ECO 3401 Chapter 11.1: ECO 3401 - Module 11.1
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In the exercises on page 257, do problem number 4. Remember for the second part of the question you will use the Herfindahl (H) Index (page242 and 243). Make sure you use all the hospitals in each list and that you square the share of each hospital before you add them up. There is a YouTube video that may be helpful in Module 8.
Only one question is correct
Ā |
84% and 679 |
Ā |
36% and 3497 |
Ā |
60% and 2135 |
Ā |
74% and 1718 |
CITY 1 CITY 2
Hospital |
Patients Days (000) |
Hospital |
Patient Days (0000 |
a |
15 |
H |
60 |
B |
85 |
I |
60 |
C |
110 |
J |
54 |
D |
45 |
K |
48 |
E |
70 |
L |
39 |
F |
25 |
M |
39 |
Ā | Ā | Ā | Ā |
Compare the concentration of the markets in the two cities using the four-firm concentration ratio and the Herfindahl ( H ) index. According to this index, concentration is measured as H = Ć®ĀĀ ( S / M ) 2 * 10,000 in which S is the size of each firm and M is the size of the total market. The figure 10,000 is used as a multiplier because H is usually presented as a sum of percentages expressed in absolute terms. The summation sign ( - ) indicates summation over all firms. Thus, if a monopolist with sales of $200 is the only firm in the market, its H index is (200 x 200) - 10,000, or 10,000. If there were three hospitals, each with sales of $100, the H index for that market would be 3,300 [ - (100/300) 2 * 10,000]. There is no true cutoff point for a concentrated versus a no concentrated market, although a figure of about 1,800 is sometimes used (Wilder & Jacobs, 1986). Generally, it is thought that the greater the degree of concentration, the greater will be the ability of the leading firms to influence price, quantity, and other characteristics of output.
Consider a small open economy in which aggregate expenditures, AE, is the sum of consumption spending by households, investment spending by firms, government expenditures and net exports. You may assume that net exports are independent of real GDP and taxes are lumpĆ¢ĀĀsum. The numbers in the table below are in billions.
Real GDP | Consumption | Investment | Gov't Expend. | Net Exports | Taxes | Aggregate Expenditures |
1000 | 1430 | 120 | 50 | -100 | 160 | A |
2000 | B | 120 | 50 | -100 | 160 | 2250 |
3000 | 2930 | 120 | 50 | -100 | 160 | 3000 |
4000 | 3680 | 120 | 50 | -100 | 160 | 3750 |
5000 | 4430 | 120 | 50 | -100 | 160 | 4500 |
a. (4 pts) For the table below, calculate the missing values, A and B. b. (2 pts) From the table above, what kind of situation is the country in with regards to the trade balance (i.e. do we have a trade surplus or deficit)? What kind of situation is the country in with regards to the domestic balance (i.e. is the government running a deficit or surplus)? c. (4 pts) Use the table above to calculate the slope of the AE curve. [Hint: Recall that the slope of the AE curve is the additional increase in aggregate expenditures arising from an increase in GDP.] d. (4 pts) Recall that the Aggregate Expenditure function is written as: AE = AE0 + (slope of AE) *Y where AE0 is Autonomous Expenditures. Use the table in part (a) and your answer to part (c) above to calculate Autonomous Expenditure AE0. [Hint: Calculate induced expenditures for any given level of GDP, and use your answer to figure out AE0] e. (2 pts) In the table above, what is the value of real GDP in equilibrium? f. (4 pts) Suppose that the government decides to spend 500 billion more. By calculating the multiplier (or any other way), calculate the value of the new equilibrium value of real GDP!