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Economics Homework 5 - Model (view source)
Revision as of 22:48, April 1, 2013
, 22:48, April 1, 2013question one answered
1. 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 (i.e., are they substitutes or complements)?
1. 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 (i.e., are they substitutes or complements)?
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:The positive cross-elasticity for goods A & B mean that as the price of one good increases (and thus its demand decreases), then the demand for the other increases. They must be substitutes because the demand for one good increases as the demand for the other good decreases. The negative cross-elasticity for goods X and Y mean that as the price of one increases (and thus its demand decreases), then the demand for the other decreases. They must be complements because the demand for one good increases as the demand for the other good increases.
2. Suppose it costs you $500 to make each of your first 5 units, then $200 to make each of your next 5 units, and then $100 to make each of your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit, after you have made 15 units? What is your overall average cost per unit after you make your 16th unit? Compare the two and comment on how whether they are equal, and why.
2. Suppose it costs you $500 to make each of your first 5 units, then $200 to make each of your next 5 units, and then $100 to make each of your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit, after you have made 15 units? What is your overall average cost per unit after you make your 16th unit? Compare the two and comment on how whether they are equal, and why.
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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?
$20 for each additional unit made. (Zachary)
It would cost me $20 to build a new unit. (Isaac)
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?
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. (Addison)
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 an absence of transaction costs, and their absence enables the free market to attain the optimal use of a resource no matter who owns it. The assumption is essential because if transaction costs exist, then they impede the ability of people to deal with each other for the optimal result. (Instructor)
The Coase Theorem is based off of two main ideas, freedom of individual choice and zero transaction costs. The Theorem implies that society would be much better off with lower transaction costs and that efficiency and prosperity can be obtained by reducing or eliminating them all together. (Amanda)
Without transaction costs to gum the works, there would always be successful economic results between people, because "if there is a will there is a way" in the free market. It important because it operates without regard to a person’s wealth, race, sex or nationality. (Aran)
The basic assumption of the Coase theorem is that in the absence of transaction costs, an efficient or optimal economic result occurs regardless of who owns the property rights. ... (Deborah)
6. What does an owner do when his marginal revenue exceeds his marginal cost? Explain.
He will keep selling goods, because as long as marginal revenue exceeds marginal cost, he will want to keep selling goods. (Timothy)
When an owner’s marginal revenue exceeds the marginal cost, the owner can sell additional goods. The owner will be able to make more money from the additional goods sold. Marginal revenue is any additional revenue a business earns from selling one more unit. (Allie)