Economics Questions

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Economics Questions

Question 1

Opportunity cost best explains the solution to this question. The cost used on skiing instead of working is the income lost during that particular day. The cost of going skiing instead of going to the library to study is the loss of knowledge.

Opportunity cost is the benefit an individual or a group of individuals would have gained when opting for one event over another (Palencia, 2021). It is also called the best alternative forgone by a firm or an individual. An opportunity cost example is when an individual decides whether to go to a movie or spend time at home. In this case, there are two opportunity costs. One is the opportunity cost between going to work and going to ski. The cost involved in skiing is the foregone cost of not working for that particular day, i.e., the wages for that particular day plus the cost of skiing. Going to ski means taking a leave for that day and the payments for working on that day will not be earned. The second opportunity cost is between skiing and going to the library. Instead of going to the library and opting to go skiing, the cost involved is the knowledge that is forgone while skiing. If the student has an examination in the following week but opts to go skiing, then the cost will be scoring low marks in the examination.

Question 2

Organic foods are grown without chemical fertilizers, GMOs, and synthetic pesticides. Over the last decade, the overall food industry has experienced an average of 0.8% increase in demand with organic products being at the leading of this race (Bojnec et al., 2019). The increase in demand is due to the concepts of demand and supply. As individuals continue to learn more about the destructive impacts of growth hormones, chemical manures, insecticides and such from factory husbandry, their tastes and preferences for biological nutrients that are safer will increase. The change in tastes is then accompanied by an increase in income which allows individuals to purchase products that are pricier making organic diets more ordinary. This has then led to augmented request for organic diets. The demand curve in a demand-supply curve will shift towards the right moving up alongside the stock curve due to the manufacturers responding to the advanced pricing by supplying a more quantity (Bojnec et al., 2019).

Additionally, there have been increases in the numbers of those farmers that have converted to organic farming. This is showcased by the shifting of the stock curve to the right. Since both supply and demand curves have changed to the right, the subsequent equilibrium measure of the organic diets will be greater, but the worth will reduce when the supply rise is greater than the demand rise. As the manufacture costs of organic foods stay higher compared to conservative agricultural, they might not catch up with the low values of non-organic nutrition. This is because pest management techniques and fertilizers are a bit more expensive (Bojnec et al., 2019).

Question 3

Competitive firms are small firms that usually produce homogenous products. Competitive firms have limited market power to set their optimal quantity and price. These firms, therefore, try to capture the maximum share of the market to earn maximum revenue (Genakos & Pagliero, 2022).

a.

The profit of this competitive firm in question will therefore be obtained by deducting the average total cost from the average revenue and then multiplying this result by the output.

ATC=$8

Average Revenue= $10

Total output=100 units

Profit= $(10-8)*100units= $200

Profit is therefore $200

b.

In competitive markets, the marginal revenue= average revenue. Agreeing to the profit maximization objective, marginal cost= marginal revenue. In this case, therefore, the marginal cost will be equal to or the same as the average revenue.

The average revenue is $10, so the marginal revenue is $10

c.

The average fixed cost will be $2 when $200 of the profit is spread over the output of 100 units of the product. The average variable cost is done by deducting the average fixed expense from the average overall total.

Average fixed cost= profit/quantity= 200/100=$2

Average total cost= $8

Average variable cost= % (8-2) = $6

Therefore, the average variable cost will be $6

d.

The average total cost of this competitive firm is $8. Its marginal cost is $10. Therefore, the average total budget of this farm is less than the marginal budget. So, the efficient scale of production of the firm will be when this firm produces less than 100 units of output.

Question 4

GDP is the financial price of all the final products and facilities made within a nation during an exact financial period (Kvasha, 2021). The GDP is composed of two categories, the Real GDP and the Minimal GDP. The key dissimilarity between the real and nominal GDPs is that the real GDP is accustomed for rise but the minimal GDP is not. Usually, Real GDP is somewhat lesser than nominal GDP. Mostly, the real GDP is used to provide a more accurate picture of the economic performance of a country as it can be easily compared to historical figures. It is therefore easy to determine whether a nation is restored or worse over the year. The GDP is also made of four components, business investment, personal consumption, net exports, and government spending (Kvasha, 2021).

The recent changes in the GDP and its components

Following a decline of 1.6 out of a hundred in the initial quarter, real GDP shriveled at an annual stride of 0.6 out of a hundred in the next quarter of 2022. The second forecast, which was published in August, had earlier predicted the same decline for the second quarter. An increase in exports and an increase in consumer expenditure were responsible for the second quarter’s fall being less than that of the first quarter. In June 2022, 9.282% was reported as the nominal GDP growth for the United States. This is a decline from the prior figure of 10.657% for March 2022 (BEA, 2022). 

State personal consumption expenditures (PCE) fell by 1.9 percent in 2020 but rose by 12.7 percent in 2021. The District of Columbia and in 50 states the percent change in PCE went from 16.3 percent in Utah to 9.4 percent in New York. In 2021, overseas direct stockholders spent a budget of $333.6 billion (estimated) to grow, build, or buy U.S. corporations. Expenses surpassed the $289.7 billion annually average for 2014 to 2020 and cultivated by $192.2 billion from $141.4 billion in 2020. As in previous ages, the mainstream of total expenditures was spent on purchasing already-existing initiatives. Federal spending increased nearly 50% from FY 2019 to FY 2021 as a result of the COVID-19 epidemic. The growth in net exports was $18.5% or $394.1 billion. 576.5 billion dollars or 20.5 percent more was imported (BEA, 2022). International trade was still being impacted in December 2021 and all through the year by the global epidemic and the economic recovery.

Question 5

Economic growth is the process in which the wealth of a nation increases with time. It is important as it increases the prosperity of a nation. Prosperous countries can care for their citizens better and therefore raise their living standards (Bakari & Tiba, 2022).

The three main drivers of economic growth in a country are capital stock accumulation, technological advancement, and increased labor inputs such as hours worked and workers (Bakari & Tiba, 2022). It has been established, both theoretically and empirically, that progression in knowledge is the primary power behind longstanding growth. The explanation is fairly modest. From the law of diminishing profits, the additional output produced when totaling one additional unit of wealth or labor contribution will eventually be lessening, holding other contribution elements constant. As a consequence, a state cannot last to grow in the long term by simply getting more labors or capital. Therefore, practical progression must be the main power behind long-term development (Bakari & Tiba, 2022).

Question 6

The USA steel segment was affected by a severe depression from 1974 to 1986. The key contributing issue was the ten-year financial collapse brought on by the Iranian Rebellion and the OPEC Oil Prohibition. The customer markets contracted greatly throughout both downturns, and the steel request also declined greatly. America’s integrated steel producers were compelled to reduce their output and sell steel at unfavorable prices as the markets for steel shrank. For a significant portion of this time, America’s steel producers lost a sizable sum of money on each ton of steel they sold due to these unfavorable conditions. These losses in 1982 alone were US$3 billion (Armstrong, 2021).

References

Armstrong, B. (2021). Industrial policy and local economic transformation: evidence from the US Rust Belt. Economic Development Quarterly, 35(3), 181-196.

Bakari, S., & Tiba, S. (2022). Determinants of Economic Growth: The Case of The United States of America. JDE (Journal of Developing Economies), 7(1), 29-44.

Bojnec, Š., Petrescu, D. C., Petrescu-Mag, R. M., & Rădulescu, C. V. (2019). Locally produced organic food: Consumer preferences. Amfiteatru Economic Journal, 21(50), 209-227.

Genakos, C., & Pagliero, M. (2022). Competition and pass-through: evidence from isolated markets. American Economic Journal: Applied Economics, 14(4), 35-57.

Kvasha, T. (2021). Potential GDP and its factors assessment.

Palencia, C. (2021). Economics For Everyday Life: Opportunity Cost and Marginal Benefit.