Economics Homework One Answers - Student Five

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1. Give an example of a "good" not in the lecture, and an example of a "service" not in the lecture. One example of a good would be a book - it is an object that you can touch. One example of a service would be a police officer - he is fulfilling daily services towards the people of his town through reprimanding people that may be harmful to the town.


2. Imagine that your family has two options for dinner: eat at home, or go out to eat at McDonald's. Which option incurs more transaction costs? Identify two specific transaction costs. Which option is cheaper for your family, and why? 'I would say that going out to eat at McDonald's would incur more transaction costs. To eat out, you have to make sure everyone in your house is ready to leave - i.e. wearing clothes fit for going out, shoes, etc. This takes time. Then you have to take the effort to drive to McDonalds, which also uses gas money. When you get there you will most likely have to either wait in line if you're going through the drive-through, or wait inside. The added expense would be paying for the food right then and there. Driving home to eat the food is more waste of time and money. Eating at home would be the cheaper option that incurs less transaction cost - you do not have to leave your house to waste time and money for gas. Although you have to buy the food you have in your house, you could have a frozen stake in your freezer for months at a time without going bad, take it out, cook it, get some vegetables from the garden you have outside, cook them, and you haven't spent a penny.

Superb, especially about how food can be stored in the freezer so eating at home does not require a new trip for every meal as it does for McDonald's. But note that paying for the food itself (without including taxes and the costs of preparation) at McDonald's is not an additional "transaction cost."

3. Define the concept of "scarcity" in your own words, and give an example of how an increase in scarcity for a good or service increases its price. Your example might be a World Series ticket (a good) or a special medical operation (a service), or anything else you can think of that is "scarce" in an economic sense. Extra credit: when do people exaggerate scarcity in their minds? Scarcity is the concept that almost every single thing in the world today is a "scarce product" because it costs money to pay for it. If it is not free it is "scarce." People will go out of their way to buy something they feel like they have a need or a want for, though, even if it costs money. If the availability of the product, however, exceeds their want for it, then it would not be scarce because no one would be willing to pay anything for it. An example of a scarce product would be raspberries - although they are almost always expensive, during the few months of summer when they are in season they can be reasonably priced. The other months of the year they are not bountiful in New Jersey, and the prices goes up. Yet people still want raspberries, and they are willing to pay double and sometimes even triple the amount they would pay when they are in season, just for one pint of raspberries.

Terrific answer.

4. What is the “invisible hand”? Discuss what it is, using an example (which could be from the story in the lecture about the making of a pencil).The invisible hand is a force that is unseen by humans but yet still has influence in their lives and guides them to help others without even knowing it, when they are doing something that seemingly is only beneficial to themselves. For example, a child could set up a lemonade stand one a hot summer day because he wants money for a bike. He charges 25 cents per cup. It seems to him that he is the only one gaining from this situation, as he is making money for something he wants. Yet someone driving home in the heat of the summer day is gaining from this by getting a cold drink for only a quarter, versus lets say a soda from a vending machine for $1.25 or more.

Superb again. May use as a model answer.

5. There are many parables by Jesus in the Gospels of Matthew and Luke (and one in Mark) which use familiar concepts of money and economics in order to teach a deeper, more profound spiritual point. Examples are at Matthew 13:18-23 and 44-46; Matthew 18:21-35; Matthew 20:1-16 and 21:33-46; Mark 12:41-44; Luke 7:36-50; Luke 12:13-21; Luke 14:15-24; Luke 15:8-10; Luke 16:1-13 and 19-31; Luke 18:9-14; and Luke 19:11-27. Pick one of these parables and explain both the economic point and the deeper spiritual point. Extra credit: why might the Gospel of Matthew have more economic parables than the Gospel of Mark does? Matthew 13:18-23. Spiritual point: The seed falling on the rocky soil is representing someone who reads the bible, hears what it has to say, claims to agree with it but then when something crosses their path and they have to choose between what they claim to believe or their own way, they go their own way and give into the temptation of the world. Just like the roots will not grow when the seed falls on rocky ground, Christianity will not develop in anyone's life if they do not allow roots to grow. The seed falling on the good soil represents someone that hears the bible and allows it to take over completely and change their life. Economic point: There are opportunities everywhere in life and you can react to them two ways: embrace them wholeheartedly and do your best to make them work out and succeed, or you can get off on a tangent, work at it for a few weeks and then when the going gets hard forget about it, and the opportunity is lost. One very good example would be itself! The class had the idea to make a website, and they pursued it with passion. When people from all sides started attacking and mocking the idea, instead of giving up, they kept moving forward - and now it is extremely successful with millions of page views!

Terrific, and I really like your example!!!!

6. "Caveat emptor" or "carpe diem": pick one of these concepts and explain what it means to you. "Caveat emptor" meaning "let the buyer beware" when purchasing something new. Let's say I get in the mail a letter saying there's a free t-shirt waiting for me if I just sign this paper and send it in. Before jumping in at the opportunity for something free, I better beware and look for any strings attached like the one year subscription to the magazine the shirt is advertising I am signing up for without even knowing!

Great start! 60/60. Congratulations!--Andy Schlafly 18:16, 14 September 2009 (EDT)