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Briefly explain
Macro Economics. Also explain the factors to be studied in
both Micro & Macro Economics in detail.
Answer:
Microeconomics
The field of economics is broken down into two distinct areas of study:
smaller picture and focuses more on basic theories of supply and demand
and how much to charge for it. People who have any desire to start their
own business or who want to learn the rationale behind the pricing of
interaction between individual buyers and sellers and the factors that
services. This means also taking into account taxes and regulations
maximize it's production and capacity so it could lower prices and better
Macroeconomics
The field of economics that studies the behavior of the aggregate
studies the behavior of the economy as a whole and not just on specific
many overlapping issues between the two fields. For example, increased
inflation (macro effect) would cause the price of raw materials to increase
for companies and in turn affect the end product's price charged to the
public.
Macroeconomics is focused on the movement and trends in the economy
affect the decisions made by firms and individuals. The factors that are
studied by macro and micro will often influence each other, such as the
Source:
http://www.investopedia.com/terms/m/microecono
mics.asp
Balance of Trade
Balance of Payment
National Income
A variety of measures of national income and output are used
in economics to estimate total economic activity in a country or
region, including GDP, Gross National Product (GNP), and Net
National Income (NNI).
If the real per capita income increases over a long period of time, it
will indicate that country is making economic development
http://en.wikipedia.org/wiki/Per_capita_income
Question # 02 (a):
What is inflation? Differentiate between inflation &
hyper inflation, with examples.
Inflation:
The rate at which the general level of prices for goods and services is
rising and subsequently, purchasing power is falling. Central banks
attempt to stop severe inflation, along with severe deflation, in an
attempt to keep the excessive growth of prices to a minimum.
As inflation rises, every dollar will buy a smaller percentage of a good. For
example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02
in a year.
Hyperinflation
In economics, hyperinflation is inflation that is "out of control," a
condition in which prices increase rapidly as a fiat paper currency loses
its value. Formal definitions vary from a cumulative inflation rate over
three years approaching 100% (Today, many goods exceed the 100%) to
"inflation exceeding 50% a month." In informal usage the term is often
applied to much lower rates. As a rule of thumb, normal inflation is
reported per year, but hyperinflation is often reported for much shorter
intervals, often per month.
Answer:
Lower Savings:
Inflation hits indirectly to the savings in one way or the other both on
micro and macro level. When cost of necessary goods increases due to
inflation, purchasing power of the consumer decreases, and to meet
income with expenses, consumer would spend the savings to fill the gap.
Due to inflationary effect on prices, most effected community is of
salaried persons, whose salary does not increase occasionally as
compared to other segments of the community. Salaried person has to
survive within the limits of his fixed income.
Fiscal Policy
Fiscal policy can be contrasted with the other main type of economic
policy, monetary policy, which attempts to stabilize the economy by
controlling interest rates and the supply of money. The two main
instruments of fiscal policy are government spending and taxation.
Changes in the level and composition of taxation and government
spending can impact on the following variables in the economy:
Monetary policy
Structural change
http://en.wikipedia.org/wiki/Monetary_policy
http://en.wikipedia.org/wiki/Structural_change
Question # 03 (a)
http://tutor2u.net/economics/revision-notes/as-markets-price-mechanism.html
Question # 03 (b)
Answer:
When the sales tax is introduced, it leaves the demand curve intact
while it raises the supply curve by the amount of the tax, supply
curve represents the quantities that a firm is to offer at alternative
prices. When the tax is levied, the price charged by the sellers
must reflect the tax. Therefore, the supply curve jumps up (a
decrease in supply) by the amount of the tax. This shift is a parallel
shift since the amount of tax is fixed and does not change with the
volume of consumption. The tax-inculsive supply curve reflects the
fact that sellers are willing to supply the same quantities only if
they get paid the tax amount more than before. The added amount
to the price is the sellers’ new obligation to the government. In
other words, sellers are willing to sell as much goods as before at
the same (net of the tax) prices.
Price of
Gasoline
(Per Litre)
B
0.53
0.50
0.48 A
C
30 40
Quantity (Millions of Litres)
At the new equilibrium, point B, the price has risen and the volume
of transactions has fallen.
A final point of this analysis is how the burden of the tax is shared
between the two sides. In this example, the consumers’ share of
the new sales tax (3 cents) is greater than the producers’ share (2
cents). In general, who gets to pay a bigger portion of the tax is a
function of the slopes of the demand & supply curve. The steeper
the gasoline demand curve, the greater the portion of the 5 cents
that will be paid by consumers; the flatter the demand curve, the
smaller the consumers’ share. Also, the flatter the supply curve, the
bigger the portion paid by the consumers and vice versa.
Question # 04 (b)
Answer:
Demand:
The market demand for a good or service is simply the total quantity that all the
customers in the economy are willing to demand per time period at a given price.
Determinants of Demand:
The amount of a product that consumers wish to buy in a given time period is
influenced by the following variables:
While determining the determinants for Milk & computers, we would have to
distinguish between needs, wants & demands. Since milk is one of our basic needs,
and does not constitute wants or demand, therefore, it has very limited determinants
as compared to computers are very few. Whereas the determinants of demand for
computers above factors play a role. Computers are not a basic need for every
person, so we can put this product under wants & demands.
As the relationship between price and quantity, is subject to change over time due to
changes in the underlying factors held constant by the static notion of demand.
Changes in demand "shifters" are often included in economic estimation of demand
representing anticipated dynamics in these determinants.
Levels of income
A key determinant of demand is the level of income evident in the appropriate
country or region under analysis. Generally, the higher the level of aggregate and/or
personal income the higher the demand for a typical commodity, including dairy
products. More of a good or service will be chosen at a given price where income is
higher. Thus determinants of demand normally utilize some form of income
measure, including Gross Domestic Product (GDP).
Population
Population is of course a key determinant of demand. Although all dairy products do
not necessarily enter final consumer markets, the actual markets are largely
presumed to be functionally related to population. Growing populations are
positively correlated to dairy products demands in the aggregate, as well as
specifically to individual dairy products. Frequently, population and income
estimators are combined, as in the case of the use of Gross Domestic Product per
capita.
http://www.fao.org/docrep/w4388e/w4388e0t.htm
Question # 05:
Answer:
Explicit cost
An Explicit cost is an easy accounted cost, such as wage, rent and
materials. It can be transacted in the form of money payment and is lost
directly, as opposed to monetary implicit cost.
Implicit cost
In economics, an implicit cost occurs when one foregoes an alternative
action but does not make an actual payment. (For instance, the explicit
cost of a night at the movies includes the moviegoer's ticket and soda,
but the implicit cost includes the pay he would have earned if he had
chosen to work instead.) Implicit costs are related to forgone benefits of
any single transaction
Economic Profit
An economic profit arises when its revenue exceeds the total
(opportunity) cost of its inputs, noting that these costs include the cost of
equity capital that is met by "normal profits." A business is said to be
making an accounting profit if its revenues exceed the accounting cost
of the firm. Economics treats the normal profit as a cost, so when
deducted from total accounting profit what is left is economic profit (or
economic loss).
a) Total Explicit Costs of running the Variety Store
Revenue $
480,000.00
Less Cost of products $ 350,000.00
Store Rent $ 25,000.00
Business Taxes $ 15,000.00
Total Cost $
390,000.00
Accounting Profit $
90,000.00
c) Economic Profit of the Variety Store
Revenue $
480,000.00
Less Cost of products $ 350,000.00
Store Rent $ 25,000.00
Business Taxes $ 15,000.00
Estimated wages $ 90,000.00
Estimated Profit $ 16,000.00
Total Cost $
496,000.00
Economic Profit/ (Loss) $
(16,000.00)