Question 1: We
Quiz
#2 (the first quiz in the packet handed out in class on Oct 29th
2002 )
Problem
#2- we did not understand why you used this "1/2X_X_"equation. We
pretty much just weren’t familiar with that equation and didn’t know what to
plug in and why.
Answer 1:
(i) PRODUCERS' SURPLUS AT $4 IS THE AREA BETWEEN THE SUPPLY
CURVE AND THE PRICE OF $4. TRY
HIGHLIGHTING THIS AREA WITH A MARKER (DOING THIS REALLY HELPS). YOU WILL SEE A TRIANGULAR SHAPE. THE FORMULA TO CALCULATE THE AREA OF A
TRIANGLE IS (1/2 x HEIGHT x BASE).
THE
TRAINGLE STARTS AT $2(the point where the supply curve intersects with the
vertical axis) AND GOES UP TO $4(the price). THEREFORE, THE HEIGHT OF THE TRIANGLE IS (4-2)=2
THE
BASE OF THE TRIANGLE STARTS AT O AND GOES UP TO 20. SO THE BASE OF THE TRIANGLE IS 20.
(ii) PRODUCERS' SURPLUS AT $6 IS THE AREA BETWEEN THE SUPPLY CURVE AND THE PRICE OF $6. TRY HIGHLIGHTING THIS AREA WITH A MARKER (DOING THIS REALLY HELPS). YOU WILL SEE A TRIANGULAR SHAPE. THE FORMULA TO CALCULATE THE AREA OF A TRIANGLE IS (1/2 x HEIGHT x BASE).
THE
TRAINGLE STARTS AT $2(the point where the supply curve intersects with the
vertical axis) AND GOES UP TO $6(the price). THEREFORE, THE HEIGHT OF THE TRIANGLE IS (6-2)=4
THE
BASE OF THE TRIANGLE STARTS AT O AND GOES UP TO 40. SO THE BASE OF THE TRIANGLE IS 40.
Question 2: We
>Quiz
#2 (the first quiz in the packet handed out in class on Oct 29th
2002 )
problem
#9- the answer wasn’t marked and
we were confusing ourselves on when a country imports and exports on the
principle of comparative advantage-- could you please tell us the answer?
Answer
2:
BASED
ON THE PRINCIPLE OF COMPARATIVE ADVANTAGE, ALPHA SHOULD SPECIALIZE IN THE GOOD
THAT THEY HAVE A LOW OPPORTUNITY COST OF PRODUCING, AND OMEGA SHOULD SPECIALIZE
IN THE GOOD THAT THEY HAVE A LOW OPPORTUNITY COST OF PRODUCING, THEN THEY SHOULD
EXCHANGE THROUGH TRADE (like the example that we did in class with MR. Potato
Head and Mrs. Steer). CALCULATE
OPPORTUNITY COSTS FOR BOTH COUNTRIES.
YOU SHOULD FIND THE FOLLOWING:
ALPHA
: opp cost 1 wheat = 0.08 oil
opp. cost 1 oil = 12.5 wheat
OMEGA
: opp. cost 1 wheat = 0.8 oil
opp. cost 1 oil = 1.25 wheat
SINCE ALPHA IS THE LOW OPPORTUNITY COST PRODUCER OF WHEAT (Alpha only gives up 0.08 oil when they produce 1 wheat, whereas Omega gives up 0.8 oil when they producer 1 wheat - Alpha gives up less), ALPHA SHOULD SPECIALIZE IN THE PRODUCTION OF WHEAT AND SHOULD PRODUCE ONLY WHEAT, AND OMEGA SHOULD SPECIALIZE IN THE PRODUCTION OF OIL (they are the low opportunity cost producer of oil) THEN THEY SHOULD TRADE. SO THE ANSWER TO #9 SHOULD BE (A)BECAUSE ALPHA SHOULD PRODUCE ALL WHEAT THEN SELL SOME OF THEIR WHEAT TO OMEGA (ALPHA SHOULD EXPORT WHEAT). OMEGA, ON THE OTHER HAND, WILL PURCHASE SOME WHEAT FROM ALPHA (OMEGA IMPORTS WHEAT), THEN THEY WILL SELL THEIR OIL TO ALPHA (OMEGA EXPORTS OIL, ALPHA IMPORTS OIL). I HOPE THIS IS CLEAR.
Question 3: We
Quiz
#2 (the first quiz in the packet handed out in class on Oct 29th
2002 )
problem
#10- again, there was no answer marked.
We think the answer is 'b' but we just wanted to verify.
Answer
3:
YES,
YOU ARE RIGHT. THE ANSWER IS
B. TO DETERMINE COMPARATIVE
ADVANTAGE, YOU HAVE TO CALCULATE OPPORTUNITY COSTS AS FOLLOWING:
FRANCE
: opp. cost 1 wine = 2/3 shirt so
1 wine = 0.666
PORTUGAL:
opp. cost 1 wine = 1/2 shirt so
1
wine = 0.5 shirt
Since
Portugal has a lower opportunity cost of producing 1 wine (they give up only
0.5 shirt when they produce a wine, whereas France gives up 0.66 shirts),
Portugal has a comparative advantage in producing wine.
Question 4: We
>Quiz
#2 (the second one in the packet- from the summer)
>problem
#2- this question was like #2 on the other quiz and we just didn’t understand
the equation again.
Answer
4:
THE
ANSWER WOULD BE SIMILAR TO ABOVE.
CONSUMERS'
SURPLUS AT $6 (the market equilibrium) IS THE AREA BETWEEN THE DEMAND CURVE AND
THE PRICE OF $6. TRY HIGHLIGHTING
THIS AREA WITH A MARKER (DOING THIS REALLY HELPS). YOU WILL SEE A TRIANGULAR SHAPE. THE FORMULA TO CALCULATE THE AREA OF A TRIANGLE IS (1/2 x
HEIGHT x BASE).
THE
TRAINGLE STARTS AT $6(the price) AND GOES UP TO $10(the point where the demand
curve intersects the vertical axis
THEREFORE,
THE HEIGHT OF THE TRIANGLE IS (10-6)=4
THE
BASE OF THE TRIANGLE STARTS AT O AND GOES UP TO 40. SO THE BASE OF THE TRIANGLE IS 40.
PRODUCERS' SURPLUS AT $6 IS THE AREA BETWEEN THE SUPPLY CURVE AND THE PRICE OF $6. TRY HIGHLIGHTING THIS AREA WITH A MARKER (DOING THIS REALLY HELPS). YOU WILL SEE A TRIANGULAR SHAPE. THE FORMULA TO CALCULATE THE AREA OF A TRIANGLE IS (1/2 x HEIGHT x BASE).
THE
TRAINGLE STARTS AT $2(the point where the supply curve intersects with the
vertical axis) AND GOES UP TO $6(the price). THEREFORE, THE HEIGHT OF THE TRIANGLE IS (6-2)=4
THE
BASE OF THE TRIANGLE STARTS AT O AND GOES UP TO 40. SO THE BASE OF THE TRIANGLE IS 40.
TOTAL
SURPLUS IS CONSUMERS' SURPLUS + PRODUCERS' SURPLUS
Question 5: We
I was reviewing for the test and came upon a question. I was wondering what measure to use when comparing RGDP between two countries and why?
Answer 5: W
When comparing across countries, one would use real GDP per person. Check your class notes - we did an example about this in class. If two countries have the same GDP, this doesn't mean that the people in these countries are equally well off.
For
Example
Country
A Real GDP = $1,000
Country
B Real GDP = $1,000
Remember
that Real GDP is the overall income of everybody in the economy. This income needs to be shared between
everyone in the country.
IF
Country
A population = 10
Country
B population = 1,000
For
country A, we have to share $1,000 among 10 people only, whereas in country B,
$1,000 needs to be shared by 1,000 people. So we have to come up with a measure that gives us the
average level of income of the typical person in each country. This measure is called the Real GDP per
person and is calculated using the following formula:
Real
GDP per person
= Real GDP/Population
Real
GDP per person Country A =
$1,000/10
= $100
Real
GDP per person Country B =
$1,000/1,000 = $1
This
means that the typical person in Country A has an income of $100, whereas a
typical person in Country B has an income of $1.
Question 6: We
What
is the difference between Keynesian Demand Shock/ Supply Shock and Classical
Demand Shock/Supply Shock?
Answer 6: W
They
are caused by the same thing. So
the Keynesian Demand Shock and the Classical demand shock recessions are both
caused by a leftward shift of the Aggregate Demand curve. The Keynesian supply shock and the
classical supply shock recessions are caused by a leftward shift of the
aggregate supply curve. The
outcomes of the recessions are what differ. When there is a demand shock recession, the Classicals
recommend that the government do nothing, and eventually the economy will
correct itself by a shift of the short run aggregate supply curve. The Keynesians on the other hand
recommend that the government interfere through expansionary policy which will
expand aggregate demand and cause a rightward shift of the aggregate demand
curve.
Question 7: We
What
is the difference between expansionary/contractionary fiscal policy and
expansionary/contractionary monetary policy?
Answer 7: W
A big
difference. Firstly, expansionary
policy refers to any type of government policy that shifts the AD curve to the right,
and contractionary policy refers to any policy that shifts the AD curve to the
left. Expansionary fiscal policy
refers to spurring the AD curve through increases in government spending or
decreases in taxes. Expansionary
monetary policy is increasing AD through increasing money supply. Contractionary fiscal policy refers to
contracting (decreasing) the AD curve through decreases in government spending
or increases in taxes.
Contractionary monetary policy is decreasing AD through decreasing money
supply. In regards to monetary
policy, it is important that you know the tools that can be used to change
money supply (refer back to your notes about discount rates, open market
operations and reserve requirement- what increases money supply and what
decreases money supply).
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