Economics of Social Issues Study Set 2

Business

Quiz 2 :

Economic Systems, Resource Allocation, and Social Well-Being: Lessons From Chinas Transition

Quiz 2 :

Economic Systems, Resource Allocation, and Social Well-Being: Lessons From Chinas Transition

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Suppose the market for hot dogs is initially in equilibrium. Would you expect an increase in the price of hot dog buns to cause the same change in the market for hot dogs as would an increase in the price of soft drinks? Show each and explain.
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At an equilibrium phase, the consumers' demand for hot dog products (the buns and wieners mainly) is balanced with the supply that will generate a profitable margin for the sellers. However, changes in the price of one or more of these products can affect the market leading to a surplus or shortage of supplies.
If the price of hot dog buns increases, for instance, the demand for hot dogs as a whole will decrease. Many people simply have no need to purchase hot dog wieners without buns and they would be unwilling to purchase buns at prices that they deem as unreasonably high. This would result in a surplus of hot dog products and send the message that the money used to produce those products could be put to use elsewhere. This will lead sellers to slow or halt production of hot dog goods. They will also competitively lower the price on their remaining products in order to sell them.
The effect is ultimately the same as would occur if prices were increased for a singular product (like soft drinks or pizzas). Consequently, the supply-demand graphs for both products would be similar to each other; both would reflect a decreasing demand for the products in an inverse relationship with the supply.

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Most of the republics created by the fall of the USSR in 1991 have moved, to one degree or another, toward the market approach to economic organization. These economies have had varying degrees of success, but none has done as well as China. Why might this be the case?
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Man nations, the USSR (now Russia) and the United States included, have seen the benefits of moving toward the pure market end of the economic spectrum. China stands out as a shining example of how this shift can ultimately improve economy. One should not take this fact to assume that the shift alone will equal prosperity and economic stability.
A country in wartime or a nation experience civil unrest is highly unlike to reap the benefits of a pure market economy; its resources and finances are likely being tapped to the limit trying to stabilize its infrastructure. The reason this shift worked so well for China and a few other countries like Vietnam is because it just so happened to occur during times of relative stability within these nations.
In China's case, Mao Tse Dong's rule ended with his passing and while there were many who were loyal to him, no one felt the need to spark a revolution or civil unrest in either direction. Thus his successors were able to slowly but surely implement economic change and as they saw their situation improving for themselves and their people, they confidently continued to move toward a more pure market economy.

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Explain the difference between inferior and normal goods.
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The spending habits of consumers and the effect that this has on the market for certain goods are directly linked to consumer incomes. If consumers' buying power is inhibited by a decreased income, then the consumers may stop buying certain products or services and look for cheaper alternatives. A good that consumer typically buys when their income is at an optimal level is known as a normal good. The demand for normal goods increases with rising consumer income and decreases when consumer income falls. The alterative goods that consumers buy more of when their income decreases are known as inferior goods. Generic products or substitutes are inferior goods to name brand products, which are considered normal goods.

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Without reference to a diagram, explain the difference between a change in demand and a change in quantity demanded.
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Explain why the transition from a command economy to a more market-oriented economy often entails a difficult period of transition.
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Compare and contrast the pure market and pure command economic systems. Where does the United States fit on this continuum?
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The Chinese leader perhaps most responsible for putting China on the path to market reform is Deng Xiaoping, whose approach to reform is summarized in the saying "crossing the river while feeling the rocks." What does Deng mean by this, and to what extent do you think China's success in reform is due to this approach?
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One of the important characteristics of the purely competitive market is that there must be free entry to and exit from the market. Why is this condition necessary?
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Suppose that initially the market for new cars in an area approaches being purely competitive. Describe the changes consumers might notice if that market becomes more monopolistic.
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Does the demand for an inferior good behave the same as that for a normal good when consumer income rises? Explain.
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With reference to a supply-and-demand diagram, explain why the equilibrium reached by a market typically reflects a well-being-maximizing production level of the good or service.
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Suppose that during this year there is a very large personal income tax cut. Show and explain the effects you would expect on the market for new cars.
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Hot dogs and hot dog buns are excellent examples of complementary or substitute goods. Explain.
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List and explain the factors we typically hold constant when drawing a demand curve. What additional factors do you think could be added to the list?
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List and explain the factors that we typically hold constant when drawing a supply curve. What additional factors do you think could be added to the list?
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The outcomes for consumers are expected to be quite different if a market is purely competitive rather than purely monopolistic. List some of the differences you would expect and explain your choices.
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Discuss the three major problems embodied in the near-pure command system that existed in China from 1949 to 1978.
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Using the Chinese experience as the example, argue the benefits of the pure market economic system relative to the pure command system.
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Discuss: "Recently the price of gas went up, and at the same time the quantity of gas purchased increased. This is a clear violation of the law of demand."
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