True or False

Decreasing long-run average costs for a firm as it expands plant size and output result from increasing returns to scale

What is your understanding of the role of government in mitigating market failure?

Do you think it is the best remedy for the nation and the economy to allow government to manage the economy in this way? Why or why not?

How far should our government (G) go in order to try to “make whole” the workers losing wage income starting March,2020?  Should our G try to transfer money to these workers? Yes? WHY? How much? A. One quarter of their lost income? B. One third? C. One half? D. ALL OF IT???????? E. Do you see any potential problems with D???? What might they be? 6. Okay. One could argue that D may be a little extreme…. You have to form your own opinion….. IS NOW THE TIME IN OUR COUNTRY’S HISTORY FOR US TO CHANGE OUR CURRENT SYSTEM OF INCOME DISTRIBUTION AND WEALTH DISTRIBUTION? IF SO, just in general terms, what should we do? Why?

1. A change in which of the following would cause the LM curve to shift? To rotate? To both shift and rotate? Which do not affect the position or slope of the LM curve?
   1. nominal money supply
   2. responsiveness of the demand for money to the interest rate
   3. responsiveness of the demand for money to income
   4. business and consumer confidence
   5. interest rate (r)
   6. price level (P)

2. Calculating costs

Becky is working for an advertising firm making $50,000 per year but considers starting her own advertising company. Becky has determined that to launch the business, she needs to invest $80,000 of her own funds. The annual cost of running the business will include $75,000 for the rent of the office space, $190,000 for employee wages, and $6,000 for materials and utilities. Becky plans to manage the business, which means that she will have to quit her current job. Suppose that the interest rate (or rate of return) on investments in the economy is 5%.

Becky's total implicit cost per year is _____ .

Becky's total cost per year is _____ .

3. Definition of economic costs

Nick lives in San Francisco and runs a business that sells guitars. In an average year, he receives $722,000 from selling guitars. Of this sales revenue, he must pay the manufacturer a wholesale cost of $422,000; he also pays wages and utility bills totaling $268,000. He owns his showroom; if he chooses to rent it out, he will receive $2,000 in rent per year. Assume that the value of this showroom does not depreciate over the year. Also, if Nick does not operate this guitar business, he can work as a paralegal and receive an annual salary of $21,000 with no additional monetary costs. No other costs are incurred in running this guitar business.

Identify each of Nick's costs in the following table as either an implicit cost or an explicit cost of selling guitars.

Complete the following table by determining Nick's accounting and economic profit of his guitar business.

Alternatively, the economic profit he would earn as a paralegal would be

.

If Nick's goal is to maximize his economic profit, he _____   stay in the guitar business.

True or false: Nick is not earning a normal profit because his profit is positive.

False

True

Grexit or Not?

When the euro was introduced in 1999, Greece was conspicuously absent from the list of the EU member countries adopting the common currency. The country was not ready. In a few short years, however, European leaders, probably motivated by their political agenda, allowed Greece to join the euro club in 2001 although it was not entirely clear if the country satisfied the entry conditions. In any case, joining the euro club allowed the Greek government, households, and firms to gain easy access to plentiful funds at historically low interest rates, ushering in a period of robust credit growth. For a while, Greeks enjoyed what seemed to be the fruits of becoming a full-fledged member of Europe.

In December 2009, however, the new Greek government revealed that the gov- ernment budget deficit would be 12.7 percent for 2009, not 3.7 percent as previously announced by the outgoing government, far exceeding the EU’s convergence guideline of keeping the budget deficit below 3.0 percent of the GDP. As the true picture of the government finance became known, the prices of Greek government bonds began to fall sharply, prompting panic selling among international investors, threatening the sov- ereign defaults.

Several years into the crisis, the Greek government debt stands at around 180 percent of GDP and the jobless rate among youth is above 50 percent. The country’s GDP declined by about 25 percent. Severe austerity measures, such as sharply raised taxes and much reduced pension benefits, were imposed on Greece as conditions for the bail- outs arranged by the EU, IMF, and the European Central Bank. In addition, people were allowed to have only restricted access to their bank deposits, to prevent bank runs. Opin- ion polls indicate that the majority of people in Germany, the main creditor nation for Greece, prefer the Greek exit from the euro zone, popularly called Grexit, while some people in Greece are demanding Grexit themselves and restoration of the national cur- rency, the drachma.

Discussion points: (i) the root causes of the Greek predicaments, (ii) the costs and ben- efits of staying in the euro zone for Greece, (iii) the measures that need to be taken to keep Greece in the euro zone in the long run if that is desirable, (iv) If you were a disinter- ested outside advisor for the Greek government, would you advise Grexit or not? Why or why not?

In the Grossman model, is there a graph that best fits the thrifty phenotype hypothesis?

Assume we start with a total government debt of $0. What happens at the end of each year? Hint if I borrow $10 million then my debt is equal to $10 million.

In year 1 the government spends $405 million and collects $356 million in taxes. Public saving in year 1 is equal to $__million and the government debt is equal to $ __ million.

In year 2 the government spends $390 million and collects $360 million in taxes. Public saving in year 2 is equal to $ __million and the government debt is now equal to $ __million.

In year 3 the government spends $360 million and collects $358 million in taxes. Public saving in year 3 is equal to $ __ million and the government debt is now equal to $ __ million.

In year 4 the government spends $405 million and collects $425 million in taxes. Public saving in year 4 is equal to $__ million and the government debt is now equal to $ __million.

What kind of structural reforms should Latin American countries promote in order to encourage more foreign direct investment and promote sustained economic growth?

An electronics company estimated the investment cost for equipment for producing replacement CCTV will be $800,000. The operating and maintenance cost is expected to be $500,000 per year with an annual revenues estimated at $650,000. Considering MARR of 15% per year, find: The simple payback period=??years The discounted payback period=.??years

a. Suppose that government would like to maximize tax revenue. Explain why it may not be a good idea for the government to lower tax rates for the goods that have very low price elasticities of demand (less than one).

b. Suppose that the government wants to maximize tax revenue. Explain why it may be not a good idea for the government to raise tax rates for a good with a price elasticity of demand more than one.

c. Use a demand/supply diagram to discuss why producers for luxury goods may benefit from a technological improvement in producing the goods.

• Various types and uses of trade policies ( tariffs and subsidies)
• Most common types of FDI and how FDI use varies based on developed versus developing economies
• Most common forms of international entry (i.e. exporting, licensing, franchising, strategic alliances, acquisitions, wholly owned subsidiaries)
• Factors influencing a firm’s decision regarding scale and timing of international entry
• Different forms of regional economic integration (economic unions, free trade areas, political unions, etc.)
• Commonly recognized regional economic integrations (i.e. European Union and NAFTA)
• The different strategies pursued by multinational firms and factors that influence the decision to enact a particular strategy (business level strategies such as differentiation or cost leadership, as well as international strategies such as international, localization, global standardization, and transnational)
• The different activities (primary and support) enacted by the firm
• The nature and considerations of centralization and controls among varying forms of international structures (organizational architecture issues)

1a) Suppose your company is faced with the following demand curve: Q^D = 600 – 100 P. The price elasticity of demand, E^D , at a price of $5 equals _____, and the price elasticity of demand, E^D, at a price of $1 equals _____

1b) Assume that the demand equation for exercise watches, such as the Fitbit, is Q^D = 2,200 – 15 P and the supply equation is Q^S = 15 P – 800. After a favorable study shows that using exercise watches significantly reduces users' weights, quantity demanded increases by 300 at every price. The new equilibrium price will be _____ and the new equilibrium quantity will be ____

1c)In the market for oranges, we observe that the equilibrium price increased and the equilibrium quantity increased. What could have caused this change?

1d)The demand curve for a good is Q = 80 – 0.20 P, where Q is the quantity demanded and P is the price per unit. This good's inverse demand curve is:

In 2018 the United States and China entered into a trade dispute that led both countries to impose tariffs on each other’s goods. Economists concluded that the tariffs contributed to slower growth in real GDP for both countries, though the effects were greater in China. Using aggregate demand and supply analysis explain and graph how a trade surplus can lead to a slowing real GDP in both countries.

9.T/F

a. A tax increase will have less of a direct impact on income, employment, and output than will an equivalent increase in government spending.

b. Currency fluctuations affect aggregate supply and demand.

c. In June 2013, the Bank of Japan announced that it was continuing its easy money policy through open market operations. The Bank must have decided to continue to sell securities.