Economics Answers

What role does competition play in deciding how much your company should pay to advertise?

Q.2 Under the demand and supply analysis, let us assume that the price of Hard wood is $50 per unit. Now the government has imposed 5 % tax to the seller which increased the cost of production. Explain the following with the help of diagram.

i. Do the cost of production affects Demand and Supply? (explain with the reference of necessities and
Non-essential goods)
ii. Will there be a shift or movement along the supply curve? (explain with the reference of necessities
and non-essential goods)
iii. In order to maintain the same profit as before imposition of tax, how much price the seller should
increase presuming that the a) demand for the product is perfectly inelastic and
b) demand of the product is perfectly elastic
iv. What are the determinants of demand and supply of any product.

1. John was discussing the market for cocoa beans with his friend Kim. John said, "Ever since Venezuela announced that its cocoa harvest was its lowest ever in fifteen years, the price of cocoa beans has been rising and rising and people are buying more and more. I think the demand for cocoa beans must be upward sloping." Is John right? Briefly explain why or why not.

Consider an economy where the
current account is negatively affected by a depreciation in the real exchange rate in the short
run (that is, the Marshall-Lerner condition does not hold). Explain the effects of a monetary
expansion in this economy by comparing it to the baseline case where the Marshall-Lerner
condition holds. Use a graphical analysis accompanied by an intuitive (verbal) explanation.
(UPDATE: Assume that the DD curve under the revised assumption will be steeper than the AA
curve.)

For this question assume that the real money demand function is L(R, Y) = kY - hR where
k > 0 represents the sensitivity of the money demand to income and h > 0 represents the
sensitivity of the money demand to the interest rate.
Suppose that the economy of Highland has high k and low h, while the economy of Lowland
has low k and high h. If the two countries are the same other than the above difference,
compare and contrast the short run effectiveness of the fiscal policy in Highland and
Lowland.

Fomula to calculate MINIMUM AVERAGE VARIABLE COST

Given that IS is Y = 2500-50i, and the interest rate reaction function is ip = 2 + 0.5(P-P*), where ip is the central bank policy rate. Assume that i (interest rate) is 0.5 + ip (interest rate is a wedge over the policy rate). Determine the AD function. If AS function was Y = 0.25(P-P*) + 2000 determine Y* and P* and inflation rate. Assume P* = 105.

Q1. THE FOLLOWING FUNCTIONS ARE GIVEN FOR AN ECONOMY:-
C = 100+ 0.9 YD
I = 600- 30i
T= 1/3 Y
G= 300
MD = 0.4 Y – 50 i
MS = 1040 (NOMINAL MONEY SUPPLY)
P = 2
1. Calculate equilibrium income and rate of interest.
2. Find out the value of simple multiplier.
3. If govt increases its expenditure by 100 units, then what would be the increase in GDP?

Suppose central bank keeps money supply constant. What is the effect of fiscal policy?

a) Suppose that the long-distance market is a monopoly following the merger between AT&T and Sprint and that x = 5/4. Assume that s remains constant at 12. Should the DOJ allow this merger to proceed? Provide a careful economic analysis in support of your recommendation.