Capital accumulation, Essay

Name two types of market failure. Explain why all(prenominal) may cause market outcomes to be inefficient. Externalities and Market Power. Externalaties are byproducts of a product. Exteranlities can chip in to a failure because buyers and sellers do not subscribe to the side outlets, which can lead to imbalance in balance wheel establish on a societal standpoint. Market Power occurs when there is a single buyer and seller (or small group of them) with the ability to lock market wrongs. This can lead to failure because it keeps prices and quantity away from the equilibrium of supply and take on. 2.What happens to neutraliser and get downr overplus when the sale of a good is taxed? How does the spay 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, tho producers earn less(prenominal)(prenominal) and consumers get less for their value. 3. How do the elasticities of supply and demand affect the deadweight overtaking of a tax? why does this effect occur? The elasticities of supply and demand affect deadweight loss in that when supply/demand is elastic, then 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 affixs 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 internationalist duty tell us about a nations comparative 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 disadvantage compared to other countries.What is the difference between the unilateral and multilateral approaches to achieving at large(p) wiliness? Give an example of each. Unilateral approach is when the country reduce s trade restrictions on its own. Isolandia removes tariffs on imports. Multilateral approach is when a country reduces it trade restrictions while other countries do the same (through bargaining) Isolandia removes tariffs on imports if Seclusia besides removes theirs. 6. Why do economists use real gross domestic product rather than nominal gross domestic product to gauge sparing well-being?Define the gross domestic product deflator. Nominal gross domestic product is GDP (goods and services produced, and their prices) calculated at current prices. trust costy 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 work out only the prices of goods and services. 7. What is the CPI? Which do you think has a greater effect on the consumer price index a 10 percent append in the price of chicken, or a 10 percent summation in the price of caviar? Why?Consumer Price Index, is a metre of the overall 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 Bias Consumers substitute towards goods that cost less Introduction of new 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 remains at same price then the dollar is expenditure 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 goo ds, while CPI accounts for a fixed hardening of goods, that may not include new goods or include goods that no longer exist. 9.List and describe the determinants of productivity. Physical Capital Quality of tools the doer has better quality, the more production. Human Capital Knowledge and Skills education, experience and training. reveal training = better efficiency. Natural Resources Resources made available for input into production. any renewable or non-renawable. Access to resources reduces costs of importing them but is not necessary. Technical KnowledgeRefers to societies reasonableness 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 expertness deter a policymaker from laborious to raise the rate of saving? Saving now and consuming less now, allows for investments and ability to consume more in the future. Diminishing returns are what might deter a policy maker raising rate of savings. At a low capital, an extra increase in capital increases production. and 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.