Short answers Essay Example | Topics and Well Written Essays - 750 words

Short answers - Essay ExampleAn economist would advice a firm making accounting lolly to close down because accounting lucre is arrived at by subtracting only explicit costs from the add up revenue. This rejects implicit costs hence inaccuracy of the profits (Aspers, 2011). (b) Why normal profit is the long run yield for a firm under perfect competition When a firm is making economic profits, some other firms will find the markets competitive hence mass entry into the market. This causes the supply curve to shift to the right, which results into a drop of the prices hence profits, be cancelled. The firm will in the end exhibit normal profits as an outcome under perfect competition (Aspers, 2011). (c) Characteristics of both monopolistic and monopoly competition, their advantages and disadvantages Characteristics of monopolistic competition be there exist a large number of buyers and sellers, they exhibit price differentiation, free entry and clear of firms and high selling co sts are incurred. Monopoly on the other hand exhibits characteristics such as the domain of only one firm in the market they are price takers since they are the only producers. They mother the advantage of controlling the whole market and therefore dictate the prices. The only disadvantage is that they are restrict by their own look at curves. Monopolistic case has several advantages the most peculiar is that they are fitted to command a large market base. The market is disadvantaged in that stiff competition may threaten its operations in the market (Aspers, 2011). 4. (a) Graph of Fiscal policy and deflationary gap deflationary gap happens when the actual output (Y) is below the natural output (Yn) this is as shown in the figure above. To mark the deflationary gap expansionary fiscal policy has to be used. The government does this through change magnitude government expending alongside this, the government taxation has to be reduced. The result of employing the expansionar y fiscal policy acts to shift the aggregate demand curve to coincide with the natural output and therefore real GDP is increased. Deflationary gap is caused when the investment funds spending goes down hence it is simply solved when the government increases it investment spending such as spending on infrastructure (Buti, 2003). (b) How fiscal and monetary used to address deflationary gap affects counterweight of payment Fiscal policy tools used to such as increased taxation will dumbfound the costs of local goods to be expensive. When the local goods become expensive balance shifts from favoring importation. When imports are more than exports, there is unfavorable balance of payment, which is harmful to the economy. In addition, monetary policies to correct deflationary gap is that aimed at increasing silver supply, which leads to an increase in prices. Increase in prices causes local goods to be equally expensive leash to increased importation hence unfavorable balance of payme nt. Such negative impacts of balance of payment get when the economy is at the helm of growth (Buti, 2003). 6. (a) Reasons for holding money There are three major reasons for holding money transactionery motive, precautionary motive and speculative motive. For transactionery motive, money is held to undertake daily transactions mostly on basics. Money is also held to handle any future unfortunate occurrences anticipated in the future. Speculators are investors who anticipate that assets will be attractive in the near future hence hold money to take advantage of such (Dobeck, MF &