Project #50641 - Business Economics

Each question can be answered briefly. These are not essay questions. Make your answers clear and direct – and as brief as possible. Use the attached documents! Lessons related to the questions!

Lesson 6

a.       We analyzed the case of a well-specified production function in K and L. We examined the case of the demand for labor when the price of the produced product was constant – the producer was a price-taker.

                                                               i.      How will the analysis differ if the producer faces a downward sloping demand curve for her product? How would the new curve compare to the old one?

                                                             ii.      How will a rise is demand for the product affect the demand for labor in this firm?

                                                            iii.      How will an increase in all other inputs affect the demand for labor in this firm? You may assume that the output can change with the increase in the inputs.

                                                           iv.      How will a technological improvement enhancing labor productivity affect the demand for labor in this firm? [hint: how does it affect the MPL?].

b.      We discussed price-indexes. What do you think about the idea of indexing of contracts? What are the benefits? Do you see any potential problems? What if labor contracts were indexed nation-wide to the CPI?

7.       Lesson 7

a.       Explain how value can be created simply by exchange even when nothing new is produced? [This is true for a monetary and for a barter economy].

b.      Explain how competitive privately issued currencies would work automatically to provide consumers with protection against inflation?

c.       Would interest exist in a pure exchange economy where no production occurred? Explain.

So, what does interest have to do with productivity?

[Imagine a machine that produced an income of $100 per year forever. How would you determine its price – what it would sell for? Now, imagine it became more productive and produced $150 a per year forever – an increase in productivity. Would it sell for more or less? So how is productivity reflected?].

d.      The Keynesian model.

                                                               i.      Does it matter how an increase in G is financed? Why?

                                                             ii.      What does Keynes’s model assume about the information possessed and the incentives facing government policy-makers?

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Due By (Pacific Time) 12/10/2014 12:00 pm
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