Economics Homework Five Answers - Student Six

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AddisonDM 19:19, 16 October 2009 (EDT)

1.Efficiency is the optimal use of resources, or the lack of any waste of resources. “He cleaned his room efficiently, making it look new in just an hour” is an example sentence. A more economic one might be “The assembly line is very efficient- the employees are well trained and assemble more widgets in less time than any other nearby factory.”

Superb.

2.Goods A,B are substitutes. Goods X, Y are complements.

Correct.

3.If it continues to cost $100 to produce the next five, then it costs $20 to make just the next one.

Correct again!

4.The demand for steak increases with an income increase, making steak a normal good. The hamburgers are an inferior good; now that you’re able to afford more steak, you don’t want as many of the cheaper and less healthy hamburgers.

Superb, may use as a model.

5.The basic assumption of the Coase Theorem is that transaction costs hinder efficiency (and of course that transaction costs really exist, though that is established.) If it is assumed that they hinder efficiency, then the result is that they should be eliminated, which implicates regulations of all kinds, including those having to do with property rights.

It is true that transaction costs hinder efficiency, but the essence of the Coase theorem is more profound than efficiency. It has to do with the ability to negotiate rights freely to ensure productive use of property and assets. It is not just for reasons of efficiency that the world will, for example, beat a path to the door of the inventor of the better mousetrap. The power of the free market has something to do with this above and beyond efficiency. (Minus 1).

6.When an owner’s marginal revenue exceeds his marginal costs, he is making money and he will continue to sell more goods. It is when his marginal cost begins to exceed his marginal revenue that he will stop selling.

Excellent.

7.The Coase Theorem strongly suggests that most or all government regulations have the effect of decreasing efficiency and prosperity in the market. Thus the implication is that such regulations are undesirable.

Excellent.

Honors

8.The more substitutes, the more elastic it is, because there are more other goods to turn to when the price of the original good increases.

Superb.

9.The smaller the percentage of income it uses, the more inelastic it is, because you might as well keep buying it even if goes up a bit.

You're correct that is more inelastic, but there is a key word missing in your answer between "if" and "goes". The question asks about income elasticity, but it doesn't make sense for the missing word to be "income" in your answer. You probably meant "price" but that is irrelevant to this question. (Minus 1).

10.They would prefer taxing something that is price inelastic, since there will always be demand and therefore always tax revenue to be made.

Correct.

11.Income elasticity of steak = .4. For hamburgers: -.2

Superb.

12.How do you tell which good is X and which Y? Anyway answer = -.1.

The question asks about demand for french fries, so that is in the numerator (as good Y). Correct number.

13.Perhaps poor people would revolt against the rich, realizing that there is no difference between them and the rich. There is not really a special economic advantage in being a Bill Gates, so the poor people might say why not us instead of Bill Gates.

Wouldn't people say instead, "why does it matter? It doesn't!" Good effort anyway (+2/5).
Total score: 120/120. Excellent! Just check the two you missed. Your answers were close to perfection.--Andy Schlafly 19:12, 17 October 2009 (EDT)
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