Chapter 10, Problem 1QAP

a

To determine

To find:Whether the given statement about logarithmic scale which increases by 5% per year is true, false or uncertain.

Explanation of Solution

When there is a constant increase in variable, the slope will increase by a larger amount compared to previous one. For example, if GDP is $1 and the increment variable is 5%, so there will be increase of 0.05. When GDP is $1000 and the increment variable is 5%, there will be increase of $50. On a logarithmic scale, this will be represented with constant slope however in linear graph, it will be represented as upward sloping line.

Economics Concept Introduction

Introduction:

Returns to scale is a function of long run which determines impact of change in input to overall production process. It has three parts: Increasing returns to scale, Constant returns to scale and Diminishing returns to scale.

b)

To determine

To know:Whether the price of food is higher in poor countries than in rich countries is true, false or uncertain.

Explanation of Solution

False. It is known that a country with higher output has higher prices of goods and foods. For example, when the prices are higher in India, a person living in a India have a per capita national income of $720 while the person living in the United States will have a per capita income of $44000. So, the person would not be able to live in United States if living in India.

Economics Concept Introduction

Introduction:

Returns to scale is a function of long run which determines impact of change in input to overall production process. It has three parts: Increasing returns to scale, Constant returns to scale and Diminishing returns to scale.

c)

To determine

To know:Whether the given statement about evidence of happiness is true, false or uncertain.

Explanation of Solution

Uncertain. In rich countries, when there is an increase in output, it may or may not increase happiness as happiness depends on need of output. If a person is rich, any increase in output would not affect its happiness as the person does not give importance to output. However, in rich country only, if a person is in need of output and there is an increase in output per person, then the person will be happy. So, it is uncertain that person is happy when output per person increases in rich country.

Economics Concept Introduction

Introduction:

Returns to scale is a function of long run which determines impact of change in input to overall production process. It has three parts: Increasing returns to scale, Constant returns to scale and Diminishing returns to scale.

d)

To determine

To know:Whether the output per person in all countries is converging to the output per person in the United States or not.

Explanation of Solution

False, all the countries of the world are not converging towards the level of output per person in the United States. Most of the rich countries or OPEC countries are converging towards it. However, Asian countries are converging to the level of output of U.S. only 16% to 65%. But African countries do not shown such relation or convergence. Moreover, since 1960, there is negative growth recorded in such countries.

Economics Concept Introduction

Introduction:

Returns to scale is a function of long run which determines impact of change in input to overall production process. It has three parts: Increasing returns to scale, Constant returns to scale and Diminishing returns to scale.

e)

To determine

To know:Whether the given statement about Europe is true, false or uncertain.

Explanation of Solution

True, From Roman Empire till 1500 year, the increase in output led to proportional increase in population which nullified the growth of output. As Europe has an agrarian economy and there was no major invention in the field of agriculture, so there was not a major increase in output. Any growth in output is nullifies by proportional increase in population.

Economics Concept Introduction

Introduction:

Returns to scale is a function of long run which determines impact of change in input to overall production process. It has three parts: Increasing returns to scale, Constant returns to scale and Diminishing returns to scale.

f)

To determine

To know:Whether the given statement about technology and capital is true, false or uncertain.

Explanation of Solution

However, capital accumulation leads to diminishing returns in long run as capital per output falls. So, capital productivity decreases after a certain point of time as capital accumulated has fully used up. However, technological progress leads to increase in capital per output.

Economics Concept Introduction

Introduction:

Returns to scale is a function of long run which determines impact of change in input to overall production process. It has three parts: Increasing returns to scale, Constant returns to scale and Diminishing returns to scale.

g)

To determine

To know:Whether the aggregate production function shows relation between output and labor.

Explanation of Solution

True, aggregate production function is linear function showing output and inputs. Inputs are labor and capital. Any increase in input leads to change in output production and hence measured by aggregate production function.

Economics Concept Introduction

Introduction:

Returns to scale is a function of long run which determines impact of change in input to overall production process. It has three parts: Increasing returns to scale, Constant returns to scale and Diminishing returns to scale.