Ask an Economic Question 2014

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. Why there is fall in global demand when there is fall in oil prices? it should boost the disposable income of common people. if there is slow down in China’s manufacturing market due to higher wages or low demand then why it is not seen as an opportunity for country’s like India which can provide cheap labour and willing to provide favourable business environment?

  2. regarding tax gdp ratio I understand that this is an era of liberalisation and reforms. I also understand that by liberalisation is meant providing more space to Private sector. Thus does it not mean that higher ta gdp ratio means government is in driving seat and therefore should not be recommended?Is there an ideal TaXGDP ratio? If it is situation sprcific then liberalisation is also situation specific and no dogmatism here.

  3. I have a question regarding opportunity cost: is there a standard method to compare two choices that have opportunity costs that do not reduce to a monetary value? For instance, a dilemma that pits the value of exercise against the value of leisure. Even if one valued, say, leisure over exercise, but exercise is still valued, what is the method for determining when the the benefit of exercise actually outweighs leisure in any given comparison.

    Maybe an example will help if I’m not totally clear. Imagine you have two options A and B. Option A is a stroll through the park and B is a vigorous run on a treadmill in the basement. A provides minimal exercise but high leisure and B provides minimal leisure but maximum exercise. Further, any number of options could exist between these two options that have some other ratio of exercise to leisure. In the real world we make these trade-offs all the time using subjective valuations in the moment, but if we assume preference stability then leisure always trumps exercise and we end up a couch potato.

  4. How does a country go about setting up gold reserves and from where do they access the funds to do so?

  5. Can someone please explain the following paragraph? ‘Whatever the philosophical or methodological approach economists have taken to their discipline, whatever view they have taken of its scope, objectives and analytical techniques, the theory of value – with its associated theory of distribution – has been a key feature of the disciplinary matrix or paradigm to which they have chosen to conform’ (The evolution of economic ideas, Phyllis Deane, pg 19).

  6. Q#2 You have just taken a job that requires you to move to a new city. In relocating, you face the decision of whether to buy or rent a house. A suitable house costs $300,000 and you have saved enough for the down payment. The (nominal) mortgage interest rate is 10°/o per year, and you can also earn 10°/o per year on savings.
    Mortgage interest payments are tax deductible, interest earnings on savings are taxable, and you are in a 30°/o tax bracket. Interest is paid or received, and
    taxes are paid, on the last day of the year. The expected inflation rate is 5°/o per year.
    The cost of maintaining the house (replacing worn out roofing, painting, and so on) is 6°/o of the value of the house. Assume that these expenses also are paid entirely
    on the last day of the year. If the maintenance is done, the house retains its full real value. There are no other relevant costs or expenses.

    a. What is the expected after-tax real interest rate on the home mortgage?
    b. What is the user cost of the house?
    c. If all you care about is minimizing your living expenses, at what (annual) rent level would you be just indifferent between buying a house and renting a house of comparable quality? Rent is also paid on the last day of the year.

  7. what exactly is shadow price & how it is calculated?
    i mean if suppose the price of construction of a bridge is $10, how shadow price of it will be calculated?

  8. Hi,
    I basically know the difference between nationalised and public sector banks. But I read recently in a book stating that the equity stakes of RBI in SBI s taken over by government of India by 2007. I want to know the difference between holding of stakes by RBI and government of India and the history behind it.

  9. There are 20 food outlets in the city competing to meet lunchtime demand for sandwiches. What will happen to the average revenue (AR) and marginal revenue (MR) of each outlet when a national sandwich company opens the twenty-first outlet in the city?

  10. A firm with the production function ?(?, ?) = 2√?? is currently utilizing 8 units of labour and 2 units of capital. If this is the optimal input mix, and if total costs are equal to 16, what are the prices of capital and
    labour?

  11. Indicate and explain if the statement is true or false.
    “Because Coke and Pepsi are substitutes, a decrease in the price of Pepsi will cause the demand for Coke to decrease. This initial shift in demand for Coke results in a lower price for Coke; this lower price will cause the demand curve for Coke to shift to the left.”

  12. Firms under monopolistic competition have an excess capacity. Does it imply, if half of petrol stations were closed down, consumer will get a benefits? Explain.

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