Economics 101 Spring 2020 Test 3 Answer Each Question On You

Economics 101 Spring 2020test 3answer Each Question On Your

Identify the core assignment: provide detailed answers to questions related to tariffs and their impact on markets, comparative advantage, utility maximization, production functions, costs, demand graphs, economies of scale, and decision-making influences, supported by proper economic analysis and references.

Paper For Above instruction

Economics is fundamentally about analyzing how scarce resources can be efficiently allocated to meet human needs and wants. The questions posed in this assignment encapsulate key concepts in microeconomics and macroeconomics, including market effects of tariffs, comparative advantage and international trade, utility maximization, production theories, cost analysis, demand curve derivation, economies of scale, and decision-making influences.

Impact of Tariffs on Market Equilibrium and Economic Welfare

The imposition of a 25% tariff on Chinese-made motorcycles affects the U.S. market by increasing the domestic price and decreasing the quantity imported. Graphically, this causes the supply curve of imported motorcycles to shift upward by the tariff amount, creating a new equilibrium at a higher price point. Consumers face higher prices, leading to a reduction in consumer surplus. Producers, particularly domestic manufacturers, may see an increase in producer surplus due to higher prices and increased sales, but overall, the total surplus in the market decreases, leading to deadweight loss—a measure of lost efficiency due to reduced trade volume.

Before the tariff, consumer surplus was larger as consumers paid less, and foreign producers benefited from access to the U.S. market. After the tariff, consumer surplus declines, domestic producers gain, but overall societal welfare decreases due to deadweight loss. The deadweight loss can be quantified by the reduction in traded quantities and the difference between the consumer and producer surplus losses not offset by the gains. According to economic theory, such tariffs lead to a shift in welfare from consumers to producers and government revenue, but at the cost of economic efficiency.

Regarding the debate on free trade, proponents argue that free trade increases overall economic welfare by allowing specialization and efficient allocation of resources, leading to lower prices and greater choices for consumers. Critics of free trade argue that it can harm domestic industries and lead to job losses, and that strategic trade policies might be necessary to protect vulnerable sectors. Globalization, seen as the interconnectedness of economies, is beneficial for promoting economic growth, technology transfer, and consumer choices, but can also exacerbate income inequality and threaten local cultures.

Opportunity Costs and Comparative Advantage between US and EU

The production possibilities between the US and EU for cars and movies offer insights into opportunity costs and comparative advantages. The US can produce 20 cars or 12 movies, whereas the EU can produce 12 cars or an equivalent of 12 movies. The opportunity cost for the US in producing one car is 0.6 movies (12/20), and producing one movie costs about 1.67 cars (20/12). Conversely, the EU's opportunity cost for a car is 1 movie, and for movies, it is approximately 1 car.

The US has a comparative advantage in car production due to lower opportunity cost (0.6 movies per car), while the EU has a comparative advantage in movies (at a ratio of 1 movie per car). These differences can stem from factors like technological specialization, resource endowments, or workforce skills. Both economies might benefit from trade by specializing according to comparative advantage, which increases total global output.

Suitable terms of trade could be, for example, trading 1 car for 0.8 movies, making both countries better off because they can obtain more of both goods than if they produced both domestically. Complete specialization might be inefficient because of factors like consumer preferences for diverse goods, economies of scale, or logistical constraints. Production of both goods in each economy is often maintained for diversification, risk mitigation, and meeting domestic demand.

Utility Maximization and Consumer Choice

The consumer has a budget of $130, with prices at $10 per glass of champagne and $20 per ounce of perfume. By calculating marginal utility (MU) and MU per dollar (MU/P), we can determine optimal consumption. Suppose the utility table shows marginal utilities declining with each additional unit, exemplifying the Law of Diminishing Marginal Utility. The utility-maximizing combination occurs where the ratio of MU to price for champagne equals that for perfume, ensuring the consumer gets the most utility per dollar spent.

This point of equilibrium satisfies the condition MU_C/P_C = MU_P/P_P. When this condition holds, the consumer allocates their budget where the last dollar spent on each good yields equal utility, maximizing total utility. The consumer’s optimal bundle might involve, for example, purchasing a certain number of glasses of champagne and ounces of perfume such that the MU/P ratios are equalized, aligning with standard consumer choice theory.

Production Functions, Marginal and Average Product

Given a production function, we calculate the marginal product of labor (MPL) and average product of labor (APL). The MPL indicates the additional output produced by an extra unit of labor, decreasing as labor increases due to the Law of Diminishing Returns. The APL provides the output per worker on average. Graphically, MPL initially rises, reaches a peak, then declines; APL rises initially, peaks, then declines but remains above MPL until their intersection.

This relationship reflects the Law of Diminishing Returns, which states that adding additional units of a variable input (labor) to a fixed input (capital) eventually leads to lower incremental output. The decreasing MPL and APL are caused by factors like limited fixed resources or inefficiencies as additional workers crowd the production process. The intersection of MPL and APL occurs at the APL's maximum point, illustrating how marginal and average values are interconnected.

Total and Opportunity Costs in Business

The scenario involves explicit costs such as rent ($30,000), business loan interest (8% of $75,000 = $6,000), and potential other direct expenses, summing to total explicit costs. Implicit costs include the forgone salary of $50,000 from quitting the job and any other non-monetary sacrifices. Overall, total explicit costs amount to $36,000 ($30,000 rent + $6,000 interest), and implicit costs add $50,000, bringing total costs to $86,000.

Costs and Graphical Representation

Completing the cost table involves calculating total fixed costs, variable costs, total costs, marginal costs, and averages. Graphs display how fixed costs remain constant, variable costs increase with output, and total costs are their sum. The relationships among AFC, AVC, ATC, and MC are visualized: AFC decreases as output increases, AVC and ATC initially decrease then rise due to increasing marginal costs, and MC intersects AVC and ATC at their minimum points, illustrating efficient production levels.

Demand Curves and Market Analysis

When the price of an inferior good rises, the income effect causes demand to decrease for normal goods but increase for inferior goods, counteracting the substitution effect. This results in the classic downward-sloping demand curve, illustrating the Law of Demand. Graphically, individual demand curves combine to form the market demand curve, which slopes downward due to the aggregated substitution and income effects.

Economies and Diseconomies of Scale in Retail

Economies of scale refer to cost reductions as output increases, explaining Walmart's ability to offer lower prices due to bulk purchasing and operational efficiencies. The minimum efficient scale marks the output level where average costs are minimized. Factors like technological advancements, bulk buying, and managerial specialization contribute to economies of scale. Conversely, diseconomies of scale can occur if the firm grows too large, leading to coordination problems, increased management costs, and inefficiencies, which can emerge at higher output levels.

Decision-Making and Social Influences

Examples include social influences like peer pressure and societal norms affecting choices such as New Year’s resolutions or luxury purchases, which often involve social conformity or status about buying designer items. Mistakes in decision-making occur when individuals or firms become overly influenced by these social factors, neglecting personal preferences or economic rationality, or when attempts to minimize costs or maximize utility are distorted by misconceptions or emotional biases.

References

• Krugman, P. R., & Wells, R. (2018). Microeconomics (5th ed.). Worth Publishers.
• Mankiw, N. G. (2021). Principles of Economics (8th ed.). Cengage Learning.
• Perloff, J. M. (2020). Microeconomics (8th ed.). Pearson.
• Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W. W. Norton & Company.
• Blanchard, O., & Johnson, D. R. (2013). Principles of Economics (6th ed.). Pearson.
• Frank, R. H., & Bernanke, B. S. (2019). Principles of Economics (7th ed.). McGraw-Hill.
• Case, K. E., Fair, R. C., & Oster, S. M. (2017). Principles of Economics (12th ed.). Pearson.
• Friedman, M. (1953). Essays in Positive Economics. University of Chicago Press.
• Ricardo, D. (1817). On the Principles of Political Economy and Taxation. John Murray.