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principles of economics

Questions and Answers of Principles Of Economics

Do you think that firms in small towns or in cities have more market power in hiring? Do you think that firms generally have more market power in hiring today than
Using a diagram of the labour market, show the effect of an increase in the minimum wage on the wage paid to workers, the number of workers supplied, the number of workers demanded and the amount of
Are the following workers more likely to experience short-term or long-term unemployment? Explain.a. A construction worker laid off because of bad weather.b. A manufacturing worker who loses her job
According to a Labour Force Survey in a country, total employment increased by around 1.35 million workers between 2010 and 2016, but the number of unemployed workers increased by 350,000.a. How are
Go to the website of the UK Office for National Statistics(http://www.statistics.gov.uk) or Eurostat (http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home)or the statistics office for
Assume that in a country, of all adult people, 29,500,000 were employed, 1,120,000 were unemployed and 11,000,000 were not in the labour force. How big was the labour force? What was the labour force
Outline three costs of unemployment to (a) an individual and (b) to society.
Explain four ways in which a firm might increase its profits by raising the wages it pays.
What claims do advocates of unions make to argue that unions are good for the economy?
What is the hysteresis effect?
How do unions affect the natural rate of unemployment?
Are minimum wage laws a better explanation for structural unemployment among teenagers or among university graduates? Why?
Why is frictional unemployment inevitable? How might the government reduce the amount of frictional unemployment?
Is unemployment typically short term or long term?Explain.
How do national statistical offices compute the labour force, the unemployment rate and the labour force participation rate?
Why might a person who does not have a job not be unemployed?
International data show a positive correlation between political stability and economic growth.a. Through what mechanism could political stability lead to strong economic growth?b. Through what
young men. Describe several ways in which greater educational opportunities for young women could lead to faster economic growth in these countries.
young women were enrolled in secondary school for every
In the countries of South Asia in 1992, only
Suppose that a car company owned entirely by South Korean citizens opens a new factory in the north of England.a. What sort of foreign investment would this represent?b. What would be the effect of
What is the opportunity cost of investing in capital? Do you think a country can ‘over-invest’ in capital? What is the opportunity cost of investing in human capital?Do you think a country can
Societies choose what share of their resources to devote to consumption and what share to devote to investment. Some of these decisions involve private spending; others involve government spending.a.
Suppose that society decided to reduce consumption and increase investment.a. How would this change affect economic growth?b. What groups in society would benefit from this change? What groups might
The chapter discusses how employment in developed economies has declined relative to output in the agricultural sector. Can you think of another sector of the economy where the same phenomenon has
UK income per person today is roughly four times what it was a century ago. Many other countries have also experienced significant growth over that period. What are some specific ways in which your
List the capital inputs necessary to produce each of the following:a. carsb. secondary educationc. air traveld. fruit and vegetables.
Most countries import substantial amounts of goods and services from other countries. Yet the chapter says that a nation can enjoy a high standard of living only if it can produce a large quantity of
Describe two ways in which the government can try to encourage advances in technological knowledge.
How does the rate of population growth influence the level of GDP per person?
Why would removing a trade restriction, such as a tariff, lead to more rapid economic growth?
Why is technological progress important in improving growth rates in any economy?
Does a higher rate of saving lead to higher growth temporarily or indefinitely?
Explain how higher saving leads to a higher standard of living. What might deter a policymaker from trying to raise the rate of saving?
In what way is a university degree a form of capital?
List and describe four determinants of productivity.
What is the difference between the terms ‘productivity’and ‘production’?
What does the level of a nation’s GDP measure? What does the growth rate of GDP measure? Would you rather live in a nation with a high level of GDP and a low growth rate, or in a nation with a low
Why is knowledge of real interest rates of importance to people who rely on their savings for their income?
Explain the meaning of nominal interest rate and real interest rate. How are they related?
to 300. Adjusted for overall inflation, how much did the price of the box of chocolates change?
Over a long period of time, the price of a box of chocolates rose from €1 to €6. Over the same period, the CPI rose from
If the price of a French Navy submarine rises, is the French consumer prices index or the French GDP deflator affected more? Why?
and in 2012 was 160. Was wine cheaper in 1990 than in 2012? Explain.
Assume that the price of a bottle of wine in 1990 was€3.50 and in 2012 it is €8.50. Further assume that the price index in 1990 was
Why do statisticians change the composition of the basket of goods used in constructing a price index from time to time?
Describe the three problems that make the CPI an imperfect measure of the cost of living.
per cent increase in the price of caviar? Why?
per cent increase in the price of chicken or a
Which do you think has a greater effect on the consumer prices index: a
Why do statisticians use weighting in constructing price indices?
What are the five stages of constructing a price index?
The participation of women in many European and North American economies has risen dramatically over the past three decades.a. How do you think this rise affected GDP?b. Now imagine a measure of
Economists sometimes prefer to use GNP rather than GDP as a measure of economic well-being. Which measure should we prefer if we are analysing the total income of domestic residents? Which measure
Goods and services that are not sold in markets, such as food produced and consumed at home, are generally not included in GDP. Can you think of how this might cause the numbers in the second column
One day Boris the Barber, plc, collects €400 for haircuts.Over this day, his equipment depreciates in value by €50. Of the remaining €350, Boris sends €30 to the government in sales taxes,
If prices rise, people’s income from selling goods increases. The growth of real GDP ignores this gain, however. Why, then, do economists prefer real GDP as a measure of economic well-being?
Below are some data from the land of milk and honey.Year Price of milk (€)Quantity of milk(quarts)Price of honey (€)Quantity of honey(quarts)2013 100a. Compute nominal GDP, real GDP and the GDP
As the chapter states, GDP does not include the value of used goods that are resold. Why would including such transactions make GDP a less informative measure of economic well-being?
Why do you think households’ purchases of new housing are included in the investment component of GDP rather than the consumption component? Can you think of a reason why households’ purchases of
The ‘government purchases’ component of GDP does not include spending on transfer payments such as social security. Thinking about the definition of GDP, explain why transfer payments are
What components of GDP (if any) would each of the following transactions affect? Explain.a. A family buys a new refrigerator.b. Aunt Jane buys a new house.c. Aston Martin sells a DB7 from its
What are the limitations of using GDP as a measure of well-being for a country?
Why is it desirable for a country to have a large GDP?Give an example of something that would raise GDP and yet be undesirable.
In the year 2014, the economy produces 100 loaves of bread that sell for €2 each. In the year 2015, the economy produces 200 loaves of bread that sell for€3 each. Calculate nominal GDP, real GDP
Why do economists use real GDP rather than nominal GDP to gauge economic well-being?
List the four components of GDP. Give an example of each.
Many years ago, Jamanda paid €500 to put together a record collection. Today she sold her albums at a car boot sale for €100. How does this sale affect current GDP?
A farmer sells wheat to a baker for €2. The baker uses the wheat to make bread, which is sold for €3. What is the total contribution of these transactions to GDP?
Which contributes more to GDP – the production of an economy car or the production of a luxury car?Why?
What is meant by the term GDP per capita and how is it measured?
Explain why an economy’s income must equal its expenditure.
When the government of Tradeland decides to impose an import quota on foreign cars, three proposals are suggested: sell the import licences in an auction. Distribute the licences randomly in a
Suppose that European Union countries impose a common tariff on imported cars to protect the European car industry from foreign competition. Assuming that Europe is a price taker in the world car
The world price of cotton is below the no-trade price in country A and above the no-trade price in country B.Using supply and demand diagrams and welfare tables such as those in the chapter, show the
The world price of wine is below the price that would prevail in France in the absence of trade.a. Assuming that French imports of wine are a small part of total world wine production, draw a graph
France represents a small part of the world apple market.a. Draw a diagram depicting the equilibrium in the French apple market without international trade.Identify the equilibrium price, equilibrium
The UK and Poland both produce cakes and coats.Suppose that a British worker can produce 50 cakes per hour or 1 coat per hour. Suppose that a Polish worker can produce 40 cakes per hour or 2 coats
Morgan and Oliver share a flat. They spend most of their time studying (of course), but they leave some time for their favourite activities: cooking pizza and making homebrew beer. Oliver takes 4
Swedish and Danish workers can each produce 4 capital goods a year. A Swedish worker can produce 10 tonnes of grain a year, whereas a Danish worker can produc 5 tonnes of grain a year. To keep things
Look at the table below which shows the production possibilities for two products, pens and pencils.Point Pens Pencils 25a. Calculate the opportunity cost of producing 1 additional pen between points
Draw the PPF for a country which produces just oranges and cars. Assume that the country is better at producing oranges than cars.a. What can you say about the opportunity cost of the country
List five arguments often given to support trade restrictions. How do economists respond to these arguments?
What is an import quota? Compare its economic effects with those of a tariff.
Describe what a tariff is, and describe its economic effects.
Draw the supply and demand diagram for an importing country. What is consumer surplus and producer surplus before trade is allowed? What is consumer surplus and producer surplus with free trade? What
Thousands of tourists visit Europe cities every year. Is tourism an import or an export to a country? Explain.
When does a country become an exporter of a good?An importer?
Can two countries gain from trade if the opportunity cost ratios relating to production of goods they can both produce is the same? Explain.
Explain how absolute advantage and comparative advantage differ.
What does the domestic price that prevails without international trade tell us about a nation’s comparative advantage?
Draw a PPF for a country producing only computers and wheat. What determines the shape and position of the PPF you have drawn? Use your diagram to show the opportunity cost of different output
Do you agree or disagree with each of the following statements? What do your views imply for public policies, such as taxes on inheritance?a. ‘Every parent has the right to work hard and save in
John and Carlos are utilitarians. John believes that labour supply is highly elastic, whereas Carlos believes that labour supply is quite inelastic. How do you suppose their views about income
Suppose that a family’s tax liability equalled its income multiplied by one-half, minus €10,000. Under this system, some families would pay taxes to the government, and some families would
Suppose there are two possible income distributions in a society of ten people. In the first distribution, nine people would have incomes of €30,000 and one person would have an income of
The chapter uses the analogy of a ‘leaky bucket’ to explain one constraint on the redistribution of income.a. What elements of your country’s system for redistributing income create the leaks
Consider two communities. In one community, ten families have incomes of €100 each and ten families have incomes of €20 each. In the other community, ten families have incomes of €200 each and
The chapter discusses the importance of economic mobility.a. What policies might the government pursue to increase economic mobility within a generation?b. What policies might the government pursue
Economists often view life-cycle variation in income as one form of transitory variation in income around people’s lifetime, or permanent, income. In this sense, how does your current income

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