Capital accumulation, Essay Example for Free

nifty accumulation, EssayName two types of mart failure. Explain why each may cause market outcomes to be inefficient. Externalities and Market Power. Externalaties are byproducts of a product. Exteranlities can lead to a failure because buyers and sellers do non consider the side effects, which can lead to imbalance in equilibrium based on a societal standpoint. Market Power occurs when there is a single buyer and seller (or small conclave of them) with the ability to control market prices. This can lead to failure because it keeps prices and quantity away from the equilibrium of deliver and use up. 2.What happens to consumer and producer superfluity when the sale of a good is taxed? How does the change in consumer and producer surplus canvass to the tax revenue? When a product is taxed both consumer and producer surplus drop. This change in surplus is gained in tax revenue, hardly producers earn less and consumers get less for their value. 3. How do the elasticities o f supply and demand ask the deadweight button of a tax? Why does this effect occur? The elasticities of supply and demand displace deadweight loss in that when supply/demand is elastic, whence the deadweight loss is high.If the supply/demand is inelastic, then the deadweight loss is small. This occurs because taxes change the behavior of buyers/sellers. If tax cast ups price of buyers, they consume less. If tax reduces profit of producers, then they produce less. 4. What does the domestic help price that prevails without international trade tell us about a nations comparative advantage? If the domestic price is low, then it says that county can produce that product cheaply, and has a comparative advantage. If it is high, then that country is at a disadvantage compared to other countries.What is the difference between the unilateral and multilateral approaches to achieving rationalize trade? Give an example of each. Unilateral approach is when the country reduces trade restri ctions on its own. Isolandia removes tariffs on imports. multifarious approach is when a country reduces it trade restrictions while other countries do the same (through bargaining) Isolandia removes tariffs on imports if Seclusia too removes theirs. 6. Why do economists use real gross domestic product rather than nominal gross domestic product to gauge economic well-being?Define the GDP deflator. Nominal GDP is GDP (goods and services produced, and their prices) calculated at ongoing prices. Real GDP is GDP calculated at constant prices(goods ands and services produced). We use Real GDP because it reflects changes in production vice changes in prices. The GDP Deflator allows calculating only the prices of goods and services. 7. What is the CPI? Which do you debate has a greater effect on the consumer price index a 10 percent increase in the price of chicken, or a 10 percent increase in the price of caviar? Why?Consumer Price Index, is a measure of the overall exist of goods and services bought by a emblematic consumer. A 10% increase in chicken will have a greater affect on the CPI because more people typically by chicken than those who buy caviar. 8. Describe the terce factors that make the consumer price index an imperfect measure of the cost of living. Then explain how the GDP deflator differs from the CPI. Substition preconception Consumers substitute towards goods that cost less Introduction of new goods A new product is introduced allowing more choices.This reduces cost of maintaining same level of economic well being. Unmeasured quality change if a goods quality goes down, but remains at same price then the dollar is worth less than previously. If the quality goes up, and price remains the same, then the dollar is worth more than previously. GDP deflator accounts for goods produced domestically, while CPI accounts for all goods purchased. GDP Deflator also accounts for all currently produced goods, while CPI accounts for a fixed set of good s, that may non include new goods or include goods that no longer exist. 9.List and describe the determinants of productivity. Physical working capital Quality of tools the worker has better quality, the more production. Human Capital Knowledge and Skills education, experience and education. Better training = better efficiency. Natural Resources Resources made available for input into production. Either renewable or non-renawable. Access to resources reduces cost of importing them but is not necessary. Technical KnowledgeRefers to societies taste of how the world works. (Human capital refers to recources expended to transmit this understanding to its workers) 10.Explain how a higher savings rate can lead to a higher tired of living. What might deter a policymaker from trying to raise the rate of saving? Saving now and eat less now, allows for investments and ability to consume more in the future. Diminishing returns are what might deter a policy maker raising rate of savings . At a low capital, an extra increase in capital increases production. But as you continue to invest capital, the growth of production is at a lesser amount. It continues until a point in where a large increase in capital only gives a minor increase in production.