Assignment:
1.1 The Principles and Practice of Economics
1. Examine the following statements and determine if they are normative or positive in nature. Explain your answer.
a. The U.S. automotive industry registered its highest growth rate in 5 years in 2012; U.S. auto sales increased by 13% compared to 2011.
b. The U.S. government should increase carbon taxes to control emissions that cause global warming.
2. This chapter introduces the idea of opportunity cost.
a. What is meant by opportunity cost?
b. What is the opportunity cost of taking a year after graduating from high school and backpacking across Europe? Are people who do so being irrational?
1.2 Economic Methods and Economic Questions
3. What does it mean to say that economists use the scientific method? How do economists distinguish between models that work and those that don't?
4. Explain why correlation does not always imply causation. Does causation always imply positive correlation? Explain your answer.
5. The use of machine learning and big data may improve the precision of economic predictions. However, economists may still be interested in disentangling causality relations between economic variables. Why?
6. How does a natural experiment differ from a randomized one?
1.3 Optimization
7. Some people choose to live close to the city center; others choose to live away from the city and take a longer commute to work every day. Does picking a location with a longer commute imply a failure to optimize?
8. Briefly describe the Lucas' Critique.
1.4 Demand, Supply, and Equilibrium
9. How is the market demand schedule derived from individual demand schedules? How does the market demand curve differ from an individual demand curve?
10. Explain how the following factors will shift the demand curve for Gillette shaving cream.
a. The price of a competitor's shaving cream increases.
b. With an increase in unemployment, the average level of income in the economy falls.
c. Shaving gels and foams, marketed as being better than shaving creams, are introduced in the market.
11. Explain how the following factors will shift the supply curve for sparkling wine:
a. New irrigation technology increases the output of grapes of a vineyard.
b. Following an increase in the immigration of unskilled labor, the wages of wine-grape pickers fall.
c. The government sets a minimum wage for seasonal employment.Note: wine-grape pickers are seasonal employees and the minimum wage is likely to be over their equilibrium wage.
12. Brazil is the world's largest coffee producer. There was a severe drought in Brazil in 2013-14 that damaged Brazil's coffee crop. The price of coffee beans doubled during the first three months of 2014.
a. Draw and discuss a supply and demand diagram to explain the increase in coffee prices.
b. Are coffee and tea substitutes or complements? Explain.
c. What do you think the impact of this drought has been on the equilibrium price and quantity of tea? Draw a supply and demand diagram for the tea market to explain your answer.
d. Do you think that the demand of coffee is elastic or inelastic.
e. Given your answer to (d), do you think that shifts in the supply of coffee have a potentially large effect on the price of coffee?
13. During the recent Great Recession diverse central banks (FED, BOE, ECB, JCB) have been carrying out Quantitative Easing (QE) policies: They have created money to buy securities such as government bonds from banks. This QE policy is supposed to lower interest rates. Could you please use a simple supply and demand model to explain this effect?
2.1 The Wealth of Nations
https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=2#reqid=19&step=2&isuri=1&1921=survey
Plot the share of the following components over GDP for the period 1929-2014
• Personal consumption expenditures (C)
• Gross private domestic investment (I)
• Net exports of goods and services (X-M)
• Government consumption expenditures and gross investment (G)
13. What are the key differences between the Consumer Price Index (CPI) and the GDP deflator?
14. A typical resident of the country of Collegia consumes a simple basket of goods consisting only of life's essentials: soda, pizza, and Advil. A year's basket contains 1,000 sodas, 100 pizzas, and 50 bottles of Advil. The price of these goods in each of the past eight years is given in the following table:
|
|
Soda
|
Pizza
|
Advil
|
|
2005
|
$1.00
|
$8.00
|
$10.00
|
|
2006
|
$1.50
|
$8.00
|
$10.00
|
|
2007
|
$1.50
|
$8.50
|
$11.00
|
|
2008
|
$2.00
|
$8.50
|
$11.50
|
|
2009
|
$2.50
|
$9.00
|
$11.00
|
|
2010
|
$2.50
|
$9.00
|
$10.00
|
|
2011
|
$2.00
|
$10.00
|
$12.00
|
|
2012
|
$3.00
|
$10.00
|
$13.00
|
Using 2008 as the base year:
a. Calculate the CPI for each year.
b. Calculate the rate of inflation for each year from the previous year, starting with 2006.
15.According to Forbes magazine, Jeff Bezos net worth in 2018 is 112 Billion.
But, does this make Bezos the richest American who ever lived?
John D. Rockefeller, the founder of Standard Oil, is usually credited with this distinction. At the time of his death in 1937, the founder of the Standard Oil empire had an estimated net worth of $1.4 billion.
Please go to the BLS CPI site at Under "Consumer Price Index-All Urban Consumers," select "US All Items, 1982-84=100" and click the "Retrieve data" button at the bottom of the page. Adjust the years to retrieve data from 1937 through 2018. Use the data under the "Jan" column to calculate Bezos' 2018 net worth measured in 1937 dollars. You should find that Bezos' wealth does have more buying power than Rockefeller's wealth.
2.2 Aggregate Incomes
16. Suppose you are comparing income per capita in the United States and Ghana. You first convert the values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. You also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate. Which measure is likely to give you a more accurate picture of the living standards in both countries? Explain your answer.
17. What is the correlation between income per capita and welfare measures like absolute poverty and life expectancy? What does this suggest about income per capita as a measure of welfare?
18. The following table lists 2012 GDP per capita for four countries. The data are given in the national currencies of the countries. It also lists the price of a Big Mac burger in local currency in each country in 2012.
|
|
2012 GDP Per Capita
|
2012 Big Mac Price
|
|
Norway (krone)
|
579,162
|
41 krone
|
|
Poland (zloty)
|
41,398
|
9.1 zloty
|
|
Turkey (Turkish lira)
|
19,580
|
6.6 Turkish lira
|
|
United Kingdom (British pound)
|
24,740
|
2.49 pounds
|
Source for GDP: UNECE Statistical Database, compiled from national and international (CIS, EUROSTAT, IMF, OECD) official sources.
Source for Big Mac Prices: https://bigmacindex.org/2012-big-mac-index.html
The price of a Big Mac in the United States in 2012 was $4.20.
Using the Big Mac burger as a representative commodity common to the countries, calculate the purchasing power parity (PPP)-adjustment factor for each country, and then the PPP level of per capita GDP in each country.
19. Suppose that the GDP in current dollars for Polonia is higher than Ruritania's GDP. However, using purchasing-power-parity-adjusted dollars, Ruritania's GDP is higher than Polonia's GDP. Based on this information, what would you conclude about living standards in Polonia and Ruritania?
Attachment:- Practice of Economics.rar