Ask an Economic Question

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You are welcome to ask any questions on Economics. Though you might also like to try google custom search (top right) to see if the topic has been covered before.

I am looking to explain economic principles / ideas/ recent developments in economics. I can’t promise to answer, but will try if it meets the criteria below.

  • Please don’t ask me to do your coursework / assignment e.t.c. (I can usually tell if it is a homework question!)
  • Please don’t ask any maths calculations.
  • The question and answer will be published here so that everyone can see it (including your teacher!)
  • I aim to try and simplify economics; as a rough guide, I would aim at an understanding similar to a good British A Level student.
  • I am looking to explain economic principles/ideas/ recent developments in economics.
  •  I will answer as a new post, if you leave email address, I’ll usually send quick email. Check home page of blog for new post. With question and answers

Add comment at bottom of post.

mail(at)econoimcshelp.org

2,583 thoughts on “Ask an Economic Question”

  3. Jim and Anna have to divide a chocolate bar and a cheesecake. An allocation can be described by the fraction α (where α≥0 and α≤1) of the chocolate bar that Jim gets, and a fraction β (where β≥0 and β≤1) of the cheesecake that Jim gets (with the understanding that Anna gets a fraction (1-α) of the chocolate bar and a fraction (1-β) of the cheesecake, so that no amount of the chocolate bar or the cheesecake is wasted at any allocation the way it is defined here). At the allocation (α,β) Jim gets a utility of 3×α+2×β and Anna gets a utility of
    4×(1-α)+4×(1-β).

    a)None of (B) – (D) are true.
    b)Every allocation is Pareto-efficient.
    c)The only Pareto-efficient allocation is (α,β)=(0,0).
    d)The only Pareto-efficient allocation is (α,β)=(0,1).

  6. what will be the effect of devaluation on an economy if other competing nations’ also devalue their nations’s currencies.

  9. Hi there,

    I am trying to better understand the concept of interest rates rising and its impact on the FED or BOE, ECB etc (i.e. the lender/creditor) themselves as I feel this is rarely mentioned.

    The definition of an interest rate is as follows:
    An interest rate is the rate at which interest is paid by borrowers (debtors) for the use of money that they borrow from lenders (creditors)

    I feel I understand the principles behind why they raise and lower rates to stave off inflation etc and how the cycle continues up to the consumer and there could be positive (fewer zombie companies’) and negative effects. I also feel like I understand the principle of interest in most situations but don’t seem to get this.

    I’m just trying to understand this part a bit more about where the money from increased (or decreased) interest goes?

    perhaps I’m thinking of it all wrong. Also how does it coincide with bonds etc? My understanding is that FED buy US bonds but then give the money back. Also bond yields are lower when interest rates are lower

    Thanks,

    Alex

    • Higher interest rates mean that people who borrow from banks pay more interest to a bank. But similarly, banks will pay more interest to savers.

      General (base) Interest rates will be similar to bond yields.

      • Hi Tejvan,

        Thanks for getting back to me.

        My question was more about what happens to the interest that the FED earn?

        I’m just thinking about it from the idea of someone lending another person money and earning more money from it.

        Also as they often buy US bonds does this mean that the Gov debt increases when interest goes up?

        thanks,

        Alex

  10. Briefly discuss how the prevailing exchange rates and the level of inflation will have an impact on the proposal of AB limited to import advanced equipment from western country.

  12. 1. Use the law of supply caused by firms experiencing increasing marginal cost in the short run to explain why all producers must receive a surplus whenever they produce and sell more than one unit of a product but may receive no surplus if only one unit is sold. Make up a numerical example to illustrate. Provide two reasons why producer surplus must increase when the price of a product rises

  14. Hi

    I am trying to understand welfare gain/loss. Why does, re w/gain, the MSB = MPB? I.e. there is only 1 MSB curve, but oneceach for MSC and MPC. Is it just to simplify by leaving out the MPB curve?

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