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Original post by thulim
I need help with question 1
To do this start with the identity for the quantity of money demanded which is:
MV = PY , where M is the quantity of money demanded, V is velocity of money, P is the price level and Y is the aggregrate output.
From this you should be able to answer the question.
I would appreciate some help with understanding the optimal tariff argument. 
1. I understand it like this: If tariffs are imposed in country 'A', then the price of imports rises. Demand for imports thus fall, and so the world price of the tarrifed goods and services falls. This causes A's exports to become comparatively more expensive, as world demand switches to the cheaper, tarrifed goods. The exports therefore become more profitable (not sure if this is right), and less are needed to be sold to offset the tax, employment etc lost by the imports bought. Would this maximize the income of A? Have I got this right?
2. My textbook explains it like this: 'If a country imports a significant proportion of world production, it is likely to face an upward sloping supply curve. If so, the marginal cost of buying an extra unit will not only be the cost of the extra unit but also the extra cost of buying all other units. For instance, a country buys 10 units at £1. If it buys an eleventh unit, the price rises to £11. The cost of the eleventh unit is therefore £11 plus 10 x £1 - a total of £21. The decision to buy the eleventh unit will be made by individual producers and consumers. The cost to them of the eleventh unit is just £11 - the other £10 extra is borne by the producers and consumers who bought the other 10 units. Therefore the marginal cost to the economy as a whole of buying an extra unit of imports is greater than the marginal cost to the individual...[This means] more imports will be bought than if the individual had to pay the whole cost of purchase.' I don't understand this at all!
Why does the marginal cost include the cost of buying all other units? Why is the cost of the marginal unit divided the way it is? And why would this situation lead to more imports being bought?
Thank you!!!
1. I understand it like this: If tariffs are imposed in country 'A', then the price of imports rises. Demand for imports thus fall, and so the world price of the tarrifed goods and services falls. This causes A's exports to become comparatively more expensive, as world demand switches to the cheaper, tarrifed goods. The exports therefore become more profitable (not sure if this is right), and less are needed to be sold to offset the tax, employment etc lost by the imports bought. Would this maximize the income of A? Have I got this right?
2. My textbook explains it like this: 'If a country imports a significant proportion of world production, it is likely to face an upward sloping supply curve. If so, the marginal cost of buying an extra unit will not only be the cost of the extra unit but also the extra cost of buying all other units. For instance, a country buys 10 units at £1. If it buys an eleventh unit, the price rises to £11. The cost of the eleventh unit is therefore £11 plus 10 x £1 - a total of £21. The decision to buy the eleventh unit will be made by individual producers and consumers. The cost to them of the eleventh unit is just £11 - the other £10 extra is borne by the producers and consumers who bought the other 10 units. Therefore the marginal cost to the economy as a whole of buying an extra unit of imports is greater than the marginal cost to the individual...[This means] more imports will be bought than if the individual had to pay the whole cost of purchase.' I don't understand this at all!
Why does the marginal cost include the cost of buying all other units? Why is the cost of the marginal unit divided the way it is? And why would this situation lead to more imports being bought? Thank you!!!
Hi
I need help with Multi-Choice questions as i only got 16/30 for my mid-terms.
Any tips??
Specifically need help with Elasticity.
I need help with Multi-Choice questions as i only got 16/30 for my mid-terms.
Any tips??
Specifically need help with Elasticity.
Original post by kiaoraenglsh
Hi
I need help with Multi-Choice questions as i only got 16/30 for my mid-terms.
Any tips??
Specifically need help with Elasticity.
I need help with Multi-Choice questions as i only got 16/30 for my mid-terms.
Any tips??
Specifically need help with Elasticity.
If you pop me a private message with some more specific questions I will try and give you a hand (:
This was posted from The Student Room's iPhone/iPad App
Can anyone please explain why the MR curve is twice as steep as the AR curve? Thank you ^^
Original post by the.cookie.monster
Can anyone please explain why the MR curve is twice as steep as the AR curve? Thank you ^^
I try and explain this using calculus. To begin with marginal revenue is the rate of change (or first derivative ) of total revenue. Total revenue is price * quantity. So let's say we have a demand curve of Q = 1000 - P. To find the inverse demand we say P = 1000 - Q. So this means that total revenue = 1000Q - Q^2.
To find marginal revenue, we need to differentiate total revenue , so MR = 1000 - 2Q. Now you can see that marginal revenue has twice the slope , I.e. 2Q.
Now I will try and explain it without calculus. Okay imagine a linear demand curve. The AR curve is the same as the demand curve. So to explain why the MR curve is twice as steep we need to look at the total revenue. You see that the total revenue, I.e. the area under the demand curve, increases till the mid point of the demand curve and then starts to fall. So at the midpoint of the demand/ ar curve, marginal revenue is zero and from that point on it will be negative as total revenue is falling. So that's why MR is twice as steep as AR curve.
Hope that helps.
Original post by samiz20891
I try and explain this using calculus. To begin with marginal revenue is the rate of change (or first derivative ) of total revenue. Total revenue is price * quantity. So let's say we have a demand curve of Q = 1000 - P. To find the inverse demand we say P = 1000 - Q. So this means that total revenue = 1000Q - Q^2.
To find marginal revenue, we need to differentiate total revenue , so MR = 1000 - 2Q. Now you can see that marginal revenue has twice the slope , I.e. 2Q.
Now I will try and explain it without calculus. Okay imagine a linear demand curve. The AR curve is the same as the demand curve. So to explain why the MR curve is twice as steep we need to look at the total revenue. You see that the total revenue, I.e. the area under the demand curve, increases till the mid point of the demand curve and then starts to fall. So at the midpoint of the demand/ ar curve, marginal revenue is zero and from that point on it will be negative as total revenue is falling. So that's why MR is twice as steep as AR curve.
Hope that helps.
To find marginal revenue, we need to differentiate total revenue , so MR = 1000 - 2Q. Now you can see that marginal revenue has twice the slope , I.e. 2Q.
Now I will try and explain it without calculus. Okay imagine a linear demand curve. The AR curve is the same as the demand curve. So to explain why the MR curve is twice as steep we need to look at the total revenue. You see that the total revenue, I.e. the area under the demand curve, increases till the mid point of the demand curve and then starts to fall. So at the midpoint of the demand/ ar curve, marginal revenue is zero and from that point on it will be negative as total revenue is falling. So that's why MR is twice as steep as AR curve.
Hope that helps.
I really like your first explanation- it makes sense now- thank you ^_____^
Original post by the.cookie.monster
I really like your first explanation- it makes sense now- thank you ^_____^
Your welcome, I wasn't sure how much calculus you had studied so I tried to give two options.
I understand why AR=MR=Demand in perfect competition but why does MC=Supply? I know equlibrium is where D=S and so MR=MC but I swear there are factors which could shift supply but not MC. I don't get it 
Original post by the.cookie.monster
I understand why AR=MR=Demand in perfect competition but why does MC=Supply? I know equlibrium is where D=S and so MR=MC but I swear there are factors which could shift supply but not MC. I don't get it
Haven't you answered your own question? Just algebraically, if MR=MC, D=S and MR=D then MC(=MR=D)=S.
Original post by alex_hk90
Haven't you answered your own question? Just algebraically, if MR=MC, D=S and MR=D then MC(=MR=D)=S.
Well I get the equlibrium point is the same, but just because they intersect at the same point doesn't mean the MC curve= the supply curve does it?
Since cost is not the only factor which can influence supply how can it be?
Unless... does it mean MC= supply at that particular point-like how D=S at the equlibrium but the curves are still different
Original post by the.cookie.monster
Well I get the equlibrium point is the same, but just because they intersect at the same point doesn't mean the MC curve= the supply curve does it?
Since cost is not the only factor which can influence supply how can it be?
Unless... does it mean MC= supply at that particular point-like how D=S at the equlibrium but the curves are still different
Since cost is not the only factor which can influence supply how can it be?
Unless... does it mean MC= supply at that particular point-like how D=S at the equlibrium but the curves are still different
For an individual firm the MC curve is the supply curve, because they can't influence the market price.
I have a really interesting question, but I'm not sure anyone knows.
Some people suggest that we should completely change our monetary system. They say that governments should not borrow money at interest from private banks, instead, they should print their own currency, and as much as they need. They say the world is built on pointless debt. Now on the face of it, this seems like a very good decision.
What do you think, and why do you think they don't?
Thank you.
Some people suggest that we should completely change our monetary system. They say that governments should not borrow money at interest from private banks, instead, they should print their own currency, and as much as they need. They say the world is built on pointless debt. Now on the face of it, this seems like a very good decision.
What do you think, and why do you think they don't?
Thank you.
What influence do high contributor countries have in the decision making process for the IMF and the World bank due to them being funded by them?
Can we assume that they will act bias towards their own countries and this will be against other, lower contributors and not be in these countries best interests? Surely then the IMF and World bank is flawed then?
Can we assume that they will act bias towards their own countries and this will be against other, lower contributors and not be in these countries best interests? Surely then the IMF and World bank is flawed then?
Original post by getenoughsuarez
What influence do high contributor countries have in the decision making process for the IMF and the World bank due to them being funded by them?
Can we assume that they will act bias towards their own countries and this will be against other, lower contributors and not be in these countries best interests? Surely then the IMF and World bank is flawed then?
Can we assume that they will act bias towards their own countries and this will be against other, lower contributors and not be in these countries best interests? Surely then the IMF and World bank is flawed then?
High contributor countries definitely have a monopoly on the decision making processes at the IMF. Read "Globalisation and its discontents" by Stiglitz, it is essentially an outline of the failure of IMF policies as a result of undue influence from powerful nations. The IMF have repeatedly refused to lend money to African nations unless they accepted economic reforms in the interest of the US/UK despite such policies having induced recessions in the past, e.g financial market liberalisation.
Original post by Eboracum
I have a really interesting question, but I'm not sure anyone knows.
Some people suggest that we should completely change our monetary system. They say that governments should not borrow money at interest from private banks, instead, they should print their own currency, and as much as they need. They say the world is built on pointless debt. Now on the face of it, this seems like a very good decision.
What do you think, and why do you think they don't?
Thank you.
Some people suggest that we should completely change our monetary system. They say that governments should not borrow money at interest from private banks, instead, they should print their own currency, and as much as they need. They say the world is built on pointless debt. Now on the face of it, this seems like a very good decision.
What do you think, and why do you think they don't?
Thank you.
The problem with printing your own money which is controlled by the government and not independent is that there is a chance of hyperinflation. If the government could print how much they wanted, they may promise to spend a lot more money than usual around elections to get more votes. The problem with printing an increasing amount of money is that the relative value of money is falling. Therefore, to keep people with the same living standards they need to print more money and the problem then just spirals. This has happened in the past like in Germany around 1930's, Zimbabwe and Argentina I think. The idea is good in principle but the possible problems are too great and devastating.
Does anyone know what a windfall gain is, with regard to quotas? The definitions I've found of it isjust 'income that is unexpected', but I don't understand how this could be true for a government policy 
Original post by blueconstellation
Does anyone know what a windfall gain is, with regard to quotas? The definitions I've found of it isjust 'income that is unexpected', but I don't understand how this could be true for a government policy
Its possible to get a windfall gain with quotas but doesn't always happen. To see why, let's consider an example. Let's say that the world price of sugar was 50p per kilo but in the UK it was £3 per kilo. This has occured as the UK restricted how much sugar was allowed into the UK by the form of a quota so only a small proportion of what was demanded was allowed in and the UK have no available substitutes. Then the U.K. suppliers who have the right to sell Sugar in the U.K. find it valuable, as they can buy the sugar for the world price of 50p/kilo and sell it for £3/kilo and so it would seem that the import quotas are creating a windfall gain for the lucky suppliers who have the right.
However, what will likely happen, if this was the case is that the competition would be so high to have the right to sell sugar that more competitors would want to sell sugar in the U.K. This probably would lead to either the profits shared between them or the case where they will all rally to get the support from the government to increase the amount of sugar imported to the U.K. This would lead to the U.K price of sugar falling as more sugar is flooding the market and the gains would fall.
(edited 11 years ago)
Its possible to get a windfall gain with quotas but doesn't always happen. To see why, let's consider an example. Let's say that the world price of sugar was 50p per kilo but in the UK it was £3 per kilo. This has occured as the UK restricted how much sugar was allowed into the UK by the form of a quota so only a small proportion of what was demanded was allowed in and the UK have no available substitutes. Then the U.K. suppliers who have the right to sell Sugar in the U.K. find it valuable, as they can buy the sugar for the world price of 50p/kilo and sell it for £3/kilo and so it would seem that the import quotas are creating a windfall gain for the lucky suppliers who have the right.
However, what will likely happen, if this was the case is that the competition would be so high to have the right to sell sugar that more competitors would want to sell sugar in the U.K. This probably would lead to either the profits shared between them or the case where they will all rally to get the support from the government to increase the amount of sugar imported to the U.K. This would lead to the U.K price of sugar falling as more sugar is flooding the market and the gains would fall.
However, what will likely happen, if this was the case is that the competition would be so high to have the right to sell sugar that more competitors would want to sell sugar in the U.K. This probably would lead to either the profits shared between them or the case where they will all rally to get the support from the government to increase the amount of sugar imported to the U.K. This would lead to the U.K price of sugar falling as more sugar is flooding the market and the gains would fall.
Oh, I see! Thank you, that was very helpful.
Hi I need help on these Multiple Choice Questions, thanks
6) A good has a unitary price elasticity of demand and at a price of $20 a firm sells 40 000 units.
How many will the firm sell if it charges a price of $5?
A 10 000 B 100 000 C 160 000 D 200 000
24) In which year did the real value of money rise?
year Price Index
(base year 2001)
A 2002 100
B 2003 104
C 2004 104
D 2005 103
17) What will make it more likely that road tolls will reduce traffic congestion?
A Cross-elasticity of demand between private and public transport is zero.
B Demand for car use is income-elastic.
C Demand for car use is price-elastic.
D Supply of public transport is price-inelastic.
24 The table shows the percentage price changes in some items in the UK Consumer Price Index
(CPI) in the year to 1 June 2006.
item % change in price
rents, electricity and gas 9.0
education 4.7
transport 4.0
restaurants and hotels 3.2
health services 2.9
The increase in the overall CPI over the same period was 2.5 %.
What can be concluded from the data above?
A The CPI is not an accurate measure of inflation.
B Some prices must have fallen.
C The average price increase of other items was less than 2.5 %.
D The real value of money rose by more than 2.5 %.
6) The table shows the price elasticity of demand for four goods and services.
price elasticity
motor cycles 1.6
telephone calls 1.0
football tickets 0.3
light bulbs 0.0
If the price of each item increased by 1 %, for which of these items would the total expenditure
increase?
A football tickets only
B motor cycles only
C football tickets and light bulbs
D motor cycles and telephone calls
25) The table shows the price indices and weights for three commodity groups that are included in
the calculation of a country's cost of living index.
commodity
group
index weight
X 300 4
Y 140 3
Z 80 3
By how much has the cost of living increased since the base year?
A 52% B 86% C 186% D 198%
7) A good has unitary price elasticity of demand and at a price of $25 it sells 100 000 units.
Which price must the firm charge if it wants to sell 125 000 units of the good?
A $22 B $20 C $18 D $15
8) The table shows how an individual’s consumption of cola and nuts varies with income.
income ($) cola (cans) nuts (packets)
50 2 0
100 4 1
Which statement about income elasticity of demand over the range of income shown is true?
A For cola it is less than 1.
B For cola it is greater than 1.
C For nuts it is greater than 1.
D For nuts it is zero.
24) A country’s Consumer Price Index increased from 100 to 200 over a five-year period.
What can be deduced from this?
A The economy experienced creeping inflation.
B The standard of living halved.
C The cost of living fell by 50 %.
D The purchasing power of money halved.
As you can see i have trouble with elasticity and CPI/RPI
Any answers/tips/notes would be helpful.
Thanks
6) A good has a unitary price elasticity of demand and at a price of $20 a firm sells 40 000 units.
How many will the firm sell if it charges a price of $5?
A 10 000 B 100 000 C 160 000 D 200 000
24) In which year did the real value of money rise?
year Price Index
(base year 2001)
A 2002 100
B 2003 104
C 2004 104
D 2005 103
17) What will make it more likely that road tolls will reduce traffic congestion?
A Cross-elasticity of demand between private and public transport is zero.
B Demand for car use is income-elastic.
C Demand for car use is price-elastic.
D Supply of public transport is price-inelastic.
24 The table shows the percentage price changes in some items in the UK Consumer Price Index
(CPI) in the year to 1 June 2006.
item % change in price
rents, electricity and gas 9.0
education 4.7
transport 4.0
restaurants and hotels 3.2
health services 2.9
The increase in the overall CPI over the same period was 2.5 %.
What can be concluded from the data above?
A The CPI is not an accurate measure of inflation.
B Some prices must have fallen.
C The average price increase of other items was less than 2.5 %.
D The real value of money rose by more than 2.5 %.
6) The table shows the price elasticity of demand for four goods and services.
price elasticity
motor cycles 1.6
telephone calls 1.0
football tickets 0.3
light bulbs 0.0
If the price of each item increased by 1 %, for which of these items would the total expenditure
increase?
A football tickets only
B motor cycles only
C football tickets and light bulbs
D motor cycles and telephone calls
25) The table shows the price indices and weights for three commodity groups that are included in
the calculation of a country's cost of living index.
commodity
group
index weight
X 300 4
Y 140 3
Z 80 3
By how much has the cost of living increased since the base year?
A 52% B 86% C 186% D 198%
7) A good has unitary price elasticity of demand and at a price of $25 it sells 100 000 units.
Which price must the firm charge if it wants to sell 125 000 units of the good?
A $22 B $20 C $18 D $15
8) The table shows how an individual’s consumption of cola and nuts varies with income.
income ($) cola (cans) nuts (packets)
50 2 0
100 4 1
Which statement about income elasticity of demand over the range of income shown is true?
A For cola it is less than 1.
B For cola it is greater than 1.
C For nuts it is greater than 1.
D For nuts it is zero.
24) A country’s Consumer Price Index increased from 100 to 200 over a five-year period.
What can be deduced from this?
A The economy experienced creeping inflation.
B The standard of living halved.
C The cost of living fell by 50 %.
D The purchasing power of money halved.
As you can see i have trouble with elasticity and CPI/RPI
Any answers/tips/notes would be helpful.
Thanks
(edited 11 years ago)
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