# Economics Homework Five Answers - Student Five

**Anna M**

**1. Define, in your own words, economic “efficiency”. Use it in an example sentence.**

Economic efficiency is using your time to it's best advantage. You do more work in less time and increase your profits and/or productivity. Being efficient is basically "Time is money". The more time you put into something, the greater the result.

- "its best", not "it's best". Excellent answer otherwise.

**2. Suppose the cross elasticity of demand for goods A and B is +3.8, and for goods X and Y is -2.7. What can you conclude about the relationship of the goods A and B, and of X and Y?**

A & B are substitutes, X & Y are complements.

- Correct.

**3. Suppose it costs you $500 to make your first 5 units, then $200 to make your next 5 units, and then $100 to make your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit?**

The marginal cost would be $20.

- Correct again!

**4. Suppose your annual income increases from $20,000 to $25,000. Suppose your demand for steak increases by 10% and your demand for fast food hamburgers decreases by 5%. Which type of goods are steak, and which type are hamburgers?**

Steak is a normal good, hamburgers are an inferior good.

- Right.

**5. What is the basic assumption of the Coase theorem, and why is that assumption so important to the result of the theorem?**

The basic assumption of the Coase theorem is that perfect efficiency can be reached without transaction costs. This assumption is important because it creates perfect efficiency in society.

- A bit awkward ("it creates perfect efficiency" - how does a theorem "create"), but otherwise good.

**6. What does an owner do when his marginal revenue exceeds his marginal cost? Explain.**

Tries to sell more goods. His income is now higher than his cost, and this is good for him.

- Excellent.

**7. What does the Coase theorem say about the desirability, and the effect, of government regulations that increase transaction costs?**

The Coase theorem says that with increasing government regulations, transaction costs increase and efficiency is lost.

- Superb, could use as a model.

- Perfect work! Well done. 70/70.--Andy Schlafly 20:35, 16 October 2009 (EDT)