Proef/oefen tentamen 20 2019, antwoorden PDF

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Oefententamen Economics Propedeuse December 2019 Open Question 1 (22pts)

From the information found in the graph above determine A. Who has an absolute advantage in making cups and who has an absolute advantage in making bowls. Explain (2pts).Cups: Bintu make 8 cups, Juba only 6. Bowls, Juba makes 4 bowls, Bintu only 2. B. The opportunity cost of producing a bowl for Bintu. (2pts) 4 cups C. The opportunity cost of producing a bowl for Juba. (2pts) 1.5 cups D. The opportunity costs of producing a cup for Bintu. (2pts) 1/4 bowl E. The opportunity costs of producing a cup for Juba. (2pts) 2/3 bowl F. Who has a comparative advantage in making cups and who has a comparative advantage in making bowls. Explain. (4pts) Cups: Bintu’s opportunity costs for making cups are lower (1/4 bowl for 1 cup) than Juba (2/3 bowl for 1 cup), Bowls: Juba’s opportunity costs are lower (1.5 cups for 1 bowl) than Bintu’s (opportunity costs for making 1 bowl are 4 cups). G. Explain the link between comparative advantage, specialization and trade using the cup and bowl information. (6pts) If a country has a comparative advantage in producing a good, the country can increase its consumption possibilities by specializing in the production of that good, and then trading with the other country.

Open question 2 (24pts) The table below contains labor data for Aruba of the year 2015. Males not in labor force 13796 Females not in labor force 19756 Males unemployed 1936 Females unemployed 2120 Males employed 25651 Females employed 25869 Source: Directie Arbeid en Onderzoek

Based on this information determine the following: a) The size of the labor force (2pts) 55576 (males and females unemployed + males and females employed) b) The unemployment rate (2pts) 7.3% (m/f – unemployed / labor force) c) The labor force participation rate (2pts) 62.4% (labor force/total population (m/f not in labor force + LF) d) The female labor force participation rate (2pts) 58.6% ((f-unemployed +f-employed)/fpopulation) e) What would happen to the numbers you found in questions 2A+2B+2C if a large group of FEF students graduate and immediately find a job. Would these number go up/down/stay the same? Explain (6pts) Size of the labor force would go up, unemployment rate would go down, labor force participation rate would go up. f) Economist mention efficiency wages as a cause of structural unemployment. Explain what efficiency wage are. (4pts) Efficiency wages are wages set above the equilibrium level in an effort to increase labor productivity. g) Give two reasons why a company would choose to have efficiency wages. Shortly explain the two reasons. (6pts) Decrease turnover  increase labor productivity Improve worker health increase labor productivity Attract better workers  increase labor productivity Increase motivation increase labor productivity

Open Question 3 (25pts) a. Illustrate in a supply and demand diagram what would happen on the market for bagels if the price of muffins increased, assuming muffins and bagels are substitutes. Indicate what happens to the equilibrium price and quantity. (5pts) Answer: see graph, demand for bagels increases, price and quantity rise. Market for Bagels

b. Illustrate in a supply and demand diagram what would happen on the market for hamburgers if the income of consumers increased, assuming hamburgers are inferior goods. Indicate what happens to the equilibrium price and quantity. (5pts) Answer: the demand for and the price of hamburgers will decrease (indicate new p and q in graph) Market for Hamburgers

c. In the following graph indicate a binding price floor and indicate how big the shortage or surplus would be, if any. (5pts) (Any price above the equilibrium price, and then showing the diff. between Qd and Q. )

a. Given the information in the graph above, calculate the Price Elasticity of Supply between the prices of 6 and 10, using the midpoint method. Also indicate whether this number indicates a elastic/inelastic/unit elastic supply. (5pts) %∆Q= (10-6)/8*100=50% %∆P= (106)/8*100=50% %Qs/%P = 50%/50%= 1 Unit elastic supply (p99) b. If instead of a price floor a $4 tax was placed on this product, what would the new price that buyers pay become? How much of the tax burden (in %) would be carried by the producer? (5pts) New price, 12. Tax burden carried by producer is 50%

Open Question 4 (12 points) Household purchases of durable goods Household purchases of nondurable goods Household purchases of services Household purchases of new housing Purchases of capital equipment Increase in business inventories Purchases of factories Government expenditures Transfer payments Foreign purchases of domestically produced goods Domestic purchases of foreign goods

$1293 $1717 $301 $704 $310 $374 $611 $1539 $777 $88 $120

C C C I I I I G Not in GDP Export Import

Given this information determine: a. Consumption Expenditures (C), Investment Expenditures (I), Net Exports (NX) and GDP. (4pts) Answer: see additional column in table above where Net Exports = Export – Import (p492) b. Assume that for another economy nominal GDP is $20 million and real GDP is $17 million. Calculate the GDP deflator. (4pts) Answer: $20/$17*100=118 c. Fill in the blanks and explain why: An increase in the price of …………..would increase Aruban CPI but not the Aruba GDP deflator. (4pts) Answer: a bottle of Heineken. This product is not produced in Aruba, but might be included in the CPI basket (p502) Open Question 5 (17 points) a. Name 3 reasons why the CPI overstates the cost of living (4pts) Answer: 1) Substitution bias 2) Introduction of new goods 3) Unmeasured quality change b. If the CPI was 121 last year and is 110 this year, what is this year's rate of inflation? (round off your answer to 1 decimal)? (3pts) Answer: -9.1% c. What term do economists use to describe this outcome? Answer: deflation (3pts) d. Suppose that the nominal rate of interest is 4 percent and the inflation rate is 2 percent. What is the real interest rate? (3pts) Answer: Real interest rate = nominal interest rate – inflation = 4-2=2% e. Explain (4pts total) 1. what the GDP Deflator and the CPI have in common and, 2. the difference between the GDP deflator and the CPI. Answer: Both measure the overall level of prices. Difference: GDP measures goods and services produced (not consumed = CPI). CPI uses a basket of goods, GDP changes the group of goods and services automatically over time as the composition of GDP changes....