Category Archives: HL I Economics

CHAPTER 16 PRACTICE QUESTIONS

Progressive tax is any tax in which the rate increases as the amount of income increases. Furthermore, the richer households pay more than the poorer households. The poorer households pay a less percentage. Regressive tax is a tax that decreases in percentage as income increases. This places a larger burden on lower income households that it does on higher income earners. Proportional tax is any tax in which the rate is constant as the amount of income increases. Richer households or poorer households pay the same amount of tax.

A progressive tax does have it beneficial and harmful effects to households. A progressive tax can be fair because the poorer households have more disposable income, since their tax percentage is less. There is not much of a burden on the richer households because they still have a large amount of money that is disposable. But, this system may be considered unfair to the rich people, since they have no reward for making a high income. Since the poorer households pay less percentage of their tax, it may require them to pay for their own healthcare.

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CHAPTER 15 PRACTICE QUESTIONS

Question #2)

a. Full employment is the point where most of the people who are willing and able to work in a nation are able to find employment. Economic growth is an increase in the total output of goods and services in a nation over time. Structural unemployment is a non- economic consequence of growth. Structural unemployment is when the labour’s skills do not match the skills demanded, for example, technology provides the same or better skills than the  labour force. As an economy grows, further advances in technology are bound to happen. In Japan for example, some of the supermarkets have already implemented a system where a customer can bill their products by themselves. This causes less demand for people who work as cash registration employees. This way, the unemployment rate increases.

b. As discussed above, the unemployment rate will increase structural unemployment is occurring. Therefore, the workers with insufficient skill’s household will get none or less income. For example, a cash register employee who can be replaced will be unemployed, compared to a doctor or civil engineer. Therefore, there is unfair balance of payments. For the households with less income, will have less disposable income and the demand for certain goods with decrease.

CHAPTER 14 PRACTICE QUESTIONS

Inflation: an increase in the average price level of goods and services in a nation over time. Deflation: occurs when the average price level of goods and services decreases over time. If a certain goods/services price falls, it does not mean the country is experiencing deflation. Price index: average of prices for a selection of goods and services in a particular nation during a given nation during a given interval of time. A price index can be used to measure the changes in the price level of goods between one period of time and another. The inflation rate is the percentage change in a price index between one period of time and another. It measures the change in the average price of goods and services in a nation over time. The inflation rate can be either positive, negative, or zero. CPI: consumer price index. Demand pull inflation is when too many consumers are chasing too few goods, so the average price of goods and services in a nation rises. Demand pull inflation is illustrated by an outward shift of AD when a nation is at or near it’s full employment of output. Cost push inflation is when costs of production faced by a nation’s producers rise (due to wages, etc) so the nations short run aggregate supply curve shifts to the left and the average price level of the nation’s output rises. Cost push inflation is sometimes accompanied by stagflation: means the economy is stagnating: experiencing zero or negative economic growth. Monetarism is the school of economic thought. It argues that changes in the money supply aimed at affecting aggregate demand will only cause inflation or deflation, but no change in the level of employment in the economy. Monetarism also supports the view that the Phillips curve is vertical and the natural rate of unemployment.

Question #2)

“Low inflation is the main macro economic goal for most western countries. This is because there are many economic costs of high inflation” (Economicshelp.org). When prices of goods and services increase, many factors are effected, and there is a domino effect. For example, firms that produce potato chips need to buy potatoes, oil, etc to produce it. But if the price of potatoes and oil increase, then the overall price of the packaged potato chips, increase. Furthermore, if the price of labor increases for the potato firm, they are spending a greater sum of their budget. This may lead the firm into confusion about their priorities in the allocation of their money. The business cycle will be effected by the inflation, since economies rise and fall. The increase of prices may effect this cycle. A rise in inflation will decrease the aggregate demand, leading to a slower pace flow of money, and possibly unemployment.

Price stability is a situation where the price does not fluctuate, eliminating inflation and deflation. Price stability has many more benefits compared to inflation or deflation. Price stability can lead to financial stability, to individual households and firms. Price stability is important to households, because it effects the worth of their money and income. When the price of goods and services increase, the households have less money to spend on commodities. If a family goes grocery shopping in 2000, and buy food for a family of four, but goes grocery shopping in 2013, and only have enough money to buy food for three people. This is caused by price inflation. This therefore affects the aggregate demand. Inflation can also affect the unemployment level. Deflation is when prices drop, the producers tend to lose money, since the consumers are paying less for their products.

CHAPTER 13 PRACTICE QUESTIONS

Structural unemployment, frictional unemployment, and seasonal unemployment are types of unemployment. Structural unemployment is when workers are unable to find work because their skills don’t match what the employers are looking for. This is caused by globalization, or when machines can replace workers in a factory. Frictional unemployment is when people are looking for jobs or getting a new job, which is caused when students who have just exited college, and are looking for a job. Also, workers who are looking for a better job. Seasonal unemployment refer to people who work depending on the seasons, on their preferred time. Some examples are summer jobs, and part time jobs.

Structural unemployment usually has effect for longer than frictional unemployment. In the long term, a country should invest in their education system & training for adults, teaching the necessary skills that will be useful in the future. Farmers, for example, in today’s world, aren’t needed as much as they used to be. This is because they don’t have the updated skills to be more efficient, and are easily replaced by agricultural machines. Therefore, the nation should invest in education and teaching skills to use the farmers as efficiently as the machines. Having some workers that don’t have updated skills, can pull back a countries development and show economic weakness, but the nation can help this by education, etc.

Chapter 12 Questions

Aggregate demand is the total demand for a nation’s goods and services from domestic households, firms, the government and foreigners.
Four components that make up a country’s aggregate demand:
– (C) consumption: all spending by domestic households on goods and services during a particular time.
– (I) investment: gross domestic investment measures total spending by firms on capital equipment.
– (G) government spending: gross government investment and spending measures a country’s government’s expenditures on goods and services.
– (X-M) net exports: measures the total income earned from the sale of exports minus the amount spent by a nation’s household, firms, and government on goods and services imported.
Equation: AD = C + I + G (X-M)

#1) One of the determinants of investment is interest rates. When there are higher interest rates, the amount of investment in the economy declines. When the interest rates are lower, the amount invested in the economy increases. There is an inverse relationship between interest rate and the economy.

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(Image Retrieved from: http://www.macrobasics.com/wp-content/uploads/2012/06/The-Market-for-Loanable-Funds.png)

When the interest rate is high, the supply of funds provided by households is equal to demand from firms/households in terms of investment. When the interest rate is lower, the quantity of funds demanded for investment increases. This is because there are more investments in capital and technology, which a higher rate of return to cover the interest payments.

Chapter 11 Questions

Question #2

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(Image Retrieved from Wikipedia)

Basic Concepts of a Circular Flow Model:

– in the product market, household are exchanging money payments for the goods and services provided by companies
– Firms buy the factors of production from households in the form of rent, wages, interests, etc.

Money that leaves the market system is called a leakage, whereas the money that enters the market system is called an injection. An example of leakage, is the money withdrawn by the government. The money withdrawn usually is returned to the system when the government spends money on salaries and infrastructure. Imports are leakages, but the money is covered up with exports, injections. Savings are leakages, since the flow of money slows down.  But, the money saved in banks is available to borrowers, who then inject the savings into the market system, as investments.

 

Question #4

Analyse the use of GNP per capita to compare living standards in different countries.

Gross national product is the market value of all the products and services produced in a time period by the labour and capital supplied by the residents of a country. GDP – net income = GNP. GNP measures the citizens individual income, helping to know the countries strengths and areas of improvements. GNP per capita doesn’t indicate the quality of living, the life expectancy, or the literacy rate.

Assess the value of two other measures which might be used to compare living standards.

Life expectancy, literacy rate, and the underground market are not accounted for in the information of GNP. Life expectancy shows the age that the population is living to. It shows the efficiency of the health services and safety, etc. Literacy rate shows the amount of population that are education to a certain level, showing how the country values education. The underground (black) market isn’t taken in account for when calculating GDP or GNP.

Chapter 10 Practice Questions

5a) Oligopolistic markets have higher barriers to enter, whereas monopolistic markets have little and small barriers. In a monopolistic market, there are many firms which often refrains the firm from making abnormal profits. Oligopolistic have fewer firms, less competition, allowing abnormal profits and loss. The monopolistic firm has the ability to change their products to fit their consumers tastes and preferences, whereas the oligopolistic market does not. Firms monopolistic competition are more dependent on the consumer for the prices, where are oligopolistic competition is slightly more independent, depending on if the good is elastic or inelastic.

5b) Collusive oligopoly is an agreement between firms related to prices and output level, and restricting innovation and avoiding extra costs. This helps the firms to reach profit maximization, where MC=MR. Non-collusive oligopoly are when firms do not cooperate, and the firms monitor the actions of the other firms.

Chapter 9 Practice Questions

7a) Monopolists are companies such as Kansai Electric, which have little or no competition. Therefore, the barriers are extremely high to enter into. Since they have no competition, they are price-givers. The people have no other substitute to which they could turn to for a less price. For example, people in Japan have to consume from Kansai Electric, no matter how high the price is. Monopolists do not have to allocate resources effectively, or produce at MC=MR.

7b) Competitive markets have lower barriers compared to monopolies. As explained before, in a monopolists market, consumers have no substitues. But, in a competitive market, consumers have a range of firms they can choose from, to suit their income, and their tastes and preferences. Therefore, competitive markets are more helpful to the consumer compared to the monopolist.

5a) Third degree price discrimination “takes advantage of the fact that different consumer groups have differing price elasticities” Producers separate the groups and charge them the highest price possible. In the book, it explains how business phone need to make phone calls during working hours, therefore, they will pay the price for this to happen. The elderly and younger community who use the phone later on in the day, or weekends, do not have to pay the price. This is how producers get the highest possible amount of money from third degree price discrimination.

5b) Price discrimination for firms increases the profits and revenues. “It is possible that price discrimination will enhance monopoly power over consumers. Deadweight losses may be reduced or eliminated.” Price discrimination will lead consumers to pay more, by taking advantage of the groups they are separated into. Welfare loss is eliminated by price discrimination. In third degree price discrimination, the consumer might be at a gain. For example, ‘happy hour’ at a bar are at unusual times, but the consumers will still pay less. Or, children at a cinema will pay less than an adult would. But more second degree and first degree price discrimination, consumers are mostly at a loss.

Chapter 8 Practice Questions

1a) Perfect competition is a theoretical market. In a perfect competition, the short long equilibrium is where marginal revenue is equal to marginal cost. Therefore, these two factors effect the equilibrium. In the long run of an perfect competition, the equilibrium is by the competitors in the market. If there are many competitors, the firm will loose money, therefore their equilibrium changes.

1b) Perfect competition is a theoretical market, meaning it doesn’t exist in the real world. In the perfect competition, the barriers are extremely low to enter into, therefore if a firm in a perfect competitive market make money, people will join into this market, resulting in an extremely high number of competitors.This then lowers the marginal revenue for the other firms.

REPONSE: Economics Journal: Who’s Afraid of Wal-Mart?

 

 

 

 

 

 

 

 

**incomplete**

 

The stakeholders in this article are:

– local & smaller stores will go out of business (Kirana)
– walmart will gain profit, since they are more advanced/efficient
– citizens in the country

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This graph represents the shutdown because the smaller local stores will go out of business (Kirana) , since WalMart is a bigger and well known company. But