HW1_ECON 201B_Autumn 2016_AK

HW1_ECON 201B_Autumn 2016_AK - ECON 2018 Autumn 2016...

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Unformatted text preview: ECON 2018 Autumn 2016 Seunghan Lee Homework 1 Problem Set (4% of total grades, Due by Oct. 18, 2016) Student Name: 1” 579%de Please answer the following queStions. 1. [Opportunity Cost} Charles decided to open a lawn—mowing firm. To do so, he buys a mowing machine for $7,000 and gasoline ($2.2 in gas is needed to mow each yard) and pays a helper $25 per yard. Prior to opening the company, he earned annually $3,000 as a life guard.at the swimming pool. The money he used to buy the mowing machine could otherwise have earned 1%‘per year in the bank and the mowing machine depreciates at 20% per year. He plans to mow 400 yards per year. Calculate his total opportunity cost of opening the company at the year and specify how high the mowing price per yard should be in order for his decision to be justified at the year. (Hint: Only a fraction of the purchase price of mowingumachine should be included into the opportunity cost.) a [Write your answer here] a m a ,9 met" s 0 $25,223 $1.1 X 490 3 #fl :7 4 /§:6f0 3) Agency: flax 4Zp0‘: fl; #79 d/Md-ea/ Wet/£14493 fxél: 400/0 _ yum 2 WNW“? 09:74. T l r 44) 0/,2/3 M s x a > l5; 85b ; ga 9?; “ AL) wage r $390" . ”f- 400 I i . fix 2. [Production Possibilities Frontier] Jake and Larry find themselves on a deserteinsland. Jake can either , ~9 produce3 fish or 10 coconuts in a day (or any combination in between).*Larry can produce either 8 fish or 4 coconuts in a day (or any combination in between). Jake prefers to consume 6 coconuts when producing/consuming alone, and Larry prefers 4 coconuts when producing/consuming alone. They also enjoy the corresponding number of fish, respectively. Find their gains from specialization if they decide to 3. {Demand & Supply] Read the following news article about a fall in ethanol prices and analyze the article, using demand and supply curves and their shifts. Ethanol futures plunged 28% last month, as falling domestic demand left U.S. producers with the largest inventories in more than a year. While demand for the biofuel, along with the gasoline into which it is blended, typically declines afier the summer driving season, this year’s downshift was pronounced. The Environmental Protection Agency is weighing a final decision on a proposal it made last year to cut its annual requirement for ethanol blending in gasoline. Ethanol prices have fallen for much of this year because the price of corn plummeted due to a record crop“ last year and as a result of expectations for a larger one this year. Ethanol futures also have been pressured by a September announcement by Brazil ‘3 government I hat raised concerns that Brazil would be able to sell its ethanol more cheaply to overseas buyers, denting demand for US. ethanol exports. [Write your anst'er here, including graphs] I) Shiite? Demawt. {5mm be via P. {GM ythMA' argl‘ev S M MlMe—Y‘ OlV‘W M ® A th - M email/‘02. lager/Wm? MN) , E (Q A almmaac. TVt alelmvwl W30”: 4. [Classical & Keynesian] According to Classical economists, we do not have to worry about a huge amount of involuntary unemployment and recessions since a fully flexible movement of wages in the labor market and interest rates in the market for loanable funds makes it possible for an economy to achieve a full employment and potential output. Unfortunately, they ended up with failing to explain the Great Depression. Explain how Keynesian economists provided a theoretical background for the existence of involuntary unemployment and recession. Also explain how we can reconcile these differences in the macroeconomic views between Classical economists and Keynesian economists. [Write your answer here] Q) l‘quu“tqrjr “VIEW FDMJ meuj‘ . L" L3 manuntvm) knitwear/went w—P @ (Recessron . 4 30/ ‘ S>II «Wen Temst‘on' “ N Smut? {“122st R “(if defimmd b} TM‘QV‘eG‘i min, [Du/i b7 MimaQ srtruls Djl Numbers 9 Milestmewf (I) ochol be smaller +hmo Sal/”‘5 (’3) when muegi‘ws have Peseta/calm owfpaok of“ «HA-K 42thva 200140914}. (é) éhori‘wum 2 {Qynesi‘ém + Laura—NM: OQasquk ‘7"? why ’3 001132 I: Shaka 1‘th Shorten!” , 5. [GDP] Suppose Ford Motor Co. produced a car in December 2015 with the cost of $18,000 at a US. factory, but it was not sold until January 2016. It was sold to a US. consumer by a Ford dealershipin US. at $20,000 in January 2016. How will this good (or service) be counted in 2015 and 2016 US. GDP and their components (consumption, investment, government expenditure, exports, imports)? [Write your answer here] 6. [GDP] Assume that there are only the following three companies in the country called “Gasolia”. Fill in the empty boxes (parentheses) in the table. Assume that ore is the only intermediate goods for steel while steel is the only intermediate goods for automobile. Also assume that value of sales for each product is equal to total expenditure for the product by firm. _-——- (3;) Inc. 3) ,. Income (3) ' —-_n-lm-— —-m-mllm— WW— 7300 —“— ‘Value Added er Firm "- " ‘ — Also, calculate GDP in this economy, and show that total payments to factors of production, spending on final goods, and total value added are equal. [Write your answer here] GDP/)5: Effigao 7.: 71075448 Fey/hem. 7% a.” 34%» J7? fWJQolé’i‘OA/L’ (.17, 9539+ 5),».Ao4— BigforI-fb) ' gfeho/m5 a); %J fiaw/i (=35: {zoo} H 2 "749M VOL/neg Mai/4% A; 04/ fndc‘oehs (Z 3092+ 00,5005- /?/ 590)‘ / 7. [GDP] Consider a simple economy that produces two goods: cupcakes and muffins. w) 8. [Price Index] Consider a fictional price index, the College Student Price Index (CSPI), based on a survey of annual purchases of.a typical college student. The following table shows the market basket on the CSPI. Fill in the blanks in the table. __- Basket ($) Price ($) .m— . 0 ———— -I -"-_——— z o 100 1,000 I , 19 Betvgeen 2013 and 2014, the CSPI increased by (9’0 ) %and between 2014 and 2015, it increased by (3' )%~ 9. [Unemployment] There are 6 people in an economy: John, James, Jane, Tom, Mary and Nick. Choose ” ‘6 their labor status among “Not in adult population”, “Not in labor force , unemployed” and “employed” to fill in the parentheses. Then calculate labor force participation rate and unemployment rate in this economy. a) John is a 12-year-old student. He babysits his younger brother, for which his parents give him an allowance of $30 per week. ( Mg m ad” hL fa/Mfloapan b) James is an 18 year-old who just graduated from ‘high school. She is volunteering part-time at the local nursing home. ( M71 [7‘ filb‘» qucel. or f c) Jane is a 30 year-old who lost herjob as a copy editor for a local news paper. She has spent the past few weeks out of work and interviewing for other editingjobs. ( ”Me/"p.007”! ) d) Tom is a 42-year-old accountant who has been out of work for almost a year. He became so discouraged that, a couple of months ago, he gave up on his job search. ( M} ,7, AA.” M ) e) Mary is a 51-year"-old auto-worker who was laid off from her job six months ago. Last week, she took a part-time job but could work only three hours. ( Emf 89344;? ) f) Nick is a 28-year-old basketball player, finished his last syson as a player three weeks ago and is currently interviewing for a coaching position. ( 5/14 emf 974-4 ) Labor force participation rate in this economy is: ( 61° ) % Unemployment rate in this economy is: ( 67 )% 10. [Unemployment] Identify each of the following people as “frictional”, “structural” or “cyclica” unemployed to fill in the parentheses. a) Caroline is a real estate agent. House sales in her area have declined because the region has been going through a recession. She has no clients and is currently looking for a full-time job. ( C? dram/Q ) b) Eleanor just graduated from college and is looking for a full-time position with an investment banking firm. ( rth‘cf‘l'bmwa c) Jeff left his job as a plumber when his wife took a position in another region. The quantity of plumbing services demanded is considerably lower in the new region, in part because of high, union—negotiated wages. He would like to work at the high union wage but remains unemployed due to a lack of plumbing jobs. ( gmcfuwckt 1 ...
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