a) The price of coffee in Cote d’Ivoire. 1/30*5000=166.6667 CFA francs per Pound. (b) The relative price of coffee in Cote d’Ivoire versus Vietnam Relative prices. Cote d’Ivoire/ Vietnam 160/5000=0.032 Vietnam/Cote d’Ivoire 5000/160=31.25…
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The price of coffee in Cote d’Ivoire will tend to be high locally while in Vietnam, the prices will be low as much will be imported. 2. (a) The law of one price will hold in the case of rice traded freely in U.S and Canada. For the law of one price to hold, the market should be free from any trade barrier. The relative price is less than one. (1/1.04=0.9615) (b) The law of one price will not hold in the case of sugar traded in Mexico and the U.S. This is due to the imposition of quota by the U.S government o imports. The relative price is less than one. (1/93.05=0.0107) (c) The law of one price will hold in the case of Big Mac sold in the U.S and Japan. This is due to the fact that the good is identical. The relative price is less than one. (1/12.93=0.0773) (d) The law of one price will not hold in the case of haircuts in U.S and the U.K due to the fact that there is no good being traded internationally. The relative price is greater than one. ...
.12 Canada(C$) 1.04 1.09 -0.05 1.16 -0.02 Denmark(Krone) 5.17 8.26 -3.09 5.34 -0.17 Eurozone(euro) 0.69 0.93 -0.24 0.72 -0.03 Japan(Yen) 93.05 89.6 3.45 92.6 0.45 Mexico(peso) 12.92 9.24 3.68 13.8 -0.88 Sweden(Krone) 7.14 10.9 -3.76 7.90 -0.76 The change in exchange rates is not consisted with the PPP implied exchange rates. The failure of the Big Mac Index to correctly predict changes in the nominal exchange rate between July 2009 and Jan 2010 can be attributed to the fact that, the demand for the big Macs products is not uniform in all the countries. The price of the big Mac varies significantly from country to country due to the difference in commercial costs such as advertising and transportation costs. 7. (a) Korea Japan Rate of Inflation Rate of Inflation 12/6=2% 2/1=2% (b) The expected rate of depreciation will be, (2.5-2.0)/2.0=0.25% (c) New inflation rate in Korea 15/6=2.5% (d) The increase in money supply will lead to a decrease in the price level and an increase in the exchange rate. (e) Suppose the bank of Korea want to maintain an exchange rate peg with the Japanese Yen, they will have to choose a money growth rate of 14% to keep the value of the won fixed relative to the Yen (f) In order for Korea to implement a policy that will ensure appreciation of the won against Japanese Yen, they need to set a growth rate between 12% and 16%. This is because the range will allow for a steady growth with low rate of inflation. 11. (a) Importance of having a nominal anchor. Nominal anchor such as exchange rate is that it provides a simple approach that can easily be understood by all members of the public. It also provides a quick means of curbing high inflation rate. A major drawback according to Obstfeld and Rogoff, (1996) is that it leads to loss in the independent
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For instance, Adam Smith’s theory of the invisible hand argues that when people engage in business and selling they are governed by the invisible hand of the market that helps regulate prices and ensures that businesses and people act in certain ways. Indeed, the nature of economics is like psychology in that it presents theories of human behavior.
As such, economic analysis relates to the study of economic systems in an industry to ascertain the effectiveness of the operations of a given industry with reference to its profitability1. With this, we are able to establish the optimum use of the limited resources to achieve a given economic objective.
Thus, short-run is the time period that quantity of an input or at least one of the many inputs is fixed while other inputs’ quantities can vary. Long-run on the other hand is that time period where inputs in entirety can be varied. Therefore, there is no specific time that can be taken as fixed or even marked on the dates of the calendar to distinguish short-run from the long-run.
If the quantity demanded of a certain product changes minimally or does not change at all, then that product is said to be a Price Inelastic Good. Consequently, if a product whose price increased and such a change brought forth an abrupt drop in quantity demanded of the same product, the good is said to be Price Elastic.
e that the people of a country would receive the best of every thing that could be education, housing, health services or the other various basic necessities.
Economics has been called and is known as a Social Science one that actually focuses on the subject matter that is
sought to apply a broader theoretical and conceptual tradition of economic thought by placing emphasis on neo-classical synthesis – a combination of neo-classical economics and Keynesian economics.
Conservative economics is based on Milton Friedman’s teachings and
s the above figure illustrates, if there is a supply shock in an economy (such as increase in the price of oil, labor or other costs that increase the cost of doing business), the short run AS curve shifts to the left. The real GDP decreases from Q to Q’ and the price level
These tools enable professional mainstream economists to address various economic issues facing the world. Mainstream economics is about modeling in a way that traditional or heterodox economics is not. It originated from the neoclassical synthesis of the neoclassical
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