Apply Economic Principle to Work
a 1. a. Percentage Change in Quantity = (12,000 – 8,000)/8,000 = 0.5 x 100% = 50% Percentage change in price = ($150 - $120) / $120 = 0.25 x 100% = 25% Price elasticity = 50% / 25% = 2%
b. Elastic, because when the price rises the quantity goes down, and also when the price goes down the quantity goes up.
2. a.
P1 E1
Q1
b. P2 E2
P1 E1
Q1 Q2
Expl : Because of lower taxation, it will make higher disposable income of costumer causing consumption rise and therefore aggregate demand and economic growth rise.
C. P1 E1
P3 E3
Q1 Q3
Expl : Technology can help increase productivity by using resource more efficiently. Mechine can often make high things more quickly and cheaply than human can.
3. a. If inflation has increased in the economy a) The international competitiveness will decrease. Inflation is an economic problem that has negative impacts on the level of economic growth as well as international competitiveness b) The real income will decrease. If inflation is not compensated by nominal increases of income, people become poorer. High and variable inflation makes economic price forecasting more difficult and decision-making processes may be negatively affected. Extremely high inflation attracts too much daily attention from households and decision-makers, distracting them from more important tasks. c) The level investment will decrease. Sustained inflation is damaging to long-run growth and the financial system in general. Increases in inflation lead to lower real returns not just on money, but on all other assets too. These low returns interfere with the functioning of financial markets and the allocation of investment. Lower real returns have the effect of severely damaging the credit market. As a result, higher
b. Elastic, because when the price rises the quantity goes down, and also when the price goes down the quantity goes up.
2. a.
P1 E1
Q1
b. P2 E2
P1 E1
Q1 Q2
Expl : Because of lower taxation, it will make higher disposable income of costumer causing consumption rise and therefore aggregate demand and economic growth rise.
C. P1 E1
P3 E3
Q1 Q3
Expl : Technology can help increase productivity by using resource more efficiently. Mechine can often make high things more quickly and cheaply than human can.
3. a. If inflation has increased in the economy a) The international competitiveness will decrease. Inflation is an economic problem that has negative impacts on the level of economic growth as well as international competitiveness b) The real income will decrease. If inflation is not compensated by nominal increases of income, people become poorer. High and variable inflation makes economic price forecasting more difficult and decision-making processes may be negatively affected. Extremely high inflation attracts too much daily attention from households and decision-makers, distracting them from more important tasks. c) The level investment will decrease. Sustained inflation is damaging to long-run growth and the financial system in general. Increases in inflation lead to lower real returns not just on money, but on all other assets too. These low returns interfere with the functioning of financial markets and the allocation of investment. Lower real returns have the effect of severely damaging the credit market. As a result, higher