Macroeconomics (Homework 1)
Describe the situations where price ceilings and price floors have no effects.
If Price ceiling is set above equilibrium price, it will have no effect on market outcomes. We say it is not-binding. Similarly, if Price Floor is set below equilibrium price, we say it is Not-binding as it will have no effect on market outcomes.
Explain how the price of a good can rise at the same time that it becomes relatively cheaper.
If the absolute price of a good rises less than the rise in the absolute price of other goods, we can say the good is becoming relatively cheaper. For example, if the absolute price of a pen is $ 1 and the absolute price of a pencil is 10 cents ($ 0.1), the relative price of 1 pen is 10 pencils. Now let the absolute price of a pen rise to $ 1.20 at the same time that the absolute price of a pencil rises to 20 cents. As a result, the relative price of 1 pen falls to 6 pencils. That is, the absolute price of pens rises at the same time that pens become relatively cheaper.
What is the opportunity cost of 1 cake when the economy moves from D to C?
1/5 pizza
What is the opportunity cost of 100 pizzas when the economy shown above moves production from point A to point B?
25 cakes
What is the opportunity cost of 1 pizza when the economy moves from C to D?
5 cakes
What is the equilibrium price and equilibrium quantity of bagels?
Equilibrium price = $5; Equilibrium quantity = 100 units.
Does this economy experience constant or increasing opportunity costs? How can you tell?
Increasing Opportunity costs. The PPF is bowed out because of increasing opportunity cost/ slope.
Explain why government actions designed to make home-buying easier actually made it harder.
Lower down payments + Lower interest rates → Easier-to-obtain loans → Higher demand for houses → Higher house prices
What is an opportunity cost? What is your opportunity cost of doing this homework assignment?
Opportunity cost refers to the most highly valued opportunity or alternative forfeited when a choice is made. Your opportunity cost of doing this homework assignment differs: might be the forgone wage, or nap time, or a movie one could have enjoyed, etc.
What does scarcity mean? Explain the notion that "Scarcity affects everyone in the world-the rich and the poor alike."
Scarcity refers to the condition in which our wants are greater than the limited resources available to satisfy those wants. Scarcity affects everyone in the world- the rich and the poor alike. The rich may be able to satisfy more of their wants for tangible goods (houses, cars) than most people, but they still may not have the resources to satisfy all their wants. Their wants might include more time with their children, more friendship, no disease in the world, peace on earth, and a hundred other things that they don't have the resources to "produce".
Consumers expect the price of peanut butter to increase dramatically next month
demand, right
inferior good
a good for which the demand falls as income rises (or for which the demand rises as income falls
normal good
a good for which the demand rises as income rises (or for which the demand falls as income falls
If the market price of bagels is $3.00, is the market in a state of equilibrium, surplus, or shortage? If there is a surplus or a shortage, how large is it (i.e. how many bagels)?
a shortage of 100 units
Peanut butter is an inferior good and consumer income decreases
demand, right
State whether each of the following statements are positive or normative: a) Summers in Missouri are too hot. b) The current exchange rate is 0.8 euro per U.S. dollar. c) The government should provide more grants for college students.
a. normative b. positive c. normative
Movie tickets are a normal good. What will happen to the equilibrium price and equilibrium quantity of movie tickets if consumer income falls? Explain and show your answer graphically.
both equilibrium price and quantity fall
The price of jelly (a complement to peanut butter) increases sharply
demand, left
A major national study shows that eating peanut butter will reduce the risk of a heart attack
demand, right
How will the elimination of the capital gains tax affect the level of investment in the US economy?
macroeconomics
Why are economic growth rates different in the U.S. and China?
macroeconomics
Why are interest rates rising?
macroeconomics
Why is the U.S. experiencing low rates of inflation?
macroeconomics
How large is McDonald's share of the fast food industry?
microeconomics
Why are prices falling in the digital camera industry?
microeconomics
Give an example of something that might cause an economy to produce at point E?
productive inefficiency, unemployment/underemployment of resources
Hormel Foods discontinues production of Skippy brand peanut butter
supply, left
The price of peanuts (an input in peanut butter) increases
supply, left
complement
two goods are said to be complements if they are used jointly in consumption. If two goods are complements, the demand for one rises as the price of the other falls (or the demand for one falls as the price of the other rises).
substitute
two goods are said to be substitutes if they satisfy similar needs or desires; If two goods are substitutes, the demand for one rises as the price of the other rises (or the demand for one falls as the price of the other falls)