# Economics Homework Eleven Answers - Student Ten

**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.**

Because you lost the chance to use that money for your own benefit.

- Good.

**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?**$1100

- Nope, not quite. To "compound annually," it needs to be $1000 times 1.05, and than times 1.05 again for the next year, for a total of $1102.50. (Minus 1)

**3. Review: is the cost of the bus for a trip to D.C. a "fixed cost" or a "variable cost"? Explain, assuming for the purpose of this question that one and only one bus can be used (in reality, we may have several buses).**The cost of the bus is a fixed cost because we cannot get to Washington D.C. without it.

- Right answer, but the reason is slightly off. The bus is a fixed cost because the cost is the same no matter how many people ride it. (Minus 1).

**4. Which concept in Economics do you think is the best self-motivator, which you might use to achieve more?**It is most likely competition or profit since both are great motivators. Competition gives people the will to win and profit is the reward.

- Superb, could be a model answer.

**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.**
X(1.2) =$1000-----X=$1,000/1.2=$833.3 --------- 833.3*1.2=999.96

- Nope, not quite. Again, you're not compounding correctly. See model answers when available. (Minus 1).

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

- Proper skip here.

- 48/50. Well done!--Andy Schlafly 20:11, 5 December 2009 (EST)