Economics for transport managers Essay Example | Topics and Well Written Essays - 2250 words

Economics for transport managers - Essay Example 637.25 Therefore, change in Real GDP between 2003-04 and 2004-05 will be given by; Change = 637.25 – 621.052 = 16.198 % change = (16.198/621.052)*100 = 2.6% (virtual.yosemite.cc.ca.us, 2011). Question 2 Consumer Price Index is largely used as a cost of living index, but in technical terms it is not. CPI measures average change over time in prices paid by consumers for a fixed basket of goods and/or services. Cost of living index would however measure all changes over time in the amount consumers need to spend to reach a certain level of utility or standard of living. CPI ignores vital changes in taxes, water and air quality, crime levels, consumer safety, and quality of education. Additionally, personal experiences may vary from what is indicated by the CPI, this is because an individual's purchasing pattern may differ from the standard market basket. Families which have children have different buying patterns than households of the elderly. The CPI also does not represent the experiences of rural dwellers. CPI measurement limitations fall into two broad categories. Sampling errors CPI only measures the prices of just a sample of items from a sample of shops in a sample of localities. Those items are chosen randomly by the using of Consumer Expenditure Survey (CES). Non-sampling errors These are usually more significant than sampling errors. They bias the CPI upwards or downwards, so the CPI would normally tend to report higher inflation than what consumers are actually experiencing. a) Invention of LCD TVs will lead to lower level Substitution bias Consumers usually tend to respond to changes in price by substituting relatively cheaper goods for goods which have become more expensive. This is referred to as substitution bias. Substitution bias can either occur within item categories (lower level bias) or across item categories (higher level bias). b) Introduction of GPS units in cars will lead to Quality Change Bias If a product is 5% better than its pr edecessor, and its price rises by 10%, then the Bureau of Labor Statistics will record a price increase of only 5%.This reflects what is known as Quality Change Bias. c) Increased personal computer purchase in response to decline in their price will lead to New Outlet/Discount Bias. A discount outlet or price fall gives consumers the opportunity to purchase the same goods at a lower price. The current CPI ignores these price changes. Totally taking the price changes into account usually biases the CPI downwards. d) Greater use of bicycles after price levels increase will lead to high level substitution bias. Since consumers are switching from using cars to using bicycles, this is referred to as higher level substitution bias. e) Higher fuel taxes will lead to high level substitution bias. Since consumers will switch from fuel to using other energy sources, this will be a case of higher level substitution bias. Question 3 Factors that affect the rate of savings in an economy: A case study of Bangladesh Saving is defined as the process of setting aside a certain amount of current income for use in the future, or any resources that may be accumulated in this way over a certain period of time. How much individuals in an economy save is affected by their personal preferences for future over their present consumption and also their expectations of their future income. If people