Changes

1.  If you were to loan someone money, why would you want him to pay you something extra (interest) when he pays back the loan?  Give at least one reason.

1.  If you were to loan someone money, why would you want him to pay you something extra (interest) when he pays back the loan?  Give at least one reason.

:

:Instead of loaning money, I could invest the same amount of money and earn more. Interest makes it profitable to loan money. (Mark)

 

2.  Suppose I loaned you $1000 today, and interest rates are 5% per year (compounded annually), and you repaid the loan plus interest in 2 years, then what is the total you would pay to satisfy this debt?

2.  Suppose I loaned you $1000 today, and interest rates are 5% per year (compounded annually), and you repaid the loan plus interest in 2 years, then what is the total you would pay to satisfy this debt?

:“Carpe Diem”, seize the day, motivates you to accomplish as much as you can in the time you are given. You would use your time wisely if it was to be your last day on earth. We do not take the possibility of not having the privilege of living tomorrow it seriously. So live each day to the fullest as if it were your last. (Veronika)

:“Carpe Diem”, seize the day, motivates you to accomplish as much as you can in the time you are given. You would use your time wisely if it was to be your last day on earth. We do not take the possibility of not having the privilege of living tomorrow it seriously. So live each day to the fullest as if it were your last. (Veronika)

5.  Suppose I will pay you $1000 in two years, and the interest rate is 10% per year, compounded annually.  How much should you pay me today to receive $1000 in two years?  Show your work.

5.  Suppose I will pay you $1000 in two years, and the interest rate is 10% per year, compounded annually.  How much should you pay me today to receive $1000 in two years?  Show your work.

:To find the amount paid the second year, divide $1000 by 1.1. Then you take that number and you divide that by 1.1 again, and your result is $826.45, which is the answer. (Anna)

:To find the amount paid the second year, divide $1000 by 1.1. Then you take that number and you divide that by 1.1 again, and your result is $826.45, which is the answer. (Anna)

6.  Pick another question from the midterm exam that you answered incorrectly, and explain the correct answer.

6.  Pick another question from the midterm exam that you answered incorrectly, and explain the correct answer.

7.  Explain what “economic rent” is in your own words, using your own example.  

7.  Explain what “economic rent” is in your own words, using your own example.  

:

:Economic rent is a return greater than the normal profit/return for that particular good or service. It is the additional revenue you get for having a good/service that is in high demand, without having put any more money into your product, simply because your product is unique in some way. For example, there are Pop Tarts, and then there are the store brands. They are fairly good substitutes, but the prices are much higher for Pop Tarts. They receive economic rent on that good simply because they are better known. (Michelle)

8.  An agreement by different firms with each other to reduce output is illegal.  Why should that be illegal?

8.  An agreement by different firms with each other to reduce output is illegal.  Why should that be illegal?

9.  What is your favorite concept in Economics, and why?

9.  What is your favorite concept in Economics, and why?

:

:I like the concept of the invisible hand: one of mankind's great flaws--greed--is turned for the benefit of society. (Duncan)

10.  Nash equilibrium, revisited:  What is the Nash equilibrium for two gas stations (an oligopoly) that are situation immediately across the street from each other?  In other words, what price do they sell at, expressed in terms of one of their cost measures?  Explain the process that reaches that "equilibrium".

10.  Nash equilibrium, revisited:  What is the Nash equilibrium for two gas stations (an oligopoly) that are situation immediately across the street from each other?  In other words, what price do they sell at, expressed in terms of one of their cost measures?  Explain the process that reaches that "equilibrium".

:

:Consider as a starting point high sales prices by each gas station, much higher than marginal cost (marginal cost is a "cost measure").  Next notice that the high prices won't be the equilibrium, because one station can earn more profits by slightly lower his price to pick up many new customers, as many people choose his station for his slightly lower price.  But then the other station does likewise to win the customers back, and this same pattern of underselling the other guy each other continues again and again ... until the sales price falls to the level of the marginal cost.  At that point neither station is better off by lowering his price further, because then he would be selling BELOW marginal cost and losing money on each sale.  So the Nash equilibrium for this oligopoly is where marginal revenue equals marginal cost, which is the same as in a fully competitive market.  (Instructor)

[[Category:Economics lectures]]

[[Category:Economics lectures]]

{{DEFAULTSORT: Economics Lecture 12}}

{{DEFAULTSORT: Economics Lecture 12}}