ECONOMICS HOMEOWRK 1
CHAPTER 1 FIRST PRINCIPLES
1)
You can choose to purchase your textbooks online through chegg rather than paying a higher price for the same book through your college bookstore. -Principle #4: People usually respond to incentives, exploiting opportunities to make themselves better off.
On your spring break trip, your budget is limited to $35 a day. -Principle #1: Choices are necessary because resources are scarce.
Craigslist allows departing students to sell items such as used books, appliances, and furniture rather than give them away like they formerly did. -Principle #8: Markets usually leads to efficiency.
After a hurricane did extensive damage to homes on the island of St. Crispin, homeowners wanted to purchase many more building materials and hire many more workers then were available on the island. As a result, prices of goods and services rose dramatically across the board. -Principle #11: Overall spending sometimes gets out of line with economy’s productive capacity.
You use a used textbook from your roommate. Your roommate uses the money to buy songs on itunes. -Principle #10: One person’s spending is another person’s income.
You decide how many cups of coffee to have when studying the night before an exam by considering how much more work you can do by having another cup versus how jittery it will make you feel. -Principles #3: How Much is decision at the Margin.
There is a limited lab space available to do project required in Chemistry 101. The lab supervisor assigns lab time to each student based on when the students are able to come.
-Principle #7 Resources should be used efficiently to Achieve Society’s Goals.
You realize that you can graduate a semester early by forgoing a semester of study abroad. -Principle #2: The true cost of something is its opportunity cost.
At the student union, there is a bulletin board on which people advertise used items for sale, such as bicycles. Once you have adjusted for differences in quality, all bikes sell for about the same price. -Principle #6: Market moves toward equilibrium.
You are better at performing lab experiments, and your lab partner is better at writing lab reports. So the two of you agree that you will do the experiments and she will write the report. -Principle #5: There are gains from trade.
State governments mandate that it is illegal to drive without passing a driving exam. -Principle #9: When market do not achieve efficiency, government intervention can improve society’s welfare.
Your parents after tax income has increased because of a tax cut passed by congress. They therefore increase your allowances, which you spend on spring break vacation. -Principle #12: Government policies can change spending.
4)
More people choose to get graduate degrees when the job market is poor. ANS- Usually when thinking about whether you should go to graduate school or not, people think about the cost of grad school as well the opportunity cost of going to grad school. Here, the opportunity cost could be the money they could make and the experiences they could get by working instead of going to grad school. However, when the job market is poor it becomes difficult for people to find proper jobs. People start thinking that it would be easier for them to get good jobs if they go to grad school. Hence, when the job market is poor people do not have much to give up by going to grad school. The opportunity cost of going to grad school is less, therefore, more people choose to get a graduate degree.
More people choose to do their own home repairs when the economy is slow and hourly wages are down. ANS- When the economy is booming people will be able the earn much more money by working hourly than they do when the economy is down. The opportunity cost of doing their own repairs is lower as the worth of their time also decreases when the economy is slow.
There are more parks in the suburban than in urban areas. ANS- The opportunity cost of making parks in the suburban area is lower. In urban area the price of land is very expensive so by making it a park people will lose the opportunity of make more money.
Convenience stores, which have higher prices than supermarkets, carter to busy people. ANS- When people are busy they do not mind paying extra money to save some time. The opportunity cost of time is very important for busy people. So, they do not want to waste their time which could be utilized doing something else by driving a long distance to go to the supermarket.
Fewer student enroll in classes before 10 AM. ANS- Enrolling in classes before 10AM means the student must wake up early. That hour of sleep is very important for most of the student. Therefore, the opportunity cost of enrolling in classes before 10 AM is higher.
10)
The government pays the full tuition for every college student to study whatever he or she wishes. If the government adopts this policy, then all the students will be able to attend college. There will be a fair chance for every student to get education regardless of their financial restrictions which makes this policy equitable. However, this policy is not efficient. The money that the government is spending on the tuition has a very high opportunity cost. The government could have spent this money on various other fields such as health care, infrastructure. Also, this policy encourages most people to go to college but there are jobs which do not require college education and now people will not be willing to do these jobs.
When people lose their jobs, the government provides unemployment benefits until they find new ones. If people start getting unemployment benefits to people who lose their job, the incentive to find a new job decreases. People will start to think that finding a job is not that important. People might prefer to be unemployed which makes this policy inefficient. However, everyone will be getting a certain amount of income to support their life which makes this policy equitable.
CHAPTER 6: MACROECONOMICS: THE BIG PICTURE
2) When one person saves money, he or she will have more money to spend in the future, but this is not true for the whole economy. If everyone starts saving money for the future, the cash flow of the economy decreases. The demand for goods will decrease and the firms will start producing less goods. People will also start losing jobs as there will cutoffs and their income decreases. Therefore, people will have to consume less today. This is called the- paradox of thrift.
5)
A) The three measure of economy that tend to move together during the business cycle are: A) real gross domestic product (real GDP), B) Employment and C) Inflation. When the economy is in upturn all these increases whereas when the economy is facing downturn all three decreases.
B) Recession effects a lot of different variables. One of the most crucial effects of recession is on the workers and their family. During recession many people lose their jobs, they have no source of income. People who still have jobs suffer with a decrease in their wages. The living standard of the people decreases. The number of people living under the poverty line also increases because of the large unemployment rate. Recession also effects businesses. Business can't make proper profit and some of them even shuts down.
C)