What is the relationship between actual investment, planned investment, and saving in an economy? What conditions among these concepts produce equilibrium?
What will be an ideal response?
Actual investment consists of both planned and unplanned changes in inventories. It equals saving by definition. Unplanned changes in inventories, however, are the item that helps equate actual investment with saving. Thus, planned investment and saving will only be equal when there are no unplanned changes in inventories. Equilibrium occurs in the economy only when planned investment equals saving.
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Two stores—Lazy Guys and Ralph's Recliners—are located in the same city
Both stores buy recliner chairs from the same manufacturer at the same price and both stores are about the same size, so that the fixed costs of production for both stores are the same. Ralph's Recliners sells more recliners per month and Ralph's has a lower average total cost of production. Which of the following can explain why the average total cost of production is lower for Ralph's Recliners? A) The rent Lazy Guys pays for its building is greater than the rent paid by Ralph's Recliners. B) Ralph's explicit costs are less because Ralph owns the land on which his building is located. Lazy Guys must make lease payments for the land on which its store is located. C) The price of recliners charged by Ralph's is greater than the price charged by Lazy Guys. D) Because Ralph's Recliners sells more output its average fixed costs are lower than Lazy Guys' average fixed costs.
At least one economist has suggested that even large developing-country cities are economically too small. What argument would support this contention? How would you argue against it?
What will be an ideal response?