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| | If you buy clothes over the internet instead, then you avoid some transaction costs but also take a risk that you might not like it when it arrives. Also, you have to pay for shipping when you buy over the internet, and the shipping costs are transaction costs. | | If you buy clothes over the internet instead, then you avoid some transaction costs but also take a risk that you might not like it when it arrives. Also, you have to pay for shipping when you buy over the internet, and the shipping costs are transaction costs. |
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| − | “Transaction costs” are defined as the time, effort and added expense associated with the purchase of a good or service. Look around, and you will start noticing them everywhere. Almost nothing can be bought without all sorts of middlemen tacking on extra costs. Effort is also required by you when you buy almost anything. Some entire professions are built on transaction costs. Most attorneys, for example, make their entire living as transaction costs. People hire an attorney to help them obtain what they want. Salesmen, too, live off of transaction costs. | + | “Transaction costs” are defined as the time, effort and added expense associated with the purchase of a good or service. Look around, and you will start noticing them everywhere. Almost nothing can be bought without all sorts of middlemen tacking on extra costs. Effort is also required by you when you buy almost anything. Some entire professions are built on transaction costs. Salesmen, for example, live off of transaction costs that are part of buying and selling goods. One could even describe health care as a “transaction cost” of living! |
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| | We will be referring to transaction costs throughout this course. They are one of the most basic concepts in economics. Often transaction costs are obstacles to the efficient purchase and sale of goods. | | We will be referring to transaction costs throughout this course. They are one of the most basic concepts in economics. Often transaction costs are obstacles to the efficient purchase and sale of goods. |
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| | When the early Jamestown settlers were on the brink of failure because no one was working, John Smith arrived and instituted a new rule: “He who does not work, will not eat.” Each individual then began working just to feed himself. The community soon became very successful. The invisible hand is the force that guides people to do work that is needed such that others benefit. | | When the early Jamestown settlers were on the brink of failure because no one was working, John Smith arrived and instituted a new rule: “He who does not work, will not eat.” Each individual then began working just to feed himself. The community soon became very successful. The invisible hand is the force that guides people to do work that is needed such that others benefit. |
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| − | The opposite of the “invisible hand” is government control. In dictatorships like the former communist Soviet Union under Josef Stalin, the government dictates what people will and will not do. There is no “invisible hand.” The result is often disastrous. Tens of millions of people starved to death under Stalin’s rule due to the improper government planning. Stalin may have even starved them intentionally. | + | The opposite of the “invisible hand” is government control. In dictatorships like the former communist Soviet Union under Josef Stalin, the government dictates what people will and will not do. There is no “invisible hand.” The result is often disastrous. Tens of millions of people starved to death under Stalin’s rule due to his communistic government planning. Stalin may have even starved them intentionally. |
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| | ==Example of the Invisible Hand: "I, Pencil"== | | ==Example of the Invisible Hand: "I, Pencil"== |
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| | <br>http://www.conservapedia.com/Economics_Homework | | <br>http://www.conservapedia.com/Economics_Homework |
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| − | Alternatively, you can hand in your homework answers on paper at the next class, for me to grade and return at the following class. | + | Alternatively, you can email me your homework answers. All homework is due within one week. |
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| | If you cannot figure out answers to this or any other homework assignment in this class, then try looking at the model answers to similar questions as posted here: http://www.conservapedia.com/Economics_Lectures | | If you cannot figure out answers to this or any other homework assignment in this class, then try looking at the model answers to similar questions as posted here: http://www.conservapedia.com/Economics_Lectures |
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| | 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? | | 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? |
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| − | 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? | + | 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 an item in a store (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? |
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| | 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). | | 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). |
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| | ===Honors=== | | ===Honors=== |
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| − | Write an essay totaling about 300 words (rough approximation only) on one or more of the following topics (for example, you essay can be entirely about one of the questions below, or can address more than one of the questions below): | + | Write an essay totaling about 300 words (rough approximation only) on one or more of the following topics (for example, your essay can be entirely about one of the questions below, or can address more than one of the questions below): |
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| | 7. Please suggest an improvement to our definition of "economics", being as creative as you like, and explain why you think your definition might be better. | | 7. Please suggest an improvement to our definition of "economics", being as creative as you like, and explain why you think your definition might be better. |
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| | 8. "Money is a good servant, but a poor master." Please explain. | | 8. "Money is a good servant, but a poor master." Please explain. |
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| − | 9. Improve on the lecture's definition of scarcity, and/or discuss the Ehrlich-Simon disagreement. | + | 9. Improve on this lecture's definition of scarcity, and/or discuss the Ehrlich-Simon disagreement. |
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| − | 10. (Based on a true story.) Imagine that you are riding on an airplane and need to finish a written project by the time it lands in order to earn a fee of $500. The passenger next to you, however, keeps interrupting you by complaining about how she lost a $5 bill in the airport before the plane took off. You keep telling her to forget about it, but she won't. She keeps bothering you so much that you cannot get your work done, which is worth far more than $5. What would make sense in purely economic terms for you to offer to get her to stop bothering you about it? Explain. | + | 10. (Based on a true story.) Imagine that you are riding on an airplane and need to finish a written project by the time it lands in order to earn a fee of $500. The passenger next to you, however, keeps interrupting you by complaining about how she lost a $5 bill in the airport before the plane took off. You keep telling her to forget about it, but she won't. She keeps bothering you so much that you cannot get your work done, which is worth far more than $5. What would make sense in purely economic terms for you to offer to get her to stop bothering you about it? Discuss the economics. |
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| | 11. "There is no such thing as a free lunch!" Discuss the concept of (economic) scarcity in the context of that saying. | | 11. "There is no such thing as a free lunch!" Discuss the concept of (economic) scarcity in the context of that saying. |