HOMEWORK 2

Andrena Athill

ECO 2013

HOMEWORK 2

3. List any works of the impact of technology on the economy literature, movies, or songs you have read, seen, or heard of:

Technology is the making, modification, usage, and knowledge of tools, machines, techniques, crafts ,systems methods of organization, in order to solve a problem, achieve a goal, handle an applied input/output relation or perform a specific function.• It can also refer to the collection of such tools, machinery, modifications, arrangements and procedures. Technology has allowed us to view the world through VHS,DVDs and hear music from CDs, Tapes, Ipods etc. technology in general has made the arts more easily accessible.

4. Respond Yes or No to the following statements and think of a specific situation that exemplifies your position:

YES  While frictional unemployment is short term, structural unemployment can last for longer periods because workers need time to learn new skills. For example, employment by U.S. steel firms dropped by more than half between the early 1980s and the early 2000s as a result of competition from foreign producers and technological change that substituted machines for workers.

YES  Technological change helps economies avoid diminishing returns to capital.

YES  Technological change shifts up the per-worker production function and allows an economy to produce more real GDP per hour worked with the same quantity of capital per hour worked.

NO  Because of diminishing returns to capital, continuing increases in real GDP per hour worked can be sustained only if there is technological change.

YES  In the long run, a country will experience an increasing standard of living only if it experiences continuing technological change.

NO Romer argues that the accumulation of knowledge capital is a key determinant of economic growth. Firms add to an economy’s stock of knowledge capital when they engage in research and development or otherwise contribute to technological change.

YES  We have seen that accumulation of physical capital is subject to diminishing returns: Increases in capital per hour worked lead to increases in real GDP per hour worked but at a decreasing rate. Romer argues that the same is true of knowledge capital at the firm level. As firms add to their stock of knowledge capital, they increase their output but at a decreasing rate. At the level of the entire economy rather than just individual firms, however, Romer argues that knowledge capital is subject to increasing returns. Increasing returns can exist because knowledge, once discovered, becomes available to everyone.

NO  Romer points out that firms are unlikely to invest in research and development up to the point where the marginal cost of the research equals the marginal return from the knowledge gained because other firms gain much of the marginal return. Therefore, there is likely to be an inefficiently small amount of research and development, slowing the accumulation of knowledge capital and economic growth.

Now that you’ve answered these questions, you are ready to experience the world in which Robert Solow and Paul Romer, the developers of the economic growth model and new growth theory respectively, live. So, open the book authored by Hubbard and enter.

Chapter 3 of Where Prices Come From: The Intersection of Demand and Supply

Vocabulary: Look up the following words in the dictionary (if necessary) and write their definitions.

The Law of demand:

In economics, the law states that, all else being equal, as the price of a product increases, quantity demanded falls; likewise, as the price of a product decreases, quantity demanded increases.

In other words, the law of demand states that the quantity demanded and the price of a commodity are inversely related, other things remaining constant. If the income of the consumer, prices of the related goods, and preferences of the consumer remain unchanged, then the change in quantity of good demanded by the consumer will be negatively correlated to the change in the price of the good

The Law of Supply:

The law of supply is a fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied. In other words, there is a direct relationship between price and quantity: quantities respond in the same direction as price changes. This means that producers are willing to offer more products for sale on the market at higher prices by increasing production as a way of increasing profits

A change in demand:

A term used in economics to describe that there has been a change, or shift in, a market's total demand. This is represented graphically in a price vs. quantity plane, and is a result of more/less entrants into the market, and the changing of consumer preferences. The shift can either be parallel or nonparallel.

A change in quantity demanded:

Consumer demand in a free market economy is based upon the supply-and-demand curve theory. Economists use supply and demand to determine the needs of individual consumers and large sections of the economy by using supply-and-demand charts to gauge consumer behavior.

A change in supply:

Change in supply will lead to a shift in the supply curve, which will cause an imbalance in the market that is corrected by changing prices and demand. If the change in supply increases supply, you will see the supply curve shift to the right, while a decrease in supply from a change in supply will shift the supply curve left.

A change in quantity supplied:

The movement along a supply curve caused by a change in the price of the good. This should be contrasted directly with a change in supply. You might also want to review the terms change in quantity demanded and change in demand, as well. A change in quantity supplied means that we have identified a NEW quantity on the existing supply curve. In contrast, a change in supply means that we have changed, moved, or shifted, the entire supply curve, the whole range of prices and quantities has changed.

Comprehension: Write your answers to the following questions in complete sentences:

1.        What is the assumption that underlies the law of demand?

The first assumption of law of demand is that the tastes and preferences of the consumer are same regardless of the income group. The second assumption is that all consumers have a fixed income and there is no change in income over a period of time. Thirdly, the prices of the related goods do not change and they are fixed. Moreover, all other economic factors are constant and they are ignored. On the basis of all these assumptions the demand curve is derived which depicts that prices are inversely proportional to quantities that is when price decreases the quantity demanded increases.

2.        What is the important distinction between a change in demand and a change in the quantity demanded?

It is extremely important to understand the difference between demand and quantity demanded.

Demand

• refers to the entire relationship between prices and the quantity of this product or service that people want at each of these prices.

• should be thought of as "the demand curve."

Quantity demanded

• refers to one particular point on the demand curve (not the entire curve).

• refers to how much of the product is demanded at one particular price.

• is the horizontal distance between the vertical axis and the demand curve.

3. Define the law of supply as used in chapter 3.

The law of supply is used as a rule that , holding everything else constant increases in price cause increases in quantity supplied, and decreases in price cause decreases in the quantity supplied

4. How do you feel about rise in product price at the supermarket?

As a consumer I an impacted by the rise in prices at the supermarket. Due to the fact that I am a student with a budget, the rise in prices causes me to sacrifice things that I may want.

Chapters 9-11

1.        At what point did you realize what business cycle meant? How did you figure it out?

In my extra readings that I do to try to grasp the concepts taught. I read further on an economic website that gave an explanation of the business cycle. What stood out to me was; The business cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables.

2.        What symbols can you find in the assigned pages? Do you think they’re effective? In what ways might the characters names be symbolic?

The assigned chapters gave me many charts and graphs which illustrated concepts spoken about in class. Graphs such as these give students the illustrated explanations that is needed to ensure that all topics are comprehended fully.

3.        How do you think George W. Bush feels about unemployment? Mixery index? Would he say they are microeconomic or macroeconomic issues? Would he say they are good for individuals or for society?

I think that George Bush would want to ensure that everyone is employed for the betterment of our economy. 

4.        Did any of you write any favorite sentences down or mark any passages you found significant? If so, which ones? What struck you about them?

Unemployment Rates for Different Groups: this passage stuck out to me because I did not know that unemployment could be as a result of race and colour.

5.        What would you say to or ask Hubbard if he visited your classroom?

If Hubbard was in my classroom  I would have many questions to ask, one of which would be based on entrepreneurship and the risk involved as I want to be an entrepreneur in the future.

6.        How might this textbook be used effectively in a social studies class? In a science class?

This book can be used as a general book for social studies and for science as well. The important and useful factor about this book is that it has general ideas that affect each factor of life and can be studied by other departments.

7.       Inflation is very safe, but that comes about at the cost of economic freedom. There is always a tension between safety and freedom. Think of ways this plays out in our government and society today. What individual liberties have people given up due to safety? What issues are currently being debated in this area

Having individual rights, people can create safety community.

8.        Everyone has right to create better condition for themselves. It can help the community to be safety and to be a better condition. On the other side when the people don't have rights to do as they wish, they many find the solution in wrong ways by harming others and it could create worse condition in community.