Economic Questions and Answers

26. The development of tourism can drive the corresponding development of hotels, catering, transportation, entertainment and other industries. Why?

Answer: The development of the tourism industry has brought a large number of tourists, and the increase in tourists will inevitably lead to a large demand for hotels, catering, transportation, entertainment, etc. Therefore, these needs of tourists have driven the development of related industries.

27. The chicken farm and the bun shop are both small businesses. Why is the chicken farm a perfect competition and the bun shop a monopolistic competition?

Answer: Because the products of different chicken farms - eggs - are the same and there is no difference. At the same time, there are many manufacturers of eggs, so they are perfectly competitive.

The names of the products of different bun shops - steamed buns - are the same, but the taste of steamed buns varies widely and is not of the same quality, so the steamed bun shops have monopolistic competition.

28. What is economic growth? How to understand economic growth?

Answer: Economic growth is the increase in GDP or per capita GDP. Economic growth generally has two meanings:

(1) Refers to the increase in the actual output of a country or region within a certain period of time, including the increase in the total output of goods and services needed by residents, concentrated It is manifested in the enhancement of economic strength, that is, the growth of real GDP.

(2) Refers to the expansion of potential production capacity, including the improvement of various resources, capital formation, technological level and other factors that determine the production capacity of a country or region.

29. What are the characteristics of the economic cycle?

Answer: The economic cycle has the following characteristics: First, each economic cycle includes four stages: trough, expansion, peak and recession. Expansion and recession alternate with each other, and there is a trough in the alternation. and crest are two different turning points. The peak is the turning point when the economy turns from expansion to recession, and the trough is the turning point when the economy turns from recession to expansion. In the economic cycle, peaks and troughs also appear alternately with each other. Second, although the four stages of the economic cycle are logically arranged in this order, their duration and shape in each cycle are very different, and no two economic cycles are exactly the same. Third, in the long run, the production capacity of the entire society will always continue to grow, so the output and employment levels at the bottom stage of a certain economic cycle may be higher than at the peak stage of the previous cycle.

30. What is the equilibrium price? How did it form?

Answer: (1) The equilibrium price refers to the price when the demand and supply of a commodity are equal. At this time, the demand price of the commodity is equal to the supply price, which is called the equilibrium price, and the demand quantity and the supply quantity of the commodity are equal, which is called the equilibrium quantity. (2) The equilibrium price is formed spontaneously during the competition between supply and demand in the market. When supply exceeds demand, competition among producers will cause prices to fall; when supply is less than demand, competition among consumers will cause prices to fall; only when the quantity supplied is equal to the quantity demanded, and the supply price is equal to the demand price, both parties In a state of relative equilibrium, the price at this time is the equilibrium price. If there is interference from external forces (such as the existence of monopoly power or state intervention), then this price is not the equilibrium price.

31. Try to explain the classification of income elasticity.

Answer: In real life, the income elasticity we calculate is generally positive. Generally speaking, when people's income increases, demand also increases; when income decreases, demand also decreases. Normal goods EI>0, most items are normal items.

With the exception of a few commodities, the income elasticity coefficient is negative, that is, EI<0. This product is commonly known as low-end products, which are products that people have given up purchasing as their incomes increase, which are also outdated and obsolete products that have been replaced by new generations.

32. "Xiao Wang has 10,000 yuan. If he deposits it in the bank, he can earn 180 yuan in interest for a year. He can earn 500 yuan from doing small business and 300 yuan from stock trading. Xiao Wang has the opportunity to do small business. The cost is 480 yuan." Is this correct? Why?

Answer: This statement is incorrect.

When we use a resource for one purpose, we give up other uses. Use forgone is the opportunity cost of using funds for one use. When understanding opportunity cost, you should pay attention to the following issues.

First, opportunity cost is not the actual cost or loss paid when making a certain choice, but a conceptual cost or loss.

Second, opportunity cost is the best of several other possible choices given up when making one choice, not the others.

Third, opportunity costs are not all caused by personal choices. Other people's choices will bring opportunity costs to you, and your choices will also bring opportunity costs to others.

Therefore, Xiao Wang’s opportunity cost is 300 yuan.

33. How to understand the Human Development Index?

Answer: The Human Development Index (HDI) is a summary measure of human development achievements. It measures the average achievements of a country (region) in three basic aspects of human development, including: (1) Literacy rate, expressed by the adult literacy rate and the comprehensive gross enrollment rate of primary school, middle school and university, reflecting the level of education received by a country’s citizens. Level of education.

(2) Life expectancy, expressed as life expectancy at birth, reflects a healthy and long life, the nutrition, hygiene and environmental conditions of residents. (3) Infant mortality rate reflects the mother’s health status and the national medical and health level.

34 What is cyclical unemployment? How to understand?

Answer: Cyclic unemployment refers to unemployment that rises with economic recession and falls with economic expansion within an economic cycle. Because the effective demand in a society is too low to provide employment opportunities for everyone who wants to work, that is, the number of people who want to be employed exceeds the number of vacancies based on the prevailing wage rate. It includes two types:

① Economic cycle unemployment, that is, unemployment caused by insufficient total social demand because the economic cycle runs in the recession and depression stages.

② Insufficient growth unemployment refers to unemployment caused by the growth rate of demand being slower than the growth rate of labor and the increase rate of labor productivity.

35. Why does the demand for money decrease when interest rates rise?

Answer: There are many components of currency that do not pay interest, such as currency and demand deposits. Interest rate is the opportunity cost of holding money. Holding money does not pay interest, but gives up the interest income that can be obtained when using other financial assets. When interest rates rise, the cost of holding currency increases, so people have to reduce their currency holdings and use currency to purchase other financial assets in order to obtain higher interest rates.

36. Use substitution effect and income effect to explain the demand theorem.

Answer: (1) The substitution effect refers to the impact of changes in the price of a certain commodity on its demand when actual income remains unchanged. This means that if the price of a certain commodity rises, and If the prices of other commodities have not changed, then if the relative prices of other commodities fall, consumers will replace this commodity with other commodities, thus reducing the demand for this commodity. The substitution effect causes the demand for commodities to increase in price. Reduction. (2) The income effect refers to the impact of a change in the price of a certain commodity on its demand when the money income remains unchanged. This means that if the price of a certain commodity rises, the money income of consumers does not change. , then the actual income of consumers decreases, and thus the demand for this commodity also decreases. The income effect reduces the demand for commodities whose prices rise. (3) The demand theorem indicates that commodity prices and demand change in opposite directions. The relationship is exactly the result of the simultaneous action of these two effects.

37. Why can cosmetics make small profits but quick sales but medicines cannot?

Answer: Cosmetics are commodities with elastic demand while medicines are commodities with inelastic demand. Therefore, cosmetics can make small profits but quick turnover, but medicines cannot. Not all drugs cannot make small profits but quick turnover. Compared with ordinary drugs, health care drugs are commodities with elastic demand. The principle of small profits but quick turnover can also be applied to achieve the purpose of increasing total revenue.

38. Use consumer behavior theory to explain why demand and price change in opposite directions.

Answer: (1) Consumers purchase various commodities to maximize utility, or to maximize consumer surplus. The price a consumer is willing to pay depends on the utility he gets for that price.

(2) The monetary price a consumer is willing to pay to purchase a certain quantity of an item depends on the utility he obtains from this quantity of the item. The greater the utility, the higher the price he is willing to pay, and vice versa. . However, according to the law of diminishing marginal utility for consumers, as the quantity of an item purchased by a consumer increases, the marginal utility that the item brings to the consumer decreases, while the marginal utility of money remains unchanged. In this way, as the number of goods increases, consumer surplus decreases, and the price consumers are willing to pay also decreases. Therefore, demand and price must move in opposite directions.

39 Briefly explain the content of the income method when calculating GDP.

Answer: GDP calculated using the income method is the various costs incurred by enterprises when engaging in business activities: including wages paid to workers, rent paid to landowners, profits paid to capital, etc. . These operating costs are also the various types of income that households receive from businesses.

40. What is deflation? Why does deflation occur?

Answer: Deflation is an economic phenomenon opposite to inflation. It refers to an economic phenomenon in which the overall price level continues to decline for a long time and the currency continues to appreciate during a period of relative economic contraction. The essence is that the total social demand continues to be less than the total social supply. The reasons for deflation mainly include the following aspects:

(1) Overproduction, product supply exceeds demand, resulting in a large number of products that cannot be sold, resulting in deflation. This is because some countries have not fundamentally gotten rid of the constraints of overproduction and will face the risk of deflation once problems arise.

(2) Sluggish demand. For example, due to negative impacts such as the downturn in the stock market and reduced investment, the consumer price index has declined compared with the past, thus triggering deflation.

(3) High degree of external dependence. As the locomotive of the global economy, once its economic recovery is weak or declines, other countries and regions that rely on the U.S. economy will experience a downward trend in their currencies.

41. What are the three main motivations for holding currency?

Answer: The three main motivations for holding currency are: transaction motivation, precautionary motivation, and speculative motivation.

Answer: When effective social demand is insufficient, the government drives the economy toward prosperity by increasing spending. But high and volatile inflation inevitably has a negative impact on real output and prosperity levels. These disadvantages are due to:

(1) The tax effect of inflation. When inflation is unpredictable, nominal wages will always increase. As nominal wages increase, more people reach the tax threshold, and many people enter higher tax brackets. In this way, the government's Taxes increase. The amount of tax paid by the public increases and real income decreases. It is not conducive to the increase of savings and also affects the enthusiasm of private and corporate investment.

(2) Transaction costs. One transaction cost of inflation is the cost of leather shoes. It is the loss caused by the increase in travel volume caused by the acceleration of currency circulation in order to avoid currency depreciation.

(3) Cost of uncertainty. When inflation is high, uncertainty about long-term inflation rates increases. This increased uncertainty makes long-term planning difficult. Inflation rates are highly variable, causing many decision-makers to abandon capital investments and other transactions involving long-term commitments. As a result, they lose the benefits brought by the transactions that benefit both parties, and the market efficiency is reduced. Therefore, people focus on the short term. Investment decreased, resulting in slower economic growth. Increased uncertainty also prevents resources from being allocated efficiently. Inflation distorts the information brought by prices, and unreliable price signals cause producers and resource suppliers to often make choices that they will regret later. Resource allocation efficiency is often lower than when the overall price level is more stable. Moreover, people often do not focus on activities in which they have a comparative advantage, but try to find ways to avoid losses caused by inflation.

42. The concept of international balance of payments and the principles for compiling the balance of payments statement

Answer: (1) The international balance of payments is a country’s balance of payments within a certain period (usually within one year) ) is a comparison of the total revenue and expenditure resulting from all economic exchanges with a foreign country. This is a record of a country’s economic interactions with other countries. The balance of payments is reflected in the balance of payments statement, which is prepared according to the principle of double-entry accounting.

(2) The basic principles for preparing the balance of payments are:

First, only economic transactions between domestic and foreign economic units are recorded in the balance of payments.

Second, it is necessary to distinguish two different types of transactions, debit and credit. On the balance of payments, the final debit and credit are always balanced.

Third, the balance of payments is a double-entry bookkeeping system.

43. Briefly describe the IS-LM model.

Answer: If you combine the IS curve and the LM curve, you can get the relationship between interest and national income when the product market and the money market are in equilibrium at the same time. This is the IS-LM model.

When the product market and the money market reach equilibrium at the same level of income and interest rate at the same time, the values ??of equilibrium interest and equilibrium national income can be obtained by solving the simultaneous equations of the IS and LM curves.

44. Under the following circumstances, what will happen to the market demand or demand for VCD players? and explain why. (1) Cinema ticket price dropped from 10 yuan to 5 yuan. (2) The government has stepped up its crackdown on pirated DVDs, and there are almost no pirated DVDs left. (3) A fire broke out in a factory that produces core components of video disc players, and production could not be resumed within half a year. (4) A breakthrough has occurred in the technology for producing video disc players.

Answer: (1) Demand decreases because going to the cinema to watch movies and watching VCDs are substitutes, and the price and demand of the two substitutes move in opposite directions. (2) Demand decreases. Because pirated DVDs and VCDs are complementary goods, the price and demand of the two complementary goods move in opposite directions. (3) Demand decreases, because reduced supply causes prices to rise, which will also reduce demand. (4) Demand increases because increased supply causes prices to fall, causing demand to increase.

45. What implications does the theory of consumer behavior have for corporate decision-making?

Answer: (1) Consumer behavior theory tells us that consumers purchase items to maximize utility. The greater the utility of an item, the higher the price consumers are willing to pay

(2) When deciding what to produce, companies must first consider how much utility the product can bring to consumers. Utility is a psychological feeling that depends on consumer preferences. Therefore, companies must understand current consumer fashions and capture people's preferences; at the same time, they must be good at discovering future consumer fashions so that they can develop products that meet people's preferences in a timely manner. At the same time, consumer fashion is also affected by advertising. A successful advertisement will guide new consumer fashion and influence consumer preferences. Therefore, companies should develop new products based on the preferences of specific groups.

(3) Consumer behavior theory also tells us that the marginal utility of a product is diminishing. If the quantity of a commodity only increases, the marginal utility it brings to consumers will decrease, and the price consumers are willing to pay will be lower. Therefore, the company's products must be diversified. The Law of Diminishing Marginal Utility In fact, companies need to innovate and produce different products.

46. What are the types of short-term costs? What are they like?

Answer: Short-term total cost. Short-run total cost is the sum of the costs required to produce a certain amount of product in the short run. Short-term total costs are divided into fixed costs and variable costs. Fixed costs refer to the costs of factors of production that an enterprise must pay in the short term and cannot be adjusted. Variable costs refer to the costs that an enterprise must pay for factors of production that can be adjusted in the short term.

Short-run average cost. Short-run average cost is the average cost of producing each unit of product in the short run. Short-term average cost is divided into average fixed cost and average variable cost.

Short-run marginal cost. Short-term marginal cost is the total cost increased by each unit of output produced by the company in the short term.

47. Rising wages will lead to increased consumption. Can wage-push inflation also be regarded as demand-pull inflation?

Answer: Yes. The inflationary process may start with excess demand, which causes price increases, prompting unions to demand higher wage rates, so that cost push forces take effect, causing higher inflation. On the other hand, inflation can also start from cost push, such as raising wages under pressure from labor unions, leading to rising prices. At the same time, as currency income levels increase, market demand drives prices to continue to rise, causing higher inflation.

48. What is exchange rate, and what are the ways to express exchange rate?

Answer: (1) Exchange rate, also known as "foreign exchange market" or "exchange rate", is the exchange rate between one country's currency units and other countries' currency units.

(2) There are two pricing methods for foreign exchange rates. The direct pricing method uses 1 unit or 100 units of foreign currency as the standard and converts it into a certain amount of domestic currency. This pricing method is also called payment quotation. The indirect pricing method uses 1 unit or 100 units of the domestic currency as the standard and converts it into a certain amount of foreign currency. This pricing method is also called the receipt quotation.

49. Why does expansionary finance have the largest output effect in the Keynes trap zone?

Answer: ⑴ Since securities speculation is infinitely sensitive to changes in interest rates, when the interest rate increases slightly, the demand for currency speculation will immediately decrease, and the expansion of aggregate demand will easily obtain monetary support.

⑵ Since the monetary support problem was solved immediately, when national income increased, the interest rate increased only slightly. The reduction in such investment is almost zero.

50. Use elasticity theory to explain "low grain prices hurt farmers".

Answer: If a certain product has inelastic demand, then when the price of the product decreases, the increase in demand (and therefore sales) is less than the decrease in price, so total revenue decreases. . There is an old saying in China that "low grain prices hurt farmers", which means that after a bumper harvest, farmers' incomes have been reduced due to falling grain prices. The reason is that food is a necessity of life and the demand is inelastic. Falling food prices due to a bumper harvest will not increase demand in proportion, thus reducing total income and causing losses to farmers (increasing production does not increase income).

51. Why is the average revenue equal to the marginal revenue in a perfectly competitive market, but the average revenue is greater than the marginal revenue in a monopoly market?

Answer: In a perfectly competitive market, companies sell products at established market prices, and changes in the sales volume of individual companies cannot affect the market price, so price = average revenue = marginal revenue.

In a monopoly market, the selling price of each unit of product is its average revenue, so the price is equal to the average revenue. However, when the sales volume increases, the price of the product will decrease, thereby reducing the marginal revenue. In this way, the average revenue will not be equal to the marginal revenue, but the average revenue will be greater than the marginal revenue. Since the law of change in revenue is the same as the law of change in output, according to the relationship between average product and marginal product, when average product or average revenue decreases, marginal product or marginal revenue is less than average product or average revenue.

52 Relevant departments have announced a salary increase plan. At this time, the price of shopping in the market may be higher than before. What kind of inflation is this?

Answer: Inflation driven by demand. The announcement of the salary increase plan means that people's consumer confidence will be enhanced, and people's consumer spending will increase accordingly in the future. When the current supply level remains unchanged, the general rise in price levels is considered to be demand-driven inflation.

53. Briefly describe the interest parity theory?

Answer: The different interest rate levels between the two countries will cause the cross-border flow of arbitrage funds. Since arbitrage transactions in the spot exchange market are also accompanied by offsetting transactions in the forward foreign exchange market, the forward exchange rate will be adjusted. Generally speaking, countries with higher interest rates will have forward currency discounts, while countries with lower interest rates will have forward currency premiums. The continuous adjustment of the forward exchange rate eventually makes the arbitrage gains disappear. At this time, the flow of arbitrage funds stops and the foreign exchange market reaches equilibrium. When the foreign exchange market achieves equilibrium, the interest income earned by a certain amount of funds in two countries will have the same value if measured in the same currency unit. The theory that determines exchange rates from this is called the interest parity theory.

54. What are the principles that should be followed when calculating GDP?

Answer: The principles that should be followed when calculating GDP include: (1) Current price; (2) Final product principle; (3) Flow principle; (4) Territory principle.

55. John’s dog is noisy all day long, which affects the neighbors’ rest. He was sued by his neighbors and paid a $1,000 fine. Please use externality theory to analyze whether John’s dog has a harmful external impact on his neighbors. Why?

Answer: John’s dog’s noise is not a harmful externality.

Externalities refer to the impact of the economic activities of a certain social member (consumer or producer) on other social members, and this impact is not compensated through market mechanisms. In economic activities, if the mutual influence between parties can be compensated through market mechanisms, this influence is not an externality.