07f101ps2solutions-1

07f101ps2solutions-1 - 25 Fish 15 Fish ECOROWU'C s 10 l...

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Unformatted text preview: 25 Fish 15 Fish ECOROWU'C s 10 l Pro \0\EW- §e+ 1. Total Hours Hours gathering Fish Coconuts Caught Gathered Hours Fishing Coconuts Coconuts 25 Total Hours Hours gathering Fish Coconuts Hours Fishing Coconuts Caught Gathered Coconuts 15 The PPF in 2.B demonstrates the Principle of Increasing Costs. The PPF in 2.B demonstrates the Principle of Increasing Costs. C. i. The curve will shift to the contract left without contracting downward; in other words, Robinson Crusoe will be able fish to produce fewer coconuts but the ‘ same number of fish in a given period of time. Coconub ii. Unchanged. Crusoe's production possibilities do not change as his tastes change; however, he may choose to pick fewer coconuts and spend more time catching fish instead, thereby optimally choosing to select a different point from his list 1 of possibilities. D. i. Catching fish now may deplete the waters, so that the more fish he catches today, the fewer fish he will be capable of capturing in the future. Conversely, collecting more coconuts now will allow him to plant more coconut trees (investment, rather than consumption), so that in the future he will be able to produce more coconuts than he currently does. . ii. Influences include: (1) How hungry he is now, relative to how hungry he eXpeCts to be in the future. Coconut gathering helps to satisfy future hunger, whereas catching fish helps to satisfy current hunger. (2) Preferences for fish and coconuts. If Crusoe decides that coconuts are repulsive, or if he chooses to be a vegetarian, he will prefer different points on his PPF. (3) Chances of rescue or near-term starvation. If Crusoe doesn’t have long to live, or will soon leave the island, he may choose to “go for broke,” eating all he consumes, rather than “planning for the future” by planting for later harvests. B- $3.00 ervrevd‘ SQWV1L€$ Cauw+J EH4- Acfi useJ [—Hms - C. OO ml‘hah read [OuSlhESf “A Ves‘\“-e V\'+ D. N0)? mAwfiCJ . T‘xls is a ’hwkS’QCr E. m WWI GDP (Wm Le .a 64W) (wow Le z“ (TD?) F “)9Jr "\CKuACJ EEC—“ASE G‘UVC{nm€n-‘Ftéx+‘?"5+ G- M1\\l’07\ Lusmcs: waEs‘x'meI/H' H.19LI/Dod In lawar—gccs Question 3, Part 1 Consumption Gross Private Domestic I Federal Government State & Local Govt Exports — Imports GDP = + Receipts from ROW — Payments to ROW = Gross National Product ~ Depreciation = Net National Product — Statistical Discrepancy = National Income —- Indirect Business Tax = National Income at Factor Cost — Social Security Contr. — Corp. Profits + Personal Dividend Income + Transfers + Interest adjustment I= Personal Income — Personal Income Taxes = Disposable Income Question 3, Part 11 Compensation of employees + Proprietor’s Income & Corporate Profits + Rental Income + Net Interest = National Income at Factor Cost 8,230 1,927 810 1,374 —606 11,735 406 362 11,779 1,407 10,372 32 10,340 890 9,450 822 1,182 441 1,406 397 ’ 9,690 1,043 8,647 6,651 2,085 165 549 9,450 Labor productivity is 1% . The capital-labor ratio is To solve for total factor productivity, we use the Cobb-Douglas production function: Y = AK "LP" where A is total prluctivity.‘ Solving for A yields: Calculations are based on a=0.3. Let x denote the annualized rate of change. To find the annualized rate of change of % , solve: 16.05(1+x)‘° =17.64 17.64 1 10 = __ ( H) 16.05 (17.64)“ x= —— —1 16.05 x: 0.95% For annualized rate of change of 1%, solve: £17.19)“ x = —— —l 15.80 x = 0.85% For annualized rate of change of A: (7.51)“ x = —— —1 7.01 x = 0.69% The growth rate of % is approximately the sum of the growth rate of A plus a times the growth rate of /L. 0.95=0.69+O.3(0.85) Therefore, about 27% of the growth in labor productivity is attributable to growth in capital to labor ratio: E3—(—q§5—1100% = 26.8% 0.95 E A. Nominal GDP can rise without real GDP increasing. B. If population riSes, GDP will rise without making individuals any better off. C. GDP relates n0 distributional effects; if the rich get richer faster than the poor get poorer, GDP will rise, even though the majority of citizens are worse off. nuclear weapons constructed, and few peOple consider that a boost to their well-being. extemalities run rampant. F. If a country has more citizens employed, or if pe0ple work more hours per day, this will increase GDP withOut necessarily increasing the aeneral well- being of its citizens. G. An increase or decrease in the “underground economy” will change GDP without noticeably changing the welfare of its citizens. Their specialization makes‘them very efficient at producing cloves, but should the world price of cloves plummet, their entire economy will suffer greatly, whereas a modicum of diversification in their production would leave them less vulnerable to similar price volatility. Pd so GDP is not a measure of national well-being because: I it does not take into account non-market goods,~ I does not account for homemade products and services, 6. Professor Douglass North thinks that people are not as rational as traditional economics assumes. He contends that people’s behaviors are based upon their beliefs and suggests that more work be done on understanding what people’s views are. Many economists doubt Professor Douglass North’s View will take us anywhere While others think that his theory is quite valuable. 7. D. ...
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This note was uploaded on 07/09/2008 for the course ECO 101 taught by Professor Elizabethc.bogan during the Fall '08 term at Princeton.

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07f101ps2solutions-1 - 25 Fish 15 Fish ECOROWU'C s 10 l...

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