7-20-14

Economics
Pg.667 .6 question
a. Since Bob (the bean farmer) made beans and the cost was 1 dollars and Rita (the
rice farmer) rice cost 3 dollars in 2010 and in 2011 the price for the bean went to 2
dollars and the price of the rice went to 6 dollars then the inflation was 100%. The
reason is shown in this equation (8 4)/4*100%=100. The price of the bean and
rice is correct according to the 100% inflation 1+1=2 and 3+3=6. Since the price of
inflation was 100% and both Rita and Bob rose the same amount then neither of
them were affected positively or negatively in 2011.
b. Since now in 2011 the price is different being 2 and 4 dollars not 3 and 6, it is still
the same in 2010 then inflation is 50%. The equation to show that is (6-
4)/4*100=50. Bob is better off since because his prices still doubled like in question
1 but since the rate of inflation was 50%. Now Rita is not better off, but worse off
because the inflation was 50% and her price in 2010 was 3 and now in 2011 it is 4
and not 6 dollars like in question 1. Her price only rose around 30 percent
rounding.
c. Now the price of the rice and bean farmer in 2011 is 2 dollars for the beans and the
price of the rice is now 1.50 then the inflation would be -12.5 percent the equation
being (3.5-4)/4*100=-12.5. In this situation bob is still better off for the close to the
same reasons in question 2. Rita in this scenario is worse off because inflation is -
12.5 her price fell 50%.
Pg. 692 question 9
a. Since in question 9 a the price of an American bushel sells 100 dollars and if you
convert the amount of the bushel of rice sells for 16,000 yen which converted
into us dollars is 200 dollars which you get by dividing 16,000 by 80 you get 200.
In this situation you would make money if you are to export your bushels of rice
to japan since your product sells for sell less, even taken into account the amount
it costs to export it you could still make money since in japan the same amount
of bushels of rice in Japan sell for twice as much. Over time I think what would
end up happening is that the price of rice in the U.S would rise and the price of
rice in Japan would fall over time
b. If rice is the only commodity in the world then the real exchange rate between
the U.S and Japan would change. You would end up getting lees of the U.S money
for the Japanese yen money. This would end up happening until the exchange
rate between the United States and Japan would change until the price becomes
balanced or as in one of the terms we learned in the book the exchange rate
would continue to change until the equilibrium is reached.