Economics Answer Note #68

Question 1 1. Business is booming at the local McDonald's restaurant. It is contemplating adding a new grill and french-fry machine, but the day supervisor suggests simply hiring more workers. How should the manager decide which alternative to pursue? a. Compare the cost of the new grill and french-fry machine to the cost of additional workers. (which one is cheaper?) b. Compare the additional output of the new grill and french-fry machine to the additional output of more workers. (which one produces more?) c. Compare the additional output per dollar spent on the new grill and french-fry machine to the additional output per dollar spent on additional workers. d. None of the above Answer As a college student with high marks, I understand the importance of making informed decisions, especially when it comes to business operations. In this case, the manager of the local McDonald's restaurant is faced with the decision of whether to invest in a new grill and french-fry machine or hire more workers to accommodate the booming business. Both options have their own advantages and it is crucial for the manager to carefully consider all factors before making a decision. Firstly, let us assess the cost of each alternative. According to the principle of opportunity cost, the manager should choose the option that has a lower cost. This means comparing the cost of the new equipment to the cost of hiring additional workers. It is important to consider not just the initial investment, but also the ongoing maintenance and operational costs. The manager can use a cost-benefit analysis to compare the total costs of each option. Next, let us look at the additional output that each alternative can provide. With a new grill and french-fry machine, the restaurant may be able to produce more food items in a shorter amount of time. On the other hand, hiring more workers may lead to a larger workforce and potentially increased efficiency. To make an accurate comparison, the manager can use the concept of marginal analysis by considering the additional output of each alternative and the cost of that additional output. Another important factor to consider is the productivity per dollar spent. This means comparing the additional output obtained per dollar spent on the new equipment versus hiring more workers. This will help the manager determine which option offers a greater return on investment. In conclusion, the manager should use a combination of these factors to make an informed decision. However, it is important to note that the final decision should also consider the long-term goals and objectives of the business and the potential impact on customer satisfaction. It is recommended to conduct a thorough cost-benefit analysis and consult with all stakeholders before making a decision. Some useful sources for further reading on this topic include "Managerial Economics: Applications, Strategies and Tactics" by James R. McGuigan, R. Charles Moyer, and Frederick H. deB Harris, as well as "Principles of Economics" by N. Gregory Mankiw. Additionally, websites such as Investopedia and The Balance also provide valuable information on various economic principles such as opportunity cost, cost-benefit analysis, and marginal analysis. Question 2 Prices are going up in Utawville very quickly. Inflation is getting very high and people are having a hard time affording to pay their basic living expenses. This story is happening in every state in the nation. What policy should Representative Money-Bags support as Congress tries to solve the problem with fiscal policy? Group of answer choices cut taxes and raise government spending cut taxes and cut government spending raise taxes and cut government spending raise taxes and raise government spending Answer The current situation in Utawville, where inflation is rapidly increasing and causing financial strain for its residents, is not unique and is a problem faced by many states across the nation. As such, it is imperative for Congress to address this issue through fiscal policy in order to provide relief for the affected citizens. One potential policy option for Representative Money-Bags to support is a combination of raising taxes and increasing government spending. This approach, known as expansionary fiscal policy, can help stimulate the economy and combat inflation by increasing consumer demand and spurring economic growth. This can be achieved through various means such as investing in infrastructure projects, increasing public welfare programs, and providing tax incentives for individuals and businesses. Furthermore, increasing government spending can also help alleviate the burden of rising prices for basic living expenses on the lower and middle-income households in Utawville. This can be achieved through targeted programs such as food assistance, housing subsidies, and cost of living adjustments for government employees. On the other hand, simply cutting taxes may not be as effective in addressing the issue of inflation as it may reduce government revenue and limit the funds available for necessary government spending. Additionally, cutting government spending can lead to job losses and further exacerbate the economic situation. In terms of theoretical support for this policy recommendation, the Keynesian economic theory supports the idea of using fiscal policy to stimulate the economy during times of recession or high inflation. Additionally, research has shown that expansionary fiscal policy can have positive effects on economic growth and inflation rates (Mendoza, 2018). This book provides a comprehensive analysis of fiscal policy in Latin America and its effects on macroeconomic stabilization, which can provide valuable insights for addressing inflation in Utawville and other states. Question 3 In the circular flow of economic life, which players are the main buyers in output markets? Question 3Answer a. businesses b. governments c. households d. economists e. banks Answer In the circular flow of economic life, there are several players that engage in markets by either buying or selling goods and services. These players include businesses, governments, households, economists, and banks. However, in terms of output markets, the main buyers are businesses and households. According to the circular flow model, businesses produce goods and services to be sold in output markets, while households purchase these goods and services as consumers. This interaction between businesses and households is known as the "circular flow" because it is a continuous cycle of production and consumption. Businesses, as the main buyers in output markets, purchase resources such as labor, raw materials, and capital goods, in order to produce goods and services for sale. They also pay wages to workers and invest in new technologies and equipment, all of which contribute to the circulation of money in the economy. On the other hand, households contribute to the circular flow as the main buyers by purchasing goods and services produced by businesses with the income they receive from selling their labor or other factors of production. This income can also come from government transfer payments or income from savings. Furthermore, households also contribute to the circular flow by providing resources such as labor to businesses. In return, they receive income in the form of wages, salaries, rent, or profits. This income is spent in output markets, thereby fueling further production by businesses. In conclusion, the main buyers in output markets in the circular flow of economic life are businesses and households, as they interact in a continuous cycle of production and consumption. This exchange drives the economy and contributes to its growth and development. Question 4 Reginald Rothchild buys $200 of blueberries while on vacation in Canada. Because Reginald is from England, this amount will be included in nominal GDP for England, but not for Canada. Question 4Answer True False Answer False. According to the expenditure approach in calculating GDP, only the goods and services produced within a country's borders is included in the calculation of that country's GDP. Since Reginald is purchasing blueberries in Canada, the $200 spent will be included in Canada's GDP and not England's. This is because the blueberry purchase is considered an export for Canada, contributing to their GDP, and an import for England, which is not counted in their GDP. This concept is known as current account in the Balance of Payments, which reflects a country's trade, investment, and other payments with the rest of the world. In this case, the $200 spent by Reginald would be recorded as an export for Canada and an import for England, which would ultimately result in a trade deficit for England. Question 5 In the circular flow of economic life, which players are the main buyers in input markets? Question 10Answer a. banks b. governments c. economists d. households e. businesses Answer In the circular flow of economic life, there are two primary markets that operate simultaneously- the output market and the input market. The output market is where goods and services are sold by businesses to households, while the input market is where businesses purchase the resources and factors of production needed to produce those goods and services. In this answer, we will focus specifically on the main buyers in the input market. According to classical economic theory, the main buyers in input markets are businesses, also referred to as firms or producers. This is because businesses are the primary users of resources and factors of production such as land, labor, capital, and entrepreneurship. They purchase these inputs in the market to produce goods and services, which they then sell in the output market. Thus, businesses are the main buyers in the input market as they play a crucial role in the circular flow of economic life.