If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely A) shift leftward. B) shift rightward. C) remain unchanged. D) become steeper. 2. Recently, many cities have attempted to pass laws taxing the sale of sugary drinks such as soda pop. If one of these laws passes, we would expect A) the supply curve for soda pop to shift to the right. B) the supply curve for soda pop to become more vertical. C) the demand curve for soda pop to shift to the right. D) the demand curve for soda pop to shift to the left. As the price of a good increases, the change in the quantity demanded can be shown by A) shifting the demand curve leftward. B) shifting the demand curve rightward. C) moving down along the same demand curve. D) moving up along the same demand curve. 4. The price of crude oil rose to over $100 per barrel in early 2013. What would we expect to see happen to the supply of plastic, which is produced using crude oil? A) The supply of plastic will increase. B) The supply of plastic will decrease. C) The supply
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D) The supply of plastic will stay the same because of the profit motives of plastic producers. 5. The above figure shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than C) $12. D) $14. 6. The above figure shows a graph of the market for pizzas in a large town. What are the equilibrium price and quantity? 7. At equilibrium, quantity sold equals the quantity bought. This implies that A) to sell more, producers require more in payment than consumers are willing to pay. B) Economics assignment By Enfield 23 C) to sell less would require a lower price but would yield greater profit.
D) those who don’t buy have been treated unfairly. 8. The above figure shows a graph of the market for pizzas in a large town. Ata price of $5, there will be A) excess demand. B) excess supply. C) equilibrium. D) zero demand. 9. The above figure shows a graph of the market for pizzas in a large town. What are 10. After tickets for a major sporting event are purchased at the official box office price, a market often develops whereby these tickets sell at prices well above the official box office price. Which of the following scenarios would NOT be able to explain this result?
A) The official price was below equilibrium from the moment the tickets were available. B) Increased publicity causes the demand curve for the event to shift rightward. C) The event was not a sellout. D) Not everyone who wanted a ticket was able to buy one at the box office. 11. From the sass through the sass, the relative price of a college education has increased greatly. During the same time period, college enrollment has also increased. This evidence suggests that during this time period A) the demand curve for a college education has shifted leftward.
B) the demand curve for a college education has shifted rightward. C) the supply curve for a college education has shifted leftward. D) the supply curve for a college education has shifted rightward. 12. If oranges were found to cure cancer A) the equilibrium price of apples would likely fall. B) the equilibrium price of oranges would likely increase in the near term. C) the equilibrium quantity of oranges would likely increase. D) All of the above. 13. Agricultural price supports are an example of A) price ceilings. B) price floors. C) quantity quotas. D) taxes. 4. If the price of a slice of pizza rises from $2. 0 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, calculate the arc price elasticity. A) -1. 92 B) -1. 64 15. If the price of orange Juice rises 10%, and as a result the quantity demanded falls A) -1. 25. B) elastic. C) Both A and B above. D) Neither A nor B above. 16. A normal good has a as income rises. A) negative; increases B) negative; decreases C) positive; increases D) positive; decreases income elasticity of demand and quantity demanded 17. An indifference curve represents bundles of goods that a consumer A) views as equally desirable.
B) ranks from most preferred to least preferred. C) refers to any other bundle of goods. D) All of the above. 18. Fried’s marginal utility of pizza equals 10 and his marginal utility of salad equals 2, then A) he would give up 5 pizzas to get the next salad. B) he would give up 5 salads to get the next pizza. C) he will eat five times as much pizza as salad. D) he will eat five times as much salad as pizza. 19. Joey’s income is $500, the price of food (F, y-axis) is $2, and the price of shelter (S, x-axis) is $100. Which of the following bundles is in Joey’s opportunity set? A) 50 units of food, 5 units of shelter
B) 200 units of food, 2 units of shelter C) 100 units of food, 1 unit of shelter D) 150 units of food, 3 units of shelter 20. If the price of one good increases while the price of the other good and the consumer’s income remain unchanged, what will happen to the budget line? A) The budget line rotates inward from the intercept on the axis of the good that did not change in price. B) The budget line rotates outward from the intercept on the axis of the good that did not change in price. C) The budget line shifts inward without a change in slope. D) The budget line shifts outward without a change in slope. 21 .
The above figure shows Bobby’s indifference map for Juice and snacks. Also shown are three budget lines resulting from different prices for snacks assuming he has $20 to spend on these goods. Which of the following points are on Bobby’s price- consumption curve? A) 10 snacks and 20 Juices B) 10 snacks and O Juices C) 10 snacks and 5 Juices D) 10 snacks and 15 Juices lasting about six months. B) lasting about two years. C) in which all inputs are fixed. D) in which at least one input is fixed. 23. The Marginal Product of Labor is A) the change in total product resulting from an extra unit of labor, holding other actors constant.
B) the ratio of output to the number of workers used to produce that output. C) the amount of output that can be produced by a given amount of labor. D) equal to the marginal product of labor when the average product is increasing. 24. Elaine is the only employee of her sole proprietorship. She is entertaining the idea of hiring an additional employee. She knows that on her own she can produce 100 units per day. Jennifer figures that Applicant A will help her produce 175 units per day whereas Applicant B will help her produce 155 units per day. Which of the allowing statements is most accurate?
A) Applicant B has a marginal product of 75 units. B) Applicant B has an average product of 77. 5 units. C) Applicant A has a marginal product of 75 units. D) Applicant A has an average product of 87. 5 units. 25. Which situation is most likely to exhibit diminishing marginal returns to labor? A) a factory that obtains a new machine for every new worker hired B) a factory that hires more workers and never increases the amount of machinery C) a factory that increases the amount of machinery and holds the number of worker constant D) None of these situations will result in diminishing marginal returns to labor. 6. If a firm hires one worker and eliminates four units of capital, and hires one more worker and replaces three more units of capital, keeping output constant, then A) workers and capital are perfect substitutes. B) the firm is operating inefficiently because capital is more efficient than workers. C) the firm is experiencing a diminishing marginal rate of technical substitution. D) there are decreasing returns to scale. 27. If a firm triples inputs and produces twice the output, then there are A) constant returns to scale. B) diminishing marginal product.
C) decreasing returns to scale. D) increasing returns to scale. 28. Sarah earns $40,000 per year working for a large corporation. She is thinking of quitting this Job to work full time in her own business. She will invest her savings of annual opportunity cost of this new business is B) $40,000. C) $45,000. D) $90,000. 29. A firm’s marginal cost can always be thought of as the change in total cost if A) the firm produces one more unit of output. B) the firm buys one more unit of capital. C) the firm’s average cost increases by $1 . D) the firm moves to the next highest Squanto. 0.
Assume baseball player salaries are fully determined before the season starts. From the point of view of the baseball team owner, player salaries during the course of the season are then A) variable costs. B) marginal costs. C) fixed costs. D) average costs. 31 . Which of the following will cause the average fixed cost curve of making cigarettes to shift? A) a $5 million penalty charged to each cigarette maker B) a $1 per pack tax on cigarettes C) a $3 per hour wage increase D) An increase in the demand for cigarettes. 32. Suppose that each worker must use only one shovel to dig a trench, and shovels re useless by themselves.
In the long run, an increase in the price of shovels will result in A) fewer shovels being purchased to produce the same number of trenches. B) more workers being hired to produce the same number of trenches. C) the firm wishing to produce more trenches. D) no change in the firm’s input mix. 33. The total cost of producing one unit is $50. The total cost of producing two units is $75. At a production level of two units, the cost function exhibits A) economies of scale. B) rising average costs. C) increasing marginal costs. D) constant returns to scale. 34.
If a competitive firm maximizes short-run profits by producing some quantity of output, which of the following must be true at that level of output? A) p = MAC C) p > PVC D) All of the above A) the firm is not subject to regulation by a government agency. B) the manager and owner can manipulate reported profit. C) the firm has positive profits. D) the goals of the owner and manager are aligned. 36. Toast’s Just-in-time system is an example of A) backward (upstream) integration. B) quasi-vertical integration. C) using transfer pricing to avoid price controls. D) horizontal, downstream integration. . The above figure shows the cost curves for a competitive firm. If the firm is to operate in the short run, price must exceed C) $10. D)$al. 38. The above figure shows the cost curves for a competitive firm. If the profit- maximizing level of output is 40 price is equal to B) $15. 39. A profit maximizing firm selects output such that A) average profit is maximized. B) total profit is maximized. C) marginal profit is maximized. D) 80th A and B. 40. Which is an important aspect of the perfectly competitive market that leads to long run equilibrium? A) perfect information B) freedom of entry and exit
C) price taking behavior D) homogeneous products 41 . Mary purchased a stuffed animal toy for $5. After a few weeks, someone offered her $100 for the toy. Mary refused. One can conclude that Mar’s consumer surplus from the toy is A) less than $5. B) at least $95. C) at least $100. 42. If a market produces a level of output below the competitive equilibrium, then A) social welfare is not maximized. B) consumer surplus might still be maximized. C) the actual price will be below the equilibrium price. D) social welfare might still be enhanced if a price ceiling keeps price below the competitive price.
Module 5 Assignment 1. What is a production function? Production function is equations used to show the relationship between quantities of capital, labor and other factor inputs that are used in production and output quantity of goods and services (GAP) from production. Write an equation for a typical production function, and explain what each of the terms represents. K (physical capital)/ L (quantity of labor) This equation shows you how much physical capital (equipment/structures) is used per worker. 2. Why is productivity related to the standard of living?
Additionally, stocks give you partial ownership in a company whereas with bonds you do not have ownership. A bond is an IOW with the company as a lender whereas stocks are not. Stock present greater risks but also can possibly have greater return than bonds. In the event a company runs into financial trouble, those with bonds are paid before those who have stocks. If a company does well, those with shares enjoy the advantages but those with bonds only earn the interest from their bonds. Suppose that you are a broker and people tell you the tolling about themselves.
What sort of bond would you recommend to each? Defend your choices. A. “l
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Explain how each of his quotes below should affect his choice between the stock and the bond. A. “l have reason to believe that people are soon going to find rocking chairs have health benefits. ” – He should buy stock because when Cedar Valley Furniture does well financially, he will reap those benefits as well. B. “l would like to tell people I am part owner of Cedar Valley Furniture. ” – He should buy stock because this gives him partial ownership in Cedar Valley Furniture. C. “l do not want to take on much risk. He should buy bonds because he has less risk than with stock. 4. Identify each of the following acts as representing either saving or investment. A. Fred uses some of his income to buy government bonds.
Australia (below 20%). Government debt in Greece has gained greater concern than in Australia because it causes serious impacts on Grace’s citizens. Greek government had carried out austerity measures to reduce the debt, including cutting pensions and imposing additional tax. More citizens were losing Jobs, and the country’s unemployment rate, which was 16%, continued to grow; whereas Australia was experiencing the fastest growing advanced economy in the world.
Therefore, impact of government debt in Australia will not be as bad as in Greek. Besides, government debt in Greece has caused greater concern because of their higher foreign debt. If Greek government defaults, that would affect the European Central Bank (CB) as CB is major lender to Greece. For example, German banks held $22. Bin of Greek government debt. As if Greece couldn’t pay the debt, the economy in European countries would be greatly affected. (b) Terms of trade is a measure of the ratio of export prices to import prices.
From Figure 2, the terms of trade of Australia is in a favorable trend. An improving terms of trade indicates that Australia’s export price rises faster than import price. In 2008, Australia exports were more that imports, especially mineral resources like coal
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Current account balance of Australia in 2008 has improved from approximately -7% to -2. % as shown in Figure 3. (c) Exchange rate in Australia is the value of Australia dollar (ADD) expressed in terms of foreign currencies. After a surprise fall in Australia’s unemployment rate in first two weeks of May, ADD spikes. According to the current exchange rate of ADD against other currencies, ADD is still overall higher than other countries such as Japan (AUDIO= *79. 97 on 17. 05. 2012). Australian goods are less competitive and exports are dearer, in turn, imports are now cheaper.
More people including locals and foreigners will tend to buy cheaper goods from foreign in lobar market compared to local goods in Australia. This scenario will cause local manufacturers find it difficult to compete in global markets as their manufactures are less competitive. (d) A worsening rate of inflation (increase in price of goods) may reduce the economic growth of Australia. When price of local goods increases from Pl to UP (in Diagram 1), Australian goods become less competitive, as imports are cheaper. Local firms and exporters will tend to reduce their production due to lesser demand from consumers.
Besides, a worsening inflation rate discourages foreign erect investment and local investment due to increase in production cost and industrial unrest. Reduce in production level may lead to a lower economic growth. A decrease in total output and an increase in price from Pl to UP, will lead too decreasing rate of real GAP (Gross Domestic Product) from Yell to Y, referring to Diagram 1 . Hence, Australians economic growth slows down. Diagram 1 Drop in production cost due to tall in labor costs will cause aggregate supply (AS) to shift to the right.
Diagram 2 (b) Even though there has been a loss of Jobs, there might be a fall in employment rate. This is because when Job opportunities become less, more people are discouraged from looking for work but they are still willing to work if Jobs are available. Those workers are called as discouraged workers, who are involved in hidden unemployment. The hidden unemployed are not counted as officially unemployed as they are not actively looking for a Job. As the number of hidden unemployed increases, the officially unemployment rate will decrease as more people are not counted as unemployed. C) When economy was operating “below capacity’, there will be a recessionary AP. Diagram 3 ICP ASS (d) When the economy is operating below capacity, there is a recessionary gap, which sometimes called unemployment gap as illustrated in Diagram 3 (part c). Following the global financial crisis (SGF), the economy was said to be below capacity for some times and that will affect one of the government’s macroeconomic objectives which is price stability. Unemployment/ recessionary gap occurs when unemployment rate rises above its natural rate. When there are more unemployed, confidence level of consumers will reduce.
That may lead to the overall purchasing of nonusers decreases and aggregate demand falls as consumers will tend save more and spend less due to loss of Jobs. As the aggregate demand falls, the country might experience decreasing inflation rate. As referring to Diagram 4 below, aggregate demand is shifted to left, leading to a decreasing in consumer price index (ICP). This indicates that inflation rate falls, in long run, it may lead to deflation. AD DAD DAD Yell Ye WFM Real GAP Diagram 4 For example, in 2008-09, the rate of Australia’s annual inflation remained relatively low at around 3% during SGF.
A lower inflation rate indicates that the price stability has improved. In short, when the economy operates below capacity, price stability which is one of the government’s economic objectives can be improved. Not only that, from Diagram 4, real GAP has decreased from Hefty Ye then Yell when the economy is operating below capacity. Real Gross Domestic Product ( real GAP ) is the indicator used to measure economic growth. As aggregate demand falls due to low level of consumer spending, local firms would reduce their production and investment. When total output decreases, the real GAP decreases, which indicates a slower economic growth.
Besides that, the other macroeconomic objective of government which is external balance will tend to be improved. As the economy experiences low inflation rate, the competitiveness of local goods increases, leading to a fall in import spending (export earnings increases due to local goods are more competitive). For example, in early 2009 during SGF, Australia experienced an improvement in CAD, which was about 3% of GAP due to large increase in exports earnings. In short, external balance improves when economy is below capacity. ( 1020 words )
Suppose that the utility function of a typical agent is given by the familiar log-linear form , ca,t+1 ) = In CLC,t+џ In ca,t+1 here O < < 1 is the discount factor (i) Under a monetary economy, what are the first, and second period budget constraints? Combine these constraints into a lifetime budget constraint. [3 marks] First period budget constraint is: pt cl,t+ pty The second period budget constraint is: pt+l c2,t+1 combining we have: cl,t+ pt+l c2,t+1 < y pt 1 mark tor the first period budget constraint and 1 mark tor the second period budget constraint and 1 mark for combining them.
Some people will write the budget constraint as pet CLC,t+ Met < pty pt+l c2,t+1 Mt This is fine too, give them the marks. If they write the budget constraint with equality. it's fine too. (it) What is the real rate of return on fiat money in this economy? [1 mark] Using the first period budget constraint, we can derive the aggregate money demand which is given by: Mtd = pt(y - clt )Nt . Assuming equilibrium in the money market, we have money demand?money supply Mt+l Nt(y-cl,t) Nt+l (Y -cl,t+l ) (7) Hence given Nt
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Thus we have Met = pet(y – cult )Nt pet+l = Yam-1 , we have pet+l = n . This is the real rate of If they don’t get it don’t give part marks. They need to show how they arrive at this ratio of prices (iii) If y < n, is the value of money falling or increasing over time. Explain your answer carefully. [1. 5 marks] If y < n this implies that money is growing at a slower rate than population. In other words, total amount of goods is growing at a faster rate than money. Money can purchase more and more goods, implying that the real value of money is increasing over time. All marks for intuition. iv) Compute the monetary equilibrium of this economy. That is find the optimal value for cl and c2 [6 marks] max u(cl , c subject to c2 < y In c2 The Lagrangean is set-up as: e = Incl + p In - where is the Lagrange multiplier. It can be interpreted as the shadow price of consumption. The first-order conditions are: cl C2=o R: y -cl- (10) Using the first-order conditions for cl and c2 , we have: yc2 Thus c2 = np cl . Substituting this optimal condition in the budget constraint, we have: y Cl = (l + џ)Cl ? y and = 2 (13) 1 mark for setting up and 3 marks for FOC conditions and 2 for the final answer.
If they are using MRS.=price ratio, same scheme 2. For this question, you will either have to provide a definition or carefully explain your answer. In both cases, please keep your answer concise and clear. (I) if 1=10, that is there are 10 goods, what is the probability of a successful exchange in a barter economy and in a monetary economy. [1 marks] In a BE, it 21 = 100-10- -2 In a ME, it IS J-1 – 9 0. 5 mark tort each (it) Carefully explain what functions a financial asset provide to society [2 marks] Financial assets provide two important economic functions. The first is risk-sharing.
Financial assets allow risks to be spread among different parties instead of one party bearing all the risks. The second is to transfer funds from entities who have surplus ends to invest to those who need funds to invest in tangible assets. 0. 5 mark for each (iii) What do the terms adverse selection, moral hazard and costly state verification mean? Provide an example within the context of a financial transaction/market [4 marks] Adverse selection and moral hazard are two market failures that arise in the credit market. Financial transactions are intrinsically characterized by asymmetric information.
Borrowers generally have private information that is more accurate than the information possessed by lenders since they can more easily assess their own kiss compared to the lender. Lenders can try to protect themselves from bad borrowers (“lemons”) by setting the contractual terms in a manner that reflects the average quality of their loan applicants. However, by doing so, they run the risk that high risk borrowers will be encouraged to self-select into their loan applicant pool while at the same time low risk borrowers will be encouraged to self-select out of this pool.
The resulting adverse effects on the quality of their loan applicant pool constitutes an example of adverse selection. Moral hazard arise in credit markets cause borrowers may decide to engage in riskier projects once its demand for a loan has been approved. Once their project/loan is approved, borrowers may have a bigger incentive to engage in riskier investment projects with higher returns since they stand to lose the same if the project fails but stand to gain more if the project succeeds.
This problem is exacerbated with higher interest rates. Costly enforcement of contracts arise because it takes resources to monitor borrowers to ensure that the amount borrowed is repaid back at the end of the contract. For example, someone borrows money from a financial institution. The financial institution in turn has to monitor the borrower and make sure that the latter is paying back her loan. 1. 5 marks for adverse selection and 1. 5 for moral hazard and 1 for costly enforcement. Sake sure they write a sensible answer, otherwise don’t give them the marks. (v) “Financial intermediaries provide an essential maturity and liquidity transformation service”. In your own words, carefully explain what this statement means. [3 marks] Financial intermediaries do not only pool savings but they also engage in maturity and liquidity transformation. The proceeds banks receive from opposites (savings) are used to grant loans to 3 other economic agents (households, firms, government).
The deposits represent financial claims that the financial intermediary issues (secondary securities) whereas the loans represent the financial claims that the financial intermediary purchases and owns (primary securities). Most to the secondary securities (savings) are highly liquid and can be withdrawn at any time. They have short maturity. On the other hand, primary securities (loans) are very illiquid and have long maturity. There is thus a maturity and liquidity mismatch between these primary and secondary securities.
Financial intermediaries by providing this maturity and liquidity transformation provide an important device as they provide savers the ability to withdraw their funds at any point in time while providing borrowers long with much longer duration. Financial intermediaries can provide this maturity and liquidity transformation only if a portion of savers withdraw their funds in the short-run and only if savers are confident that the will be able to withdraw their funds when needed. What is important in the answer is that they explain maturity and liquidity.
First, they have distinguish between the short-term liabilities (savings) that Fl have and the long-term assets (loans). Savings are liquid but not long-term loans (1 mark for saying this). Second, they have to say that savings can be withdrawn at any time (short-maturity) but loans are usually for long-periods of time (long-maturity). Thus there is a maturity mismatch (1. 5 marks). Third, Fl provide the essential service of maturity and liquidity transformation only if savers do not withdraw everything at the same time and they have confidence in the Fl (0,. 5 marks) 4