...Substitution and income effect has a big role in today society. I will examine how substitution and income affects the gasoline prices. If a person spend $120 for gasoline each month, 4 weeks. Assuming that there has been a price increase of 100% during summer. The cost for gasoline in the next 3 months would be $240 per month if the drive of the sale would stay the same. For the entire summer, 12 weeks the gasoline price will be $720. The average cars usually get 30 miles per gallon of gasoline. During the summer months the cost of gasoline is $6.00 per gallon compare to spring $3.00 per gallon. Thomas and Maurice state that “when the price of a good increases, consumers are worse off” and in this instance, the increase in gasoline prices makes it necessary to adjust the monthly budget (2011 p. 186-187). There are several ways to estimate substitution effect or income effect for affordable gasoline. There will be sacrifices that will have to be made and budgeting accordingly. One of the options the author can choose is not driving so much during the summer months. By doing this the author can save money. This option would be considered income effect or “ the change in the consumption of a good resulting strictly from a change in purchasing power after the price of good changes” (p. 188). For example, the author normally drives to work, 50 miles a day 5 days a week, to the store 5 miles 2 days a week, and into town to spend time with friends 40 miles 3 times a week. Cut backs...
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...PART- I PAPER- I: MICROECONOMICS I Full Marks 50 1. INTRODUCTION: Nature and scope, scarcity and choice, concepts of demand and supply, impact of changes in demand and supply, price system as an economic mechanism. 2. CONSUMER BEHAVIOUR: Assumptions on preference ordering, indifference curve, budget constraint and consumer’s equilibrium, substitution effect (Hicks & Slutsky) and income effect, ordinary and compensated demand curves, inferior goods and Giffen goods, price consumption and income curves, derivation of labour supply and intertemporal choice, (saving and borrowing), Revealed Preference – the weak axiom and substitution effect. 3. DEMAND AND SUPPLY: Demand function, supply function, market equilibrium, stability of equilibrium, elasticities of demand and supply, consumer’s and producer’s surplus, burden of indirect taxes and subsidies, price and quantity controls, minimum wage, import tariff and quota. 4. PRODUCTION AND COST : Production function, total, average and marginal products, isoquants and economic regions of production, cost minimization and expansion path, elasticity of substitution, economies of scale, Cobb Douglas, fixed coefficient and CES functions, short run and long run costs. REFERRENCES: - Maddala-Miller Pindyck-Rubinfeld Varian (Intermediate) Ferguson-Gould Kutsoyanis (Modern Microeconomics) ...
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...labor market for that matter. Consumption directly affects the supply of labor. If the workers experience an increase in their desire for consumption in relation to leisure, the labor supply curve will shift outwards. The workers will supply more labor at every given wage. The effect of public finance on labor economics may be through government taxation on the workers. If income taxes increase, workers will likely substitute leisure for consumption and supply less labor. Any effects on the supply and demand for labor will ultimately affect the labor market thus are essential in labor economics. Distribution of income may also affect the labor market especially if the distribution is unequal. Inequality in the distribution of income will affect workers and thus affect labor supply. Production of goods and services on the other hand determine the supply and demand for labor. Such effects directly influence the labor market. Table of Contents Abstract 2 Table of Contents 3 Introduction 4 Effect of consumption on the labor market 4 Effect of income distribution on the labor market 5 Effect of exchange on the labor market 6 Effect of production of goods and services on the labor market 7 Effect of public finance on the labor market 7 Conclusion 8 References 9 Introduction Study of labor economics involves the study of labor force as an element of production. Labor force mainly comprises all those who work for gain. These can be employees, employers, or those...
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...Part I Economics Coursework Assessment 1 18.11.11 SOLUTIONS QUESTION 1 (8 points) Consider the following three player game: Find all Nash-equilibria in pure strategies in the game, and state what, if any, they are. (Up, Left, Front) (2 points) (Down,Right, Front) (2points) (Down,Left,Back) (2 points) Plus 2 points if no wrong equilibrium is given. Grading recommendations: To give ONLY the equilibrium payoffs instead of the equilibrium strategies: subtract 1 point per occurrence, i.e. if this is done for all 3 equilibria but everything else is correct the student gets 8-3=5 points in total. QUESTION 2 (4 points) Look at the following two-player game. Find all dominant strategies, and indicate what, if any, they are. | Player 2 | Player 1 | | Left | Middle | Right | | Up | (3,2) | (9,1) | (6,4) | | Down | (2,5) | (8,8) | (2,9) | Player 1 has a dominant strategy: Up. (2 points) Player 2 has a dominant strategy: Right. (2points) QUESTION 3 (6 points) Look at the following three player game in extensive form. The numbers 1,2 or 3 at each decision node indicate whose turn it is. Top Sky Down Sea (7,9,8) (3,5,4) (0,7,1) (2,7,9) No Yes 2 (9,3,9) Green Red 1 3 3 Find the equilibrium by backward induction, and then state what the equilibrium is, and what the equilibrium payoff for each player is. Note: You do not need to draw the game tree in the answer booklet or explain. Equilibrium Payoff (2points): (3,5...
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...page 12-3 Government Employment 25.0 • The number of federal civilian and state and local government employees has risen over time. • The growth of federal employment has been much smaller than the growth at the state and local level. 20.0 Millions 15.0 10.0 5.0 0.0 1950 1960 1970 1980 1990 2000 2004 2006 Federal Civilian Military State and Local Jump to first page 12-4 Relative Government Employment 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1950 1960 1970 1980 1990 2000 2004 2006 Federal Civilian Jump to first page • The share of employment in the public sector has risen over time. • This increase is due to increased demand for government services due to factors such as the schooling needs of the baby boom, higher real income, public sector unions, and increased regulation. Millions State and Local 12-5 Public vs. Private Pay Most government units attempt to set pay equal to those to comparable privatesector workers. In the past, Federal government workers earned premium relative to their private sector counterparts. The premium has fallen over time. Public sector workers receive a greater fraction of the their compensation in the form of fringe benefits. Jump to first page 12-6 2. The Military Sector: The Draft Versus the Voluntary Army Jump to first page 12-7 Draft vs. Voluntary Army Before 1973, the military used to draft or compel people to serve in the military. The pay for those serving in the military was low. In 1973, military...
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...influenced by the variation in asset prices. In another word, the variation in asset prices refer to the change in household's wealth. We call the causal effect of exogenous changes in wealth upon consumption behavior as the wealth effect (Karl E. Case, John M. Quigley and Robert J. Shiller, 2001). In daily life, the house and stock price represent the major wealth for household, and in my following paper, I will introduce how house and stock price changes will influence the aggregate economic activity. First of all, the theoretical basis for the important macroeconomic implications of house and stock price. The wealth effect can be divided to two categories, one is positive and another is nagetive. If the price of house and stock increase, for example, it exists a positve effect for househld. How this temporary positive effect affect the aggregate supply (work effort) and demand (consumption)? Because Here is the mechanism. Firstly we consider about the work effort. a. In response to the increase of wealth, household can produce more goods or services. And this will reduce household's leisure and increase the work effort relatively. But this effect will be very small relative to its magnitude if the incresement is perceived as temporary. This is an implication of the Permanant Income Hypothesis. b. The intratemporal substitution of work effort. I want to introduce a concept first, this concept is the Marginal Product of Labor (MPL). MPL is the amount of extra output generated...
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....................................................8 Relation between Debt and Equity Market................................................................................10 Empirical Relation.................................................................................................................12 Limitations of Study................................................................................................................15 Conclusion.............................................................................................................................16 Reference and Bibliography...................................................................................................17 Abstract The purpose of this paper is to empirically analyse the dynamic relationship between stock market and bond market post liberalization. - The research work deals...
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...expensive wines or perfumes are Veblen goods, in that decreasing their prices decreases people's preference for buying them because they are no longer perceived as exclusive or high status products. The Veblen effect is named after the economist Thorstein Veblen, who invented the concepts of conspicuous consumption and status-seeking. The Veblen effect is one of a family of theoretically possible anomalies in the general theory of demand in microeconomics. Other related effects are: the snob effect: preference for a good decreases as the number of people buying it increases, and the bandwagon effect: preference for a good increases as the number of people buying it increases; Note that none of these effects in itself predicts what will happen to actual quantity demanded for the good (the number of units purchased) as price changes - they refer only to preferences or propensities to purchase. The actual effect on demand will depend on the range of other goods available, their prices, and their substitutabilities for the goods concerned. The effects are anomalies within demand theory because the theory normally assumes that preferences are independent of price or the number of units being sold. They are therefore collectively referred to as interaction effects. Thornstein Veblen described conspicuous consumption. This he said was consumption designed to show how wealthy a person was. Outlandish dress for example rendered the wearer unfit to do jobs of work. The...
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...Economics: What is it? If someone asks you to define economics, what are you going to tell them? Without running to your book, let’s look at the word eco-nomics itself. The prefix ‘eco’ from the Latin word ‘oeco’ refers to household and ‘omics’ is a general term for a broad discipline of science which analyses certain variables. So the word economics can be defined as: ‘...A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants’ (Investopedia) ‘...The social science that deals with the production, distribution, and consumption of goods and services and the theory and management of economies or economic systems.’ (American Heritage Dictionary) ‘... The study of how society uses its scarce resources.’(The Economist) ‘...the branch of knowledge concerned with the production, consumption and transfer of wealth.’ (Oxford Dictionary) How is economics going to help me? Scenario 1: As a high school or college student, you about doing a number of different career options but why do you end up with one or two major interests?... Yes, you make a choice whether or not you want to be a Doctor, Lawyer, Entrepreneur, Accountant, Economist, among other professions. And economics has to do with making effective choices and how they impact you as an individual. This leads us to the first branch of economics. A group of concepts and explanations have been developed to explain the...
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...Microeconomic Paper In order for economists to model consumer behavior they have to consider a few assumptions. The first assumption is about rational behavior. They assume the consumer is a rational person, who tries to use his or her money income to acquire the greatest amount of satisfaction or utility from a good or service. The second assumption economists look at are consumers’ preferences. Every consumer has their own preferences for certain goods and services that are available in the market. Buyers also have a good idea of how much marginal utility they will get from successive units of the various products they might purchase. The third assumption that we should look at is known as the budget constraint. At any point in time the consumer has a fixed, limited income. The budget constraint varies depending on the individual consumers’ income. In other words everyone is limited on the amount of goods and services they can achieve based on their income. The last assumption economists look at is price. They assume that the price of each good is unaffected by the amount of it that is bought by any particular person. Since the consumer has a limited income he or she cannot buy everything they want so the consumer must compromise. He or she must choose the most satisfying mix of goods or services and this varies depending on who you are. After economists look at the assumptions to model consumer behavior they then look at the law of diminishing marginal utility. When looking...
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...IDB WORKING PAPER SERIES No. IDB-WP-211 Macroeconomic Effects of China’s Fiscal Stimulus Pietro Cova Massimiliano Pisani Alessandro Rebucci September 2010 Inter-American Development Bank Department of Research and Chief Economist Macroeconomic Effects of China’s Fiscal Stimulus Pietro Cova* Massimiliano Pisani* Alessandro Rebucci** * Bank of Italy ** Inter-American Development Bank Inter-American Development Bank 2010 Cataloging-in-Publication data provided by the Inter-American Development Bank Felipe Herrera Library Cova, Pietro. Macroeconomic effects of China’s fiscal stimulus / Pietro Cova, Massimiliano Pisani, Alessandro Rebucci. p. cm. (IDB working paper series ; 211) Includes bibliographical references. 1. Fiscal Policy—Economic aspects—China. 2. Economic Policy—China. I. Pisani, Massimiliano. II. Rebucci, Alessandro. III. Inter-American Development Bank. Research Dept. IV. Title. V. Series. © Inter-American Development Bank, 2010 www.iadb.org Documents published in the IDB working paper series are of the highest academic and editorial quality. All have been peer reviewed by recognized experts in their field and professionally edited. The information and opinions presented in these publications are entirely those of the author(s), and no endorsement by the Inter-American Development Bank, its Board of Executive Directors, or the countries they represent is expressed or implied. This paper may be freely reproduced provided credit is given...
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...the question papers 2.2 Detail of question papers 4 4 4 3. CONTENT 6 4. CONCLUSION Copyright reserved 25 Please turn over Economics 1. 3 Examination Guidelines DBE/2014 INTRODUCTION The Curriculum and Assessment Policy Statement (CAPS) for Economics outlines the nature and purpose of the subject Economics. This guides the philosophy underlying the teaching and assessment of the subject in Grade 12. The purpose of these Examination Guidelines is to: • • Provide clarity on the depth and scope of the content to be assessed in the Grade 12 National Senior Certificate (NSC) Examination in Economics. Assist teachers to adequately prepare learners for the examinations. This document deals with the final Grade 12 external examinations. It does not deal in any depth with the School-Based Assessment (SBA). This guideline should be read in conjunction with: • • • The National Curriculum Statement (NCS) Curriculum and Assessment Policy Statement (CAPS): Economics The National Protocol of Assessment: An addendum to the policy document, the National Senior Certificate: A qualification at Level 4 on the National Qualifications Framework (NQF), regarding the National Protocol for Assessment (Grades R–12) The national policy pertaining to the programme and promotion requirements of the National Curriculum Statement, Grades R–12 Copyright reserved Please turn over Economics 4 Examination Guidelines 2. ASSESSMENT IN GRADE 12 2.1 DBE/2014 FORMAT OF THE PAPERS CLASSIFICATION...
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...Econ 111 Summer 2007 Midterm Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Production Possibilities Pizza Soda Possibility (per hour) (cases per hour) A 0 100 B 1 95 C 2 80 D 3 60 E 4 35 F 5 0 1) In the above table, the production of 3 pizzas and 80 cases of soda is 1) A) possible only if there is inflation. B) impossible unless more resources become available or technology improves. C) feasible but would involve unemployed or misallocated resources. D) possible only if the economy produces with maximum efficiency. 2) Economic growth can be pictured in a production possibilities frontier diagram by 2) A) shifting the production possibilities frontier outward. B) making the production possibilities frontier less bowed out. C) making the production possibilities frontier more bowed out. D) shifting the production possibilities frontier inward. 3) A person has an absolute advantage in an activity if that person can 3) A) perform that activity at a higher opportunity cost than anyone else. B) perform the activity at a lower opportunity cost than anyone else. C) produce fewer goods in a given amount of time than another person. D) produce more goods in a given amount of time than another person. 4) Comparative advantage is 4) A) the ability to perform an activity at a zero opportunity cost. B) the ability to perform...
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...|A Report on | |Elasticity and Related Problems | |A Report on | |Elasticity and Related Problems | Course Title: Microeconomics Course Code: F – 106 Submitted To: Lubna Rahman Lecturer Department of Finance University of Dhaka Submitted By: |Serial No. | | | |Name | | | |ID No. | | | | | | | |01. | | | |Md. Tanvir Ahmed Chy ...
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...REACTION PAPER By Elizabeth Orendain-Dela Cruz The Elasticity of Wants Alfred Marshall’s Principles of Economics (1890) Elasticity is a way to measure how the change in one thing (price) causes change in another (demand). Understanding elasticity of demand is valuable in knowing the dynamic response of supply and demand in a market. Such understanding will enable an enterprising person (businessman and/or consumer) to achieve a favorable effect (higher revenue/best value of one’s money) or avoid unintended outcome. For instance, a company (manufacturing commodities like shampoo or toothpaste) considering a price increase might find that by doing so, it lowers profits if demand is highly elastic, as sales would fall sharply. Similarly, a company considering a price cut might find that it does not increase sales, if demand for the product is price inelastic. It is therefore imperative to correctly analyze data on the elasticity of the company’s products in the market before deciding whether to increase or decrease its price viz-a-vis its total revenue and quantity of demand of such products. Alfred Marshall in his 1890 book Principles of Economics, particularly in his discussion on elasticity of wants tried to explain and illustrate the relationship of price and demand and its overarching influence of one over the other and vice versa. His analysis underscored the relationship of price and demand; he demonstrated how an increase or decrease in price affects the decrease and decrease...
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