FreeEconHelp.com, Learning Economics... Solved!: problem solving
Showing posts with label problem solving. Show all posts
Showing posts with label problem solving. Show all posts

6/18/11

How to finish solving your comparative advantage, or gains from trade problem

15:00
How to finish solving your comparative advantage, or gains from trade problem
Now we have to determine who has the comparative advantage in each good. Luckily they both don’t have the same opportunity costs, otherwise there would be no potential for gains from trade. Lets look at papayas first:

US’s opportunity cost of a papaya is 3 apples.

Mexico’s opportunity cost of a papaya is ½ an apple.

So Mexico has the lower opportunity cost of producing a papaya so Mexico should specialize in papayas, and this leaves the US to specialize in apples. With both countries producing only what they have their comparative advantage in, the world economy now has more stuff.

6/7/11

Nominal vs. Real GDP or Prices, the use of the GDP deflator

10:35
Nominal vs. Real GDP or Prices, the use of the GDP deflator
Nominal refers to a measurement of GDP given current prices.  Nominal prices are therefore the prices that we observe when we go shopping, or check out products on the internet.  Real GDP refers to measuring the GDP using past prices as a base.  Using real GDP or prices allows us to make comparisons across years without worrying about the effect of inflation.  For example, if we only look at nominal GDP numbers, we would see strong growth over time.  In order to find out how much GDP really grows, we need to use a tool called the GDP deflator.

Great right?  But how do we figure this out?  We need to have nominal and real numbers

6/5/11

Question: Is there an acceptable level of pollution?

19:58
Question: Is there an acceptable level of pollution?
Question for today:

As an economist, how would you respond to the following statement "There is no such thing as an acceptable level of pollution"?

A. I would disagree with this statement because the market is able to allocate sufficient resources to reducing pollution to an acceptable level. Externalities are taken into account by those making market choices.

B. I would disagree with this statement because although reducing pollution

6/4/11

What does an elasticity measure of -.2 mean?

18:44
What does an elasticity measure of -.2 mean?
What do elasticity measures tell us?

Well it depends on which elasticity we are looking at.  If we are considering the price elasticity of demand, shown right, then having an elasticity measure of -.2 means that as price goes up by some percent change, then quantity goes down by that percent change multiplied by -.2.

This is a good result, because it is saying that as the price goes up, we demand less of that good.  How much less of the good, only -.2, which means that the good is INELASTIC.  As long as the elasticity measure is below 1 (or above -1), then the quantity changes at a relatively lower amount than price, so we call that inelastic.  See the post on elasticities for more of an explanation.

What if the price elasticity of supply was -.2?  Then we would be saying if price

5/29/11

How to "think", when solving problems for your economics class

20:47
How to "think", when solving problems for your economics class
When most students take their first economics class, one of two things usually happen.  Either the class makes sense with almost no effort, or it is like the class is being taught in a foreign language which you cannot speak.  I think that this mostly has to do with the way someone perceives the world, and if you tend to analyze decisions thinking about costs and benefits, or take a logical/mathematical approach, then economics is going to come very easy to you.  However, since you are at this site, this is probably not the case.  The rest of this post is going to state an effective way to think about economics problems, so that if it doesn't come naturally to you, you can use this approach to make the best out of the situation.

Solving problems in economics is a lot like writing a mathematical proof or logic statement.  You begin with a situation, which is represented in circle A.  You then have some event occur, which is represented by the arrow B.  Depending on what B was, you will end up in other situation, represented by the circle C.

This example may seem very simplistic, but