Economics,,

Part II - Supply and Demand (18 points - 3 points each) There are six separate questions below. Each question begins with a news headline. After you read the headline in bold, please answer the question directly below it. Examine what happens to equilibrium price and equilibrium quantity in the market listed below the headline. In answering these questions, please provide the correct graphical representation of each situation (i.e., in the first question, you should provide a graph for the market for vacations to Hawaii). Identify whether the demand curve or supply curve is impacted in the given market and make sure to explain why the curve would be impacted. Please explain how you came to your answer (the more detail you give the more points you receive). Each question is worth 3 points. 1) Household incomes increased 25% over the last year How does this impact the market for vacations to Hawail? 2) Bad weather leads to a lower than expected harvest of the orange crop How does that impact the market for apple juice at local grocery stores? 3) The State of Connecticut imposes tolls on route 1-95 (the main route used to travel to NYC for many workers) How does this impact the market for train tickets on the Metro-North into New York City? 4) The John Deere Company manufactures a new tractor that allows farmers to harvest their crops in 12 the time it used to take to harvest How does this impact the market for cereal? 5) The U.S. Government mandates that fast food restaurants (like Mcdonald's) have to increase the quality of their beef used in the production of their hamburgers How does this impact the market for McDonald's hamburgers? 6) Meteorologists predict an above average amount of snow for the Northeast United States this coming winter How does this impact the market for snow blowers in the Northeast United States?The statistics from tradingeconomics.com (based on Statistics Canada numbers) below show the change in Canada's real GDP (first graph) and inflation rate (second graph). The yellowish bars in both illustrate how the Canadian economy has changed due to COVID 19. Canada GOP Growth Rate Ti-and Day |20osama Fus 15 Previous Canada Inflation Rate the Shot Down join-dom forum Create | Ristic MEHI Actionil 1. Use the information in these graphs to illustrate how the Canadian economy has changed due to COVID19, in the AS-AD model. Draw the curves before the pandemics and after the pandemics started. Make sure you get the correct directions in which the curves have shifted and clearly show how the equilibrium real GDP and the price level have changed. (4) 2. The government purchases of goods & services G actually decreased slightly due to the coronavirus shutdowns (mainly due to school closures and curtailed government administration). Does it mean that the budget deficit (G - 7) has decreased? Why or why not? (4)The statistics from tradingeconomics.com (based on Statistics Canada numbers) below show the change in Canada's real GDP (first graph) and inflation rate (second graph). The yellowish bars in both illustrate how the Canadian economy has changed due to COVID 19. Canada GOP Growth Rate Ti-and Day |20osama Fus 15 Previous Canada Inflation Rate the Shot Down join-dom forum Create | Ristic MEHI Actionil 1. Use the information in these graphs to illustrate how the Canadian economy has changed due to COVID19, in the AS-AD model. Draw the curves before the pandemics and after the pandemics started. Make sure you get the correct directions in which the curves have shifted and clearly show how the equilibrium real GDP and the price level have changed. (4) 2. The government purchases of goods & services G actually decreased slightly due to the coronavirus shutdowns (mainly due to school closures and curtailed government administration). Does it mean that the budget deficit (G - 7) has decreased? Why or why not? (4)QUESTION TWO a. With example(s). explain cartels as collusive oligopolistic market. Discuss at least three circumstances under which cartels are most likely to be successful. [5 marks] b. Identify an oligopolistic industry in Ghana and describe its behavior in terms of number of firms, market share. [4 marks] c. Suppose Vobapine and Miton are two telecommunication firms that secretly collude to fix prices in a country. Each firm must decide whether to abide by the agreement or cheat on it. The payoff (profit in millions) matrix is given as: Miton Abide by agreement Cheat on it Abide by agreement 20, 20 12, 22 Vobapine Cheat on it 22, 12 14, 14 i. What strategy will each firm choose, and what will be each firm's profit? What are the Nash equilibria? [3 marks] ii. Is this game an example of the prisoner's dilemma? Explain [2 marks]QUESTION TWO a. With example(s). explain cartels as collusive oligopolistic market. Discuss at least three circumstances under which cartels are most likely to be successful. [5 marks] b. Identify an oligopolistic industry in Ghana and describe its behavior in terms of number of firms, market share. [4 marks] c. Suppose Vobapine and Miton are two telecommunication firms that secretly collude to fix prices in a country. Each firm must decide whether to abide by the agreement or cheat on it. The payoff (profit in millions) matrix is given as: Miton Abide by agreement Cheat on it Abide by agreement 20, 20 12, 22 Vobapine Cheat on it 22, 12 14, 14 i. What strategy will each firm choose, and what will be each firm's profit? What are the Nash equilibria? [3 marks] ii. Is this game an example of the prisoner's dilemma? Explain [2 marks]1. In no more than 800 words, explain the impact of COVID19 crisis on any economy of the Pacific (of your choice). Discuss specifically its impact on GDP, trade, inflation, employment and business activity. Supplement with the relevant national statistics, where possible. (5 marks) 2. Drive the AD (Aggregate Demand) curve using the following: IS curve is given as Y = 20XX-100i, LM, is Y= 1000+25i (when P = 1) and LM, is Y= 500+25i (when P =2), where XX is the last two digits of your student ID number. Show the derivation in (interest rate-income) and (price level-income) spaces. (You may insert a snapshot of the graphs if drawn manually). (5 marks) 3. Suppose the IS curve is Y = 39XX-100i and Y = 1500 + 250i is the LM curve, where XX is the last two digits of your ID number. Using these compute: a. The equilibrium interest rate and output (i*and Y*). b. If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. c. Determine the impact of the above policy on private investment if it is known that di/dA = XX/100, where XX is the last two digits of your ID number. d. Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. e. Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually). 4. Show using the IS-LM graph the impact of an expansionary fiscal policy if the LM curve is vertical. If you were the Economic Planner in this country, how would you implement the fiscal policy without causing any crowding out of private investment? (You may insert a snapshot of the graph if drawn manually) (5 marks).1. In no more than 800 words, explain the impact of COVID19 crisis on any economy of the Pacific (of your choice). Discuss specifically its impact on GDP, trade, inflation, employment and business activity. Supplement with the relevant national statistics, where possible. (5 marks) 2. Drive the AD (Aggregate Demand) curve using the following: IS curve is given as Y = 20XX-100i, LM, is Y= 1000+25i (when P = 1) and LM, is Y= 500+25i (when P =2), where XX is the last two digits of your student ID number. Show the derivation in (interest rate-income) and (price level-income) spaces. (You may insert a snapshot of the graphs if drawn manually). (5 marks) 3. Suppose the IS curve is Y = 39XX-100i and Y = 1500 + 250i is the LM curve, where XX is the last two digits of your ID number. Using these compute: a. The equilibrium interest rate and output (i*and Y*). b. If government spending was increased by 100m with an immediate impact elasticity of 2.5 in the goods market, determine new income and interest rate. c. Determine the impact of the above policy on private investment if it is known that di/dA = XX/100, where XX is the last two digits of your ID number. d. Determine the magnitude of the change in money supply required to eliminate any crowding out effect in (c) above. Suppose di/dMs = -0.1X, where X is the last digit of your ID number. e. Explain the dynamics represented in (a-d) using an IS-LM space. (You may insert a snapshot of the graph if drawn manually). 4. Show using the IS-LM graph the impact of an expansionary fiscal policy if the LM curve is vertical. If you were the Economic Planner in this country, how would you implement the fiscal policy without causing any crowding out of private investment? (You may insert a snapshot of the graph if drawn manually) (5 marks).1. For the production function Y = K951 5, MPL = 0.5K"'L>. Since a profit-maximizing firm hires labor until MPL - W/P, the labor demand function in this case is L" = 0.25K/(W/P] A. Suppose the economy has 1,000 units of capital and a labor force of 1,000 workers. What is the equilibrium value of the real wage, W/P? And in this equilibrium, what are employment, output and the total amount earned by workers? (You should find that the real wage is %% unit of output.) B. Now suppose the government passes a law requiring firms to pay workers a real wage of 1 unit of output. What are employment, output and total labor earnings now? (Refer to Figure 6-3 on p. 183. When there is a rigid real wage above the equilibrium real wage, employment is demand-determined.} 2. Suppose that the economy is in long-run equilibrium when a catastrophic storm destroys a large quantity of crops and reduces food production. A. Use the AD-LRAS-SRAS model to graphically illustrate the short-run and long-run responses to the shock. B. Now explain how the economy moves from the old equilibrium to the new one. 3. A. Suppose that the AD curve is given by Y = 4(M/P), the LRAS curve is parallel to the y-axis, centered at Y = 4,000 and the SRAS curve is parallel to the x-axis, at P = 1.0. Also assume that the money supply is M = 1,000. What are the long-run values of P and Y? B. Suppose now that the AD curve sifts to Y = 2(M/P). What are the short-run values of P and Y? Given that the AD curve stays at this new location, what are the values of P and Y after the economy is again in a long-run equilibrium? C. Finally, draw an AD-LRAS-SRAS diagram that depicts both the situation before, and the situation after, the demand shock. (L.e., put both AD curves on the same AD-LRAS-SRAS diagram. The AD curves are nonlinear, but for this diagram, you can draw them as straight lines.) 4. Suppose that the economy is characterized by these equations: Y = C+1+G C = 250 + 0.8(Y - T) I = 1,000 G = 1,000 T = 1,000