ECON211

Tutorial Week 2 (Problem Set 1)

 Tutor information
Ivana: (isek574@aucklanduni.ac.nz)
• Wednesday 3-4pm
• Friday 11-12pm

Maria: (mrom506@aucklanduni.ac.nz)
• Friday 10-11am
• Friday 12-1pm

Office hours: 2-3pm, Level 6 OGGB Bridge

 How often does the price you pay for a
haircut change? Would it be appropriate
Question 1 to assume market of haircut clears every
month, 1 year, 2 years?
 • The “market clearing” is the assumption that Q
supplied will consistently align with the quantity
Question 1 demanded
• Price of haircuts changes relatively infrequently
Answers (every 1 to 2 years) – sticky, not flexible.
• Why?
 Consider an economy that produces and consumes fish and
bread. In the following table are data for two different years.

Question
2(a)
Using 2010 as the base year, compute nominal GDP, real GDP,
and the CPI.
Question Nominal GDP is the total value of goods and services measured
at current prices.
2(a)

Nominal GDP
Question Real GDP is the total value of goods and services measured at
constant prices (as in, measured in prices of the base year).
2(a)

Real GDP
 The consumer price index (CPI) measures the level of prices in
Question the economy. It uses a fixed basket of goods over time to weight
prices.
2(a)

CPI
Question By what percentage did prices rise between 2010 and 2020?

2(b) Give the answer for each good and for the two measures of the
overall price level.
Question
2(b)
Question
2(b)

Fish
Question
2(b)

Bread
 Paul drinks only two types of beverage: coffee and tea. In year
1, tea costs $4 each, coffee costs $3 each, and Paul buys 20
cups of coffee. In year 2, coffee costs $4, tea costs $3, and Paul

Question 3
buys 20 cups of tea.
  Coffee Tea

Year 1 (Base year) $3 $4

Year 2 $4 $3
 Compute CPI for beverages for each year. Assume that year 1 is the
base year in which the consumer basket is fixed. How does the CPI
change from year 1 to year 2?

Question  

Year 1 (Base year)

Coffee

$3
Tea

$4
3(a) Year 2 $4 $3
 (𝑃 ×𝑄 )+(𝑃 ×𝑄 )
2 2 2 2
𝐶𝑜𝑓𝑓𝑒𝑒 𝐶𝑜𝑓𝑓𝑒𝑒 𝑇𝑒𝑎 𝑡𝑒𝑎
𝐶𝑃𝐼𝑌𝑒𝑎𝑟2= 1 1 1 1 ×10
Question
3(a)

(𝑃𝐶𝑜𝑓𝑓𝑒𝑒×𝑄𝐶𝑜𝑓𝑓𝑒𝑒)+(𝑃𝑇𝑒𝑎×𝑄𝑡𝑒𝑎)
Question Compute Paul’s nominal spending on beverages in
each year. How does it change from year 1 to year 2?
3(b)
Question
3(b)
Question
3(c)
Question
3(c)
Question 4
Question
4(a) (a) Calculate size of the labour force and
labour-force participation rate.
Question
4(a)
Size of labor
force
Question
4(a)
Labor
participation
Question
4(b) Calculate the number of unemployed and
unemployment rate.
Question
4(b)
Any questions?