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Ec404 GDB No. 1 Spring 2012 Solution

Monday, April 16, 2012 Posted In Edit This
Possible Causes for Economic Slow-down and Recession
  • Recessions are often caused by a lack in effective demand since people try to accumulate money (new savings are then possibly higher than investments).
  • When people perceive that money is becoming scarce or may become scarce in the future, they will reduce spending and increase savings, lowering demand.
  • When inflation in a country is higher than in  data copied from vu solutions dot come  other countries, the currency becomes more expensive, exports become more expensive and exports will decline or grow slower, lowering the economic growth.
  • When financial bubbles burst and asset prices decline, investment and consumption decline and thus overall demand declines.
  • In case enterprises or consumers first need to reduce a debt burden that has become too high relative to their assets holdings due to fallen asset prices, data copied from vu solutions dot come demand will be pressed down till the debt-asset ratio is back on an acceptable level.
  • An external factor as aging demographics may cause a higher savings and lower investment environment.
  • External shocks to the economy that increase prices considerably (like increase in oil prices) could lower the demand and put in the economy in recession.
  • A growth recession happens when the capacity in the economy expands faster than that demand and the economy grow, resulting in over-capacity and possibly deflation.
  • When an economy is facing a period with lesser (growth in) demand  data copied from vu solutions dot come  due to demographics, nervousness about the future or lack of attractive innovation, and demand cannot be stimulated with lower interest rates, the economy is in a ‘liquidity trap”.
Economic Growth
  • Emerging economies that start to export more manufactured goods and services create higher paying jobs; reduce the pressure on land, increase rural wages, lower unemployment, increase wages further and thus increasing their overall prosperity.
  • Increasing foreign investment in a country increases the demand for that currency and increases the value of that currency.
  • Increasing demand increases import.
  • An overheating economy with fast increasing investments, money supply and credits can lead to higher wages and costs, more expensive exports, lower exports, higher imports, and higher currency (trade) deficits.
  • Technological development and innovation increase productivity. This drives investment and increases profits, pushing growth, but also limiting inflation.
  • An external impulse like increasing exports could get a country out of a slump.

Eco401 Assignment No. 1solution Fall 2011 October

Tuesday, October 25, 2011 Posted In Edit This
Semester “Fall 2011”
“Economics (ECO401)”
Assignment No.01 Marks: 20

The case:
The market for Panadol was initially in equilibrium. The demand and supply equations for the market of Panadol were:

Qd = 1000 – 200P
Qs = 100 + 400P

After few years, cost of production of Panadol increased due to increase in price of paracetamol (one of the main ingredient used in the production of Panadol). Due to this increase people started using Disprine instead of Panadol. After some time once again rapid increase in the prices of Panadaol was recorded. This time increase in prices was attributed to increasing demand of the tablet due to dengue fever. This trend added to the miseries of dengue patients. To better cope the situation, measures should be taken to decrease the price of Panadol so that dengue affected poor patients could afford it.

Requirements:
A. Find initial equilibrium price and quantity in the market of Panadol.
B. How would the shift of customers to Disprine have affected the market for Panadol? Support your answer with diagram.
C. How would the increase in cost of production have affected the market for Panadol? Illustrate graphically.
D. How can the price of Panadol be controlled? Analyze graphically. (Marks = 5+5+5+5)

Important Note:
> Calculate to the point where calculation is being required. NO need to write irrelevant material or extra interpretation.
> Draw diagrams by yourself. Do NOT copy from any source. NO need to write irrelevant material.
> Graphs are very important in Economics course. This assignment will enhance your skill of drawing graphs. A complete procedure of “How to draw graphs in MS-Word” is uploaded on announcement page of LMS. Get help from that uploaded file to solve your assignment.
> Corrigendum related to lecture # 3, 6 and 7 have been uploaded on LMS in the announcement section. Read these corrigenda attentively before solving assignment.

Schedule
Opening Date and Time October 21, 2011 At 12:01 A.M. (Mid-Night)
Due Date and Time October 28, 2011 At 11:59 P.M. (Mid-Night)


Idea Solution:






Eco403 GDB No. 1 fall 2011 solution

Monday, October 24, 2011 Posted In Edit This
According to CIA World Fact Book, current population growth rate of Pakistan and China are 1.57% and 0.493% respectively. In both countries, ratio of females is more than males. Logically discuss that how this increasing ratio of females will affect the Gross Domestic Product (GDP) of both countries?


Solution:


In these two countries (as well as others) women are given a lower standard of education and are usually either at home or doing low paid work. So unless they get their act together really soon there will be many vacancies for skilled workers which cannot be filled , the result will be a lower rate of increase of the GDP over the coming years compared to the rate it would rise if women were properly educated and had access to skilled work.

Eco402 GDB No. 1 fall 2011 solution

Monday, October 24, 2011 Posted In Edit This
Many smokers claim that their habit helps them to relax, but there is no doubt that smoking is harmful to health and has a detrimental effect on athletic performance. Tobacco smoking is a major, preventable factor leading to death. Almost 20 per cent of deaths in the USA have been attributed to diseases associated with inhaling the products of combustion from the tobacco plant, Nicotiana tobacum. These products include nicotine, carbon monoxide, and tars.

The psychological and addictive effects of smoking cigarettes are attributed to nicotine, a drug that stimulates the central nervous system and enhances arousal. Nicotine affects blood pressure and heart rate directly, increasing the risk to smokers of coronary heart disease. It also affects hormone production. For example, cigarette smoking lowers blood oestrogen levels and therefore reduces bone mineralization. When inhaled, the carbon monoxide passes into the bloodstream where it combines with haemoglobin, reducing the ability of blood to transport oxygen. Among heavy, chronic smokers the reduction may be as much as 10 per cent, reducing their ability to take part in strenuous exercise, and accounting for the breathlessness experienced by most smokers. Tars inhaled during smoking are microscopic, organic substances which can stick onto cells in the lungs. Some tars release free radicals that may be carcinogenic and increase the risk of lung cancer. The high production of free radicals in smokers may explain why they break down vitamin C faster than non-smokers (vitamin C is one of the antioxidants that mops up free radicals). It is estimated that the vitamin C requirements of smokers may be twice as much as non-smokers. In the UK, the RNI for adult non-smokers is 40 mg but smokers require more vitamin C (possibly as much as an extra 80 mg); in the USA, the RDAs are 60 mg for non-smokers and 100 mg for smokers.

Smoking is highly addictive. Smokers who try to give up may suffer withdrawal symptoms including a persistent craving for tobacco, irritability, poor concentration, and weight gain. The weight gain is popularly attributed to eating more to compensate for the lack of oral gratification provided by smoking. However, the gain may also be due to metabolic changes because nicotine increases metabolic rate, particularly during exercise. It is sensible for ex-smokers to moderate the effects of weight gain by increasing their aerobic activity. They should also control their feeding habits carefully. For example, snacks should consist of nutritious, low calorie foods such as raw vegetables and fruit.

ECO402 GDB - solution soon

Saturday, July 02, 2011 Posted In Edit This
Discuss Question: 
Suppose government wants to encourage textile and clothing domestically, but its price is higher than its imported substitute. Government can use import tariff or quota, on what basis government will decide either to impose import tariff or fix quota to get maximum benefits?

Note: Your solution must be within 75-100 words.

Eco401 Online Quiz No. 3 Announcement

Wednesday, June 22, 2011 Posted In Edit This
Online Quiz (No.03) Announcement
Quiz will cover Video Lecture no. 01 to 32


Schedule
Opening Date and Time June 23, 2011 At 12:01 AM (Mid-Night)
Closing Date and Time June 27, 2011 At 11:59 PM (Mid-Night)

Eco403 GDB No. 3 solution

Tuesday, June 21, 2011 Posted In Edit This
Suppose population of Pakistan is increasing so government of Pakistan has increased its spending by Rs.1000. This in turn will cause an increase in GDP of Pakistan. Will GDP of Pakistan increase by Rs.1000 or more than Rs.1000? Justify your answer.

Note: Your answer must NOT exceed from 50 words.


Starting Date: Friday, June 17, 2011

Closing Date: Tuesday, June 21, 2011




ECO403 3rd GDB Solution
Suppose population of Pakistan is increasing so government of Pakistan has increased its spending by Rs.1000. This in turn will cause an increase in GDP of Pakistan. Will GDP of Pakistan increase by Rs.1000 or more than Rs.1000? Justify your answer.


According to economics principal increase in expenditure doesn't have impact on GDP increasing of government spending is increasing which is a burden on the shoulders of govt. So government will have to arrange that money which is quite difficult at national level. If govt. could not arrange then they will print new currency which will lead them to inflation eventually, obviously in initial stages it will be economic growth and there will be rise in GDP at current prices but no change perhaps fall in GDP at constant prices



:::::::::::::::::::::::::::::::::


Another:


GDP will increase. The main point of question is that "would it be equal to Govenment spending or more"


::::::::::::::::::::::::::::::::::::::::::::::


GDP of Pakistan will increase more than Government spending.
The government spending of Rs.1000 will cause an increase in Consumption
and Investment made by hose holds.
In results, GDP of Pakistan would be higher than Government spending.


:::::::::::::::::::::::::::::::::::


For instance, government wants to spend money on Building of hospital. Government opens Tender for it.

1. After confirmation Tender, there would be investment which will be caused increase of “Investment” element of GDP.

2. There would be employment which will increase the purchasing power of consumers. People will demand for more goods and services. In response there would be more Investors to produce more goods.

These to elements would increase the GDP of Pakistan more than government spending.

Eco402 Assignment No. 2 solution

Thursday, June 16, 2011 Posted In Edit This
Semester spring 2011
Assignment no 02
ECO402
Total Marks: 15


Question no.1:
Suppose you are working in a mobile making firm operating in a perfectly
competitive market. Your cost of production is given by:
TC = 5000 + Q2

Where Q is the level of output and TC is total cost. The fixed cost of production is Rs.5000.

a. If the price of a mobile is Rs.7200, how many mobiles should you produce to
maximize profit?

b. What will your profit level be?
(Marks = 6 + 6)

Question no.02:
If a sales tax of Rs.50 per unit of output is placed on one firm whose product sells for Rs.500 in a competitive industry.

What will happen to price, output and profit? (Marks = 03)

Important Note:
ô€‚¾ Calculate to the point where calculation is being required. NO need to write irrelevant material or extra interpretation.

Important Tips
1. This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 16 to lecture no 29 and reading handouts as well as
recommended text book.
2. Video lectures can be downloaded for free from Online VU Lectures

Schedule
Opening Date and Time June, 09, 2011 At 12:01 A.M. (Mid-Night)
Due Date and Time June, 15, 2011 At 11:59 P.M. (Mid-Night)

Note: Only in the case of Assignment, 24 Hrs extra / grace period after the above mentioned due date is usually available to overcome uploading difficulties which may be faced by the students on last date. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience.
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Solution:
Take derivative of to find the value of marginal cost where Q is the level of output Tc is the total cost.

Now we find the marginal cost which is 2Q and the fixed price is 5000.
Where MC=MR………..(1)
MR= price
And price is7200

MC= 2Q put the value of MC an MR in equation one
MC=MR
2Q=7200
Q=3600


b) What will your profit level be?

(Marks = 6 + 6)
Question no.02:
If a sales tax of Rs.50 per unit of output is placed on one firm whose product sells for
Rs.500 in a competitive industry.
What will happen to price, output and profit?
(Marks = 03)

The level of profit will be lower because the level of price at very high point.

ECO401 GDB solution

Tuesday, June 07, 2011 Posted In Edit This
Total Marks 3


Starting Date : 
Tuesday, June 07, 2011

Closing Date : 
Thursday, June 09, 2011

Status Open Question/Description 
The major oil producing countries had made a cartel named “OPEC” (oil producing and exporting countries) in 1960. OPEC exports oil to rest of the world; there are significant problems for entrance in the market for oil. In which market structure this case falls and why the demand curve of oil is relatively inelastic?

NOTE:your answer must not exceed from 50 words.
::::::::::::::::::::::::::::::::::::

SOLUTION:
Part A: In which market structure this case falls?
Market structure: oligopoly

Part B: Why the demand curve of oil is relatively inelastic?
Oil Industry lies in the oligopolistic market structure which has few no of sellers in the market and people are bound to fulfill their needs through this limited supply, so price rise does not effect much on their demand. secondly the oligopolists are well aware of moves. That's why demand curve of oil is relatively inelastic.
:::::::::::::::::::::::

The major oil producing countries had made a cartel named “OPEC” (oil producing and exporting countries) in 1960. OPEC exports oil to rest of the world; there are significant problems for entrance in the market for oil. In which market structure this case falls and why the demand curve of oil is relatively inelastic?

Solution:
Market structure is oligopoly and cartel. During the recent crisis, personal consumption and incomes have fallen substantially and therefore, assuming the positive income elasticity of demand for oil, the world demand for oil decreased considerably. The change in the aggregate consumption of oil has led to relatively more price elastic demand for oil.

Eco402 Solved Online Quizzes

Thursday, June 02, 2011 Posted In Edit This
1. The "perfect information" assumption of perfect competition includes all of the following except one. Which one? 

Consumers know their preferences. Consumers know their income levels. Consumers know the prices available.Consumers can anticipate price changes. 

2. Incremental cost is the same concept as ______________ cost. 

Average Marginal Fixed Variable 


3. A production function assumes a given: Technology. Set of input prices. Ratio of input prices. Amount of output. 4. Assume that beer is an inferior good. If the price of beer falls, then the substitution effect results in the person buying ______ of the good and the income effect results in the person buying ______ of the good. 

More, more More, less Less, more Less, less 

5. Producer surplus for the whole market can be thought of as: 
Total profit.
Variable operating profit plus factor rents. Total profit minus factor rents earned by lower cost firms. Total profit plus factor rents earned by lower cost firms. 

6. Baba Burgers has discovered there are economies of scope available to the restaurant. Which is most likely to be a response to this discovery? Baba expands burger production, focusing on that one good. Baba contracts burger production. Baba adds grilled chicken sandwiches to the menu. Baba cuts back on the diversity of the menu. 

7. The endpoints (horizontal and vertical intercepts) of the budget line: 

Measure its slope. Measure the rate at which one good can be substituted for another. Measure the rate at which a consumer is willing to trade one good for another. Represent the quantity of each good that could be purchased if all of the budget were allocated to that good. 

8. The "perfect information" assumption of perfect competition includes all of the following except one. Which one? Consumers know their preferences. Consumers know their income levels. Consumers know the prices available. Consumers can anticipate price changes. 

9. The difference between the economic and accounting costs of a firm are: The accountant's fees. The corporate taxes on profits. The opportunity costs of the factors of production that the firm owns. The sunk costs incurred by the firm. 

10. lastic and steel are substitutes in the production of body panels for certain automobiles. If the price of plastic increases, with other things remaining the same, we would expect: The price of steel to fall. The demand curve for steel to shift to the right. The demand curve for plastic to shift to the left. The demand curve for steel to shift to the left. 

11. Cost-output elasticity can be written and calculated as: 

MC/AC. AC/MC (AC)(MC) (AC)2(MC) 

12. Fixed costs are fixed with respect to changes in: 

Output. Capital expenditure. Wages. Time. 

13. The presence of a learning curve may induce a decision maker in a startup firm to choose: 

Low levels of output to exploit economies of scale. High levels of output to exploit economies of scale. Low levels of output to shift the average cost curve down over time. High levels of output to shift the average cost curve down over time. 

14. Which of the following is true regarding the relationship between returns to scale and economies of scope? 

A firm experiencing economies of scope must also experience increasing returns to scale. Economies of scale and economies of scope must occur together. A firm experiencing increasing returns to scale must also experience economies of scope. There is no definite relationship between returns to scale and economies of scope. 

15.Salman would prefer a certain income of $20,000 to a gamble with a 0.5 probability of $10,000 and a 0.5 probability of $30,000. Based on this information: 

We can infer that Salman is risk neutral. We can infer that Salman is risk averse. We can infer that Salman is risk loving. We cannot infer Salman’s risk preferences. 

16. When the average product is decreasing, marginal product: 

Equals average product. Is increasing. Exceeds average product. Is less than average product? 17. Government intervention can increase total welfare when: 

There are costs or benefits that are external to the market. Consumers do not have perfect information about product quality. A high price makes the product unaffordable for most consumers. There are costs or benefits that are external to the market and consumers do not have perfect information about product quality. 

18. If a competitive firm's marginal cost curve is U-shaped then: 

Its short run supply curve is U-shaped too. Its short run supply curve is the downward-sloping portion of the marginal cost curve. Its short run supply curve is the upward-sloping portion of the marginal cost curve. Its short run supply curve is the upward-sloping portion of the marginal cost curve that lies above the short run average variable cost curve. 

19. Economies of scope refer to: 

Changes in technology. The very long run. Multiproduct firms. Single product firms that utilize multiple plants. 

20. Although there are many reasons why a market can be non-competitive, the principal economic difference between a competitive and a non-competitive market is: 

The extent to which any firm can influence the price of the product. The size of the firms in the market. The annual sales made by the largest firms in the market. The presence of government intervention. 

21. Indifference curves that are convex to the origin reflect: 

An increasing marginal rate of substitution. A decreasing marginal rate of substitution. A constant marginal rate of substitution. A marginal rate of substitution that first decreases, then increases. 

22. The endpoints (horizontal and vertical intercepts) of the budget line: 

Measure its slope. Measure the rate at which one good can be substituted for another. Measure the rate at which a consumer is willing to trade one good for another. Represent the quantity of each good that could be purchased if all of the budget were allocated to that good. 

23. Consider the following statements when answering this question: I. "In the long run equilibrium of a perfectly competitive market, a firm's producer surplus equals the sum of the economic rents earned on its inputs to production." II. "In the long run equilibrium of a perfectly competitive market, the amount of economic profit earned can differ across firms, but not the amount of producer surplus." 

I and II are true. I is true, and II is false. I is false, and II is true. I and II are false. 

24. Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis: 

The budget line will become steeper. The budget line will become flatter. The slope of the budget line will not change.The slope of the budget line will change, but in an indeterminate way. 

25. A country's government would like to raise the price of one its most important agricultural crops, coffee beans. Which of the following government programs will result in higher prices for coffee beans? Select correct option: An import quota on coffee beans. An acreage limitation program which provides coffee bean farmers financial incentives to leave some of their acreage idle. An import tariff on coffee beans. All of the given options. 

26. Which of the following is NOT a generally accepted measure of the riskiness of an investment? Select correct option: Standard deviation. Expected value. Variance. None of the given options. 



27. Which of the following is a positive statement? Select correct option: When the price of a good goes up, consumers buy less of it. When the price of a good goes up, firms produce more of it. When the Federal government sells bonds, interest rates rise and private investment is reduced. All of the given options. 

28. Rabia knows average total cost and average variable cost for a given level of output. Which of the following costs can she not determine given this information? Select correct option: Average fixed cost Fixed cost Variable cost Rabia can determine all of the above costs given the information provided. 

29.Which of the following is NOT true about price floors? Select correct option: Consumer surplus is always lower than it would be in the competitive equilibrium. Producer surplus could be lower, higher, or the same as it would be in competitive equilibrium. Producer surplus could be negative as the result of a price floor. Producers will often respond to a price floor by cutting production to the point at which price equals marginal cost. 

30. A production function in which the inputs are perfectly substitutable would have isoquants that are:Select correct option: 

Convex to the origin. L shaped. Linear. Concave to the origin. 

31. For an inferior good: Select correct option: 

The price elasticity of demand is negative; the income elasticity of demand is negative. The price elasticity of demand is positive; the income elasticity of demand is negative. The price elasticity of demand is negative; the income elasticity of demand is positive. The price elasticity of demand is positive; the income elasticity of demand is positive 

32. When a product transformation curve is bowed outward, there are _______________ in production.Economies of scope Economies of scale Diseconomies of scope Diseconomies of scale 

33. The marginal rate of technical substitution is equal to the: Slope of the total product curve. Change in output minus the change in labor. Change in output divided by the change in labor. Ratio of the marginal products of the inputs. 

34. Consider two goods X and Y available for consumption. Assume that the price of X changes whilethe price of Y remains fixed. For these two goods, the price-consumption curve illustrates the: 

Relationship between the price of X and consumption of Y. Utility-maximizing combinations of X and Y for each price of X. Relationship between the price of Y and the consumption of X. Utility-maximizing combinations of X and Y for each quantity of X. 

35. Assume that two investment opportunities have identical expected values of $100,000. Investment Ahas a variance of 25,000, while investment B's variance is 10,000. We would expect most investors (who dislike risk) to prefer investment opportunity: 

A because it has less risk. A because it provides higher potential earnings. B because it has less risk. B because of its higher potential earnings. 

36. The law of diminishing returns refers to diminishing: Total returns. Marginal returns. Average returns. All of the given option 

37. If the isoquants are straight lines, then: 

Inputs have fixed costs at all use rates. The marginal rate of technical substitution of inputs is constant. Only one combination of inputs is possible. There are constant returns to scale. 

38. The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. Whatis the variable cost? 

200 5Q 5 5 + (200/Q) 

39. The demand curve facing a perfectly competitive firm is: 

The same as the market demand curve. Downward-sloping and less flat than the market demand curve. Perfectly horizontal. Perfectly vertical. 

40. The cost-output elasticity is used to measure: 
Economies of scope.
Economies of scale. The curvature in the fixed cost curve. Steepness of the production function. 

41.The budget line in portfolio analysis shows that: 

The expected return on a portfolio increases as the standard deviation of that return increases. The expected return on a portfolio increases as the standard deviation of that return decreases. The expected return on a portfolio is constant. The standard deviation of a portfolio is constant. 


42.A Rolling Stones song goes: “You can’t always get what you want.” This echoes an important theme from microeconomics. Which of the following statements is the best example of this theme?

Consumers must make the best purchasing decisions they can, given their limited incomes. Workers do not have as much leisure as they would like, given their wages and working conditions. Workers in planned economies, such as North Korea, do not have much choice over jobs. Firms in market economies have limited financial resources. 

43. Compared to a tariff, an import quota, which restricts imports to the same amount as the tariff, willleave the country as a whole: 

Worse off than a comparable tariff. Not as bad off as a comparable tariff. About the same as a comparable tariff.Any of the above can be true. 

44. Any combination of products inside the production possibility frontier is: 

Allocatively inefficient Consumer inefficient Productively inefficient None of the given option. 

45 .In the long run, which of the following is considered a variable cost? 

Expenditures for wages. Expenditures for raw materials. Expenditures for capital machinery and equipment. All of the given options. 

46. Two firms, each producing different goods, can achieve a greater output than one firm producingboth goods with the same inputs. We can conclude that the production process involves: 

Diseconomies of scope. Economies of scale. Decreasing returns to scale. Increasing returns to scale.
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