Docsity
Docsity

Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity


Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan


Guidelines and tips
Guidelines and tips

Solutions to Eco 101 Homework Assignment 6, Assignments of Microeconomics

The solutions to question 1-7 in eco 101 homework assignment 6. It includes definitions, calculations, and comparisons between social security and private insurance.

Typology: Assignments

Pre 2010

Uploaded on 08/19/2009

koofers-user-9oy
koofers-user-9oy ๐Ÿ‡บ๐Ÿ‡ธ

10 documents

1 / 6

Toggle sidebar

This page cannot be seen from the preview

Don't miss anything!

bg1
Eco 101
Homework Assignment 6 - Solution Key
The due date for this assignment is Thursday April 28.
Instructions: Complete the following questions and turn in your solutions at the
end of the class lecture on the date due. Remember to include your name and
student number on your submitted document.
Question #1 โ€“ Definitions
i. Social Security โ€“ (see page 308)
ii. Entitlement โ€“(see page 308)
iii. Pay-As-You-Go (PAY-G) Social Security โ€“(see page 309)
iv. Statutory right โ€“(see page 310)
v. Contractual Right โ€“(see page 310)
vi. Individual Equity โ€“(see page 310)
vii. Social Adequacy โ€“(see page 310)
viii. Initial Old โ€“ The persons present when the PAY-G system starts. That
is, those of retirement age who immediately start to
receive benefits without having to incur any costs or pay
social security taxes.
ix. Progressive Tax โ€“(see page 311)
x. Proportional Tax โ€“ (see page 311)
xi. Replacement Rate โ€“ (see page 312)
xii. Adverse Selection โ€“ (see page 316 โ€“ When an individual may choose
to opt out of a program because their expected gain is less than their
expected loss)
xiii. Gross Domestic Product (use the chapter 15 definition) โ€“ (see page
356)
xiv. Recession โ€“ (see page 328)
xv. Labor Force โ€“ (see page 329)
xvi. Labor Force Participation Rate โ€“ (see page 329)
xvii. Unemployed Person โ€“ (see page 331)
xviii. Unemployment Rate โ€“ (see page 331)
xix. Discouraged Worker โ€“ (see page 334)
xx. Frictional Unemployment โ€“ (see page 336)
xxi. Structural Unemployment โ€“ (see page 336)
xxii. Full Employment โ€“ (see page 338)
xxiii. Cyclical Unemployment โ€“ (see page 337)
xxiv. Minimum Wage โ€“ (see page 340)
xxv. Inflation โ€“ (see page 342)
xxvi. Deflation โ€“ (see page 342)
xxvii. Consumer Price Index โ€“ (see page 343)
xxviii. Hyperinflation โ€“ (see page 345)
xxix. Purchasing Power โ€“ (see page 345)
pf3
pf4
pf5

Partial preview of the text

Download Solutions to Eco 101 Homework Assignment 6 and more Assignments Microeconomics in PDF only on Docsity!

Eco 101

Homework Assignment 6 - Solution Key

The due date for this assignment is Thursday April 28.

Instructions: Complete the following questions and turn in your solutions at the end of the class lecture on the date due. Remember to include your name and student number on your submitted document.

Question #1 โ€“ Definitions

i. Social Security โ€“ (see page 308) ii. Entitlement โ€“ (see page 308) iii. Pay-As-You-Go (PAY-G) Social Security โ€“ (see page 309) iv. Statutory right โ€“ (see page 310) v. Contractual Right โ€“ (see page 310) vi. Individual Equity โ€“(see page 310) vii. Social Adequacy โ€“(see page 310) viii. Initial Old โ€“ The persons present when the PAY-G system starts. That is, those of retirement age who immediately start to receive benefits without having to incur any costs or pay social security taxes. ix. Progressive Tax โ€“ (see page 311) x. Proportional Tax โ€“ (see page 311) xi. Replacement Rate โ€“ (see page 312) xii. Adverse Selection โ€“ (see page 316 โ€“ When an individual may choose to opt out of a program because their expected gain is less than their expected loss) xiii. Gross Domestic Product (use the chapter 15 definition) โ€“ (see page 356) xiv. Recession โ€“ (see page 328) xv. Labor Force โ€“ (see page 329) xvi. Labor Force Participation Rate โ€“ (see page 329) xvii. Unemployed Person โ€“ (see page 331) xviii. Unemployment Rate โ€“ (see page 331) xix. Discouraged Worker โ€“ (see page 334) xx. Frictional Unemployment โ€“ (see page 336) xxi. Structural Unemployment โ€“ (see page 336) xxii. Full Employment โ€“ (see page 338) xxiii. Cyclical Unemployment โ€“ (see page 337) xxiv. Minimum Wage โ€“ (see page 340) xxv. Inflation โ€“ (see page 342) xxvi. Deflation โ€“ (see page 342) xxvii. Consumer Price Index โ€“ (see page 343) xxviii. Hyperinflation โ€“ (see page 345) xxix. Purchasing Power โ€“ (see page 345)

Question #2 โ€“ Biotech and Agriculture a) List 3 benefits of biotechnology in agriculture

_1. cheaper food

  1. specialized food products โ€“ i.e. golden rice which has been_ genetically modified to contain higher levels of vitamin A (can help prevent blindness and saves lives in certain developing _countries)
  2. greater productivity_

b) List 3 criticisms cited by opponents of biotechnology in agriculture

_1. environmental risks

  1. health risks
  2. wonโ€™t solve problems of world hunger
  3. only benefits multi-national corporations that develop these products_

Question #3 -

  • In the last year Joe was employed he earned $38,000. He has retired and his social security retirement benefits are $14,400. What is Joeโ€™s replacement rate? - his replacement rate is

= = or about 38%

Question #4 โ€“ a) What are the 7 characteristics of social security?

_1. compulsory

  1. government monopoly
  2. funded by taxes
  3. PAY-G type of system
  4. social adequacy
  5. statutory benefits (as specified by the laws concerning social_ _security)
  6. pools risk
  7. individual equity โ€“ the more you have paid in, the more you_ will get out.

b) What are the 7 characteristics of private insurance?

_1. voluntary

  1. competition by (many) firms
  2. funded by premiums
  3. fully funded
  4. contractual right to benefits
  5. pool risk
  6. individual equity_

c) What characteristics are different between social security and private insurance? Different โ€“ items 1-6 in a) above and 1-5 in b) Similar โ€“ items 7,8 in a) and 6,7 in b)

ii) In year 2 there are 11,000 old workers (those that were young in year 1, and 12,100 young workers. How much does each old person receive?

=

=$11,000 per old person

iii) In year 3 there are 12,100 old workers and 13,310 young workers. How much does each old person receive?

=

=$11,000 per old person

b) Scenario II โ€“ A shrinking population. Now assume that we are in a situation where the aged population is getting larger than the young population (such as the current situation with the impending retirement of so many from the baby boom generation). Some ways the old population can become larger than the young are due to longer life expectancy, slower population growth rate, etc. Compute how much each of the old people will receive in the following scenarios if all young people had contributed $10,000 when they were young: i) In year 60 there are 100,000 old workers and 90,000 young workers. How much does each old person receive?

=

=$9,000 per old person

ii) In year 61 there are 90,000 old workers (those that were young in year 60, and 81,000 young workers. How much does each old person receive?

=

=$9,000 per old person

iii) In year 62 there are 81,000 old workers and 72,900 young workers. How much does each old person receive?

=

=$9,000 per old person

c) Why might the people not like what is happening in b) above as compared to a)?

- The amount of money they are getting out is less than what they are putting in. This essentially amounts to a negative return on social security for people in scenario b)

Question # 7 -

  • Consider the population of a (very) small country with the following characteristics:
    • total population =
    • children under age 16 = 40
    • elderly retired people = 65
    • full time students = 10
  • full time homemakers = 20
  • people working full time for pay = 75
  • people working part time for pay = 20
  • people not working but seeking employment = 5
  • people not working, and no longer looking for employment = 5

i) compute the labor force participation rate

- recall that the labor force participation rate was

# of people in the labor force

Population aged 16+

so =

=0.50 or 50%

ii) compute the unemployment rate

- the unemployment rate is the number of people actively looking

for work divided by the labor force

=0.05 or

5%

Question # 8 -

  • Consider a county with the following data for the consumer price index: Year 2002 CPI = 100 Year 2003 CPI = 105
  • Calculate rate of inflation from 2002 to 2003. - inflation rate =

Year 2003 CPI - Year 2002 CPI

Year 2002 CPI

= = so the inflation rate is 5%