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natural resource economics

Questions and Answers of Natural Resource Economics

14. Suppose Great Britain leaves the Eurozone, causing a recession in Europe. Considering that the Eurozone is a big commercial partner of the United States, how do you think this might affect the
13. Will there be an effect on interest rates if brokerage commissions on stocks fall? Explain your answer.
12. How would the demand curve for corporate bonds be affected if news about accounting scandals in major corporations spread? What would be the effect on interest rates?
11. In the aftermath of the global financial crisis, U.S. government budget deficits increased dramatically, yet interest rates on U.S. Treasury debt fell sharply and stayed low for many years. Does
10. Suppose that many big corporations decide not to issue bonds, since it is now too costly to comply with new financial market regulations. Can you describe the expected effect on interest rates?
9. How might a sudden increase in people’s expectations of future real estate prices affect interest rates?
8. What will happen in the bond market if the government imposes a limit on the amount of daily transactions? Which characteristic of an asset would be affected?
6. An important way in which the Federal Reserve decreases the money supply is by selling bonds to the public. Using a supplyand-demand analysis for bonds, show what effect this action has on
5. Suppose Maria prefers to buy a bond with a 7% expected return and 2% standard deviation of its expected return, while Jennifer prefers to buy a bond with a 4% expected return and 1% standard
4. I own a professional football team, and I plan to diversify by purchasing shares in either a company that owns a pro basketball team or a pharmaceutical company. Which of these two investments is
3. Raphael observes that at the current level of interest rates there is an excess supply of bonds, and therefore he anticipates an increase in the price of bonds. Is Raphael correct?
2. Explain why you would be more or less willing to buy a house under the following circumstances: a. You just inherited . b. Real estate commissions fall from 6% of the sales price to 4% of the
1. Explain why you would be more or less willing to buy a share of Verizon stock in the following situations: a. Your wealth falls. b. You expect it (Verizon stock) to appreciate in value. c. The
1. Investigate the data available from the Federal Reserve Bank of St. Louis FRED database at http://research.stlouisfed.org/fred2/. Then answer the following questions. a. What is the difference in
4. Consider a coupon bond that has a par value and a coupon rate of 10%. The bond is currently selling for and has eight years to maturity. What is the bond’s yield to maturity?
3. Consider a bond with a 7% annual coupon and a face value of . Complete the following table.What relationships do you observe between maturity and discount rate and the current price?
2. A lottery claims its grand prize is million, payable over 20 years at per year. If the first payment is made immediately, what is this grand prize really worth? Use an interest rate of 6%.
1. Calculate the present value of a zero-coupon bond with five years to maturity if the yield to maturity is 6%.
3. Suppose today you buy a coupon bond that you plan to sell one year later. Which part of the rate of return formula incorporates future changes into the bond’s price? Note: Check Equations 9 and
2. If there is a decline in interest rates, which would you rather be holding, long-term bonds or short-term bonds? Why? Which type of bond has the greater interest-rate risk?
1. Explain which information you would need to take into consideration when deciding to receive today or one year from today.
2. The most famous financial market in the world is the New York Stock Exchange. Go to www.nyse.com. a. What is the mission of the NYSE? b. Firms must pay a fee to list their shares for sale on the
1. One of the best sources of information about financial institutions is the U.S. Flow of Funds report produced by the Federal Reserve. This document contains data on most financial intermediaries.
15. Financial regulation is similar, but not exactly the same, in industrialized countries. Discuss why it might be desirable—or undesirable—to have the same financial regulation across
13. Why might you be willing to make a loan to your neighbor by putting funds in a savings account earning a 5% interest rate at the bank and having the bank lend her the funds at a 10% interest rate
9. Why do loan sharks worry less bout moral hazard in connection with their borrowers than some other lenders do?
8. Maria has accumulated in savings and wants to buy shares in a hedge fund. Explain why Maria cannot participate in this particular type of mutual fund.
5. Suppose that Toyota sells yen-denominated bonds in Tokyo. Is this debt instrument considered a Eurobond? How would your answer change if the bond were sold in New York?
2. If I can buy a car today for and it is worth in extra income next year to me because it enables me to get a job as a traveling anvil seller, should I take out a loan from Larry the loan shark at a
1. Give at least three examples of a situation in which financial markets allow consumers to better time their purchases.
2. In Web Exercise 1 you collected and graphed the Dow Jones Industrial Average. Now go to www.forecasts.org. Click on “Stock Market Forecast” and then on “Dow Jones Industrial Average” in
1. In this exercise we will practice collecting data from the Web and graphing it using Excel. Use the example as a guide. Go to https:/ /fred.stlouisfed.org/series/DJIA, and select “10 year
1. The following table lists foreign exchange rates between U.S. dollars and British pounds (GBP) during April.
15. Why do managers of financial institutions care so much about the activities of the Federal Reserve System?
13. Can you date the latest financial crisis in the United States or in Europe? Are there reasons to think that these crises might have been related? Why?
12. What are the other important financial intermediaries in the economy besides banks?
11. Can you think of a reason why people in general do not lend money to one another to buy a house or a car? How would your answer explain the existence of banks?
10. Looking at Figure 1.3 , in what years would you have chosen to visit the Grand Canyon in Arizona rather than the Tower of London?
6. Explain the main difference between a bond and a common stock.
4. Why is it that economists often refer to “the” interest rate, while there are many interest rates in any economy?
1. Explain the link between well-performing financial markets and economic growth. Name one channel through which financial markets might affect economic growth and poverty.
6. Suppose that statistical information tells us that the aggregate demand curve for a particular economy can be approximated by the equation P 15000/Y:
5. What policies would a "classical" or "monetarist" economist suggest to reduce persistent unemployment?
4. influence the economy. Do you think that an improvement in banking technology would lead to an increase or decrease in the aggregate price level?
3. Compare and contrast the ways monetary policy and fiscal policy
2. Recall that the Fisher equation says that the nominal interest rate is equal to the real interest rate plus expected inflation. Thus, the Fisher equation is (fill in the blanks using the notation
1 The simplest version of the quantity theory of money assumes that velocity is relatively constant, and that real GDP increases at its long-run rate of growth. Suppose that over the past few
7. Explain what is meant by automatic stabilizers and how they work to minimize fluctuations in economic activity.
6. Suppose the Ecoland economy is represented by the following equations: Nee Ce er ee C = 500 + 05YD T = 600 I = 300 6D Seas) a ead G = 2,000 (a) Given the above variables, calculate the equilibrium
5. What are the key components of the simple Keynesian model? What is the role of the multiplier in the Keynesian model?
4. Explain why public policy-makers are so often concerned about: (a) The size of the annual budget deficit (b) The ratio of the national debt to GDP
3. The economy is in a recession. To increase income by $1,000, government spending must increase by $100. The consumption function is C = cY; investment is $400; government purchases are $300;
2. Explain why investment is likely more volatile than consumption.
1. How would government officials use a knowledge of the marginal propensity to consume when considering a tax cut?
7. Explain what the Fisher effect/Fisher hypothesis represents.
6. What is the expectations theory of the term structure of interest rates?
5. The Fisher equation says that the nominal interest rate i is equal to the real interest rate r plus the expected inflation rate p€. Use this concept to complete the following table:(1) real
4. What would happen to GDP if large numbers of stay-at-home parents suddenly entered the workplace and hired others to cook, clean, and care for their children? Is this change reflective of an
3. Briefly explain how nominal GDP can increase, yet real GDP decrease, during the same period.
2. Define nominal GDP and real GDP. Is it possible for nominal GDP in a year to be less than real GDP in the same year? Explain.
1. What are the components of aggregate expenditure, and what is the relative importance of each of them?
8. Table 1 presents the demand and supply schedules for television sets in Japan and Canada. If Canada and Japan decide to trade with each other, what will happen to the output of television sets in
7. Table 1 presents the demand and supply schedules for television sets in Japan and Canada. If Canada and Japan trade with each other, what will happen to the output of television sets in Canada?
6. Table 1 presents the demand and supply schedules for television sets in Japan and Canada. If Japan and Canada trade with each other, which country will export television sets, and how many? (a)
5. Table 1 presents the demand and supply schedules for television sets in Japan and Canada. If Japan and Canada trade with each other, what will be the equilibrium price in the world market for
4. Table 1 presents the demand and supply schedules for television sets in Japan and Canada. If there is no trade between these coun- tries, what are the equilibrium price and the equilibrium
3. Table 1 presents the demand and supply schedules for television sets in Japan and Canada. If there is no trade between these coun- tries, what are the equilibrium price and equilibrium quantity in
2. South Africa can produce 1,000 shoes if it specializes in shoe production. Alternatively, it can produce 500 shirts. Egypt can produce 500 shoes or 200 shirts. Explain which country will special-
1. "I oppose a free trade agreement with Bolivia because Brazilian workers will lose jobs to lower-paid Bolivian workers." Explain whether you agree or disagree with this statement.
9. Assume firm A and firm B are competing for customers and that if they both advertise, they would each earn $30 million in profit. If neither advertises, they each earn $50 million in profits. But
8. What is a Nash equilibrium?
7. How can economies of scale in production result in an oligopoly?
6. What is the difference between monopolistic competition and per- fect competition?
5 Two firms are in the market for chocolate confectionery. Each can choose to go for the high end of the market (high quality) or the low end (low quality). Resulting profits are given by the
4 Do you agree with the following statement? The Schumpeterian concept of creative destruction is the main explanation offered by economists as to why monopoly or imperfect competition is an
3 What is a "strategic move"? Can the development of a certain kind of reputation be a strategic move?
2 Why has the OPEC oil cartel succeeded in raising prices substan- tially, while the CIPEC copper cartel, for example, has not? What conditions are necessary for a successful cartel? What
1 Suppose all the firms in a monopolistically competitive industry were merged into one large firm. Would that new firm produce as many different brands? Would it produce only a single brand?
6 Under what conditions should a competitive firm shut down in the short run?
5. Zeon Industries is a monopoly provider of electricity. The demand for electricity is: 6. Qd = 49 -0.7P The marginal revenue curve is: MR 70 (20/7)Q = The marginal cost is: MC = 10 -0.020 The
4. Why do firms enter an industry when they know that in the long run economic profit will be zero?
3. Consider an industry dominated by a single monopolist. The demand for the product is given by Qd = 120.2P. Costs per unit of output are constant, and the firm estimates these to be $35 per unit.
2. Suppose you are a regulator of the local public electric utility, a natural monopoly with decreasing average costs throughout the relevant range of production. What is your job? What information
1. You notice that the fans get thirsty at a soccer game. Therefore, you set up a refreshment stand. After raw materials, you clear 500 Pesos for the afternoon. Are your economic profits 500 Pesos?
6. How can consumer surplus be determined?
5. The market supply and demand functions for milk are: Os Qd 800 + 100P = 2,000 - 500P To assist milk producers, the government is implementing a price floor of 2.25 per unit. How many units of milk
4 The city council limits rents to the current $900 per month level. (a) Draw a supply and demand diagram to illustrate what will happen to the number of rental apartments after the imposi- tion of
3 Suppose the average annual market-clearing rent for a two-bedroom apartment has been $900 per month, and rents were expected to increase to $1,200 within a year.
2. The rent control agency in Bucharest has found that the demand for apartments is Qg = 320 — 16P. Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate,
1. Ticket prices for sporting and entertainment events are often regulated by municipalities. For example, the city of Los Angeles oversees pricing of events at baseball's Dodger Stadium. If
7. Assume the price of gasoline in 2004 was on the average $1.35 a gallon and 15 million gallons a day were sold. In 2005, the price on the average was $2.15 a gallon and 14 million gallons were
6. What factors might make demand more elastic?
5. You have been asked to analyze the world market for wheat. You have estimated the following supply and demand curves: Qs 440 +165P Qd = 1600-12P (a) Calculate the equilibrium price and quantity.
4 Which of the following events would cause a movement along the demand curve for European-produced clothing, and which would cause a shift in the demand curve? (a) Higher costs for producing
3 It is generally accepted that the demand for food is relatively price inelastic. If a severe drought reduces production by half, can you determine the effect on farm revenue? If not, what other
2 If both the supply and demand curves shift right, we know the direction of the change in quantity, but not the direction of the price change. If supply shifts right but demand shifts left, we
1. Suppose you are in charge of a toll bridge that costs essentially nothing to operate. The demand for bridge crossings, Q, is given by P = 15 — 0.50. (a) Draw the demand curve for bridge
10. A distinction is usually made between the ‘transparency’ of a central bank and its accountability. What is the difference? Consider the proposition that, while the monetary policy of the Fed
9. How useful are the phrases from which the FOMC chooses for describing its view of likely future developments in the US economy? What is the purpose of making statements of this kind?
Explain your answer in each case. If you think it does none of the above three, what does it do?

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