Answer the following problems.
Describe your thinking to show your understanding of economic terms and concepts related to your answer.
1) A production possibilities table for two products, corn and paper, is found below. Normal assumptions regarding production possibilities are implied. Corn is measured in tons, and paper is measured per unit.
Combination Corn Paper
A 0 6
B 18 5
C 33 4
D 45 3
E 54 2
FF 60 1
G 62 0
Compute numbers which show increasing opportunity cost in the production of paper.
2) Personal computers are becoming less expensive as new technology reduces cost of production. In the supply and demand model, describe the effects of the technological innovations and their effect on quantity of computers in the market.
3) "The internet is non rival, which means it is a public good". Do you agree or disagree? Describe.
4) Describe in detail how a decrease in consumer demand for a product would result in less of the product being produced and in fewer resources being allocated to its production.
5) What effect must each of the following have upon demand for portable music players in a competitive market? Describe your reasoning in each case.
(a) an increase in population and incomes
(b) consumer expectations of substantial price increases in music players
6) Provided the products below and events which affect them, indicate what happens to demand or supply, and equilibrium price and quantity in a competitive market. Identify the determinant of demand or supply that causes the shift.
(a) Computers. Parts for making computers fall in price because of improvements in technology.
(b) Chicken. Beef prices rise because severe winter weather reduces cattle herds.
7) Discuss one of the ingredients of growth pertinent to today's economy.
8) Describe why a producer who is causing external costs does not have the incentive to reduce these costs.
9) Net investment spending on capital goods can be positive, negative, or zero, but gross investment could never be less than zero. Describe.
10) Some stores give “free” products to consumer. An economist will say the products are not free. Why the difference?
11) Give two exs of investment spending which could increase future production capacity of the economy:
(a) by business firms and
(b) by government
12) The following is a list of figures for a given year in billions of dollars. Using this data, find out: (a) GDP; (b) NDP; (c) Net exports.
Billions
of dollars
Transfer payments $ 16
Government purchases 70
Personal taxes 38
Corporate income taxes 28
Taxes on production and imports 15
Social Security contributions 8
Undistributed corporate profits 19
Proprietors’ income 25
Compensation of employees 258
Personal consumption expenditures 300
Consumption of fixed capital 6
Rents 10
U.S. Exports 26
Corporate profits 70
Interest 12
Dividends 23
Imports to U.S. 155
Gross private domestic investment 66
Net foreign factor income 10
Statistical discrepancy 35
13) Assume an economy’s real GDP is $50,000 in year 1 and $55,000 in year 2.
(a) Compute growth rate of real GDP per capita if population was 100 in year 1 and 101 in year 2.
(b) What is the most recent growth rate in real GDP reported in the news or economic statistics of the U.S.