Population Aging and Economic Growth in China - Assignment Example

? Eco501 Assignment Details: al Affiliation: ECO501 ASSIGNMENT Part A: MULTIPLE CHOICE QUESTIONS Choose the one alternative that best completes the statement or answers the question 1) Two variables are positively related if  A) Increases in one are associated with decreases in the other.  B) Increases in one are associated with increases in the other.  C) Any change in one causes an increase in the other.  D) Any change in one causes a decrease in the other.  E) Decreases in one are associated with increases in the other. 2) A medical clinic has 10 workers. Each worker can produce a maximum of either 2 units of medical services or 5 units of secretarial services a day. The production possibilities frontier of this firm would show A) Decreasing opportunity cost. B) Increasing opportunity cost. C) Zero opportunity cost. D) Constant opportunity cost. E) Infinite opportunity cost. 3) Which one of the following would lead to an increase in the demand for hamburgers? A) a rise in the price of French fries, a complement of hamburgers B) a decrease in consumer income if hamburgers are a normal good C) a news report that hamburgers can cause skin diseases D) a decrease in population size E) a new fad hamburger diet 4) The marginal cost (MC) curve intersects the  A) AVC and AFC curves at their minimum points.  B) TC and TVC curves at their minimum points.  C) ATC and AFC curves at their minimum points.  D) ATC, AVC, and AFC curves at their minimum points.  E) ATC and AVC curves at their minimum points. 5) Total cost is $20 at 4 units of output and $36 at 6 units of output. Between 4 and 6 units of output, marginal cost A) Equals average total cost.  B) Is less than average total cost.  C) is greater than average total cost.  D) Equals to average variable cost.  E) Equals average fixed cost. 6) Marginal cost ________. A) Increases at low outputs until it reaches its maximum value, then remains constant B) decreases at low outputs and increases at high outputs C) is constantly decreasing, but as output increases it decreases by smaller and smaller amounts D) is constantly increasing, but as output increases it increases by smaller and smaller amounts E) decreases at low outputs until it reaches its minimum value, then remains constant 7) A consumer choosing between apples and oranges is at her best affordable point. Then the price of apples decreases. If both apples and oranges are normal goods, which one of the following statements is true about her new best affordable point? She will consume more apples and fewer oranges.  B) She will consume more apples, and we cannot tell whether she will consume more or less oranges.  C) She will consume fewer apples and fewer oranges.  D) She will consume fewer apples and more oranges.  E) She will consume more apples and more oranges. 8) If income decreases, the budget line  A) becomes flatter.  B) Shifts leftward and parallel to the original budget line.  C) becomes steeper.  D) Shifts rightward and parallel to the original budget line.  E) Shifts parallel either leftward or rightward depending on whether the goods measured on the axes are normal or inferior. 9) A consumer's best affordable point occurs  A) at a point that cannot be determined.  B) Inside the budget line.  C) Outside the budget line.  D) On the budget line.  E) At a corner on the budget line, with only one good consumed. 10) Larry consumes only beer (B) and chips (C). If beer is measured on the vertical axis, the relative price of chips in terms of beer is all of the following except: A) the magnitude of the slope of the budget line B) equal to the opportunity cost of 1 bag of chips C) the real income in terms of beer D) PC/PB E) the inverse of the relative price of beer in terms of chips 11) When the price elasticity of demand is ________, demand for the good is elastic.  A) greater than 1 B) between 1 and zero C) equal to infinity D) equal to zero  E) equal to 1 12) A negative value for  A) price elasticity of demand implies an inferior good.  B) Income elasticity of demand implies a normal good.  C) Cross elasticity of demand implies that the goods are complements. D) Price elasticity of supply implies an upward-sloping supply curve.  E) Income elasticity of demand implies an error in your calculation. 13) Crude oil is a very important factor of production used in the production of petrol. If the price of crude oil rises, we would expect the A) Price of petrol to fall due to an increase in demand.  B) Equilibrium quantity of petrol to rise due to an increase in demand.  C) Equilibrium quantity of petrol to fall due to an increase in supply.  D) Price of petrol to rise due to an increase in demand.  E) Price of petrol to rise due to a decrease in supply. 14) Some sales managers are talking shop. Which one of the following quotations refers to a rightward shift of the demand curve? A) "The Green movement has sparked an increase in our sales of biodegradable products."  B) "It has been an unusually harsh winter; our sales of wool scarves are up from last year."  C) "We decided to cut our prices, and the increase in our sales has been remarkable."  D) "Since our competitors raised their prices, our sales have doubled."  E) All of the above except C. 15) The demand curve is P = 700 - 10QD. The supply curve is P = 400 + 5QS. At market equilibrium, the equilibrium quantity is ___ and the equilibrium price is ____. A) 300; 15 B) 500; 20 C) 20; 500 D) 5; 0.05 E) 0.05; 5 16) There have been severe falls in the fish stocks in the Atlantic fishing industry. As a result, we would expect An increase in the demand for meat, because meat is a substitute for fish.  B) A fall in the price of fish, leading to a decrease in the demand for meat, because meat and fish are substitutes.  C) A rise in the price of fish, leading to a decrease in the demand for meat, because meat and fish are complements.  D) A fall in the price of fish, leading to an increase in the demand for meat, because meat and fish are substitutes.  E) An increase in the demand for meat (e.g., beef), because meat is a complement of fish. 17) A medical clinic has 10 workers. Each worker can produce a maximum of either 2 units of medical services or 5 units of secretarial services a day. One day, the firm decides it would like to produce 10 units of medical services and 30 units of secretarial services. This output level is A) Unattainable. B) Inefficient. C) Costless. D) is attainable if the firm reduces the number of its workers.  E) Efficient. 18) A person who has an absolute advantage in the production of all goods will  A) also have a comparative advantage in the production of all goods.  B) have a comparative advantage in the production of only some goods and not others.  C) not be able to gain from specialization and trade.  D) not have a comparative advantage in the production of any goods.  E) Produce all goods at the lowest opportunity cost. 19) Which one of the following is a necessary consequence of scarcity?  A) The requirement of making choices B) high profits C) all wants are satisfied D) no choices required E) low profits 20) Complete the following sentence. Financial capital is  A) one of the "gifts of nature." B) The tools and machines that are used to produce goods and services.  C) Used in the production of goods and services. D) Land. E) Money, stocks, and bonds. Part B: Short Answer Questions (15 marks) Q. 1 What is the characteristic of a monopoly market that allows a natural monopoly to potentially charge consumers a price premium above long-run LRAC? (5 marks) The characteristic of a monopoly market that gives a natural monopoly a kind of special leeway to charge a price premium is the existence of economies of scale in the provision of services of such a firm, which are large in relation to the market size (Berg and Tschirhart, 1988). This characteristic is directly related to the monopoly cost structure of operational networks. A natural monopoly typically incurs an initial large fixed cost for setting up operational networks, and faces a low marginal cost managing and operating the networks. As such, the long run average cost curve of a natural monopoly falls over a huge range of output, thus giving room for perhaps only one or two large firms to fully exploit the available economies of scale. In simple terms, the Long-run average cost of firms considered natural monopolies always decrease as output increases. This allows lower unit costs of production; hence the leeway to charge a price premium above long-run LRAC (Berg and Tschirhart, 1988). Examples natural monopolies include public utilities such as electricity and water services. Q.2 What industries are dominated by cartels? (5 marks) A cartel basically refers to a formal agreement amongst competing firms. In his book Wealth of Nations, 1776, Adams Smith wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices,” (Fleischacker, 2004). Indeed, these kinds of conspiracies against the public occur among producers and manufacturers with regard to price fixing, marketing, as well as production (Brendan, 2007). Cartels predominantly operate in oligopolistic industries, characterized by few sellers usually selling homogeneous products. As insinuated above, Cartel members normally agree on matters as fixing of prices, allocation of operational territories, creation of common sales agencies, fixing of industry output, fixing of market shares, allocation of customers, bid rigging, profit division or combination of these matters (Brendan, 2007). These firms collude basically to reduce completion amongst them, hence increase individual members' profits. Industries dominated by such kinds of collusion in the current economic systems include the oil industry, the Federal Reserve- considered a public cartel of private, commercial banks, Health insurance industry (a sector characterized by very few insurers in almost every state), telecommunications and broadband service industries (examples of oligopolistic industries in the United States). Q.3 Why is a change in the age structure of the population, increasing the proportions of young or old workers in the labour force, likely to change the natural rate of unemployment? (5 marks) Demography is one of the most important factors that affect the labor market. The age structure of the population, which may effectively determine the growth rate of labor force as a single factor, as it dictates the levels of participation rates. One of the most important tasks of the human resource departments relates to the development and retention of a workforce that is efficient. It is an undeniable fact that the frequency of communication within the workforce is positively associated with a homogeneous age structure (Zenger and Lawrence, 1989). Largely due to an aging population, the labour market may experience a slowdown in labour force growth rate (Banister, Bloom, and Rosenberg, 2010). The fact of the matter is changes in the age structure contribute to a greater percentage in the participation rates. As such, it would only be prudent for a firm to employ a workforce falling within the age bracket with the capability to deliver results. Part C: Essay Question (15 marks) Q. Explain the difference between demand pull inflation and cost-push inflation, illustrating your answer with examples of each. Then assess which of the two are most likely to be a problem in Australia under the economic circumstances we are likely to experience in the coming few years. (15 marks)  Inflation, by definition, refers to a sustained increase in the general price level within a given economy that subsequently results to a general decline in the purchasing power of money (McTaggart, Findlay, and Parkin, 2010). Individual commodity prices rise and fall all at the same time within an economy, thus reflecting consumer preferences and changing costs. It is, in fact one of the most significant risks that has the effect of destabilising a given economic system in terms of growth prospects. In a sense, it is not only costly but very hard to forecast. Inflationary pressures have different, distinct causes and origin. To be specific, Inflationary pressures can emanate from domestic activities or may be external in origin, and can be supply or demand instigated. Simply put, inflation is a scenario where a lot of money chases few goods and services within an economic system. Thus, goods and services command higher prices than usually the case as more people are more than willing fork out extra payments to acquire the same goods. Usually inflationary pressures are caused by a combination of the following factors: A sustained increase in the supply of money A sustained decrease in the demand for money within an economic system A decrease in the supply of commodities within a system An increased demand for commodities supplied within an economic system Accordingly, economists distinguish between two types of inflationary pressures; demand instigated inflation (demand-pull inflation) and cost instigated inflation (cost-push inflation). Demand-pull inflation puts responsibility for this economic menace squarely on increases in aggregate demand. Typically, demand instigated inflation occurs when the four sectors of the economy (households, private businesses, government, and foreign market) concurrently and collectively want to purchase more output than the economy is capable to produce. Technically, demand-pull inflation results when a given economy tries to go beyond the frontiers of its production possibilities. In a lay mans language, it is a scenario where collective (aggregate) demand is in excess of aggregate supply. This generates economy-wide shortages of commodities, which then results in buyers, in the four macroeconomic sectors, bidding higher prices to attain the commodities. Demand-pull inflation usually turns into a threat during periods of strong economic booms, causing GDP to rise at much faster rate than the potential GDP growth in the long run. Going into the specifics of the factors pulling up prices, increases in the aggregate demand that ultimately results into demand-pull inflation can result from various economic dynamics within the four microeconomic sectors. An increase in government purchases has the possibility of increasing aggregate demand, thereby raising commodity prices upwards. Upward push in prices can result from depreciation of the local currency against the foreign currencies. Under these circumstances, inflation would be pegged on rising prices of imports and reduced prices of exports. Consequently, imports decreases while exports done by foreigners actually increase. This will in effect raise the overall level of demand of goods within an economy. Additionally, rapid growth witnessed overseas can also play a role in increasing demand of goods and services for foreign consumption, thus increased exports. Finally, a decision by the government to reduce taxes levied on commodities definitely leaves households with more disposable income, hence increased purchasing power. The eventual effect will be increased consumption putting more pressure on the general aggregate demand upwards ending up causing demand-pull inflation. Contrary to what happens when inflation is demand oriented, Cost-push inflation puts responsibility for inflation on the decreases in aggregate supply causing sharp increases in the cost of production. This occurs when utility cost of any or a combination of the factors of production (capital, labor, land, or entrepreneurship) increases (McTaggart, Findlay, and Parkin, 2010). This type of inflation is actually characterized by shrinking production possibilities frontier towards the origin. In terms of market analysis, an economy would be witnessing decreases in aggregate supply; decreases that are short of aggregate demand thereby resulting into economy-wide shortages of commodities. Assuming that companies are operating at full production capacity with minimized production costs, companies would be forced cut on goods and services supplied due to increased costs or produce the same amounts but at higher costs. And so to maintain profit margins, the increased costs of production must be passed on to the end product consumers. The end result will be inflation. A change in production costs may be induced by increases in labour wages. Sparked by higher costs of living, labourers will obviously demand higher salaries. As a vital factor of production, any cost increases will companies to allocate more resources to create commodities. Under such circumstances, companies will be forced to pass on the extra burden of production to the consumer of its products in the form of hiked retail prices to maintain their profit margins. Additionally, production costs may also escalate due to scarcity of raw materials thereby forcing companies to secure raw materials at higher costs. There may also be increased taxation on imports, increased costs of imports caused by depreciation in the local currency. All these will result into the allocation of more resources to produce certain quantities of commodities; cost of which are normally paid by the consumer. It is a fact that in a free or semi-free market economy like practised in Australia, prices will constantly adjust with regards to changes in the supply of and the demand for different commodities. A preview of the recent cycles of inflation reveals a clear role of the developments in unit labour costs having had a considerable role in contributing to the increase in inflation rates. Moreover, analysis of the developments in rents as well as household utilities does explain certain particular dynamics of inflation in Australia over the recent cycles. Given this background, it is apparent that the Australian economy has been operating against a backdrop of supply constraints. Going back to the period 2007 to 2008, the Reserve Bank of Australia had to increase interest rates to control inflationary pressures due to a real threat of the economy closing the gap to capacity (Hunt, 2010). The years ahead of 2012, like other years gone behind us, will no doubt have their fair share of unique surprises. The global economic system is currently experiencing very unusual events characterized by the development of new market economies with widespread fiscal consolidation in most advanced economies. Australia on its part is also experiencing queer events that are equally unusual – a huge investment boom in the wake of very high exchange rates. In an environment of this nature, economists tend to forecast very many pitfalls. However, Australians comfort themselves from a good start of 2012, with every economic variable under control, and a reasonable prospect for this trend to continue. Australia normally deals with unfolding events in a more flexible way as compared to other developed economies. Nevertheless, supply instigated inflation remains to be checked with ever prompting proximity to full capacity. References Banister, J., Bloom, D.E. & Rosenberg, L. (2010). “Population Aging and Economic Growth in China” PGDA Working Paper #53. Berg, S.V. and Tschirhart, J. (1988). Natural Monopoly Regulation: Principles and Practice. Cambridge: Cambridge University Press. Brendan S. (2007). "Export Cartels: Is There a Need for Global Rules?" Journal of International Economic Law. Vol. 10 (1): 87-115. Hunt, B., (2010). “Emerging Asia’s Impact on Australian Growth: Some Insights from GEM.” IMF Working Paper No. 10/262. Washington: International Monetary Fund. Fleischacker, S. (2004). On Adam Smith’s “Wealth of Nations”. Princeton: Princeton University Press. McTaggart, D., Findlay, C., & Parkin, M. (2010). Economics. 6th Ed. Frenchs Forest, NSW: Pearson Education. Zenger, T.R.& Lawrence, B.S. (1989). Organizational Demography: The Differential Effects of Age and Tenure Distribution on Technical Communication. The Academy of Management Journal (32), 353-376. Read More