Sample Term paper Economics

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Question 1

This practice of taking money away from the rich and giving it to the poor might reduce efficiency because it makes some individuals worse off to make others better off. These programs are a form of disincentives for those individuals who have to contribute as well as those who work. Because of distinctiveness on the side of those who work and contribute, the overall output of the society decreases.  Moreover, the introduction of taxes into the marketplace leads to a reduction in the economic efficiency because taxes cause a deadweight loss. In addition, prices for economic goods in a competitive market always adjust to ensure that all the transactions that benefit both buyers and sellers occur. When this balance is distorted, it leads to fewer transactions and reduced welfare. All these contribute to reduced efficiency in both the market and society.

Question 2

In the field of economics, the term opportunity cost is used to refer to the value of the next valued alternative use of a given resource. This implies the cost of using a certain resource is already the value the next best option that an individual gives up in favour of the chosen option between equally exclusive economic uses. For instance, the opportunity cost of going to the movie would be losing 10 points of my grade. This means that spending money (AED 35) and time in the movie, I cannot be able to spend that time (3 hours) studying economics. Thus, my opportunity cost of choosing to watch the movie would be the money spend (AED 35) plus the points I lose (10 points) for not studying economics. The opportunity cost of studying economics losing AED 35 and time spent watching the movie.

Question 3

Using the formula, opportunity cost= cost of the selected alternative-cost of the next best option. Leila’s opportunity cost would be AED 120,000- AED 74,000 = -AED 46,000.

Question 4

  1. a)It will produce at point E (160) bushels of corn and produce zero (0) cars.
  2. b)Combination B and C
  3. c)The opportunity cost of moving from D to E is 3 cars. The country has to forgo 3 cars in order to produce 20 extra bushels of corn.
  4. d)Production at point C or F would mean that the country is underutilizing its resources. The country is not producing enough cars or corn given the potential of its resources.

Question 5

2008

Nominal GDP = ($2.5*40 +$5*20) = $200

Real GDP= ($2.5*40 +$5*20) = $200

GDP deflator = 100%

Inflation rate = (0%-100%) = -100%

2009

Nominal GDP = ($3*50 +$6*25) = $300

Real GDP = ($2.5*50 +5*25) =$ 250

GDP deflator = ($300/200)*100% =150%

Inflation rate = (150%-100%) = 50%

2010

Nominal GDP = ($4*40 +$6*30) = $340

Real GDP = ($2.5*40 + $5*30) = $250

GDP deflator = ($340/$200)*100% =170%

Inflation rate = (170%-150%) = 20%

Question 6

GDP is all the products produced within the country’s borders and GNP comprises of the products produced by firms and companies owned by a country’s citizens. The parts of the restaurant production included in UAE are salaries of expats, food and fresh produced by UAE nationals, and all the utilities to UAE companies. The GNP of UAE will not include the salaries paid to the expats.

Question 7

2008

Cost of basket = (6*$3.25 +2*$75) = $169.5

CPI = ($169/$169)*100% = 100%

Inflation rate = -100%

2009

Cost of basket = (6*$3.75 +2*$82) = $186.5

CPI = ($186.5/$169.5)* 100% = 11.003%

Inflation rate = (11.00%-100%) = -89%

2010

Cost of basket = (6*$4.50 +2*$96) = $219

CPI = ($219/$169.5)* 100% = 129.204.

Inflation rate= 129.204%-11.00%) = 118.204%