Solution – ECON312N All Weeks Discussions (September 2019)

<span itemprop="name">Solution – ECON312N All Weeks Discussions (September 2019)</span>

ECON312N Principles of Economics

Week 1 Discussion

Trade Offs, Opportunity Cost, and Factors of Production

Required Resources

Read/review the following resources for this activity:

Textbook: Chapter 1, 3

Lesson

Minimum of 1 scholarly source

Introduction

The basic economic problem that every society faces is the fact that resources – often called the factors of production – are not sufficient enough to satisfy everything a society would like to have. Thomas Sowell, a renowned economist said, “The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it.” (Sowell, 1993, p. 131). This statement implies that to get one thing we like, we usually have to give up another thing that we like.

Paul Samuelson, America’s first Nobel Prize winner for economics, is credited with providing the first clear explanation of the economic problem. He argued that in order to solve the problem of scarcity, societies must answer three basic questions:

What to produce?

How to produce it?

For whom it should be produced?

Firms produce goods and services, but what they produce and the quantity produced are largely determined by the needs and wants of consumers. Firms make decisions with respect to how goods and services are produced. In making these decisions, firms are faced with the decision on how to combine factors of production to produce the goods and services. For example, one of the decisions firms are frequently confronted with is the decision as to whether to use labor intensive or capital intensive methods of production. Finally, decisions on who will receive the goods or services produced will depend, to a large extent, on the distribution of income in the economy. Individuals with the highest incomes, for example, will have the ability to buy the most goods and services and, therefore, may have many goods and services produced for them.

Making decisions with respect to what, how, and for whom, requires that we trade–off one goal for another. Trade-offs are all the options we give up when we make a choice from competing alternatives. Opportunity cost, on the other hand, is the most valued alternative foregone or the next best alternative to any choice we make. It is important to note that the opportunity cost of a decision is the cost of the choice made in addition to the value or cost of the next best alternative foregone. Effective decision making requires a cost-benefit analysis – comparing the additional costs of alternatives with the additional benefits – of each of the alternatives we have to choose from.

Initial Post Instruction

For the initial post, address all of the following:

What important trade-offs have you made recently? What was the opportunity cost associated with the trade-off? To what extent did you integrate the concept of cost-benefit analysis in the decision-making process to arrive at the most cost effective and efficient choice? In other words, based on the information at your disposal at the time of making the decision, what steps did you take to ensure that you were making the absolute best decision? (Use actual examples from your own experiences or construct hypothetical examples).

Assuming that you are a business owner faced with questions of What to Produce? How to Produce? and For Whom to Produce? what factors would you consider in answering these questions? (Use actual examples from your own experiences or construct hypothetical examples).

ECON312N Principles of Economics

Week 2 Discussion

Demand, Supply, and Market Equilibrium

Required Resources

Read/review the following resources for this activity:

Textbook: Chapter 4, 5

Lesson

Minimum of 1 scholarly source

Introduction

In a market-oriented economy, a change in the price of a product is usually caused by changes in the factors that affect the demand and/or the supply of the product and the price elasticity of the demand for and the supply of the product.

Consider the market for crude oil. As you know, changes in the price of crude oil affect just about everything that is made, transported, eaten, and sold in the United States. For example, a change in the price of crude oil is likely to affect the prices of products like jet fuel, gasoline, diesel, home heating oil, just to name a few. There is a strong correlation between the price of crude oil and the price of gasoline. The Organization of Petroleum Exporting Countries (OPEC) is the largest group of crude oil producing countries in the world. According to Statistica (2018), the average annual OPEC crude oil price has risen steadily from 2016 to 2018 as follows: $40.68 (2016), $52.51 (2017) and $67.33 (as of July 24, 2018). With the significant improvement in the economies of the U.S and other global economies and recent geopolitical events around the world, the price of crude oil is likely to continue to rise in the foreseeable future.

Initial Post Instructions

For the initial post, address the following:

Considering the demand and the supply sides of the crude oil market, provide a comprehensive analysis of domestic and international factors that may be driving the increases in the price of crude oil since 2016.

If the price of crude oil continues to increase, how will the increases affect your buying behavior in the short-term and in the long-term, considering that the demand for most of the products derived from crude oil are typically inelastic?

Explain how changes in the price of gasoline affect your buying behavior of related goods like cars, the use of public transportation, vacations etc.?

Research shows that the demand for gasoline is inelastic. Suppose the price of gasoline continues to rise into the foreseeable future, as predicted. How would your purchases change in the short-term and in the long-term? Explain.

Suppose you have become very informed and convinced about the harmful effects of carbon emissions on both the environment and on public health. Will this newly acquired information change your demand for gasoline or the quantity of gasoline demanded? Explain.

Will the increase in the production of affordable electric cars change your demand or quantity demanded of gasoline? Explain.

ECON312N Principles of Economics

Week 3 Discussion

Concepts of Cost and Prices Under Different Market Structures

Required Resources

Read/review the following resources for this activity:

Textbook: Chapter 10, 11

Lesson

Minimum of 1 scholarly source (other than the article noted in the instructions)

Initial Post Instructions

For the initial post, address the following:

List and briefly explain the features of a Perfectly Competitive market structure. How do firms in a Perfectly Competitive market determine price and profit-maximizing output levels?

According to Papanicolas, Woskie, and Jha (2018), the main drivers of the cost of healthcare in the U.S are “labor and goods, including pharmaceuticals and devices, and administrative costs” (Conclusions and Relevance). If you were the Chief Financial Officer (CFO) of a large medical facility, what cost-cutting measures would you propose to address the excessive cost of operating the facility while maintaining quality of care?

Journal of American Medical Association (JAMA): Special Communication: Question: Why is health care spending in the United States so much greater than in other high-income countries?

Findings: In 2016, the United States spent nearly twice as much as 10 high-income countries on medical care and performed less well on many population health outcomes. Contrary to some explanations for high spending, social spending and health care utilization in the United States did not differ substantially from other high-income nations. Prices of labor and goods, including pharmaceuticals and devices, and administrative costs appeared to be the main drivers of the differences in spending.

Meaning: Efforts targeting utilization alone are unlikely to reduce the growth in health care spending in the United States; a more concerted effort to reduce prices and administrative costs is likely needed.

ECON312N Principles of Economics

Week 4 Discussion

DQ1 Market Concentration of Firms and the Determination of Price and Output

Required Resources

Read/review the following resources for this activity:

Textbook: Chapter 8, 12, 13

Lesson

Minimum of 1 scholarly source

Introduction

Firms in the healthcare industry do not seem to have features of a perfectly competitive market structure and, therefore, must not be classified as such. Those firms fall somewhere within the continuum from monopolistically competitive and oligopoly markets to monopoly markets (specifically regional monopolies).

Initial Post Instructions

For the initial post, decide if you agree or disagree with the introductory statement.

If you agree with this statement, provide at least two examples of firms in the healthcare industry (pharmaceutical companies, medical centers, insurance companies etc.) and identify the features the firms you selected have that make you believe that they should be classified in one or several of the following market structures: monopolistically competitive and oligopoly market structures; monopoly market structures.

If you disagree with the statement above, name at least two firms in the healthcare industry (pharmaceutical companies, medical centers, insurance companies etc.) and provide reasons why those firms you selected can be classified as perfectly competitive firms.

Note: the two examples must come from different industry groups – for example, both firms cannot be insurance companies.

DQ2 Foreign Exchange and the Balance of Trade

Introduction

The value of the U.S. dollar relative to the value of other major currencies has always been an issue of contention among foreign exchange experts and policymakers. There is a school of thought that strongly believes that keeping the value of the U.S. dollar high relative to other major currencies would be beneficial for the U.S. economy. On the other hand, there are those who feel that such a policy could be detrimental to the U.S. economy.

Initial Post Instructions

For the initial post, explain where you stand on the issue and provide reasons to support your position.

If you agree with keeping the value of the U.S. dollar high relative to other major currencies, identify one or more reasons that you find convincing about the line of argument presented by those opposed to a relatively high value for the dollar. What proposals would you make to allay the concerns of those opposed to it?

If you disagree with keeping the value of the U.S. dollar high relative to other major currencies, identify one or more reasons that you find compelling about the line of argument of proponents of a relatively high value for the dollar. What proposals would you make to ease the concerns of proponents of raising the value of the dollar?

ECON312N Principles of Economics

Week 5 Discussion

Unemployment and Skills Mismatch

Required Resources

Read/review the following resources for this activity:

Textbook: Chapter 14, 15

Lesson

Introduction

In the last few years, there has been a debate about the main causes of the high rates of unemployment during the Great Recession (2008-2009). One line of argument is that there is a misalignment between the skill-sets required by employers and the skill-sets of job seekers, which continues to keep millions of Americans out of the job market. In an article published in MIT Technical Review Business Report, Majcher (2014) reported that “employers have 300,000 unfilled manufacturing jobs” which she attributes to the lack of the required skills needed in the manufacturing sector (para. 1).

Since 2010, there has been a steady decrease in the unemployment rate. In fact, in its April 2018 Hiring and Unemployment report, the Labor Department presented the unemployment rate as 3.9%. Despite this low rate of unemployment, there is still a significantly large number of people who cannot find jobs. In a research conducted by LiveCareer, it was reported that “companies claim they cannot find workers with the right skill sets, while workers complain that their existing skills are becoming obsolete due to technological change and automation of various job functions. Less skilled workers simply are not fit for many jobs in the digital age.” (LiveCareer, 2018, para. 1). The lack of well-trained and skilled workers, some worry, may have adverse consequences on the performance of the U.S economy as the economy grows and the productivity of labor becomes increasingly crucial in sustaining the growth. As pointed out in their 2017 report, the Business Roundtable – an association of chief executive officers of America’s leading companies – surveyed its members and reported that “as America continues to recover from the worst economic recession since 1930, our economic growth is hindered because the skills of today’s workers have not kept up with requirements of current and future jobs” (p. 1). This state of affairs, the report argues, is caused by the fact that “the working-age population is growing at half the rate of the past century; labor force participation is holding steadily below that of the past three decades and baby boomers are retiring in record numbers” (p. 1). The report went on to state that “no amount of automation or technological innovation can overcome these headwinds if our nation does not take action to ensure that our labor force holds the skills needed for today’s jobs and for the future” (p. 1).

Initial Post Instructions

For the initial post, address the following:

What educational and job training policy proposals would you like to see implemented to help resolve the apparent skills-mismatch in the U.S labor market?

ECON312N Principles of Economics

Week 6 Discussion

Inflation in the Costs of Education and Healthcare

Required Resources

Read/review the following resources for this activity:

Textbook: Chapter 16

Lesson

Link (website): Bureau of Labor Statistics (Links to an external site.)

Introduction

The Consumer Price Index (CPI) is a measure of the average monthly change in the price for goods and services paid by urban consumers between any two time periods. There are three steps in calculating the CPI. First, the Cost of the CPI market basket is calculated at base year prices. Second, the cost of the CPI market basket is calculated at current period prices. Finally, the CPI is calculated for the base period and the current period. The CPI is used to calculate changes in the cost of living and changes in the value of money. To measure these changes, we calculate the inflation rate, which is the percentage change in the price level from one year to the other. Due to the volatility in the prices of certain goods and services, the CPI basket (that includes all items that Americans spend most of their incomes on) might not be a reliable measure of inflationary and deflationary periods. To get a more accurate measure of CPI, therefore, food and energy items are removed from the basket to get Core CPI (Consumer Price Index for All Urban Consumers: All Items Less Food & Energy [CPILFESL]). This measure of the cost of living is often used as a benchmark for changes in the cost of other goods and services.

Two key components of CPI are the costs of Education and Healthcare. These two variables constitute what is known in Economics as Human Capital, which is a key determinant in the productivity of labor, and hence, essential for economic growth and development. In the last few decades, the value of these variables has risen faster than the value of the general level of prices (CPI), which they are subsets of. According to David Wiczer (2017), “the price of medical care has grown at an average annual rate of 5.3% while the entire basket (headline CPI) has grown at an average annual rate of 3.5%.” He goes on to state that “In the past 20 years, in the regime of stable inflation, headline CPI has grown at an average annual rate of 2.2%, whereas the price level of medical care has grown at an average annual rate of 3.6% – about 70% faster” (para. 1).

As shown in Figure 1, the increases in the costs associated with Healthcare and Education have consistently exceeded the overall cost of living during the period of observation (2000-2018). There are many consequences for the high cost of Healthcare and Education, not least of which are skipping expensive but necessary medical procedures, discouragement from pursuing career enhancing educational requirements, or resorting to educational loans with the potential for life-long financial consequences.

Graph showing the changes in medical care, education, and all items minus food and energy

Figure 1: Increases in the Overall Cost of Living (CPI) Vs. Increases in the Costs of Healthcare and Education.

Initial Post Instructions

For the initial post, address the following:

In your opinion, what are the implications of the high cost of Healthcare and Education on the Human Capital needs of the U.S economy?

What policies would you recommend to rein in these costs, or at least to slow down their rate of increase?

ECON312N Principles of Economics

Week 7 Discussion

The Federal Deficit and National Debt

Required Resources

Read/review the following resources for this activity:

Textbook: Chapter 18, 20

Lesson

Introduction

The federal debt is symptomatic of the nation’s persistent Budget Deficits as the National Debt is the accumulation of Budget Deficits. Deficits grew steadily during the Great Recession when there was a significant shortfall in government revenue, which required that the government pursue an expansionary Fiscal Policy to stimulate the economy. The recession is now over, but the Trump administration, at least for the first two years, pursued deficit spending. In a contribution to Forbes magazine, Chuck Jones (2018) points out that the U.S. Federal deficit was $587 billion in Obama’s last year in office, and it grew to $666 billion in the first year of Trump’s presidency. The Trump Administration’s Tax Reform plan and the two-year bipartisan budget, which passed in February 2018, are estimated, by many accounts, to cause the Federal Deficit to exceed 1 trillion dollars by 2020 (Jones, 2018). The implication of this growing deficit is a further increase in the National Debt.

From 1965 to through 2018, there has been a persistent increase in the Federal Debt. This trend became more pronounced during (and in the aftermath of) the recession of 2008-2009. As shown on Figure 1, in September of 2017, for example, the National Debt rose to 20.24 trillion U.S. dollars. This disturbing increase in the Federal Debt is likely to increase the per capita debt burden for each American citizen. According to Statistica (2018), if the debt owed in 2016 were distributed to every American citizen, the amount owed per capita would be 60,470 U.S. dollars.

Graph showing the total public debt increasing from 1970 to 2017 to 20.24 trillion U.S. dollars.

Figure 1: Federal Debt: Total Public Debt

As the U.S. Federal Debt increased over the years, so did the Federal Debt as a percentage of GDP. From 1965 to 2018, there has been a general increase in the Federal Debt as a percentage of GDP. Remarkably, this increase was very pronounced during (and in the aftermath) of the recession of 2008-2009, after a brief decline from 1995 to 2002. As shown on Figure 2, in the fourth quarter of 2017, the Debt to GDP ratio was 104%. The ratio compares what the U.S. owes to what it produces, and it serves as an indication of the U.S.’s ability to pay its debt. This number can also be interpreted as the number of years it would take for the U.S to pay back its debt if the nation’s GDP is used entirely to pay back its debt (Statistica, 2018).

Graph showing the total public debt as a percent of the gross domestic product. The Debt to GDP ratio was 104% in the fourth quarter of 2017.

Figure 2: Federal Debt: Total Public Debt as a Percent of GDP

Deficit hawks in Congress and conservative activists who railed against President Barack Obama’s spending plans called the GOP debt explosion “dangerous” “immoral” and “a betrayal.” American Conservative Union chairman Matt Schlapp warned the Republican-controlled Congress not to underestimate the impact of responsible spending for voters. In fact, President Trump, whose aides participated in the negotiations and the crafting of the Budget, had a little bit of buyer’s remorse when the Budget was presented to him. In a morning tweet, he threatened to veto the Budget, but later signed it. The Washington Post (2018) summed it up this way “Just hours after threatening a veto, President Trump said Friday afternoon that he had signed a ‘ridiculous’ $1.3 trillion spending bill passed by Congress early Friday, averting a Government Shutdown” (para. 1).

The spending situation has become so alarming that there are renewed calls – from both sides of the political aisle – for a Balanced Budget Amendment to the constitution based on the premise that unless restrained by constitutional rules, legislators will run budget deficits and spend excessively, especially if this would help their reelection efforts. Another basis of this argument is that politicians do not like to levy taxes on constituents, but like to spend on projects favored by their constituents or big political donors. This situation, they argue, creates an incentive structure that makes budget deficits almost inevitable.

Initial Post Instructions

For the initial post, address the following:

Do you agree that the constitution should be amended to include a Balanced Budget requirement? Why or why not?

If you agree with a constitutional amendment, can you identify one reason why some people may be opposed to it? What proposals would you make to allay the concerns of those people?

If you disagree with a constitutional amendment, can you identify a line of argument – made by the proponents of the constitutional amendment – that you find compelling? What do you find persuasive about that line of argument?

ECON312N Principles of Economics

Week 8 Discussion

Fiscal Policy Simulation Exercise

Resources

Read/review the following resources for this activity:

Textbook: all chapters

Lesson (This lesson provides an overview of The Fiscal Ship. Make sure to review before beginning this activity.)

Link (website): The Fiscal Ship (Links to an external site.)

Introduction

Data analysis is an indispensable part of the study of Economics, and plays a significant role in the formulation of economic theory and policy. The Fiscal Ship game will be based on simulating Fiscal Policies to set the U.S budget on a sustainable path. This exercise also reinforces concepts taught in the course.

It is imperative that you read the Instructions provided to help you successfully play this game. Once you have familiarized yourself with the features of the simulation tool, click on the link for The Fiscal Ship to launch the game. Select New Game. Then, conduct your desired policy simulations.

Initial Post Instructions

Answer all of the following questions after you attempt to meet your target goal. If you have the desire and the time, you can play the game more than once in order to meet your target goal.

Specify where in the spectrum of political ideology you would consider yourself to be? Centrist, Progressive or Conservative.

State the Governing Goals you chose and provide reasons why you chose those goals.

Specify which of your policy choices had the largest impact on your fiscal target, and which barely moved the line. Were you surprised by the magnitude of any policy choices?

State whether or not the game made you reevaluate your initial governing goals?

Propose ways that you think the federal government should set the budget on a sustainable course in the next 25 years?

Remember to attach a screenshot of your budget solutions to your discussion post.

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