regulation:
• The importation of certain goods may require licenses or permits from relevant government
agencies to ensure compliance with quality standards, health regulations, and national security
considerations.
• Import regulations are periodically updated to reflect changes in market conditions, trade
policies, and international obligations.
5. Promotion of Export-Oriented Industries:
• The Import Policy of Bangladesh often includes incentives and concessions for export-oriented
industries, such as duty drawbacks, bonded warehouse facilities, and tax holidays, to encourage
value addition and enhance export competitiveness.
• Special economic zones and export processing zones are established to attract foreign
investment and foster export-oriented manufacturing.
6. Import Substitution and Diversification:
• The government of Bangladesh encourages import substitution industries by providing
incentives and support to domestic producers of goods that can be manufactured locally instead
of imported.
• Efforts are also made to diversify import sources and reduce dependency on specific countries
or regions by exploring new markets and enhancing trade relations with a broader range of
countries.
Overall, the Import Policy and Reform Program of Bangladesh seeks to strike a balance between
promoting trade liberalization, supporting domestic industries, ensuring food security, and fostering
economic growth and development in line with national priorities and international commitments.
Periodic reviews and adjustments are made to the import policy to adapt to changing economic
conditions and emerging challenges.