Saturday, August 25, 2007

Assignment 1

3. You have an economics exam tomorrow and you are planning to study tonight. Your best friend calls to tell you that he has an extra ticket to a concert tonight that he will give to you( for free). What is the true cost of attending the concert? Now,suppose that you are scheduled to work tonight at your part-time job.What is the true cost of attending the concert in this case? Explain
Ans : 1. a.Prospect of not doing good in the exam resulting in not getting a better opportunity after passing the exam
b. Spending money to travel to the concert
c. Spending money on food and beverage in the concert.
2. a.Losing the salary of the part time job
b. Spending money to travel to the concert
c. Spending money on food and beverage in the concert.
4. You win $100 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 5 percent interest. What is the opportunity cost of spending the $100 now.
a.giving up the opportunity to spend $105 after 1 year
5. The company that you manage has invested $5 million in developing a new product,but the development is not quite finished. At a recent meeting,your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3million.If it would cost $1million to finish development and make the product,should you go ahead and do so? What is the most that you should pay to complete development.
Do not spend $1million - Loss is $5 million
Spend $1million- marginal profit is $2million
Maximum pay - $3million - no more increase in profit at the margin
6. Three managers of the magic potion company are discussing a possible increase in production. Each suggests a way to make this decision.
Harry : We should examine whether our company's productivity--gallons of potion per worker----would rise or fall.
Ron: We should examine whether our average cost -cost per worker - would rise or fall
Hermione:We should examine whether the extra revenue from selling the additional potion would be greater or smaller than the extra costs
Who do you think is right and why?
Hermione is right since she is thinking of marginal profit. Rational people makes decision by comparing marginal benefits and marginal costs
9. Your roommate is a better cook than you are,but you can clean more quickly than your roommate can.If your roommate did all of the cooking and you did all of the cleaning,whould your chores take you more or less time than if you divided each task evenly? Give a similar example of how specialization and trade can make two countries both better off.
Dividing task will take more time. If they take the comparative advantage of each other, it will increase total production and/or reduce total labor
Let us assume that USA can produce 10 computers or 1 bottle of water per worker and India can produce 1 computer or 1 bottle of water per worker.
In USA, the opportunity cost of producing one bottle of water is 10 computers. In India, the opportunity cost of producing one bottle of water is one computer. So, USA has a comparative advantage in computer and India in bottle of water.
If both countries specialize , let us see what is the result. Let us assume both countries have 2 worker. So,US worker will specialize in producing 20 computers and Indian worker in producing two bottles of water. If India trades 1 bottle of water for 5 computers, then India will end up with 5 computers and 1 bottle of water, USA will end up with 15 computers and 1 bottle of water. So, in this process both countries get richer.
11.Nation with corrupt police and court systems typically have lower standards of living than nations with less corruption. Why might be that case?
It reduces productivity for the following reasons
It increases the cost to domestic business which leads to less productivity and also less affordability.
It acts as an inhibitor to foreign direct investment
It affects annual per capita GDP growth

12.Explain whether each of the following government activities is motivated by a concern about equity or a concern about efficiency. In the case of efficiency ,discuss the type of market failure involved.
a. providing unemployment insurance
b. regulating electrical utilities
c. evaluating mergers of American companies
d. operating public health clinics
e. providing national defense
f. instituting fines for firms who pollute
a. equity
b. efficiency - market power
c. efficiency - market power
d. equity
e. efficiency - market power
f. efficiency - externality
13.Discuss each of the following statements from the standpoints of equity and efficiency
a. "Everyone in society should be guaranteed the best healthcare possible."
b."When workers are laid off,they should be able to collect unemployment benefits until they find a new job."
a. Less efficient more equity-- Even the rich who can pay for the healthcare will get the best healthcare(which is costly) at a much lower price. The government could have used the money the rich people would have spend for a better healthcare for some other purposes. So, in this case the resources are not efficiently managed.
More equity because everyone will get the same level of healthcare irrespective of their affordibality.
Less efficient more quity - The money to be paid to the unemployed will collected as taxes from the employed who is earning the money being productive. If higher taxes are levied, their income after tax will reduce , it will be a disincentive to their productivity.

15. Suppose Americans decide to save more of their incomes.If banks lend this extra saving to business ,which use the funds to build new factories,how might this lead to faster growth in productivity?Who do you suppose benefits from the higher productivity? Is society getting a free lunch?

More people will be employed and their hours will be utilized to create more goods and services. So, the hours which were wasted through unemployment is now utilized to create more goods and services.. This enhances the productivity by making more people productive.
The entire society benefits form the higher productivity, the standard of living of the society will increase.
No, the buliding of new factories, more work, more goods and services means
People in the society has now less time to spend on fun and other leisure activities
The factories might contribute to pollution
More goods and services and its demand cause firms to raise prices - Inflation

1 comment:

Anonymous said...

espoo http://gotuc.net/members/Garage-Door-Openers/default.aspx manure http://gotuc.net/members/Area-Rugs/default.aspx nisit http://gotuc.net/members/Omeprazole/default.aspx shaded http://gotuc.net/members/Vacuum-Cleaners/default.aspx consecutive http://gotuc.net/members/Annuity-Calculator/default.aspx riverina