Download Econ 372 - Marietta College

Econ 372
Problem Set 1
Marietta College
Spring 2005
How Do We Compare?
1.
Probably the single most important characteristic by which different economic systems have been classified is property rights.
Why are property rights considered so important in the classification of economic systems?
2.
Although consumer sovereignty and planners' preferences are generally associated with market and plan, respectively, in
theory there is no reason why a plan cannot take full account of consumer preferences. Comment.
3.
Consider the PPF below. C* represents the economy's subsistence level of consumption; if consumption drops below C*,
some people will starve. I* represents the level of investment necessary to replace worn out equipment and keep the PPF in
its present position; with less investment, the PPF will shrink next year, with more investment the PPF will grow.
a)
Redraw the above diagram on the answer sheet. Make sure you label your graph completely. Indicate where the
economy will produce for each of the following goals:
(1) Grow as rapidly as possible without starving its citizens.
(2) Enjoy as much consumption as possible without reducing its PPF in the future.
(3) Produce C* or more of consumption goods and I* or more of investment goods.
b)
Suppose that a severe disaster forces the country's PPF to shift in until it is barely possible to produce I* and C*.
Draw the economy's new PPF, and answer the questions for part (a) again. (Draw the new PPF on the same chart
used above.)
10
C* = 3
Investment Goods
9
8
7
6
5
4
3
I* = 2
2
1
0
0
1
2
3
4
5
6
7
8
9
10
Consumption Goods
4.
Countries that rely on the market system during times of peace have been known to use rationing and central control during
times of war. How might this be explained?
5.
What are a few examples of coercive, material, and moral incentives that influence the behavior of college students?
6.
What is the difference between GNP and GDP?
7.
Suppose that you are appointed Minister of Propaganda for your country and you wish to say that your country has an even
distribution of income. Without actually falsifying the data, how will you collect and arrange them to make your point? What
forms of income and taxation will you include? What population unit will you use? With what country will you compare
your country's income distribution?
8.
Is it possible to develop a single index of economic achievement that one might use to compare the economic achievement of
two different real-world economic systems?
9.
Distinguish between the Hayekian, Rawlsian, socialist, and pure communist views of how income should be distributed.
Market Capitalism
10.
State intervention in the capitalist market economy is frequently justified as a way of stabilizing the economy, correcting
misallocation arising from monopoly, or solving problems of externalities. Choose one such form of state intervention and
argue the case for its use. Now, argue the case against state intervention.
11.
How is income inequality justified in the capitalist market model?
12.
What is the function of profit in a market economy?
13.
What is the function of prices in a market economy?
14.
What are some goods that are publicly provided in the US that could be efficiently provided privately instead? Why are they
not so provided?
15.
What are the justifications for government intervention into a market capitalist economy?
16.
Imagine that the market for milk in Lithostonia is described by the following equations:
Pd = 300 – 10Q (Demand)
Ps = 50 + 10Q (Supply)
a)
What is the market equilibrium price and quantity? Illstrate the outcome with a diagram.
b)
What is the consumer surplus and producer surplus equal to at the market equilibrium?
c)
Suppose the government imposes a price ceiling at $100. What is the quantity demanded and quantity supplied at
this price? What happens to the sum of consumer and producer surplus?
d)
Suppose the government imposes a price floor at $200. What is the quantity demanded and quantity supplied at this
price? What happens to the sum of consumer and producer surplus?
17.
Show the impact of the following macroeconomic policies on a nation’s output and price level.
a)
The government increases the money supply in a country.
b)
The government decreases income taxes.
Marxism and Socialism
18.
Discuss the following Marxian concepts:
a)
labor theory of value.
b)
surplus value
c)
falling tendency of the rate of profit
19.
Discuss the points of contention in the debate between von Mises and Lange over the workability of socialism.
20.
What is a soft budget constraint? What are the consequences of a soft budget constraint in terms of efficiency?
21.
Critics of the "cooperative economy" suggest that it can lead to stagflation. Evaluate the pros and cons of this argument.
22.
Examine the tables near the end of Chapter 3. There are countries whose real capita output rose between 1989 and 1999
while their HDI declined, and there are other countries for which the opposite is true. Which countries fall within these two
groups and what might explain such outcomes?
Islamic Economics and Other Religions
23.
Compare and contrast Buddhist, Hindu, and Confucian views of the role of the state in the economy.
24.
Compare and contrast Judaic, Catholic, Protestant, and Islamic views of market capitalism.
25.
Why does Islam seem to have a more fully developed economic system than other major world religions?
26.
Why in most modern economies is zakat unlikely to be able to resolve major income inequalities?
27.
What are some economic arguments for and against the Islamic forbidding of riba?
28.
Why do we see a trend in modern Islamic banks towards more interest-like kinds of loan arrangements?