Capital accumulation, Essay

Name two types of market failure. formulate why each whitethorn cause market outcomes to be inefficient. Externalities and Market Power. Externalaties are by harvestings of a result. Exteranlities pile lead to a failure because buyers and sellers do not con side of meatr the side effects, which can lead to imbalance in equilibrium based on a societal standpoint. Market Power occurs when there is a wiz buyer and seller (or sm totally group of them) with the force to control market prices. This can lead to failure because it keeps prices and quantity away from the equilibrium of contribute and demand. 2.What happens to consumer and producer surplus when the sale of a good is assessed? How does the change in consumer and producer surplus compare to the tax revenue? When a product is taxed both consumer and producer surplus drop. This change in surplus is gained in tax revenue, but producers earn little and consumers get less for their value. 3. How do the elasticities of supply and demand affect the deadweight loss of a tax? wherefore does this effect occur? The elasticities of supply and demand affect deadweight loss in that when supply/demand is elastic, accordingly the deadweight loss is high.If the supply/demand is inelastic, then the deadweight loss is small. This occurs because taxes change the behavior of buyers/sellers. If tax increases price of buyers, they consume less. If tax reduces profit of producers, then they produce less. 4. What does the domestic price that prevails without international interchange tell us about a nations proportional advantage? If the domestic price is low, then it says that county can produce that product cheaply, and has a comparative advantage. If it is high, then that country is at a wrong compared to other countries.What is the difference between the unilateral and multilateral approaches to achieving free championship? Give an example of each. Unilateral approach is when the country reduces trade restrictio ns on its own. Isolandia removes tariffs on imports. Multilateral approach is when a country reduces it trade restrictions enchantment other countries do the same (through bargaining) Isolandia removes tariffs on imports if Seclusia also removes theirs. 6. Why do economists use real gross domestic product rather than nominal gross domestic product to suppose economic sound-being?Define the gross domestic product deflator. Nominal GDP is GDP (goods and services produced, and their prices) calculated at current prices. Real GDP is GDP calculated at constant prices(goods ands and services produced). We use Real GDP because it reflects changes in production vice changes in prices. The GDP Deflator allows calculating only(prenominal) the prices of goods and services. 7. What is the CPI? Which do you think has a greater effect on the consumer price indication a 10 percent increase in the price of chicken, or a 10 percent increase in the price of caviar? Why?Consumer Price Index, is a measure of the general cost of goods and services bought by a typical consumer. A 10% increase in chicken will have a greater affect on the CPI because more people typically by chicken than those who buy caviar. 8. Describe the three factors that make the consumer price index an imperfect measure of the cost of living. Then explain how the GDP deflator differs from the CPI. Substition preconceived idea Consumers substitute towards goods that cost less Introduction of raw goods A new product is introduced allowing more choices.This reduces cost of maintaining same level of economic well being. Unmeasured quality change if a goods quality goes down, but mud at same price then the dollar is worth less than previously. If the quality goes up, and price remains the same, then the dollar is worth more than previously. GDP deflator accounts for goods produced domestically, while CPI accounts for all goods purchased. GDP Deflator also accounts for all currently produced goods, while CPI accounts for a fixed set of goods, that may not include new goods or include goods that no long-lasting exist. 9.List and describe the rejectminants of productivity. Physical Capital Quality of tools the worker has bring out quality, the more production. Human Capital Knowledge and Skills education, experience and didactics. Better training = better efficiency. Natural Resources Resources made available for input into production. Either renewable or non-renawable. Access to resources reduces costs of importing them but is not necessary. technical KnowledgeRefers to societies understanding of how the world works. (Human capital refers to recources expended to transmit this understanding to its workers) 10.Explain how a higher savings rate can lead to a higher standard of living. What might deter a policymaker from trying to sack the rate of saving? Saving now and consuming less now, allows for investments and ability to consume more in the future. Diminishing returns a re what might deter a policy maker raising rate of savings. At a low capital, an extra increase in capital increases production. But as you continue to invest capital, the growth of production is at a lesser amount. It continues until a point in where a large increase in capital only gives a minor increase in production.