Econ HW 1

Okun's Law

1 percent more unemployment results in 2 percent less output; the empirical regularity that changes in the rate of growth of GDP are negatively correlated with the rate of unemployment

Eden, a country, produces just two output goods: apples and snakeskin handbags. In 2014 the prices of apples and handbags were $10 and $24, respectively. In 2015, the prices increased to $12 and $25. The quantities produced of the two goods were 100 and 20, respectively, in both 2014 and 2015. From this information, we can conclude that:​ Select all correct answers.Required to answer. Multiple choice. The nominal GDP in 2014 is $1,480.​ The real GDP is unchanged between 2014 and 2015.​ The nominal GDP growth rate between 2014 and 2015 is 14.9%.​ The economy of Eden grew between 2014 and 2015 in real terms.

A, B, C

Which of the following statements are correct? a. participation rate = labor force ÷ population of working age b. unemployment rate = unemployed ÷ population of working age c. employment rate = employed ÷ population of working age d. employment rate + unemployment rate = 1

A, C

Which of the following statements are correct? a. In economics, a model is a simplified representation (diagrammatical or physical) that helps us to understand what is going on by focusing attention on what is important. b. Ceteris paribus is an assumption used in economic models where the important variables that you are focusing on are kept constant.​ c. An equilibrium is a self-perpetuating situation that does not change, even when a force for change is introduced from the outside that alters the basic data describing the situation. d. An economic rent is the benefit you receive above what you would have earned from your reservation option.

A, D

Which of the following statements about the price-setting curve is correct? a. The falling European competition due to Brexit would result in the UK price-setting curve shifting up. b. At points below the price-setting curve, the firms are setting prices too high compared to their profit-maximising level.​ c. The price-setting curve depicts the firms' profit-maximising price level for different levels of economy-wide employment. d. Firms have to pay a higher real wage when the employment rate is higher. Therefore the price-setting curve is upward-sloping.​

B

Which of the following statements are correct regarding the difference between markets and firms? a. Transactions within firms operate as contracts. Market transactions are not contracts. b. Working in a firm involves accumulation of firm-specific assets that will be lost if the connection to the firm is severed. c. Markets involve decentralization of power, while firms represent a concentration of economic power. d. It is impossible to employ division of labor within firms, while it is not possible in markets.

B, C

Which of the following is an economic rent? Single choice. a. The amount you pay your landlord for the use of an apartment. b. The amount you pay to hire a car for a weekend. c. The extra profit that a successful innovator makes on bringing a new product to the market before its competitors. d. The extra profit that a firm makes when it doubles in size and there are no changes to costs or the price for each unit of its output.

C

Using the same amount of time and resources, Tomer can either write 100 lines of code or process 20 reports, and Charlotte can either write 120 lines of code or process 20 reports. Who has the comparative advantage in each thing?Required to answer. Single choice.

Charlotte has a comparative advantage in writing lines of code; Tomer has a comparative advantage in processing reports.

Which of the following statements is correct regarding involuntary unemployment? a. When a firm sacks a worker against her wishes but she can get another job immediately, there is involuntary unemployment.​ b. When there is involuntary unemployment, the employment rent is zero.​ c. When there is no involuntary unemployment, firms must be employing workers without ever dismissing them.​ d. There must be involuntary unemployment in an efficiency wage equilibrium.

D

What does UK GDP per capita measure?Required to answer. Single choice. a. the total output of London's economy b. the average disposable income of a UK resident c. the total output of the UK residents, divided by the number of the residents d. the total output of the UK's economy, divided by the country's population

D. the total output of the UK's economy, divided by the country's population

Which economic historian claimed that European growth after 1800 was due to the abundance of coal in Britain rather than cultural, social or institutional differences with other nations?

Kenneth Pomeranz

incomplete contract

a contract that does not specify, in an enforceable way, every aspect of the exchange that affects the interests of parties to the exchange

coordination game

a game in which there are two Nash equilibria, of which one may be Pareto superior to the other

co-insurance

a means of pooling savings across households in order for a household to be able to maintain consumption when it experiences a temporary fall in income or the need for greater expenditure

capacity utilization rate

a measure of the extent to which a firm, industry, or entire economy is producing as much as the stock of its capital goods and current knowledge would allow

consumer price index (CPI)

a measure of the general level of prices that consumers have to pay for goods and services, including consumption taxes

GDP deflator

a measure of the level of prices for domestically produced output. This is the ratio of nominal (or current price) GDP to real (or constant price) GDP

economic rent

a payment or other benefit received above and beyond what the individual would have received in his or her next best alternative (or reservation option)

reservation option

a person's next best alternative among all options in a particular transaction

Which of the following variables have followed the so-called 'hockey-stick' trajectory—that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate? a. GDP per capita b. labor productivity c. Inequality d. atmospheric CO2

a, b, d

trade union

an organization consisting predominantly of employees, the principal activities of which include the negotiation of rates of pay and conditions of employment for its members

Consider the labor market model in your CORE textbook. Consider now a reduction in the degree of competition faced by the firms. Which of the following statements is correct regarding the effects of reduced competition? a. The price-setting curve shifts up. b. The wage-setting curve shifts down. c. The equilibrium real wage falls. d. The unemployment level falls.

c. The equilibrium real wage falls.

monetary policy

central bank (or government) actions aimed at influencing economic activity through changing interest rates or the prices of financial assets. See also: quantitative easing

fiscal policy

changes in taxes or government spending in order to stabilize the economy

isocost line

identifies all the combinations of two inputs, such as capital and labor, that have the same total cost. a line that represents all combinations that cost a given total amount

verifiable information

information that can be used to enforce a contract

asymmetric information

information that is relevant to the parties in an economic interaction, but is known by some but not by others

inactive population

people neither employed nor actively looking for paid work. Those working in the home raising children, for example, are not considered as being in the labour force

innovation rent

profits in excess of the opportunity cost of capital that an innovator gets by introducing a new technology, organizational form, or marketing strategy

self-insurance

saving by a household in order to be able to maintain its consumption when there is a temporary fall in income or need for greater expenditure.

firm-specific asset

something that a person owns or can do that has more value in the individual's current firm than in their next best alternative

recession

the US National Bureau of Economic Research defines it as a period when output is declining. It is over once the economy begins to grow again. An alternative definition is a period when the level of output is below its normal level, even if the economy is growing. It is not over until output has grown enough to get back to normal. The latter definition has the problem that the 'normal' level is subjective

nominal wage

the actual amount received in payment for work, in a particular currency

employment rent

the economic rent a worker receives when the net value of her job exceeds the net value of her next best alternative (that is, being unemployed). Also known as: cost of job loss

cyclical unemployment

the increase in unemployment above equilibrium unemployment caused by a fall in aggregate demand associated with the business cycle. Also known as: demand-deficient unemployment

labour force

the number of people in the population of working age who are, or wish to be, in work outside the household. They are either employed (including self-employed) or unemployed

equilibrium unemployment

the number of people seeking work but without jobs, which is determined by the intersection of the wage-setting and price-setting curves. This is the Nash equilibrium of the labour market where neither employers nor workers could do better by changing their behaviour

worker's best response function

the optimal amount of work that a worker chooses to perform for each wage that the employer may offer

employment rate

the ratio of the number of employed to the population of working age

participation rate

the ratio of the number of people in the labour force to the population of working age

unemployment rate

the ratio of the number of the unemployed to the total labour force. (Note that the employment rate and unemployment rate do not sum to 100%, as they have different denominators.)

aggregate demand

the total of the components of spending in the economy, added to get GDP: Y = C + I + G + X - M. It is the total amount of demand for (or expenditure on) goods and services produced in the economy

principal-agent relationship

this relationship exists when one party (the principal) would like another party (the agent) to act in some way, or have some attribute that is in the interest of the principal, and that cannot be enforced or guaranteed in a binding contract

labour productivity

total output divided by the number of hours or some other measure of labour input

reservation wage

what an employee would get in alternative employment, or from an unemployment benefit or other support, were he or she not employed in his or her current job