Business Economics Assignments


There are 7 assignments. Each assignment relates to a lesson. They should be turned in on or before the due date.

Each question can be answered briefly. These are not essay questions. Make your answers clear and direct – and as brief as possible.


1.       Lesson 1

a.       From Lesson 1 how many different definitions of economics can you find? Explain briefly how they are related to one another. [definitions, not descriptions].

b.      Why are private property rights important for the smooth functioning of an economy?

c.       From Lesson 1B draw a PPC with increasing opportunity costs. Show geometrically that for equal gains in fish, the sacrifice in fruit gets progressively larger. Explain this. [you may use PowerPoint or Microsoft Word drawing or anything that works for you to draw it and save it for submission.]

2.       Lesson 2

a.     From Lesson 2, it was argued that there are two ways of defining demand and that they lead to the same demand curve – the two views of demand are equivalent.  Explain this and support the argument that they are equivalent. [explain why you think they result in the very same demand curve no matter what definition you use].

b.      No seller would knowingly or willingly set the price in the region to the right of the maximum total revenue quantity. Can you explain this?

c.      Prove (or clearly explain) that the elasticity of any straight line that goes through the origin is unity (1).

3.         Lesson 3

a.       The simple case of a fixed per-unit tax is indicative of more complicated ones. Construct a similar analysis for a proportional sales tax and a progressive sales tax. How do the tax revenues, and quantities produced compare in these various cases?

b.      Explain the deadweight loss for the case of a subsidy.

4.        Lesson 4

a.       In lesson 4 we write the budget constraint as I = XPX + YPY.  Write this as a linear equation with Y on the left as in Y = … . What is the slope of this line. Explain this.

b.      In lesson 4 we discuss the pure income effects on income increases and decreases and of price inflation and deflation. Consider a 5% increase in income accompanied by a proportional 5% increase in prices. How will this affect the budget line, explain?

c.       If the income expansion line (lesson 4) is a straight line, the income elasticity of demand of both goods is equal to 1. Explain why – prove it.

d.      If there are n goods on which the consumer spends her budget, how many of them can be inferior? Explain.  

5.        Lesson 5

a.       Consider the transition from short run to long equilibrium in the model of perfect competition.

                                                               i.      What if technology were changing rapidly? How would this situation be different?

                                                             ii.      What if producers competed by differentiating their products? How would this situation be different? Could the assumptions of perfect competition still be maintained?

                                                            iii.      What if some firms had lower costs (better production technology or expertise) than others? How would that affect the conclusion that all firms earn the same normal profits?

b.      Considering the costs of monopoly, draw the case for the backward S-shaped total cost curve. How would you measure the deadweight loss in this case? [There may not be a single correct answer]. Explain.

6.       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 should assume that the output rises 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?