Week 5 Micro

Microeconomics

1 . a . While improving air quality is a desirable thing , it has no inherent monetary measurable economic value . In this example , it does not affect production levels or product prices . It is therefore safe to say that the improving air quality did not affect the GDP of the US

b . In this example , the improvement in environmental quality has led to a monetary outcome . As a result of improving air quality , the government has to spend less on antipollution efforts this year compared to recent years . This leads to lower GDP

. Incredulous as it sounds , improving air quality has resulted to lower GDP . This is because government spending is less due to not having to spend on anti pollution efforts . Since government spending is an additive component of GDP , a decrease in government spending will lead to a decrease in GDP , all other things held equal

c . Since fewer patients undergo treatments , the amount of revenue earned from the service by hospitals decrease since prices are kept constant This in turn translates to a decrease in GDP , assuming all other things are held equal . This includes the assumption that the money the public does not spend on cancer treatments are not spent elsewhere . Should a patient spend his money buying a new car instead of paying for cancer treatments , the effect on the GDP is negligible since the amount of public spending remained the same

2 . Based on the table , it would take 40 years until country M surpasses country L in per capita real GDP . This is due to the faster growth rate of country M compared to country L , even if country L three times the GDP of country M at year zero . Country M would have overtaken country L if its GDP was now three times higher than the GDP of country L . We find this number by looking at the columns for 5 and 8 growth . The entries for the 5 column correspond to the multiplier for the GDP of country L at a given year . Similarly , The entries for the 8 column correspond to the multiplier for the GDP of country M at a given year . We only need to find the row wherein the GDP multiplier for the 8 column is at least three times the multiplier at the 5 column . Scanning through the rows we find that row to correspond to 40 years . After 40 years , the GDP of country L would have been 7 .04 times its current GDP while the GDP of country M is 21 .70 times its current GDP . As we have mentioned , it is at this point that country M would have eclipsed country L in per capita GDP...