Ask an Economic Question 2014

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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 where 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

If comments are closed: email

mail(at)econoimcshelp.org

335 thoughts on “Ask an Economic Question 2014”

  1. Suppose that the consumption function is as follows: C = 0.5Y + 400 and income is $1000.

    Calculate MPC
    I just need the way because usually I would have more given

  2. What is your opinion of the concept of sectoral balances? If the economy is divided into Government Sector, Private Domestic Sector, and Rest of World Sector then

    SGS + SPDS + SROW = 0
    where SGS = Surpus of Govt Sector etc

    One interesting result is that:

    Government Deficit = Savings (Surplus) of PDS + External Deficit.

    From this it follows that any attempt to reduce the Government Deficit by cutting spending and increasing taxation will be largely self defeating. The only way to achieve a reduction is to reduce PS savings and reduce imports.

  3. Hello Tejvan,

    I am a private user not affiliated with a college, organisation or website.

    Could you be kind enough to clarify something for me please?

    For the link below, for the top graph, you describe trend and the business cycle as

    rates. Are you referring to their slopes at a particular point in time? The way I see it,

    to describe a curve or line as a rate, it would mean the y axis being described as

    GDP growth rate and we would read off the rate using this axis for any point in

    time?

    https://www.economicshelp.org/blog/5105/economics/long-run-trend-rate-of-growth/

    Another question I have is as follows. I have read in a textbook that the long run

    aggregate supply is described as a trend growth rate, but my understanding is that

    long run aggregate supply is a stock concept and trend growth rate is a flow

    concept. I would be grateful for clarification.

    Lastly, I have read the following:

    “The AD curve is downward sloping. This is not because ‘people buy more things

    when they are cheaper’ (the most common misunderstanding about the AD curve )”.

    I don’t understand this as I thought that the quantity /price relationship for demand is

    inverse.

    Thanks.

    Kashif

  5. Hi,
    Please could you explain why the short run and long run cost curves are u shaped and what their relationship is.

  6. Hi Tejvan,

    I have a noob question.

    This is with regard to a maximum wage.

    I realise that at the max. wage, for labour Qty supplied would exceed quantity demanded. Therefore, from the labour market diagram there is an obvious fall in Qty of labour, given that there would be an unwillingness to supply labour at the lower wage rate.

    My question is how would I show this impact on an Aggregate demand and Aggregate supply (AD AS) diagram?

    The natural analysis for me would be to show that since employers pay less for wages it would mean lower cost of production. Hence there would be an improvement in the short run aggregate supply. On the diagram this leads to an increase in actual growth.

    My confusion lies in the fact that since there was a fall in labour at the max wage diagram, how would I explain an increase in output in the AD AS analysis. In short, given a fall in a factor of production (labour) how do we explain an increase in output in the AD AS analyis.

    Any help with this would be great!

    Thanks.

  7. Hi, does expansionary monetary policy, where money supply is increased, also cause a depreciation in the currency? since there is a surplus of the currency in the foreign exchange market.

  8. 1) can an economy that factors in the need for government funded public services and to offer people a living wage, and other more distributive economic strategies such as taxing the rich more, etc

    Can it work in purely economic terms?

    2) Also is it possible to construct the above economic system so that does not rely upon expanded growth which as we all know, is damaging the environment? causing pollution etc

  10. A perfectly competitive firm is currently maximizing profits and the market is in a long-run equilibrium. Market demand for the firm’s production increases. Briefly summarize what happens in the market.
    Describe in detail what will happen to the firm’s production (and most importantly why) as a result of the change in the market. Describe what will happen and why to the firm’s costs and profits as the firm makes its choices. Emphasize why each type of individual cost does or does not change as the firm changes its level of production. Explain your reasoning.
    Summarize what will happen in the market in the long run. Discuss the changes that will occur in the long run for the firm and explain why. You do not need to discuss why each cost changes, but do explain why the firm ends up where it does relative to where it was at the beginning and where it was in the short run.

  11. what does it really mean by short-run trade off between inflation and unemployment? how can we relate this to people working in supermarket? i really need your help. thank you in advanced!

  15. hi tejvan,
    plz tell me some products for which equilibrium price is not favourable for some producers and consumers which invite the state to impose price restriction

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