Economics Answer Note #5

Question 1 Production possibility curves whose slopes do not change as the combination of goods produced changes have Multiple choice question. increasing marginal opportunity costs. no marginal opportunity costs. decreasing marginal opportunity costs. constant marginal opportunity costs. Answer D. Constant marginal opportunity costs. Explanation: Production possibility curves show the different combinations of goods that an economy can produce given its available resources and technology. The slope of the PPC represents the opportunity cost of producing one good in terms of the foregone production of the other good. If the PPC has a constant slope, it means that the opportunity cost of producing one good remains the same regardless of the quantity of the other good produced. This implies that resources are perfectly adaptable between the production of the two goods and there are no trade-offs. Therefore, there are constant marginal opportunity costs. Sources 1 and 2 both explain the concept of marginal opportunity cost and how it relates to the slope of the PPC. They also mention that when the PPC is a straight line, it indicates constant marginal opportunity costs. Source 3 further elaborates on the concept and provides an example of a PPC with constant slope. It also explains that constant marginal opportunity costs occur when there are constant returns to scale in production. In conclusion, the correct answer is D. Constant marginal opportunity costs. This means that the opportunity cost of producing one good remains the same regardless of the quantity of the other good produced, as there are no trade-offs between them. Question 2 Goods and services that use rare resources in their production have a _______ elasticity of supply. The greater the amount of time available after a price change, the _______ is the elasticity of supply. A. high; smaller B. high; greater C. low; smaller D. low; greater Answer The correct answer is A. high; smaller. Elasticity of supply refers to the responsiveness of the quantity supplied to changes in price. In the case of goods and services that use rare resources, the availability of these resources is limited. Therefore, the supply of these goods and services would be highly elastic because any change in price would have a significant impact on production. Moreover, the amount of time available after a price change also affects the elasticity of supply. The longer the time period available, the easier it is for producers to adjust their production levels in response to changes in price. This means that the elasticity of supply is smaller when more time is available after a price change. Question 3 Suppose the demand curve in a market is given by: P = 12 – 2Q, and the supply curve is given by P = aQ, where P is the market price, Q is the market quantity, and a > 0 is an unknown value. If the (absolute value of) point price elasticity of demand at the market equilibrium price and quantity is equal to 1.5, then a= ______. (a) 1.5 (b) 2 (c) 2.5 (d) 3 Answer The correct answer is (b) 2. To understand why, we must first define point price elasticity of demand. It measures the responsiveness of quantity demanded to a change in price at a specific point on the demand curve. The formula for point price elasticity of demand is: ED = (ΔQ/ΔP) * (P/Q) Where ED is the point price elasticity of demand, ΔQ is the change in quantity demanded, ΔP is the change in price, P is the market price, and Q is the market quantity. Now, let's look at the given demand curve: P = 12 – 2Q. At the market equilibrium, the price and quantity are determined where the demand curve intersects with the supply curve. This gives us: 12 – 2Q = aQ Solving for Q, we get: Q = 12/(a+2) Plugging this value of Q into the point price elasticity of demand formula, we get: ED = [(-2)/(a+2)] * [(12 – 2Q)/Q] Since we know that the absolute value of ED is equal to 1.5, we can rewrite the formula as: 1.5 = [(-2)/(a+2)] * [(12 – 2Q)/Q] Simplifying, we get: 1.5 = -24/(a+2) + 3/Q Substituting the value of Q obtained earlier, we get: 1.5 = -24/(a+2) + 36/(12 – 2Q) Simplifying further, we get: 1.5 = -24/(a+2) + 36/(a+2) Now, we can set these two fractions equal to each other and solve for a: -24/(a+2) = 36/(a+2) Solving for a, we get: a=2 This confirms that the correct answer is (b) 2. Question 4 African Methodist Episcopal University Department of Economics Econ 301 Mid-Term Exam Instruction: Kindly write your name, ID# and Section. Use only Calculator, Cell Phones are not allowed. Duration 1 hour, 45 minutes Question #1: The data below shows the scores of ECON 301 section 4 students during the midterm exam: 87 69 77 78 59 95 78 67 53 43 75 65 84 58 88 70 69 50 47 89 76 74 80 87 84 64 81 75 6268 83 70 60 70 2018 73 92 76 92 85 46 74 76 90 88 46 67 61 71 64 41 29805 61 2832 From the data above, a. Determine the number of classes, the class limits, tally, Frequency, class boundaries, cumulative frequency, midpoint, relative frequency, relative frequency by percent, and relative frequency by degree. Hint: K=1+3.322(Logn) Question #2: The daily attendance of football fans at four major stadiums in two European countries during the 2020/2021 premium league seasons are given below: Stadium Daily Attendance of Fans In England Daily Attendance of Fans in Spain Stadium Thurs Fri Sat Sun Total Thurs Fri Sat Sun Total Anfield 45 80 75 95 295 Camp Nou 35 65 45 90 235 Emirates 65 45 55 75 240 Santiago 60 70 85 100 315 Stadium Bernabeu Stanford 75 60 85 90 310 Metropolitano 35 50 45 60 190 Bridge Old 45 70 45 45 85 245 Trafford Benito Villamarin 25 25 35 45 St 50 155 Present the following: a. Simple Bar Chart for the four major stadium in Spain b. Multiple Bar chart for the daily attendance of fans at major stadium in England c. Component Bar chart for the daily attendance of fans at major stadium in Spain d. Degree pie chat for the daily attendance of fans at major stadium in England Answer Student Name: [Your Name] ID Question 5 A decrease in the interest rate: Group of answer choices Will lead to a fall in the demand for money and an increase in supply of money. Will rise the supply of money because demand for money will increase. Will affect money in circulation by shifting incentives to demand less money. Will lead to a fall in the supply of money because demand for money will fall. Answer A decrease in the interest rate, all else equal, will lead to a fall in the demand for money and an increase in supply of money. This is because a decrease in the interest rate makes it less attractive to hold money as an asset, as the opportunity cost of holding money decreases. The opportunity cost of holding money is the forgone interest that could have been earned if the money had been invested or saved instead. A decrease in interest rates will also lead to a rise in the supply of money. This is because the lower interest rate encourages borrowing and increases the demand for credit. Banks, in turn, increase the money supply by creating new loans, as they are able to obtain cheaper funding from the central bank or through the issuance of bonds at lower interest rates. Additionally, individuals and firms may be more inclined to hold money in lower interest-bearing assets such as cash or demand deposits, thereby increasing the supply of money. The decrease in interest rates also has an effect on the circulation of money. As the interest rate decreases, it becomes more attractive for individuals and firms to borrow money for investment purposes. This increased investment leads to an increase in economic activity, which in turn increases the demand for money. As a result, the incentives for individuals and firms to demand less money decrease, leading to an increase in the overall money supply. Lastly, the decrease in interest rates will lead to a fall in the supply of money because the demand for money will decrease. This is because a decrease in interest rates makes it less expensive to borrow money, thus reducing the need for individuals and firms to hold large amounts of money as a precautionary measure. As a result, the overall demand for money decreases, leading to a decrease in the overall money supply. In conclusion, a decrease in the interest rate has significant effects on the demand for and supply of money, as well as on the circulation of money. It reduces the demand for money and increases its supply, while also influencing economic activity and changing incentives to demand less money. These outcomes of a decrease in interest rates are important factors to consider when formulating and analyzing monetary policy.