1309ps01key - IS and Econ 13 Winter 2009 Problem Set #1...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
IS and Econ 13 Winter 2009 Problem Set #1 Answers 1. The more appropriate type of per capita GNI for measuring the material standard of living is the one based on "Purchasing Power Parity." That measure tries to take account of the differences in prices across countries. For example, a haircut in the US typically costs more that $15.00, whereas in many low-income countries it could well cost less than half a dollar at current exchange rates. The "purchasing power parity" adjustment to GNI per capita tries to take account of such differences, but of course it is no perfect either. Then, based on this measure, from the table distributed in class (that is also available on the Web) the poorest countries in 2007 were the Democratic Republic of the Congo and Liberia. Liberia is located on the West African Coast, bordering Siera Leone, the Ivory Coast, and Guinea. The Democratic Republic of Congo (formerly, Zaire) is a large country in Central Africa, touching the Atlantic Ocean in the West and bordering to its East with countries like Tanzania, Rwanda, and Uganda. 2. A key characteristic of the corporate form of firm organization is that those who make the day-to-day decisions of the firm, the managers, are not typically the owners of the firm. Adam Smith objected to the corporate form of firm organization because this separation of ownership from control could easily make managers pursue their own interests instead of those of owners and, therefore, the owners could be left with nothing. In a blatant, but not uncommon, practice during Adam Smith's time (mid-18 th century), the managers would sell all the assets of the firm they could and take the money and run to the South Seas. There were, however, many much subtler and legal tricks that the managers could adopt that would deprive the shareholders/owners of profit. Adam Smith was completely right for almost a century, until in late nineteenth century US the corporate form of organization gained a foothold and gradually became today's dominant form of firm organization. A major reason for this change is that an elaborate and continuously evolving system of legislation and enforcement developed that tends to safeguard some of the interests of shareholders relative to those of managers. However,
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 4

1309ps01key - IS and Econ 13 Winter 2009 Problem Set #1...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online