Training in Economics: May 2016

Wednesday, May 25, 2016

144. COSTS - Fixed & Variable

Fixed costs, as its name suggests, is fixed in total i.e. irrespective of the number of output produced – for example the rent on a factory paid in advance. Fixed costs can become variable over the long term.

Variable costs, varies with the number of output produced. For example the electricity used to produce items or materials used.( keydifferences.com/ difference-between-fixed-cost-and-variable-cost.html)

Tuesday, May 24, 2016

143. A previous exam question Eco 1A

A) The red meat indutry ebark on a massive advertising campaign. Indicate how this will affect the market demand for red meat?

Advertising increases (or hopes to increase) the number of customers. The demand curve will thus move to the right which will signify an increase in demand.

B) What will happen to the supply and demand of red meat and chicken if there is a drought that severely reduces the supply of red meat on the market?

A decrease in the supply of red-meat will cause a decrease in the SUPPLY of red meat - a shift of the supply curve to the left - and since chicken is a substitute (can be used instead of red meat) it will lead an INCREASE in the demand for chicken. a shift of the demand curve to the right.

If you draw the supply and demand curves it means there will be a shift to the left in the SUPPLY of red meat on the one graph – the red meat market (which means an increase in PRICE of red meat; and because it is so expensive less people will purchase it. Because chicken is a substitute more people will enter the chicken market – this is shown in the market for chicken graph as a shift to the right of the demand curve – which will lead to an increase in chicken prices AND an increase in the quantity of chicken traded.

Now in Q 3.3 it says that the red meat guys reduce the price – so you are right: “On question 3.3. am I correct in saying that the decrease in red-meat PRICE (substitute for chicken) will cause an INCREASE in the QUANTITY demanded in red meat (a movement along the demand curve) and a decrease in the demand (a shift to the left of the demand curve) for chicken?”

So yes you are right – make sure that you understand movements along a curve because of price changes and shifts of the curve because of changes in the price of compliments and substitutes !

Sunday, May 22, 2016

142. 22 May 2016 - Previous exam papers eco 1A

Follow this link. So far I only have the one that I handed out in class, but will add the others on 23/5/2016 https://sites.google.com/site/economicssa123/exam-paper-ec1a

Thursday, May 19, 2016

141. When was it illegal to own gold in the United States and why ?

WIKIPEDIA

The United States Gold Reserve Act of January 30, 1934 required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury.[1][2] The Gold Reserve Act outlawed most private possession of gold, forcing individuals to sell it to the Treasury, after which it was stored in United States Bullion Depository at Fort Knox and other locations. The act also changed the nominal price of gold from $20.67 per troy ounce to $35. This price change incentivized foreign investors to export their gold to the United States, while simultaneously devaluing the U.S. dollar in an attempt to spark inflation. The increase in gold reserves due to the price change as well as the confiscation clause resulted in a large accumulation of gold in the Federal Reserve and U.S. Treasury. The increase in the money supply lowered real interest rates which increased investment in durable goods. A year earlier, in 1933, Executive Order 6102 had made it a criminal offense for U.S. citizens to own or trade gold anywhere in the world, with exceptions for some jewelry and collector's coins. These prohibitions were relaxed starting in 1964 – gold certificates were again allowed for private investors on April 24, 1964, although the obligation to pay the certificate holder on demand in gold specie would not be honored. By 1975 Americans could again freely own and trade gold.