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Economics question book the economy today schiller 10/e

Section 1: Graphical Analysis:
For each question (numbers 1 through 14), choose an answer from the choices (A through E) below:
A) The curve shifts to the right (outward)
B) The curve shifts to the left (inward)
C) Movement along the curve
D) The market outcome is not on the curve
E) No impact

For Questions 1 through 5, characterize how the impact of each of the following events would be represented on the U.S. Production Possibility Frontier curve (Select answer from A through E above):
1) Improved information flows
2) High unemployment
3) An increase in workforce size
4) The aging of public infrastructure
5) The movement of U.S. corporate capital overseas

For Questions 6 to 11, characterize how the impact of each of the following events would be represented on the current U.S. demand curve for coffee (Select answer from A thru E above):
6) An increase in the price of tea
7) An increase in the price of coffee
8) The public expects an increase in the price of coffee.
9) Growing public concern over the health effects of caffeine
10) A decrease in price of sugar
11) Hurricane landfall in a major coffee production area

For Questions 12 through 14, characterize how the impact of each of the following events would be represented on the supply curve for coffee in the U.S. market (Select answer from A through E above):
12) Growing public concern over the health effects of caffeine
13) Hurricane landfall in a major coffee production area
14) The introduction of a new chemical that controls an insect pest affecting coffee

Section 2: Definitions & Short Answers:

1) Explain why we face economic choices.
2) What does the PPF curve represent? What does outward movement of the PPF curve represent? Is it possible to have a level of consumption that exceeds the level of production represented by the PPF? If so, how?
3) Define marginal cost.
4) Define opportunity cost.
5) Explain what inflation is and how it is calculated?
6) Define ceteris paribus and explain its significance to economic analysis.
7) Describe and discuss the circular flow of money leave government and foreign trade out of the picture).
8) Define Gross Domestic Product (GDP) and discuss what is and is not included with the calculation of GDP.
9) Discuss the difference between nominal and real GDP? If a news report mentions GDP without any adjective, it is most probably referring to which: nominal or real?
10) Discuss the major categories of economic resources (inputs to production).
11) Explain why the U.S. Congress choose 3% inflation rather than zero inflation as the benchmark for price stability.
12) List and discuss some of the reasons that the U.S. government has committed itself to avoiding significant inflationary effects (in other words, discuss some of the negative effects of inflation).

Section 3: short Essays

1) Discuss frictional, structural and cyclical unemployment. Which type do we expect that we may be able to eliminate via effective government policy.

2) Explain the "process" by which the forces of supply and demand interact to "clear the market".

3) Define the law of demand. List and discuss the determinants (shift factors) for demand.

4) What are the three principle circumstances in which government intervention in a market would be justified in order to enhance market efficiency? Define and provide an example of each major category.

5) Every economy must answer three questions that are basic to production. List and discuss these questions/issues. Be sure to relate the questions to the issues of efficiency and equity.

6) List the four (4) quantities that comprise the "expenditures" approach to measuring GDP. Discuss the makeup of each of these components.

Section 4

1) Describe the relationship between "excessive" demand and inflation.

Solution Preview

Section 1: Graphical Analysis:
For each question (numbers 1 through 14), choose an answer from the choices (A through E) below:
A) The curve shifts to the right (outward)
B) The curve shifts to the left (inward)
C) Movement along the curve
D) The market outcome is not on the curve
E) No impact

For Questions 1 through 5, characterize how the impact of each of the following events would be represented on the U.S. Production Possibility Frontier curve (Select answer from A through E above):
1) Improved information flows A, improved information increases the production capacity
2) High unemployment. E, the high unemployment does not change the production capacity of a country.
3) An increase in workforce size A. Increase in the production capacity. More labor intensive technologies can be used.
4) The aging of public infrastructure . B unless the infrastructure is replaced, inefficiencies happen and the production capacity decreases.
5) The movement of U.S. corporate capital overseas . B

For Questions 6 to 11, characterize how the impact of each of the following events would be represented on the current U.S. demand curve for coffee (Select answer from A thru E above):
6) An increase in the price of tea . A the demand for coffee increases as tea is a substitute.
7) An increase in the price of coffee . C at higher price less coffee will demanded.
8) The public expects an increase in the price of coffee.
9) Growing public concern over the health effects of caffeine . B there is a fall in the demand for coffee.
10) A decrease in price of sugar. A As sugar is a complement the demand for coffee increases.
11) Hurricane landfall in a major coffee production area E. This increases the supply not the demand.

For Questions 12 through 14, characterize how the impact of each of the following events would be represented on the supply curve for coffee in the U.S. market (Select answer from A through E above):
12) Growing public concern over the health effects of caffeine E. This would effect the demand and not the supply.
13) Hurricane landfall in a major coffee production area B. There is an increase in supply , at the same price a higher quantity is supplied.
14) The introduction of a new chemical that controls an insect pest affecting coffee . B. There is an increase in the production and so the supply of coffee.

Section 2: Definitions & Short Answers:

1) Explain why we face economic choices.
Traditional economic theory assumes that humans make rational choices aimed at maximizing their economic well-being. But anyone who has ever splurged on some alluring trinket even though the rent check might bounce as a result knows that this assumption does not always hold true. These choices are consistent with economics and can be understood by (the) public. It's about important economic choices that have consequences in the environment.
Economists have been used to thinking that people make choices in rational ways, that all you need to do to get people to make the proper choices is to disseminate information. But more recently we've begun to realize that even for big decisions, behavior may be driven by seemingly inconsequential factors.
For example, there's an interesting interplay between what economists call the profit motive and the psychological concept of the self-serving bias, or the tendency to confuse what is fair with what benefits oneself. The self-serving bias can help explain how economic behavior may be ruthlessly discriminatory even when a person believes that it's not.
2) What does the PPF curve represent? What does outward movement of the PPF curve represent? Is it possible to have a level of consumption that exceeds the level of production represented by the PPF? If so, how?
A curve depicting all maximum output possibilities of two or more goods given a set of inputs (resources, labor, etc.). The PPF assumes that all inputs are used efficiently. Among others, factors such as labor, capital, and technology will effect where the production possibility frontier lies. The PPF is also known as the production possibility or transformation curve.
the production possibility frontier (the PPF, also called the production possibilities curve (PPC) or the "transformation curve") is a graph that depicts the trade-off between any two items produced. It indicates the opportunity cost of increasing one item's production in terms of the units of the other forgone. An additional trade-off exists between the reward (i.e. sales) of the produced good and the opportunity cost of that good. A choice is non-improvable if the direct reward is higher than the opportunity cost. It shows the maximum obtainable amount of one commodity for any given amount of another commodity, given the availability of factors of production and the society's technology and management skills. The concept is used in macroeconomics to show the production possibilities available to a nation or economy (corresponding roughly to macroeconomic notions of potential output), and also in microeconomics to show the options open to an individual firm. All points on a production possibilities curve are points of maximum productive efficiency or minimum productive inefficiency: resources are allocated such that it is impossible to increase the output of one commodity without reducing the output of the other. That is, there must be a sacrifice -- an opportunity cost -- for increasing the production of any good. All resources are used as completely as possible (without the situation becoming unsustainable) and appropriately. So it is not possible to consume outside the PPF unless the country decided to import goods.

3) Define marginal cost.
The cost of producing one additional unit. If the total cost of producing 10 units is $50, and if the total cost of producing 11 units is $54, then marginal cost at that level of output is $4. This is to be distinguished from "average" cost, the total dollar cost incurred during some relevant period of time, divided by the total number of units produced in that period. The increase in cost that accompanies a unit increase in output; the partial derivative of the cost function with respect to output.
4) Define opportunity cost.
The difference between the yield that funds earn in one use and the yield they could have earned had they been placed in an alternative investment generating the highest yield available. Arises when a restructure cannot be implemented instantaneously and a portfolio is exposed to the relative movements in prices whilst unwanted stocks are sold and those assets required are purchased.
5) Explain what inflation is and how it is calculated?
General inflation is a fall in the purchasing power of money within an economy, as compared to currency devaluation which is the fall of the market value of a currency between economies. General inflation is referred to as a rise in the general level of prices. The former applies to the value of the currency within the national region of use, whereas the latter applies to the external value on international markets. The extent to which these two phenomena are related is open to economic debate.
Inflation is measured by observing the change in the price of a large number of goods and services in an economy (usually based on data collected by government agencies, though labor unions and business magazines have also done this job). The prices of goods and services are combined to give a price index measuring an average price level, the average price of a set of products. This price is then adjusted for changes in the underlying basket of goods, a process called hedonic adjustment, for example, if the base model of a car goes up in price, but includes air conditioning, what percentage of the price increase is inflationary, and how much should be counted for the new feature which some consumers may, or may not, want.
The inflation rate is the percentage rate of increase in this index; while the price level might be seen as measuring the size of a balloon, inflation refers to the increase in its size.
There is no single true measure of inflation, because the value of inflation will depend on the weight given to each good in the index, as well as the extent of the economic region being examined.
Examples of common measures of inflation include:
· The Cost of Living Index or CLI is the theoretical increase in the cost of living of an individual, which Consumer Price Indexes are supposed to approximate. Economists argue over whether a particular CPI over or under estimates the CLI. This is referred to as "bias" within the CPI. The CLI may be adjusted for "purchasing power parity" to reflect the differences in prices for land or other local commodities which differ widely from world prices.
· The consumer price index (CPI) measures the price of a selection of goods purchased by a "typical consumer". In many industrial nations, annualised percentage changes in these indexes are the most commonly reported inflation figure. These measures are often used in wage and salary negotiations, since employees wish to have nominal pay raises that equal or exceed the rate of increase of the CPI. Sometimes, labor contracts include cost of living escalators, or adjustments, that imply nominal pay raises automatically occur due to CPI increases, usually at a slower rate than actual inflation (and after inflation has occurred).

6) Define ceteris paribus and explain its significance to economic analysis.
With all other factors or things remaining the same.
One of the disciplines in which ceteris paribus clauses are most widely used is economics, in which they are essential to simplify the formulating of and making predictions under the law of supply and the law of demand.
7) Describe and discuss the circular flow of money leave government and foreign trade out of the picture).
The flow of payments in an economy is a circular flow. Individuals--people living in households--work for businesses, rent their property (or their capital) to businesses, and manage and own the busineses. All these activities generate incomes--flows of payments from businesses to households. But households then spend their incomes--on consumption goods, in taxes paid to governments (that then spend the money on goods and services), and on assets like stock certificates and bank CDs that flow through the financial sector and are then used to buy investment and other goods. All these are expenditures
The two flows--of incomes and of expenditures--are equal: all expenditures on products are ultimately someone's income, and every piece of total income is also expended in some way

8) Define Gross Domestic Product (GDP) and discuss what is and is not included with the calculation of GDP.
GDP is the total market value of all the goods and services produced within the borders of a nation during a specified period.
The monetary value of all the goods and services produced by an economy over a specified period. It includes consumption, government purchases, investments, and exports minus imports.
GDP is defined as the total value of all goods and services produced within that territory during a specified period (or, if not specified, annually, so that "the UK GDP" is the UK's annual product). GDP differs from gross national product (GNP) in excluding inter-country income transfers, in effect attributing to a ...

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