Tag: Economics – Others

HELPP!! Regulating a natural monopoly
Consider the local telephone company, a natural monopoly. The following graph shows the demand curve for phone services, the company’s marginalrevenue curve (labeled MR), its marginal cost curve (labeled MC), and its average cost curve (labeled AC). (Hint: Select a point on the graph to seeIts exact coordinates.)
Assume no government regulation. If the natural monopoly provides the profit-maximizing output, it will provide phone services tohouseholds per month at a price of
Suppose that the government forces the monopolist to set the price equal to marginal cost. In the short run, under a marginal-cost pricing regulation,the monopolist will provide phone services tohouseholds per month at a price of
If the government forces the natural monopoly to set its price equal to marginal cost, how will the company react in the long run?
Because the firm earns a profit under marginal-cost pricing, it will remain in the industry in the long run.
Because the firm suffers an economic loss under marginal-cost pricing, it will reduce its output to 3,500 households per month in the longrun.
Because the firm suffers an economic loss under marginal-cost pricing, it will exit the industry in the long run.
Suppose that the government forces the natural monopoly to set its price equal to average cost. Under an average-cost pricing policy, the monopolistwould provide phone services tohouseholds per month at a price ofand earn a profit ofper month.
True or False: Over time, the telephone company has a very strong incentive to lower costs when subject to average-cost pricing regulations.
True False

Section 4.36
The head office of TechMart is comparing two stores in St. John’s and Corner Brook, NL. At the end of the month, the accountant creates graphs of the monthly expenditures of each store location.
St. John’s Monthly Expenditures
Corner Brook Monthly Expenditures
Head office determines that the Corner Brook store is spending more money than the St. John’s store on rent. Is this accurate? Why or why not?
The accountant looks at the financial records for each store and discovers that the St. John’s store has total monthly expenditures of $60 000 and the Corner Brook store has total monthly expenditures of $45 000. Determine how much each store spends on rent each month.
Does your answer for part b) confirm your answer for part a)? If not, how could the accountant better represent the data using a graph?

Question 3.
A seller S owns a single indivisible good. There is one potential buyer B. The seller’s utility if he sells the good and receives a transfer payment tS is equal to tS. If he does not sell the good and receives a transfer tS then his utility is θS + tS, where θS is a random variable with cumulative distribution function FS and density fS. We assume that FS has support θ(S), bar (θ)S and that fS(θS) > 0 for all θS in [θ(S), bar (θ)S].
The buyer’s utility if he purchases the good and pays a transfer tB equals θB − tB, where θB is a random variable with cumulative distribution function FB and density fB. We assume that FB has support θ(B), bar (θ)B and that fB(θB) > 0 for all θB in [θ(B), bar (θ)B]. The buyer’s utility if he does not obtain the good and pays transfer tB is −tB.
The random variables θS and θB are independent. In addition, bar (θ)S > θB and θ(S) b = 0.
The designer seeks a mechanism which is (1) ex-ante budget-balanced, (2) interim individually rational and (3) Bayesian Incentive Compatible. Using the above result, write down the constraints and the implications of these requirements.
Hint:
While solving the exercise, watch out for the payoff function of the seller. In order to use the results obtained for the linear model during the lecture, it is useful to rewrite the seller’s payoff as −x θS − tilde(t)S, with tilde(t)S = −tS. This does not change the mechanism designer’s problem because we included an additively separable constant to the seller’s payoff function. But, doing so, one sees that the

2. Discouraged workers
Which of the following statements correctly describe discouraged workers? (If none of the choices apply, leave all of the checkboxes blank.) Check all that apply.
They have given up on looking for a job.
They are counted as part of the labor force by the Bureau of Labor Statistics.
They are employed workers who want to earn higher wages.
They have not looked for a job in 4 weeks (or longer), but they would like a job and are available for work.
The following table contains U.S. employment information from August 2019.
Category
Value
Civilian Population (Persons 16 years old and over)
259,432,000
Employed (Persons)
157,878,000
Unemployed (Persons)
6,044,000
Discouraged (Persons)
467,000
The Bureau of Labor Statistics has several measures of joblessness in addition to the official unemployment rate. One alternative is the U-4 measure of labor underutilization, which is calculated as follows:
U-4 = 100 × (Unemployed + Discouraged) / (Labor Force + Discouraged)
Fill in the following table by calculating the official unemployment rate and the U-4 measure of labor underutilization.
Measure
Value (Percent)
Official Unemployment Rate (Percent)
U-4 Measure of Labor Underutilization (Percent)
The official unemployment rate and the U-4 measure of labor underutilization are two different measures of joblessness in the economy. If the Bureau of Labor Statistics were to include discouraged workers in the official unemployment rate, the reported unemployment rate would be higher.

2. Activities included (and not included) in the calculation of GDPThe gross domestic product (GDP) of the United States is defined as the all in a given period of time.Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2024.
Scenario2024 GDPIncludedExcluded
The Federal Emergency Management Agency (FEMA) deposits funds into Mike’s checking account to help pay for his hurricane-related expenses.
Golden Sun Motors, a U.S. automobile company, produces a minivan at a plant in China on March 10, 2024. Golden Sun Motors imports the minivan into the United States on May 20, 2024.
Using ghost peppers from a garden on your Mississippi property, you make hot sauce in 2024. Similar sauces sell for $6 in a grocery store.
Liberty Wheels, a U.S. automobile company, produces a sedan at a manufacturing facility in Bakersfield on January 21, 2024. It sells the car at a dealership in Philadelphia on February 10, 2024.
Jack Motors, a Scottish automobile company, produces a connected SUV at a plant in Pennsylvania on December 5, 2024. Jill buys the connected SUV on December 24.
Yeast Crafters, a U.S. yeast company, produces brewer’s yeast at a plant in Wisconsin on September 13, 2024. It sells the brewer’s yeast to Hoptopia Brew Works for use in the production of a new beer that will be made in the United States in 2024. (Note: Focus exclusively on whether production of the brewer’s yeast increases GDP directly, and ignore the effect of production of the new beer on GDP.)

2. The theory of liquidity preference and the downward-sloping aggregate demand curve
Suppose the money market for some hypothetical economy is given by the following graph, which plots the money demand and money supply curves. Assume the central bank in this economy (the Fed) fixes the quantity of money supplied. Suppose the price level increases from 90 to 105. Shift the appropriate curve on the graph to show the impact of an increase in the overall price level on the market for money.
Money DemandMoney Supply020406080100120121086420INTEREST RATE (Percent)MONEY (Billions of dollars)Money Demand Money Supply
Money Demand and Money Supply
Following the price level increase, the quantity of money demanded at the initial interest rate of 6% will be than the quantity of money supplied by the Fed at this interest rate. As a result, individuals will attempt to their money holdings. In order to do so, they will bonds and other interest-bearing assets, and bond issuers will realize that they interest rates until equilibrium is restored in the money market at an interest rate of .
Aggregate Demand040801201602002401801501209060300PRICE LEVELOUTPUT (Billions of dollars)Aggregate Demand
Aggregate Demand Curve
The change in the interest rate found in the previous task will lead to a in residential and business spending, which will cause in the quantity of output demanded in the economy.

Multiple choice questions (2 points each)
(a) Hector has a mortgage with a fixed nominal interest rate of 6% that he took out five years ago. Over the years, the inflation rate has crept up unexpectedly to its present level of 7%.
i. Hector is worse off as inflation increases, and the lender of his mortgage is better off.
ii. Hector is better off as inflation increases, and the lender of his mortgage is worse off.
iii. Both Hector and the lender are better off
iv. Both are worse off
(b) Due to the current slump, Melanie has been laid off from her programming job. Melanie’s unemployment can be characterized as
i. Cyclical unemployment
ii. Seasonal unemployment
iii. Frictional unemployment
iv. Structural unemployment
(c) You have just been awarded a cost-of-living increase tied to the CPI. The CPI has gone from 100 to 112 . If your salary is $20,000 per year before the increase, what will it be after the CPI increase is factored in?
i. $22,400
ii. $30,000
iii. $20,000
iv. $21,200
(d) Which of the following statements about inflation is true?
i. Inflation is a general fall in the level of prices
ii. Inflation discourages people from holding onto cash because cash loses value over time.
iii. Price stability is the situation when the overall level of prices changes rapidly
iv. When the economy is growing, inflation tends to decrease
(e) Adult population: 200 million Labor force: 150 million Employed persons: 138.75 million The unemployment rate is , and the labor force participation rate is,
i. 7%; 60.4%
ii. 0.7%; 99.3%
iii. 5.6%; 69.4%
iv. 7.5%; 75%

The area of intellectual property (IP) has become a critical component of international business in our globalized economy.
As trade and irvestment have expanded between countries, it is imperative that companies that have developed advanced technology can comfortably enter a new country without the threat of their technology or ideas being stolen and sold under a different source.
If the global community is not able to effectively protect this then certain countries with a higher prevalence of IP protection issues will not attract an optimal level of international irrvestment and could slow the ability to grow their economies, as well as limit international companies’ opportunities for new market growth.
The World Trade Organization (WTO) and WIPO (World Intellectual Property Organization) have provided a certain level of partnership among the WTO member countries in this area.
However, a main weakness in terms of effectiveness is that enforcement is the main tenet of IP law, therefore if these measures are not effectively enforced, then IP issues will persist in many parts of the world.
individual countries should apply pressure on each country to which they trade in order to protect the IP of their companies.
The WTO has 164 countries that are members, and WIPO have 189 invited members, thus the number of countries is so large that neither organization could be expected to promote specific IP items uniformly.
bribery is a serious issue in many countries around the world and can lead to IP laws being broken.

For each of the following scenarios, analyze the effects of the given supply or demand shock on the respective market. In your response, clearly identify whether the shock primarily affects supply or demand, how supply or demand changed, and explain the expected impact on equilibrium price and quantity, assuming other factors remain constant. Then illustrate the changes using the diagrams provided on the second page. In each diagram: Label the initial equilibrium price and quantity as P₁ and Q₁. Label the new equilibrium price and quantity after the shock as P₂ and Q₂. Links to relevant articles are given to provide additional context for each scenario. However, reviewing or referencing them in your answers is not required or expected. Scenarios:
A.) Market: GLP-1s (e.g., Ozempic) Shock: Recent findings show that GLP-1 receptor agonists, like Ozempic, are highly effective in treating diabetes and promoting weight loss. Relevant story here.
B.) Market: Gasoline Shock: OPEC Plus, the cartel of oil-producing countries, has announced an increase in oil production. Crude oil is the primary input in gasoline production. Relevant story here.
C.) Market: Tesla Cars Shock: Public perception of Tesla has been affected by Elon Musk’s political and social media activity, leading some consumers to reconsider their purchase of Tesla’s vehicles. Relevant story here.
D.) Market: New Cars Shock: The Trump Administration has announced plans to impose 25% tariffs on all foreign-made vehicles and auto parts. Relevant story here.

1. Activities included (and not included) in GDP calculation
The gross domestic product (GDP) of the United States is defined as the all in a given period of time.Based on this definition, indicate which of the following transactions will be included in (that is, directly increase) the GDP of the United States in 2024.
Scenario2024 GDPIncludedExcluded
Wellness Wise Bistro, a U.S. health food company, produces a veggie wrap at one of its many locations throughout the region on January 21, 2024. It sells the wrap to a customer that same day.
Du Belgique Air, a Belgian household appliance company, produces a air fryer at a plant in New York on December 5, 2024. A chef-in-training buys the air fryer on December 24.
Mikayla Brown buys a 1976 Ford Mustang in Idaho on March 10, 2024.
Yeast Crafters, a U.S. yeast company, produces brewer’s yeast at a plant in Wisconsin on September 13, 2024. It sells the brewer’s yeast to Hoptopia Brew Works for use in the production of a new beer that will be made in the United States in 2024. (Note: Focus exclusively on whether production of the brewer’s yeast increases GDP directly, and ignore the effect of production of the new beer on GDP.)
The Federal Emergency Management Agency (FEMA) deposits funds into Mike’s checking account to help pay for his hurricane-related expenses.
Sakura Technologies, a U.S. gaming company, produces a gaming controller at a plant in Japan on March 10, 2024. Sakura Technologies imports the gaming controller into the United States on May 20, 2024.