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Line 19: + + − 6. Describe either the "income effect" or the "substitution effect." Take your pick.+ + + + + − 7. Charity is based on the foundation of a successful free market. Or is a successful free market based on a foundation of charity? Describe and explain which is the cart, and which is the horse (in other words, which comes first or is most important, charity or the free market).+
Economics Homework Four Answers - Student Twenty-One (view source)
Revision as of 20:38, October 7, 2009
, 20:38, October 7, 2009no edit summary
5. Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right. Extra credit: why must its slope be negative 1?
5. Explain why the shape of an indifference curve for two goods that are perfect substitutes is a straight line going from the upper left down to the lower right. Extra credit: why must its slope be negative 1?
It takes the shape of a straight line because when two goods are absolutely perfect substitutes, they are theoretically equal in use and desirability. So in order for one to be better than the other, you must get more for the same price. Hence the straight line.
6. Describe either the "income effect" or the "substitution effect." Take your pick.
When the price of a good increases, or the price of it's substitute decreases, the demand for the initial good lessens. If the companies who make butter all decided to double the price of their product, less people would buy butter. Likewise, if the people who made margarine decided to cut their price in half, more people would buy that instead of butter. This is called the substitution effect, and it is part of the reason why the Law of Demand is true.
7. Charity is based on the foundation of a successful free market. Or is a successful free market based on a foundation of charity? Describe and explain which is the cart, and which is the horse (in other words, which comes first or is most important, charity or the free market).
I think they both work together, and independently at the same time. I think the free market enables people to have control of their finances and have money to give. But if people had no desire to give, then they wouldn't, free market or no. If there was no free market, I think people would still give, but not as freely. I don't know if it is possible to determine which came first.
8. "A penny saved is a penny earned!" In fact, once taxation is taken into account, "a penny saved is almost two pennies earned!" Discuss one or both of these quotations.
Americans do want to save money, nearly as much as they want to earn and spend it. Maybe if more people realized that a penny SAVED is a penny earned, they might put more time into saving than earning and spending their earnings. And if a penny saved is a penny earned, then what is a penny spent, or in debt? Well, a penny spent isn’t so bad, so long as it is spent wisely. Maybe if more people took economics, and knew about consumer surplus, they would spend more wisely! And for every penny spent, that is 0.07 in Uncle Sam’s pocket. So what is a penny in debt? When in debt, you are required to pay for every month you haven’t paid back what you owe. An interest is charged based on what you owe. The flip side of this famous saying might be “a penny spent multiplies rapidly, and not usually in your favor”. Also to be taken into consideration is the fact that you could earn money with your savings by putting it in an account that will generate interest. It may not be very much money, but its money that you didn’t have before. Perhaps a course on economics and personal finance should be a required course in school. “ A penny saved is a penny earned” and “ Time is money” are two maxims that are seen as archaic maxims that have little applicability. It may be time for them to make a comeback.