Macroeconomics Answers

Question two: The total cost equation of a firm is given by the equation where TC is total cost and Q is the level of output.

a. What is the firm’s total fixed cost?

b. What is the equation for the firm’s total variable cost (TVC)?

c. What is the equation for the firm’s average total cost (ATC)?

d. What is the equation for the firm’s marginal cost (MC)?

In year 2017, suppose that people consume only three types of vegetables, X, Y and Z. They  purchase 100 units of X for $200, 50 units of Y for $75, and 500 units of Z for $100. In year  2018, they buy 75 units of X for $225, 80 units of Y for $120, and 500 units of Z for $100.  Based on the above information, calculate the price of each vegetable in each year. Using  2017 as the base year, calculate the Consumer Price Index (CPI) for each year. Compute the  inflation rate in 2018?

Fill in the blanks to make the following statements correct.

a. If nominal GDP increases by 35 percent over a​ 10-year period, then it is unclear how much of this increase is due to increases in _______(savings/outputs)

and how much is due to increases in _______(investment/prices)

 . To overcome this​ problem, we look at GDP valued at ________(constant/current)

 prices and we refer to this measure as _____(real/nominal)

national income.

If we want to look at changes in the cost of living, why don't we track differences in each households actual expenditures from one year to the next, rather than a market basket? Offer several reasons why this method would fail to capture changes in the overall price level automatically

a. First, suppose we have a representative individual living for two periods and has utility, U = ln C₁ + ln C₂. Let his/her labour income in the first period to be Y₁ and zero in the second period. Let the rate of return to savings, r, to be influenced by a random shock, find the first-order condition for his/her choice of C_1. Explain how, if at all, does consumption respond to the uncertainty in the rate of return?

b. Second, suppose we extend the time horizon to infinitely lived agents, and let the individual also supply capital to a representative firm in the economy. Formulate and solve the firm’s profit maximization problem. You can assume price level to be fixed and normalized to one, but you should explain the economic intuitions of the first-order conditions.

c. Third, let β>0 be the discount factor, present and solve for both the competitive equilibrium and the steady state of the two-sector economy. With the use of phase diagram, identify the saddle path.

Q: The demand and supply equations for a product are:

         Q^d= 300 — 6P and Q^s= -40 + 6P.

• Determine the market equilibrium and draw graphs.
• Suppose that the government decides to impose a flat tax of 10% on each unit sold. Show that the price that consumers pay would be the same if the government imposed a tax of Rs. 1.70 per unit sold. Draw graphs and explain.
• Also calculate the total revenue earned by sellers before and after the tax, the tax revenue raised by the government, changes in consumer and producers surplus, and deadweight loss

Q: Suppose there are three types of Apples A, B, and C being sold and consumed. The demand and supply equations for each type are:

D_A= 20 - 2P_A + 4P_B + P_C , S_A= 4P_A - 5

D_B=10+3P_A - 5P_B + 2P_C , S_B=3P_B - 7

D_C = 70+4P_A +2P_B - 5P_C , S_C=5P_C - 16

• Determine equilibrium prices and quantities.
• Calculate the elasticity of demand for B with respect to prices of variety A, B and C and interpret the economic meaning of the results

Use the data in the basket of goods table to answer the five questions below. Please show your work.

Basket of Goods

Good

Quantity

Price in base year

Price in current year

Pepperoni pizza

15

$15.00

$17.50

Bottles of soda

30

$1.25

$1.50

Movie Tickets

12

$8.00

$10.00

4. The CPI for the current year is

5. The percentage change in the CPI from the base year to the current year was

2, See the following scenario and say it is perfectly inelastic, elastic or

inelastic. Draw the diagram and write values(o, 1, <1 or >1)

A. There is a huge jump in the ticket price of a cricket match . However Sumner

of seats in the gallery is fixed. (4 MARKS)

B. Fewer people want to fly in the month of June than any other month. The

airlines increase about 10% of their flights , as ticket prices increased about 20%

during this month. (4 MARKS)

QUESTION 1. Suppose Zambia is a closed economy in the Long run described by the following equations:

Y= C+I+G 

Y=5000

C= 200+0.75 (Y-T)

I= 750- 25r 

T= 1000

G= 800

Where Y is national output/income, C is consumption, I is investment, r is interest rate, G is government spending and T is taxes. 

(a) Solve for private saving, public saving and national saving.(2 marks)

(b) Solve for the equilibrium interest rate, and the level of investment (2 marks)

(c) Plot the equilibrium condition: Savings=investment (1 marks)

(d) Now suppose taxes are increased to 875:

(i) Calculate the new level of public savings, private savings, national savings, interest rate and investment.(2 marks)

(ii) Explain in few words the effect of this policy on savings, investment and interest rate. (2 marks)

(ii)Graph the new equilibrium (together with the old) for the economy due to the fiscal policy (1 marks)