Question

UNIT 1 Classify the following as microeconomics or macroeconomics and provide a justification for your choice. (i) The effect of changes in household saving rates on the growth rate of national income. (ii) The effect of rising oil prices on employment in the airline industry. (iii) A comparison of alternative tax policies and their respective impacts on the rate of the nation’s economic growth. (iv)Changes in the nation’s unemployment rate over short periods of time. UNIT 2 (a) Your marginal benefit from eating hotdogs is shown in the table below: # Hotdogs Marginal Benefit (MB) 0 0 1 7 2 4 3 2 4 1 If the price of a hotdog is $3 how many should you buy? Provide a justification for your choice. (b) The number of toys produced per day are shown in the table below: Workers Toys produced 1 48 2 88 3 112 4 168 5 176 6 192 7 224 8 216 9 224 10 208 (i) What is the marginal product of the 5th worker? the 9th worker? (ii) What is the maximum number of toys that should be produced? What is the maximum number of workers that should be hired? Explain.

Answer 1

Answers

(i) Macroeconomic, an increase in investment raises aggregate demand. National income and employment will rise until equilibrium is restored, i.e. where savings = investment. A decrease in investment has the opposite effect. However, national income will change by more than the change in investment.

(ii) As far as the implications of higher oil prices, there are both micro economic and macroeconomic answers to that question. I will address both of these aspects in turn.

How do high oil prices affect the economy on a “micro” level?

As a customer, you may as of now comprehend the microeconomic ramifications of higher oil costs. When watching higher oil costs, the greater part of us are probably going to consider the cost of fuel too, since gas buys are vital for generally family units. At the point when gas costs increment, a bigger portion of family units' financial limits is probably going to be spent on it, which leaves less to spend on different merchandise and ventures. The equivalent goes for organizations whose merchandise must be transported here and there or that utilization fuel as a noteworthy info, (for example, the carrier business). Higher oil costs will in general make generation progressively costly for organizations, similarly as they make it increasingly costly for families to do the things they ordinarily do.

What effects do oil prices have on the “macro” economy?

I’ve just explained how oil prices affect households and businesses; it is not a far leap to understand how oil prices affect the macroeconomy. Oil price increases are generally thought to increase inflation and reduce economic growth. In terms of inflation, oil prices directly affect the prices of goods made with petroleum products. As mentioned above, oil prices indirectly affect costs such as transportation, manufacturing, and heating. The increase in these costs can in turn affect the prices of a variety of goods and services, as producers may pass production costs on to consumers. The extent to which oil price increases lead to consumption price increases depends on how important oil is for the production of a given type of good or service.

(iii) Macroeconomic. Fundamentally through the inventory side. High peripheral duty rates can debilitate work, sparing, speculation, and development, while explicit expense inclinations can influence the allotment of financial assets. Be that as it may, tax reductions can likewise slow long-run financial development by expanding shortages. The long-run impacts of expense approaches subsequently depend on their motivation impacts as well as their deficiency impacts.

(iv) Macroeconomic. One primary determinant of the demand for labor from firms is how they perceive the state of the macro economy. If firms believe that business is expanding, then at any given wage they will desire to hire a greater quantity of labor, and the labor demand curve shifts to the right. Conversely, if firms perceive that the economy is slowing down or entering a recession, then they will wish to hire a lower quantity of labor at any given wage, and the labor demand curve will shift to the left. The variation in unemployment caused by the economy moving from expansion to recession or from recession to expansion (i.e. the business cycle) is known as cyclical unemployment.

a. A person for maximum satisfaction & value must buy 7 Hot dogs, as after the 7th one the value from the one more Hot dog consumed will be less than the price paid for an unit of Hot dog

b. (i) 16 is the MP for the 5th worker. For 9th worker MP is -16. Ideally. There are extra workers hired due to which it has started giving negative returns.

(ii) 224 toys with 6 workers is maximum that should be produced as after that the there are negative returns where TP has started falling and MP being negative.

Stage I is known as the stage of increasing returns where TP increases at an increasing rate and, hence, AP and MP rise. However, MP exceeds AP throughout this stage.

Stage II is called the diminishing stage since both AP and MP decline but are positive. This is the most crucial stage as far as the decision to produce is concerned.

Stage III is called the stage of negative returns where TP declines and MP becomes negative.