Microeconomics Samuelson free essay sample

Explain how the cool head might provide the essential positive economic analysis to implement the normative value judgments of the warm heart. Do you agree with Marshall’s view of the role of the teacher? Do you accept his challenge? In order to achieve the ultimate goal of economic science which is to â€Å"improve the living conditions of people in their everyday lives† (*) a cool head attitude has the knowledge and wisdom acquired through a lifetime relation to the economic momentum. Balancing this with a warm heart compassion vision, and a willingness to improve society, is the most appropriate way to use certain economic models in order to acquire economic sustainability with social improvement. We agree with Marshall’s view which was conceived through a social corporate responsibility. We, as leaders, accept his challenge through developing projects which should be not only profitable but also socially accepted and with respect to the environment. Also, we should use our cool heads to objectively take challenges and make difficult decisions that will lead us to a prosperous society with a sustainable economic growth. *) Economics – Samuelson Nordhaus 18th edition, pg. 6 2. Question 7 . Some scientists believe that we are rapidly depleting our natural resources. Assume that there have only two inputs (labor and natural resources) producing two goods (concerts and gasoline) with no improvements in society’s technology over time. A. Show what would happen to the PPF over time as natural resources are exhausted. B. How would invention and technological improvement modify your answer? On the basis of this example, explain why it is said that â€Å"economic growth is a race between depletion and invention. It is said that economic growth is a race between depletion and invention because the continuous use of the natural resources of a country will tend to deplete them, over a long period of time but in the contrary, the invention of new technologies can extend a country PPF – making a race between them, since both things usually happens at the same time. Chapter 2 1. Question 1 . What determines the composition of national output? In some cases, we say th at there is â€Å"consumer sovereignty† meaning that consumers decide how to spend their income on the basis of taste and market prices. In other cases, decisions are made by political choices of legislatures. Consider the following examples: transportation, education, police, energy efficiency of appliances, health-care coverage, television advertising. For each, describe whether the allocation is by consumer sovereignty or by political decision. Would you change the method of allocation for any of these goods? National Output includes the total amount of goods and services that a country is capable to produce in a certain period of time. It is also known as the country? s GDP = C+I+G+(X-M). A country has the responsibility to decide what outputs to produce and in what quantity, how to produce them and for whom should they be produced. In a market society, the national output is influenced by consumer tastes and the resources and technology available in the country. On the other hand, governments may intervene to compensate for market failures that usually occurs inside a country, or to fund social programs. Here there are some examples that show mixed economies between consumer sovereignty and government interventions. Transportation Generally speaking transportation means are controlled by the private sector through companies that provide transportation services such as airlines, company taxis, trains, etc. Inside a country, there also exists public transportation for those people who can not afford the private one. In Peru, specially for the ground transportation, the government plays a fundamental role regulating tariffs, taxes and making sure we have a safe an organized transportation system in the country for the society. Education In a country generally exists public and private education. Usually, private schools tend to have a higher price but also delivering high quality and it is market driven. There are different private schools with different prices in the market. On the other hand, public education is provided by the government to lower socio economic levels in order to make education accessible to the whole population. Government applies procedures in order to maximize its quality. In Peru for example the government is trying to break the poverty cycle incentivizing the rural population to attend school through monetary allowances. There are also regulations in terms of the requirements asked for being a public teacher, the education syllabus of the country, etc. Police Police is a government regulated service to the population which is part of the arm forces of a country. Its function is to assure security to the population. However, in some countries where there is scarce resources allocated to this public entity, private police petrol are created. In Peru even in rural areas where police is not present, communities organize themselves to fight against crime. Energy efficiency of appliances Energy is a strategic scarce resource for a country. Therefore, the importance of having government regulations to control it, its tariffs while having private companies supplying the service in order to assure this service on the long term to the community. Health care coverage Health care is a private and public good also. Government provides health care services to the majority of the population by building public hospitals and providing insurance coverage programs. Usually private health care provides a higher quality service and is accessible to higher socio-economic levels of the population. Television advertising It is a consumer sovereignty good, driven basically by program ratings and market price. Usually, the government owns public television channels but even in those cases the advertising is not controlled. What government usually does is to control advertising of some products such as cigars, or the time and programs where you can advertise such products. Would you change the method of allocation for any of these goods? We would not change the method of allocation for any of the goods mentioned above. We think that in the examples mentioned, a mixed economy of public and private goods is the best to make services accessible to the whole population while having a market driven economy. However, if we customized this question to the Peruvian reality, we think that an example where government could intervene more is the banking regulations entity which should improve the credit policies in order to create a sustainable finance growth. 2. Question 3. This chapter discusses many â€Å"market failures† areas in which the invisible hand guides the economy poorly, and describes the role of government. It is possible that there are, as well, â€Å"government failures† government attempts to curb market failures that are worse than the original market failures? Think of some examples of government failures. Give some examples in which government failures are so bad that it is better to live with the market failures than to try and correct them. A possible failure can be represented by a tax system that discourages private and foreign investments in the country that at the end will affect government’s income. Another example is a bad monetary policy in which inorganic emission of currency will impact over inflation rate dramatically, affecting purchasing power of nationals (Peru 1985) . During this time Peru suffered more than 7000% inflation generating scarcity of basic goods and creating a parallel black market. During this time, another bad example would be that the banking system was nationalized and generated a lack of confidence in the population towards the banking system, loosing a high percentage of the savings of the population decreasing the country’s investment. Chapter 3 1. Question 1 . Explain why the price in competitive markets settles down at the equilibrium intersection of supply and demand. Explain what happens if the market price starts out too high or too low. In competitive markets, the prices settles down at the equilibrium intersection of supply and demand because at that point the market finds the optimal balance between the amounts willingly supplied and the amounts of what consumers are willing to demand. If the market price starts out too high, because of the high price, the suppliers are willing to sell more than what consumers are willing to demand, and this would produce a surplus of the product in the market, having to lower the price in order to reach the correct equilibrium. If the market price starts too low, the quantity demanded by consumers is higher from the amount the suppliers are willing to sell at that price level, and this generates shortages of the product in the market, this will generate the prices to rise in order to reach also the correct equilibrium. At the equilibrium price, there are no surpluses or shortages and the market is correctly balanced. Question 7. Examine the graph for the price of gasoline in Fig 3-1, page 46. Then, using a supply-demand diagram, illustrate the impact of each of the following on price and quantity demanded. a. Improvements in transportation lower the costs of importing oil into the United States in the 1960s. †¢As imports cost falls, the supply increases its quantity. †¢The supply curve therefore shifts to the right . †¢The producers reduces the price Q (+) , P (-) b. After the 1973 war, oil producers cut oil production sharply. †¢Since, the suppliers cut production, the supply curve moves left and the price increases †¢The quantity demanded decreases †¢ Q (-), P ( +) c. After 1980, smaller automobiles get more miles per gallon. †¢The technological improvement decreases demand of gasoline. †¢Shifting the demand curve to the left, the price decreases and also the quantity demanded. †¢ Q ( +), P(-) d. A record-breaking cold winter in 1995-1996 unexpectedly raises the demand for heating oil. Since heating oil and gasoline both come from the same natural resource, we are assuming that the supply for gasoline would shift to the left, since more production of heating oil would be made, considering that the PPF remains constant. Shifting the supply curve to the left would increase gasoline? s price and reduce the quantity demanded. †¢ Q( ), P(+) e. A global economic recovery in 1999-2000 leads to a sharp upturn in oil prices. †¢Prices increased to the new point of supply – demand equilibrium. †¢Shifting the demand curve to the right †¢Higher price and quantity. †¢ Q( +), P ( +) Chapter 4 Question 4. Consider a competitive market for apartments. What would be the effect on the equilibrium output and price after the following changes (other things held equal)? In each case, explain your answer using supply and demand. a. A rise in the income of consumers – This effect would shift the demand curve to the right increasing the price of the apartments and also the quantity supplied. b. A US$10-per-month tax on apartment rentals – This effect would shift the supply curve to the left, increasing the prices of apartments, therefore reducing the quantity demanded. . A government edict saying apartments cannot rent for more than US$200 pero month – By fixing a low price of US$200 would discourage suppliers to rent apartments and the demand for them would increase because of the low price – this would generate a shortage of apartments in the market. d. A new construction technique allowing apartments to be built at half the cost – Th is would incentive suppliers to build more apartments, reducing the price of the apartments, and this would increase the quantity demanded in the market.