Macroeconomics (MindTap Course List)
10th Edition
ISBN: 9781285859477
Author: William Boyes, Michael Melvin
Publisher: Cengage Learning
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Question
Chapter 8, Problem 1E
To determine
The difference between the aggregate demand curve of an economy and the demand curve of a single product.
Expert Solution & Answer
Answer to Problem 1E
The differences between aggregate demand curve of an economy and the demand curve of a single product are as follows:
- While aggregate demand is a
macroeconomic concept, demand for a single product is amicroeconomic concept. - The negative slope of the aggregate demand curve that is the inverse relationship between
price level and aggregate demand of the economy is explained by real-balance effect, interest-rate effect, and foreign-purchase effect. The inverse relationship between price and quantity demanded of a good is explained by substitution and income effect. - The price level considered in the case of aggregate demand is a price index of a basket of representative goods and services. The price in case of demand for a single good is the price of that product only.
Explanation of Solution
Aggregate demand is a concept that includes the demand for all the goods and services that different sectors of the economy want to purchase at a point of time at different price levels. It is a macroeconomic concept. The demand for a single product is the quantity demanded of a single product by the consumers at different price levels. It is a microeconomic concept.
The inverse relationship between the aggregate demand and the price level is explained by real-balances effect, the interest-rate effects, and the foreign-purchase effect. The inverse relationship between price and quantity demanded of a good is explained by substitution and income effect. In the case of aggregate demand, the income effect does not work, as income rises when output increases in the economy, unlike the demand for a single product which assumes the income level to be constant.
Economics Concept Introduction
Aggregate demand curve- A downward sloping line that shows the relationship between price level and real
Demand curve of a single product − A downward sloping line showing the relationship between price and demand for a particular product.
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Question 6 of 18
>
The graph shows the average total cost (ATC) curve, the
marginal cost (MC) curve, the average variable cost (AVC)
curve, and the marginal revenue (MR) curve (which is also
the market price) for a perfectly competitive firm that
produces terrible towels. Answer the three questions,
assuming that the firm is profit-maximizing and does not shut
down in the short run.
What is the firm's total revenue?
S
What is the firm's total cost?
$
What is the firm's profit? (Enter a negative number for a loss.)
$
Price
$320
$300
$200
$150
205 260
336
365
Quantity
MC
ATC
AVC
MR=P
1. Suppose that the two nations face the following benefits of pollution, B, and costs of
abatement, C: BN = 10, Bs = 7; CN = 5, Cs = 4. Further assume that if the nation chooses to
abate pollution, it still receives the benefits of pollution but now must pay the cost of
abatement as well.
a. Identify the payoffs that accrue to each nation under the four different possible
outcomes of the game and present these payoffs in the normal form of the game.
b. Recall that the term dominant strategy defines the condition that a player in a game
would prefer to play that strategy (in this case either pollute or abate) regardless of
the strategy chosen by the other player in the game. Does either nation have a
dominant strategy in this game? If so, what is it?
c. Identify the Nash equilibria, or non-cooperative equilibria, of this game.
agrody calming Inted 001 and me
2. A homeowner is concerned about the various air pollutants (e.g., benzene and methane)
released in her house when she cooks with natural gas. She is considering replacing her gas
oven and stove with an electric stove comprising an induction cooktop and convection oven.
The new appliance costs $900 to purchase and install. Capping the old gas line costs an
additional $150 (a one-time fee). The old line must be inspected for leaks each year after
capping, at a cost of $35 for each inspection.
a. If the homeowner plans to remain in the house for four more years and the discount
rate is 4%, what is the minimum present value of the benefits that the homeowner
would need to experience for this purchase to be justified based on its private net
sub present value?
b. While trying to understand how she might express the value of reduced exposure to
indoor air pollutants in dollar terms, the homeowner consulted the EPA website and
found estimates provided by…
Chapter 8 Solutions
Macroeconomics (MindTap Course List)
Knowledge Booster
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