Economics Assignment: Analysis of Economic Principles and Data

This economics assignment provides detailed solutions to various economic concepts and questions. The assignment includes explanations of perfect competition, normal profit, and strategic decisions using game theory. It analyzes GDP data, calculates the GDP deflator, and discusses the impact of robots and artificial intelligence on jobs. The assignment also explores durable and non-durable goods, factors used for economic predictions, the difference between nominal and real income, and the concepts of frictional and cyclical unemployment. Additionally, it explains the functions of money, including its role as a medium of exchange, store of value, and unit of account. The assignment aims to provide a comprehensive understanding of these economic principles with detailed explanations.

Running head: ECONOMIC ASSIGNMENT
Economic Assignment
Name of the Student
Name of the University
Author Note

1ECONOMIC ASSIGNMENT
Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question 3........................................................................................................................................3
Question 4........................................................................................................................................4
Question 5........................................................................................................................................5
Question 6........................................................................................................................................5

2ECONOMIC ASSIGNMENT
Question 1
(a)
Figure 1 Long-run Profit
Source: Mankiw G. (2016)
Figure 1 shows that in the long run, there exists only normal profit as this market
structure is that of a perfect competition. Normal profit is a point where the revenue received is
equal to the cost paid given by point E. My mate will be happy since it is a long run situation, he
is at a point where he has maximized his profit and he is at an optimum point where his resources
are being optimally used.
(b) Out of the many strategic decisions that are made in everyday life, the most common is
changing lanes to a fast lane while driving (Talebpour, Mahmassani and Hamdar 2015). We
often take the decision to change lanes to a faster lane but if everyone starts to do that then this

3ECONOMIC ASSIGNMENT
lane will become the slow lane so the best thing to do is to keep changing lanes often in that way
equilibrium would be reached and both the lanes will be fast moving.
Question 2
(a) The real GDP for 2016 and 2017 are $1066060and $1090330 respectively and the
nominal GDP for the two years are $48021.9 and $50588.1 respectively as per the OECD
data. On calculating for the GDP deflator given by the formula
GDP Price Deflator = (Nominal GDP ÷ real GDP) x 100
So the GDP deflator of 2016 is 4.51 and 4.64 for 2017. This shows that the economy grew
but the data used was incorrect.
(b) Robots and artificial intelligent pose a significant treat on both white and blue coloured
jobs. Jobs which require heavy physical labour like in the construction industry can easily
be replaced by robots. The jobs of a analysts can also be replaced by artificial intelligence
and therefore employees face the threat of being replaced by robots and artificial
intelligence (Smith and Anderson 2014).
Question 3
(a) In the given example, Fred deals with the sale of new cars which is a durable good where
as Flintstone deals with grocery which is a non-durable good. Durable goods have a
longer life span and their demand can be delayed whereas non-durable goods have a
shorter life span and they have an inelastic nature (Eraker, Shaliastovich and Wang
2015). Therefore, business cycles will have an impact on the sale of durable goods like an
economic slowdown led to the fall in the sale of cars but had a very little impact on the
grocery store. Therefore spending on durable goods tend to be more cyclical in nature as

4ECONOMIC ASSIGNMENT
their consumption can be post-poned in times of an economic slowdown or weakness
(Kaplan, Mitman and Violante 2016).
(b) Two variables that a government will analyze to make predictions for the following six
months will be based on the real GDP and GDP Deflator. Real GDP takes into account
the final value of goods and services that is produced by a given country, in a given year,
within its geographical territory of that country. To analyze the purchasing power and
level of growth of an economy, governments often use this measure, as it is inflation
adjusted. GDP deflator is a means of measuring the prevailing inflation, which gives the
picture of the price level prevailing in the country. It is a means to measure the level of
prices of all new and domestically produced goods and services in an economy. It is
given by the formula
GDP Deflator = (Nominal GDP/Real GDP) X 100
Question 4
(a) My brother had an increase in his nominal income by 2% but his real income fell. This is
because the nominal income is the money he gets at hand but the real income is the
inflation-adjusted amount. Since my brother feels that his real income has fallen this
means that there has been a rise in the inflation rate, which has brought down the real
income. Nominal wage increases are decided upon by calculating the inflation and in this
case the anticipated inflation differed from the unanticipated inflation. Anticipated
inflation is the expected inflation rate against which actions are taken however
unanticipated inflation is not expected because of which the union settled for a 2%
increase but the unanticipated inflation was higher which led to a fall in my brother’s real
income (Smith 2015).

5ECONOMIC ASSIGNMENT
(b) When there is a rise in the price of a good the two issues that are addressed are whether
substitutes are available for the good and whether that consumption of the good can be
delayed. If the good can be substituted for some other good with a lower price the
consumption decisions are changed. The other aspect is if the consumption of the good
can be delayed then the good will be consumed in the future when the price of the good
would fall.
Question 5
(a) Tom and Mary are facing frictional unemployment where they are not getting a job
temporarily because they have left their old jobs for different reasons and are looking for
jobs to match their requirements. However, Jerry is facing cyclical unemployment
because she is not being employed because of contraction in the business cycle the
demand of her skill has fallen.
(b) Mary meant that due to the market situation lesser people are willing to join the work
force, which is leading to a fall in the unemployment rate. The participation rate is falling
but the employment rate is not and that is why it is a bad news as there is no job creation
in the economy.
Question 6
(a) A credit card is the card issuer specified limit or overdraft, a level upto
which the cardholder can take a loan. It is a medium to take a loan but
unlike money, it is not a legal tender.
(b) Money has three main functions:
 Medium of Exchange: To facilitate transactions something needs to be exchanged
to get a good else the barter system would come back to being. To get sugar for

6ECONOMIC ASSIGNMENT
our daily use we need to exchange it for something. This is where money plays a
crucial role. It acts as a medium through which exchanges are made based on the
value of the good being demanded for without the need of having a double
coincidence of wants.
 Store of Value: Money needs to hold some value else the exchanges would not
take place and its value needs to be equivalent to the good it is being exchanged
for. A currency note worth $10 is exchanged for a bar of chocolate. So the note
defines the value of the bar of chocolate. This is how money plays the role of a
store of value. The $10 will always be of that value and can be further exchanged’
 Unit of Account: Money provides a common measure so that the prices of goods
can be set in accordance to their respective values. Because it has a defined value
it can be used to buy both sugar as well as chocolates. The value of the currency
note will change with the value of the product but he note can be universally used
for all purchases (Sardoni 2015).

7ECONOMIC ASSIGNMENT
References
Australia - OECD Data. (2018). Retrieved from https://data.oecd.org/australia.htm
Eraker, B., Shaliastovich, I. and Wang, W., 2015. Durable goods, inflation risk, and equilibrium
asset prices. The Review of Financial Studies, 29(1), pp.193-231.
Kaplan, G., Mitman, K. and Violante, G.L., 2016. Non-durable Consumption and Housing Net
Worth in the Great Recession: Evidence from Easily Accessible Data (No. w22232).
National Bureau of Economic Research.
Mankiw, G., 2016. A quick note on a universal basic income. Retrieved February, 7, p.2017.
Sardoni, C., 2015. The functions of money and the demand for liquidity (No. 3/15).
Smith, A. and Anderson, J., 2014. AI, Robotics, and the Future of Jobs. Pew Research Center, 6.
Smith, J.C., 2015. Pay growth, fairness, and job satisfaction: Implications for nominal and real
wage rigidity. The Scandinavian Journal of Economics, 117(3), pp.852-877.
Talebpour, A., Mahmassani, H.S. and Hamdar, S.H., 2015. Modeling lane-changing behavior in
a connected environment: A game theory approach. Transportation Research
Procedia, 7, pp.420-440.