Econ / Links to MDG and other indicator sites

08 Feb 2011 Leave a Comment

by Ms. Dillard in Class Notes, homework

Here are a few links to get you started on your research:

Econ / Feb 4 / Ch 7 Answers

04 Feb 2011 Leave a Comment

by Ms. Dillard in Uncategorized

Answers to the Chapter 7 Homework:

TYU 7.8 (195)

  • #3
    • You would want to use real values because they take into account changes in prices over time (inflation and deflation).  It might seem like a country’s economy is improving because their GDP is growing.  However, if you are looking at nominal values then it is impossible to know if the growth in GDP is due to real economic growth or just an increase in the value of the dollar.
  • #4
    • %change in real GDP per capita = %change in real GDP – %change in population
    • 5% – 1.5% = 3.5%
    • Change in Real GDP per capita is 3.5%
  • #5

    • (a) fall in unemployment: shown on Panel (a) as a movement from a point inside the curve to a point (like M) on the curve.  Could also be shown by a movement from a point inside the curve to another point that is closer to the curve but still not on the curve.
    • (b) a discovery of new oil reserves: shown on Panel (b) as a new, darker purple curve drawn to the right of the original curve.
    • (c) an improvement in levels of health of the population: shown similarly to question (a)
    • (d) an increase in productive efficiency: shown similarly to question (a)
    • (e) the widespread use of a new technology: shown similarly to question (b)

TYU 7.9 (200)

  • #1
    • Since the 1970′s, it became clear that earlier methods of economic development were not working.
    • Problem #1: Growth rates were highly uneven
    • Problem #2: Number of people living in extreme poverty (<US$1 / day) was growing.
    • Studies showed that the “trickle-down” theory of the 50s and 60s actually caused more inequity.  Though they did help the very wealthiest and middle income members of society, they did not help the poorest 40% of the population; in reality the poorest actually lost ground compared to the rest of society.
    • New focus: combine economic growth with redistribution of income and provision of basic goods and services to the poor (to break the cycle of poverty)
  • #2
    • (a) The “trickle-down” theory states that “economic growth over long periods of time would automatically provide economic and social benefits for the wider population; larger quantities of goods and services, including health care and education, and employment opportunities and social change would eventually be spread out over most people in an economy, thereby achieving economic development.” (Tragakes, 198)
    • (b) The idea was that if developing countries would simply work to increase their economic growth, the poverty in their countries would eventually reduce as the economic growth led to economic development.

TYU 7.10 (203)

  • #1
    • GDP statistics do not accurately measure the true value of output produced in an economy.
    • Welfare of a population cannot totally be measured by GDP per capita (there are many other valid and necessary indicators)
  • #2
    • Why GDP understates welfare:
      • GDP does not include non-marketed output (think of “stay-at-home” moms or people who make their own home improvements and never pay for the labor of others)
      • GDP does not include output sold in underground (informal) markets (paying “under-the-table” in cash to avoid reporting and having to pay income taxes, illegal goods and services)
      • GDP does not take into account quality improvements in goods and services (a newer, cheaper laptop would appear in GDP as a reduction…yet it runs faster and weighs less, a definite benefit for the consumer)
      • GDP does not take into account increased leisure time (how do you put a price on the welfare, the well-being of people who get summer vacation?)
    • Why GDP overstates welfare:
      • GDP does not account for the value of negative externalities (cost of pollution or toxic wastes)
      • GDP does not take into account the depletion of natural resources (cost of lost rainforest)
    • Why GDP could go either way in overstating or understating welfare:
      • GDP makes no distinctions regarding the composition of output (a country with a low GDP per capita may spend a lot on social services and merit goods compared to a country with a high GDP per capita; however, the country with the low GDP per capita, b/c of their choices in spending, would actually be experiencing higher economic development.
      • GDP does not give us information about distribution of income or output
      • GDP does not account for quality of life factors (crime rate, peace and security)
      • GDP does not account for purchasing power (purchasing power parities PPP)
  • #3
    • Purchasing Power Parities (PPP) are ways to compare the welfare of two countries and factor out the exchange rate; they allow us to focus solely on “buying power equivalence”.
    • They are important b/c normal GDP per capita values understate the buying power of poorer countries and overstate the buying power of richer countries.  Without looking at PPP figures, we make the assumption that $100 would buy us the same amount of goods in Burundi that it buys us in the United States…but this is not true.  In reality, $100 will “go a lot further” in Burundi than it will in the United States.

Econ / Feb 2 / Ch 7 homework questions

03 Feb 2011 Leave a Comment

by Ms. Dillard in homework

Hey Econ,

As a friendly reminder, your homework due tomorrow is:

  • TYU 7.8 (195) #3, #4, #5
  • TYU 7.9 (200) #1, #2
  • TYU 7.10 (203) #1, #2, #3

Econ / Answers to the Study Guide

21 Jan 2011 Leave a Comment

by Ms. Dillard in Class Notes, homework

Here are the answers to the study guide questions.

Econ / Chapter 2 Questions

19 Jan 2011 Leave a Comment

by Ms. Dillard in Class Notes, homework

Hey class,

I thought I published these earlier.  Obviously I didn’t.  Apologies.

2.2 [10 marks] Growing populations and rising incomes in developing countries have affected the rice of meat.  (a) Assuming meat is a normal good, use a demand and supply diagram to explain the impacts on the price of meat. (b) Producers of meat responded to the change in price by increasing the quantity of meat supplied; use your diagram from part (a) to show the increase in quantity of meat supplied.

2.6 [10 marks] Using supply and demand diagrams, show how prices function as signals and incentives in a market economy.

2.7 [15 marks] (Based on Chapters 1 and 2) Wassily Leontief, A Russian-born economist who emigrated to the United States in 1925 because of his opposition to Soviet communism, and who in 1973 won the Nobel Prize of Economics, was a keen supporter of strong government intervention in the economy and state economic planning (central planning).  Using a mathematical technique known as input-output analysis, he proved that a centrally planned economy can achieve the identical allocation of resources as a free market economy.  Yet, in practice, one of the greatest shortcomings of economies that made heavy use of central planning (such as communist systems) has been the failure to achieve efficient resource allocation.  (a) Explain resource allocation and relate it to the ‘what to produce’ and ‘how to produce’ economic questions. (b) What are the most likely causes of inefficient resource allocation in centrally planned economies? (c) What characteristics of market systems do you think are mainly responsible for the advantages that markets have over command mechanisms and central planning? (Hint: consider the problem of information required by decision-makers to plan economic activities, as opposed to the role of prices as signals and incentives; how does the invisible hand in market economies solve this problem?)

2.9 [25 marks] In 1973 OPEC (Organization of the Petroleum Exporting Countries) increased the price of crude oil, which is the key input in petrol (gasoline) production.  This led to an increase in the price of petrol.  Some countries initially responded by imposing price controls (a price ceiling, or legal maximum price) on petrol.  Following this sequence of events, there emerged shortages in the petrol market. (a) Use a demand and supply diagram to show the impact of the increase in the price of crude oil on the equilibrium price and quantity of petrol/gasoline.  (Hint: what effect does an increase in the price of an input (crude oil) have on the supply of petrol?) (b) Use a supply and demand diagram to show the effects of the price ceiling in the petrol market. (c) Was the petrol shortage due to the actions of OPEC or due to the price controls?  Explain.  (d) What could have been done to prevent the shortage? (e) Evaluate the policy of petrol price controls.

Thank you to Ellie Tragakes, author of Economics for the IB Diploma, for these most excellent questions.

Econ / Updated Grade Calculation Sheet

17 Jan 2011 Leave a Comment

by Ms. Dillard in Class Notes, homework

I reworked the grade calculation sheet to reflect the fact that Unit 3 will not be part of your Semester 1 grade.  It shows how to do the math to calculate your score, including the semester exam study guide options.  Take a look here.

Econ / Study Guide for Semester Exam

17 Jan 2011 Leave a Comment

by Ms. Dillard in Class Notes, homework

Link to Semester Exam Study Guide.  Read carefully to learn about options for earning points

The exam in Tuesday at 10:30.

Econ / Jan 13 / Answers to TYU 6.6, 6.7(Part A&B)

13 Jan 2011 Leave a Comment

by Ms. Dillard in Class Notes, homework

Homework due today:

Read pages 172-179 in the Tragakes packet

TYU 6.6

  • #3 Public goods are subject to the free-rider problem b/c they are non-excludable.  If anyone can use something (like say, National Defense) then there is no motivation for the firm to make it (why go into an area of business where you cannot charge?  The market fails to produce items which are non-excludable.  This is the same for open-air resources and anything else which is non-excludable.
  • #4 “Public goods are like merit goods in the sense that they are goods that are desirable for society but are underprovided by the market.  However, they also differ from merit goods.  merit goods are usually provided by the market (private firms), but in smaller than optimal quantities.  Public goods, on the other hand, are usually not provided at all by the market.  Also, merit goods are often private goods in that they are rivalrous and excludable, while public goods are neither.” (pg 174 of Tragakes)
  • #5 Private companies do not provide public goods (why would they–there is no profit to be made).  So, the government steps in, using tax dollars to pay for and provide those public goods.

Fixing” Demerit and Merit goods

    • Govt can directly provide merit goods (like free health care) using tax revenue
    • Taxes on demerit goods (sin taxes) lower the quantity
    • Advertising can encourage ppl to use merit goods and discourage ppl from using demerit goods
    • Legislation/Regulation can make it illegal NOT TO USE a merit good (like a vaccination) or illegal TO USE a demerit good (like illegal drugs).

TYU 6.7

  • #1 a) More competition = Better for consumers b) underallocation
  • #2 A possible government solution is actual government ownership (say of a utility, for example)

TYU 6.7 (the second 6.7)

  • #2: a) “A coordination failure involves a situation where the inability of economic decision-makers to coordinate their behaviours results in an outcome where everyone is worse off than the would have been had coordination been possible.” (page 178 Tragakes) / b) Coordination failures lead to underdevelopment “poverty” traps
  • #3 Poverty rights, enforcement of legal contracts (trust), effective legal recourse, a stable currency, a well-developed banking and insurance system, an effective road and utility infrastructure system, and readily available information on prices, quantities and quality (page 178)

Econ / Homework due on Tuesday, Jan 18

11 Jan 2011 Leave a Comment

by Ms. Dillard in Class Notes, homework

Practice IB Exam Question #2

Instructions: Type your answer, double-spaced so there is room for comments.  On the real exam, you would have ONE hour to complete this.  You do not need typical introduction and conclusion paragraphs…simply get to the point and start writing.  Include diagrams if applicable.  Length will vary depending on the question and also the number of relevant diagrams that can be added.  As a very general range, Part A will often be 2-3 short paragraphs and Part B will often be 3-4 short paragraphs.  As with your commentary, insert diagrams between paragraphs at relevant points.  It is fine to also include “paragraphs” as short as one sentence just proceeding or just after a diagram with a bit of explanation.

In the interest of time, it is acceptable to write up only an outline or a more informal “Then I would talk about… I would then discuss…”  After finals, you will be expected to write up the entire question as if it were the real thing.

A) What are negative externalities and how do they arise?  Illustrate your answer with examples. (10 points)

B) Evaluate proposition that government intervention in the market for tobacco is justified. (15 points)

 

Econ / Homework due Jan 13

11 Jan 2011 Leave a Comment

by Ms. Dillard in homework

Homework due on Thursday:

Read pages 172-179 in the Tragakes packet

  • TYU 6.6 #3, #4, #5
  • TYU 6.7 #1, #2
  • TYU 6.7 (the second 6.7) #2, #3

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