Category: Economics

Trade offs
Which of the following are trade-offs faced by a family deciding whether to buy a new car? Check all that apply.
The vehicle is available in several colors.
An increase in the family’s car payment means the family will be unable to afford a vacation.
A newer model offers better protection and functions but is more expensive than an older model.
Which of the following are trade-offs faced by a member of Congress deciding how much to spend on national parks? Check all that apply.
The president likes white flowers and wants to see more in parks.
Congress can spend either a small amount on a lot of parks or a large amount on a single national park.
Money spent on national parks benefits park visitors, but alternatively the money could be spent on highways to benefit drivers.
Which of the following are trade-offs faced by a company president deciding whether to open a new factory? Check all that apply.
The firm can either open a new factory or expand its current factory.
The firm can either open a new factory or upgrade existing equipment.
The firm can either pay out more of its profit to shareholders or earn additional profit next year by increasing production.
Which of the following are trade-offs faced by a professor deciding how much time to spend preparing for class? Check all that apply.
The professor likes the students a lot.
The better the lecture, the better the professor’s chances of tenure, but time spent preparing the lecture decreases the time the professor has available to work on research.
The professor has taught the same subject for 4 years.
Which of the following are trade-offs faced by a recent college graduate deciding whether to go to graduate school? Check all that apply.
If she goes to graduate school, she won’t be able to spend as much time with her family.
Taking out more student loans means she may not able to purchase the new car she needs.
Graduate school means fewer years of on-the-job experience.
Which of the following are trade-offs faced by a single parent with small children deciding whether to take a job. Check all that apply.
They can make more money by working, but they won’t be able to home-school their children anymore.
Working prevents parents from attending their children’s sporting events.
Childcare is expensive for working parents, but it promotes social skills in small children.

You have just been promoted to the rank of lead engineer in your company
You have already identified and determined the economic life of Machine A to be five years by assuming a 20% interest rate. The annual equivalent total cost corresponding to the economic life is R4250.
Another manufacturer of Machine B has contacted your company. Machine B, which has the same capacity as that of Machine A, is priced at R7800. The maintenance cost of Machine B is estimated at R1500 for the first year and an equal yearly increment of R250 thereafter.
If the money is worth 20% per year, which Machine would you advise your company to purchase and why?
Note:
Assume that the scrap value of each of the machines is zero at any year.

Trade offsWhich of the following are trade-offs faced by a family deciding whether to buy a new car? Check all that apply.
A newer model offers better protection and functions but is more expensive than an older model.
The vehicle is available in several colors.
The same vehicle model is available at various car dealerships.
Which of the following are trade-offs faced by a member of Congress deciding how much to spend on national parks? Check all that apply.
Money spent on national parks benefits park visitors, but alternatively the money could be spent on highways to benefit drivers.
National parks are essential to protecting wildlife from extinction.
Dog ownership will surge as a result of better national parks.
Which of the following are trade-offs faced by a company president deciding whether to open a new factory? Check all that apply.
The firm is currently making profits.
The president has been with the company for 20 years.
The firm can either open a new factory or expand its current factory.
Which of the following are trade-offs faced by a professor deciding how much time to spend preparing for class? Check all that apply.
The more the professor prepares, the better the lectures, but the less free time the professor can enjoy doing something else.
The professor has taught the same subject for 4 years.
The better the lecture, the better the professor’s chances of tenure, but time spent preparing the lecture decreases the time the professor has available to work on research.
Which of the following are trade-offs faced by a recent college graduate deciding whether to go to graduate school? Check all that apply.
If she goes to graduate school, she won’t be able to spend as much time with her family.
Taking out more student loans means she may not able to purchase the new car she needs.
Graduate school means fewer years of on-the-job experience.
Which of the following are trade-offs faced by a single parent with small children deciding whether to take a job. Check all that apply.
The single parent has been divorced for two years.
Working prevents parents from attending their children’s sporting events.
Childcare is expensive for working parents, but it promotes social skills in small children.

7. Application: Elasticity and hotel rooms
The following graph input tool shows the daily demand for hotel rooms at the Triple Sevens Hotel and Casino in Las Vegas, Nevada. To help the management better understand the market, an economist identified three primary factors that affect the demand for rooms each night. These d factors, along with the values corresponding to the initial demand curve, are shown in the following table and alongside the graph input tool. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly.
Graph Input Tool — Market for Triple Sevens’s Hotel Rooms
Price (Dollars per room)
Quantity Demanded (Hotel rooms per night)
300
200
Demand Factors
Average Income (Thousands of dollars)
Airfare from JFK to LAS (Dollars per round trip)
Room Rate at Exhilaration (Dollars per night)
For each of the following scenarios, begin by assuming that all demand factors are set to their original values and that Triple Sevens is charging $300 per room per night.
If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Therefore, the income elasticity of demand is _ , meaning that hotel rooms at the Triple Sevens are
If the price of a room at the Exhilaration were to decrease by 20%, from $250 to $200, while all other demand factors remain at their initial values, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Because the cross-price elasticity of demand is – , hotel rooms at the Triple Sevens and hotel rooms at the Exhilaration are
Triple Sevens is debating decreasing the price of its rooms to $275 per night. Under the initial demand conditions, you can see that this would cause its total revenue to. Decreasing the price will always have this effect on revenue when Triple Sevens is operating on the portion of its demand curve.

Consider two countries, Canada (Home) and US (Foreign). In 2018, Canada experienced relatively slow output growth ( 2% ), whereas US had relatively robust output growth (4.2%). Suppose the Bank of Canada allowed the money supply to grow by 2% each year, whereas the Federal Reserve (Fed), the US central bank, chose to maintain relatively high money growth of 10% per year. For the following questions, use the simple monetary model (where L is constant).
A. What is the inflation rate in Canada? In US? What is the expected rate of depreciation/appreciation in the Canadian dollar relative to the US dollar?
B. Suppose the Fed increases the money growth rate from 10% to 12%. If nothing in Canada changes, what is the new inflation rate in US?
C. Using time series diagrams, illustrate how this increase in the money growth rate affects the US money supply, interest rate, prices, real money supply, and exchange rate E$//C$ over time. (Plot each variable on the vertical axis and time on the horizontal axis.)
D. Suppose the Fed wants to maintain an exchange rate peg with the Canadian dollar. What money growth rate would Fed have to choose to keep the value of the US dollar fixed relative to the Canadian dollar?
E. Suppose the Fed sought to implement policy that would cause the US dollar to appreciate relative to the Canadian dollar. What ranges of the money growth rate (assuming positive values) would allow the Fed to achieve this objective?
F. Next, consider the general monetary model, in which L is no longer assumed constant and money demand is inversely related to the nominal interest rate. In addition to the scenario described in the beginning of the question, the bank deposits in Canada pay 3% interest. Suppose the Fed increases the money growth rate from 10% to 12% and the inflation rate rises proportionately (one for one) with this increase. Using time series diagrams, illustrate how this increase in the money growth rate affects the US money supply, interest rate, prices, real money supply, and exchange rate E$/C$ over time. (Plot each variable on the vertical axis and time on the horizontal axis.).
*******NOTES: ONLY PART F*******