Economics Homework Five Answers - Student Thirteen

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1. Define, in your own words, economic “efficiency”. Use it in an example sentence. Efficiency is a term used for avoiding wasted time, effort, and money. When someone uses the term “efficient” they are most likely referring to how well a task was completed in such a short manner of time. An example could be something as simple as one of your parents asking you to do something. Instead of wasting time arguing, doing it right away and getting it over with would be much more efficient.

Superb. Could use as a model.

2. 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? Since A and B are positive they are substitutes. X and Y are negative, therefore they are complements.


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?:

The marginal cost would be $20.00.

Correct again!

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?

Steak would be a normal good since the demand increased. The hamburger is an inferior good due to the decrease in demand.


5. What is the basic assumption of the Coase theorem, and why is that assumption so important to the result of the theorem? :

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.

Excellent answer that captures the fullness of the Coase Theorem better than anyone else so far. Well done!

6. What does an owner do when his marginal revenue exceeds his marginal cost? Explain.

Marginal cost is the additional cost to produce one more unit, and includes only the additional cost. Marginal Revenue is the extra revenue that an additional unit of product will bring. As long as the marginal revenue is larger than the marginal cost the owner will want to sell many units, because once the revenue falls below the cost he will start losing money.


7. What does the Coase theorem say about the desirability, and the effect, of government regulations that increase transaction costs? The Coase Theorem states that it would be best if the government cut out transaction costs all together, due to the efficiency that is lost when the transaction costs increase.

Perfect answers! Perhaps the best homework in the class so far. 70/70. Congratulations!!!--Andy Schlafly 21:34, 17 October 2009 (EDT)