Economics Answers

Acme tobacco is currently selling 5000 pounds of pipe tobacco per year. Due to competitive pressures, the average price of a pipe declines from $15 to $12. As a result, the demand for Acme pipe tobacco increases to 6000 pounds per year.

a) What is the cross elasticity of demand for pipes and pipe tobacco?
b) Assuming that the cross elasticity does not change, at what price of pipes would the demand for pipe tobacco be 3,000 pounds per year? Use $15 as the initial price of a pipe.

The price elasticity for rice is estimated to be -0.4 per pound and income elasticity is 0.8. At a price of $0.40 per pound and a per capita income of $20,000, the demand for rice is 50 Million tons per year.

a) is rice an inferior good, a necessity or a luxury? Explain
b)if per capita income increases to $20,500, what will be the quantity demanded of rice?
c) if the price of rice increases to $0.41 per pound and income per capita remains at $20,000, what will be quantity demanded?

Consider the following aggregate expenditure model of the Canadian economy operating with given wages and other factor prices, price level, interest rates, exchange rates, and expectations:
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports (the 0.36 term represents the marginal propensity to import).
- Now suppose that the government decides to use its spending power to restore national income to its original level. By how much must the government increase G to restore the original level of national income? What will happen to the government’s budget balance?

Consider the following aggregate expenditure model of the Canadian economy operating with given wages and other factor prices, price level, interest rates, exchange rates, and expectations:
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports (the 0.36 term represents the marginal propensity to import).
- Suppose that (due to the decrease in world oil prices) Canadian exports decrease by 100 from 650 to 550. What is the new level of GDP? Illustrate in your diagram. What is the effect on the government’s budget balance? What happens to net exports? Can you explain why the change in net exports less than the decrease in exports?

Consider the following aggregate expenditure model of the Canadian economy operating with given wages and other factor prices, price level, interest rates, exchange rates, and expectations:
C = 50 + 0.8YD I = 400 G = 500 T = 0.3Y X = 650 IM = 0.36Y
where C is consumption (the 0.8 term represents the marginal propensity to consume) YD is disposable income, I is investment, G is government spending on goods and services, T is the total value of taxes net of transfers (the 0.3 term represents the net tax rate on national income), X is exports, and IM is imports (the 0.36 term represents the marginal propensity to import).
-Calculate the level of disposable income, consumption, private saving, government budget balance, and net exports at the equilibrium. Express the components of aggregate expenditure (C, I, G, and NX) as percentages of GDP (to one decimal place).

Book Co. has 1.1 million shares of common equity with par (book) value of $1.35 and retained earnings of $28.5 million, and its shares have a market value of $50.29 per share. It also has debt with a par value of $18.4 million that is trading at 101% of par.

a. What is the market value of its equity?
b. What is the market value of its debt?
c. What weights should it use in a computing its WACC?

Using diagrams for aggregate expenditures (AE) and aggregate demand and supply (AD-AS), show the short run effects each of the following scenarios has on the relevant economy. Be sure to identify the cause of any shift or movement along AE, AD, and/or SRAS. [Hint: Your diagrams for each part should look something like those in Figure 23-8, or 23-10 in your text.]
(a) Due to the decrease in world oil prices, Canadian oil and gas companies reduce investment spending.
(b) Depreciation of the Euro leads to an increase in exports for the Euro-zone and a reduction in the marginal propensity to import in the Euro-zone.
(c) Canadianproductivityrapidlyincreases,whileatthesametimeCanadianexportsincreaseduetoa growing US economy.

Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. It is the explanation that is important.

In an aggregate expenditure model with no government or foreign sectors, represented by C = a + bY and I (an autonomous amount), saving equals investment.

Explain why the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. It is the explanation that is important.
In an aggregate expenditure model with no government or foreign sectors, represented by C = a + bY and I(an autonomous amount), an increase in the marginal propensity to save causes the multiplier to rise.

Explain why the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. It is the explanation that is important.
If desired aggregate expenditures are less than actual output, aggregate output will decrease.