economic questions
One of the basic economic questions is for whom products are produced. In our society, how would that question be answered for a common consumer product such as a cell phone? Explain.
The question of for whom to produce is answered by the ability to pay approach. most goods today are produced for those who are willing to buy them and have the ability to pay for it.
How is a mixed economy different from a capitalist economy?
A mixed economy is a combination of all types of economic systems which also include capitalist economy. While mixed economy has both government and private individuals as owners of resources, capital economies only have private ownership and the state plays a passive role of regulator and facilitator of markets in capital economy. in a mixed economy, the government ensures the production of public goods
Why does a price ceiling set below the equilibrium price result in a shortage?
A price ceiling below equilibrium price serves as a disincentive for producers because they are not able to realize the true price for their product. Hence they respond by decreasing their output resulting in supply shortage.
What is the result of a price that is set above the equilibrium price? Below the equilibrium price?
A price set below the equilibrium makes buyers to purchase more and producers to supply less. As a result demand increases and supply decreases ultimaltey leading back to the equlibrium. If prices are above equilibrium, demand decreases and supply increases. Thus there is Surplus in supply and shortage in demand leading back to equlibrium price and quantity.
How might the age composition of the future population impact our economy?
As the population becomes older, the number of people in labor force tends to decline. At the same time the number of retired people increase resulting in increased demand for pension, medicaid and other social security programs for the retired. Since these are transfer payments, it puts an extra burden on the working class. The Dependency ratio also tends to increase.
Imagine that several large new electric power supplies have been developed in your region, putting a greatly increased quantity of electricity on the market. Describe what happens to a supply curve for electricity.
As the quantity of a product increases,, the supply curve shifts to the right.
Explain how our free enterprise system encourages competition.
Capitalism thrives on competition- the struggle between firms to attract buyers. This competition is possible because people have the freedom to purchase whatever they want and producers have the freedom to produce whatever they want. Since there is no restriction on who will produce what, firms always are under a threat of someone else producing the same good more efficiently and selling it at a lower price to attract more customers. Thus the economic freedom is the driving force of competition
what are the causes and consequences of instability in the economy?
Causes of economic instability are as follow: 1- Inflation and hyperinflation. 2- Asset bubbles. 3- High interest rates. 4- Stock market shock. 5- Wars and global conflicts. 6- Inappropriate monetary policy. 7- Inappropriate fiscal policy. Consequences of economic instability are as follow: 1- High unemployment rates. 2- Decreased GDP. 3- Declined health care. 4-Declined education standards. 5- Lower incomes. 6- High rates of poverty. 7- People will be unable to plan for a better future. 8- Higher rates of crimes.
What role does the consumer play in the free enterprise system?
Consumers are the market rulers in a free enterprise economy because they ultimately decide what is to be produced in the economy. Any producer who produces what a consumer wants is rewarded by profits and others who don't are punished through losses. The phrase consumer sovereignty reflects the role of consumers as market rulers.
what is the source of income for the four sectors of the economy?
Consumers purchasing power comes from selling factors of production in factors market in exchange for either profit, wages, rent or interest. Government earns through taxes and various penalties it levy on citizens, investments are driven through excess funds that people save. The foreign exchange is the source of income for net foreign
what are the differences among creeping inflation, hyperinflation, and stagflation?
Creeping inflation is a low level of inflation, about 1-3%. Hyperinflation is an abnormal level of inflation in excess of 500 % per annual do is the last stage before monetary structure collapses. Stagflation refers to the combination of stagnant economic growth and unemployment.
what are the main causes of inequality in the distribution of income?
Differences in education and wealth, changing tax laws, increasing service oriented jobs, declining unions, advance in technology, monopoly power of few rich people, discrimination and changing family structures are primary causes of income inequality.
Of all characteristics of free enterprise capitalism shown in the illustration, which one do you think is the most important to the success of the economic system? why?
Economic freedom is perhaps the most important characteristic of free enterprise economy. It not only gives consumers the freedom to choose what they want, but also allows firms to produce what they want. Ultimately market interactions between consumers and producers will decide which producers survive and which perish. Apart from this, economic freedom fumes competition between firms and allow for Voluntary exchange of goods as there is no legal binding on consumers to purchase from a particular producer.
how does education affect employment?
Education increase the opportunity of finding a high paying job multiple times. Highly educated individuals have high demand on the labor market largely due to the increasing level of automation taking place.
what taxes make up FICA? which is a proportional tax? explain.
FICA is made of Social Security and Medicare taxes. The second one is a proportional tax because it has the same percentage for all amounts.
What is a goal of the federal minimum wage? who benefits from it?
Federal minimum wages are set to help labors earn a minimum wage required for minimum standard of living. This was done to prevent workers from getting exploited by employers due to increased supply of labor. This scheme is likely to benefit workers who are not able to earn enough to have minimum standard of living.
What were the advantages of the five-year plans of China and Russia? What are the disadvantages?
Five year plans were comprehensive and centrally planned economic plans to achieve rapid industrialization of the economy. These plans ensure that the countries resources were put to the most efficient use. these plans enabled Russia and China to achieve rapid industrialization in short term. This was because the initial plans were focused on creating more capital goods in the country. Also periodic revision of plan ensure that the economy can learn from its past mistakes and improve its planning. some of the disadvantages were the concentration of power in hands of few people, lack of monitoring, focus on only quantity and not quantity, inexperience of the bureaucrats in handling such a large economy and corruption.
a city is considering placing a 3 percent tax on food purchased at grocery stores. use three criteria for effective taxes, evaluate this proposal, and explain your reasoning.
If we look at the equity criteria, everyone must pay this tax no matter how big revenues a certain customer has. This tax is equal to every customer. This tax is very simple, on each product that you buy in the grocery, the amount of the tax is the same. It is simply to add three percent to the price. Making changes in some tax calculating is now very simple and automotive, so once this tax is included in a price, there are no extra administrative burdens and collecting of this tax could be very efficient.
How does the price of gas change behavior in a market economy? How is behavior changed in a command economy based on output measurements?
In a market economy, gas prices move freely towards equilibrium based on current supply and demand. High gas prices would lead to consumers cutting their purchase of gas - taking less road trips, carpooling more, opting for less gas-intensive cars when buying a new vehicle, etc. This leads to car manufacturers innovating towards more efficient vehicles, among other things, which pushes the economy forward as new output levels become optimal. In a command economy based on output measurements, the price of gas is firmly set by the government. This "artificially" freezes the economy at a point which may not be optimal based on supply and demand levels, and which will not incentivize the country to move forward.
Why does a normal supply curve always increase, from left to right, on a supply graph?
In almost every situation, a supplier will produce more goods as the price for goods increases.
How is income inequality related to limited opportunities?
Income inequality means limited opportunities because Lack of income can hamper a person's ability to take advantage of opportunities that may present themselves. Second, those things that lead to inequality often lead to more inequality. For example being poor means lack of opportunity to study in good Institutes and lack of proper education means lack of good job opportunities which further means lack of opportunity to live a good quality life
How would expanded investment in research and education help reduce income inequality?
Increased investment on education would help poor people become eligible for high skilled and better paying jobs which may help reduce income inequality.
how does inflation affect consumers?
Inflation diminish the purchasing power of consumers by increasing the prices of goods and services. The customers respond to this inflation by reducing their qauntity demanded of various goods and services.
Why is the deficit a political matter?
It is not easy to match investments and spending with the long-term goals of a country. Sometimes the economy is in a bad position with reduced activity, so it needs to be given some incentives, and sometimes social reasons are crucial in determining the budget plan. Depending on long-term goals and current problems, the way of budget planning and spending is determined. Some government could increase the level of wages to satisfy future voters. The other may decide for some unpopular measures of reducing the level of wages if the deficit is too big. It all depends on the strategy and policy that the government is leading and what its ultimate goals are. The desire for greater influence on the world political scene can increase investment in weapons that will directly affect the reduction of consumption in other areas.
Identify an example of each of four factors of production that are required to produce a pencil.
Land is required for setting up a pencil production factory. Capital is required to buy raw material and other machinery for producing pencil. Labor is required to operate machinery in the factory and entrepreneur is the one who started the factory and made the initial investment in the business.
What does the minimum wage do?
Minimum wage is the lowest possible wage that every worker is entitled to receive for his service rendered. This sets a floor on the amount of income that any worker can earn. This is done to ensure economic equity in the society
Lawerence Haas makes our deficit spending sound like there's no problem at all. is this the case, or does demean something else? Do you agree? Explain.
Of course, it is not good if there is a constant economic deficit in the economy of one country. However, the ways in which powerful and growing economies struggle are different. It is necessary to consider all alternatives and possible long-term consequences. If the government wants to implement savings measures and spend less than is earned, the deficit would probably be reduced. Long-term consequences would have been different. There would be a reduction of investment and spendings, then slowing down in economic activities, and instead of increasing the total income, it would decrease.
What are some of the ways that people benefit from an economy that moves away from a command economy and more toward a socialist or market economy?
People benefit from the introduction of private property rights which provides them incentives to work as they can keep the fruits of their hard work for themselves. Consumers benefit from competition between firms as new products are introduced and prices reduced.
How does productivity relate to economic growth?
Productivity is a key element to economic growth. Productivity can be defined as amount of goods produced for given amount of resources. Increased productivity fuels economic growth. As the productivity of factors of production increases, the cost of producing goods decreases.
why is a sales tax considered a regressive tax?
Sales tax is regarded regressive because when income rises, the tax is smaller, and the opposite, the tax is bigger for smaller income.
what did certain members of Congress do in 2013 to try to prevent implementation of the affordable care act? what was the ultimate effect for the economy?
Some members of the Congres tried to prevent implementation of the Affordable Care Act by had approved several amendments with an intention to replace or prohibit this Act. The sequester was designed with so many disadvantages, that the government expected Democrats and Republicans would make the agreement of some budget cuts and improve the situation in a budget deficit. Since this did not happen, automatic consumption reduction began. The deficit initially continued to grow, with a somewhat reduced intensity. At the end of the 2013., the deficit was at the projected height.
Describe the business cycle and explain what causes changes in it.
Systematic changes in real GDP marked by altering periods of expansion and contraction. Some of the possible causes of business cycles are external shocks, changes in investment spending, changes in monetary and fiscal policies, speculations and bubbles
How might government actions affect the circular flow of economic activity?
The data on population size, its composition in terms of age, gender and ethnicity is a very important statistic for the economists. It helps them predict the per capita GDP figures, the contribution of different sections of society to the economy, the impact of bulging or declining population on economic growth and well-being of various sections of society. Thus Census is very important to economists.
Explain the rule of marginal utility and how it works in real life.
The diminishing law of marginal utility states that with each additional unit of a good consumed, the utility derived from that extra unit decreases. As a result of this the conversion may not be in idling to pay the same price for this additional unit. As a result of this law law, the demand curve is negatively sloped. For example a person derived marginal utility or satisfaction from a pizza decreases with each additional slice of pizza consumed. This is the law of diminishing marginal utility.
what effect will changes in productivity have on the economy in the future?
The increase in productivity can totally offset the negative impact of slowing population growth on the size of labor force. If fewer people can produce significantly more than the average, the total output will continue to increase.
Identify the law of demand and give an example of the law in action.
The law of demand states that price of a good and its quantity demanded are inversely related. Thus the demand curve is negatively sloped curve. The demand for cars decrease as price of cars increase.
What are some of the reasons that a traditional economy can lead to economic stagnation?
The major drawback of traditional economy is that it discourage new ideas and new ways of doing things. The strict role of people in traditional economy has the effect of punishing those who breaks the traditional norms. This lack of innovation may cause lower standard of living in traditional economy.
After paying tuition an rent, a college student has $100 dollars left over. the student is sick and could get medical attention. the cost of the office visit is $40, plus he will have to spend $60 on medicine. Alternatively, the student could spend the money on food and hope he will get over what is making him sick. What should the student choose? Explain the opportunity cost of the decision.
The opportunity cost of going to the doctor is lost money that could have been spent on food. On the other hand, the opportunity cost of spending money on food is delayed medical aid which may be fatal to his health. I think he should pay a visit to the doctor because the food will not help him get better but going to the doctor may help him heal faster.
Analyze and explain the paradox of value as it relates to two products: bread, which has low monetary value, and a ticket to a concert by a popular band, which has a high monetary value.
The paradox of value arises because many things that are necessary and basic needs have low monetary value and other not so necessary things have high monetary value. This paradox is resolved by determining both the scarcity of the thing and its utility to mankind. In case of bread and concert ticket, the bread is necessary for survival while concert ticket is not.
