Economics Homework One - Model
1. Give an example of a "good" not in the lecture, and an example of a "service" not in the lecture.
- A Wii is a good. A theme park is a service. (Seth)
2. Imagine that your family has two options for dinner: eat at home, or go out to eat at McDonald's. Which option incurs more transaction costs? Identify two specific transaction costs. Which option is cheaper for your family, and why?
- The option of choosing McDonald's instead of eating at home would cause more transaction costs. The main transaction costs would be the cost of the gas and the time that it would take to get there. You will also have to pay for the service that you receive from the McDonald's employees. To eat at home would be a much cheaper option as there are hardly any transaction costs. (Isaac)
3. Define the concept of "scarcity" in your own words, and give an example of how an increase in scarcity for a good or service increases its price. Your example might be a World Series ticket (a good) or a special medical operation (a service), or anything else you can think of that is "scarce" in an economic sense. Extra credit: when do people exaggerate scarcity in their minds?
- Scarcity refers to anything that costs money. One could increase scarcity of a baseball for example by having a player sign it. One might exaggerate scarcity by taking the item off the market when it is in high demand and returning it afterwards at a higher price. (Elizabeth)
- [Extra credit] A specific little league trophy that a man might have been awarded in his youth could still hold a high value to him, but him alone. (Caslon)
- [Extra credit] I believe people exaggerate scarcity in their minds when a "what if" situation arises. They say, "what if" everyone else needed that item I needed? Say a blizzard was scheduled to hit in the next 24 hours. People want to stock up on items, and think that there might not be any goods left for them if they don't get there quickly, when in actuality, the store probably won't be running out anytime soon. But, if everyone rushes to buy as much as they can as soon as possible, then the scarcity they were so afraid of will become reality, because the store can't possibly keep up with the demands of the consumers. (Lucy)
- [Extra credit] Certain (creepy) Cabbage Patch Dolls in the 80's were advertises as a "had to have" item in which many people fell for, developing the scarcity of the item in their minds, and paying far beyond their actual value. (Lindsay)
4. What is the “invisible hand”? Discuss what it is, using an example (which could be from the story in the lecture about the making of a pencil).
- The Invisible hand is an unseen movement that guides and motivates people to work hard in order to benefit themselves and society. It is the force that guides people to do the work that is needed in order to improve society. The invisible hand represents all the social good incidentally caused by individuals pursuing their own self-interest. An example can be something as simple as a book. In order to make a book you have to have all the basic supplies, such as the paper, the ink, the author, and the publisher. What is a book if there is no writing in it? The author creates the story, then uses the ink and paper to write it down. A publisher then comes in and makes it possible for society to read it. Books are very important things, often times they teach us things we do not know. They are able to improve society through knowledge. (Amanda)
- The invisible hand is the unseen "force" that "guides" people who work to benefit themselves to make choices that result in benefits for the rest of the populace. For example, Thomas Edison created the light bulb as a way of making money. Through the creation of that light bulb, we are able to work after daylight hours, improve the quality of our work after said time and prevent accidents with street lights. (Courtney)
- The invisible hand is known as a force that helps people to help themselves and society at the same time. An example of the invisible hand would be a mission trip to a foreign country. The missionary would gain knowledge, understanding new cultural experiences. The people in the foreign country benefit from the encouragement and support from the missionaries. (Steve)
- The invisible hand is a force that is unseen by humans but yet still has influence in their lives and guides them to help others without even knowing it, when they are doing something that seemingly is only beneficial to themselves. For example, a child could set up a lemonade stand one a hot summer day because he wants money for a bike. He charges 25 cents per cup. It seems to him that he is the only one gaining from this situation, as he is making money for something he wants. Yet someone driving home in the heat of the summer day is gaining from this by getting a cold drink for only a quarter, versus lets say a soda from a vending machine for $1.25 or more. (Deborah)
5. There are many parables by Jesus in the Gospels of Matthew and Luke (and one in Mark) which use familiar concepts of money and economics in order to teach a deeper, more profound spiritual point. Examples are at Matthew 13:18-23 and 44-46; Matthew 18:21-35; Matthew 20:1-16 and 21:33-46; Mark 12:41-44; Luke 7:36-50; Luke 12:13-21; Luke 14:15-24; Luke 15:8-10; Luke 16:1-13 and 19-31; Luke 18:9-14; and Luke 19:11-27. Pick one of these parables and explain both the economic point and the deeper spiritual point. Extra credit: why might the Gospel of Matthew have more economic parables than the Gospel of Mark does?
- Luke 14:15-24 is the story of the great supper. A man invites many people to his feast, but some of them do not come, so the master invites all the blind, lame, mute, deaf and poor. The people who refused the invitation lost an incredible opportunity to dine with this master, a once in a lifetime opportunity for them. And ultimately they lost a chance to enter into the kingdom of God, they were so focused on the good things in their lives they missed out on the best. The economic point would be "carpe diem", "seize the day", if a good opportunity comes your way, take it. (Anna)
- Matthew 20: 1-16: If you agree to give someone a set wage, no matter how late they start on the job, you shouldn't change it just because someone else has been working for a longer amount of time. The same is true of heaven. No matter how late you are accepted into the Kingdom of God, He's not going to give the people who have been in longer more reward just because of that. (Trisha M.)
- Luke 15:8-10 discusses how a single coin is so important to a woman that she is willing to sweep the whole house to find it. In the same way, God rejoices over one individual accepting Him as Lord and Savior. (Jonathan L.)
- I picked another parable Matt 25:14-30 [Ed.: this is the Parable of the Talents]. I think the man with five talents and the man with two talents were applying carpe diem because they were doubling the money that the master gave them when they had the opportunity to do so. I think the spiritual meaning is to not be the man with the one talent and to waste the gifts that God gives you. Extra credit: gospel of mark talks about Jesus miracles and Matthew talks about everyday Jewish life. (Aran)
- In Luke 19:11-27 [Ed.: also the Parable of the Talents], a master leaves home and entrusts his ten servants with ten minas and told them to "put his money to work." ... In economic terms, this can be taken to mean that you should work to increase your holdings with risks with which you are comfortable. Spiritually, it means that those who do God's work on Earth will be rewarded in heaven, but those who do not shall have their rewards taken from them. (Dermot)
- [Extra credit] The reason that Matthew had more monetary parables than Mark is because before joining Jesus, Matthew was a tax collector. he was very familiar with money and probably related best to Jesus's economic parables. (Sean)
6. "Caveat emptor" or "carpe diem": pick one of these concepts and explain what it means to you.
- I particularly like "carpe diem," "seize the day," because it motivates you to be your best all the time since you might not have the privilege of existing tomorrow. Never waste a day because you will never again be able to have that day again, for it is lost unless you use the time wisely. Today is a gift and that is second why it is called present. (Veronika)
- “Caveat emptor,” meaning “let the buyer beware” in Latin, means to me that the customer alone has the responsibility of determining the value of his purchase. The seller can attempt to sell anything he wants, at any price—the customer must evaluate it for himself. (Duncan)
- "Carpe diem" means "seize the day." I really like this a lot because I have been trying to work harder at seizing the moment - at taking what I have been given and thanking God for it - even if I am just thanking Him that I am alive in that moment. Some days are better than others, but this phrase says nothing about seizing only the good days, or the days we feel like it. It simply states that we should seize the day - no matter what that day is. (Caroline)
- Caveat emptor - I have to be careful not to spend money too fast. Sometimes I make a quick decision to buy something that looks great at the time, but really is not needed or important. (Timothy)
7. Please suggest an improvement to our definition of "economics", being as creative as you like, and explain why you think your definition might be better.
- I suggest using the word "transfer" instead of the word "flow" because flow implies that it is constant and unchanging and continues in one direction with limited or no variation in amount. ... I also am of the opinion that "research" is a much better fit for the definition of the word economics because the meaning of "study" suggests a more recreational use whereas the definition of research seems to state more of an applied science which would fit in more with the fat that economics is a more of a serious and purposeful inquisition. ... (Anthony)
8. "Money is a good servant, but a poor master." Please explain.
- ... There is a fine line between controlling money and letting money control you. ... Has someone ever told you, the reason she needs you to watch her kids is because she feels it's more important to be able to buy her children the material things in life than to spend time with them? ... I don't know about everyone else, but for me balance is the key. (Sarah C.)
10. (Based on a true story.) Imagine that you are riding on an airplane and need to finish a written project by the time it lands in order to earn a fee of $500. The passenger next to you, however, keeps interrupting you by complaining about how she lost a $5 bill in the airport before the plane took off. You keep telling her to forget about it, but she won't. She keeps bothering you so much that you cannot get your work done, which is worth far more than $5. What would make sense in purely economic terms for you to offer to get her to stop bothering you about it? Explain.
- Obviously giving her a five dollar bill is the economically logical thing to do, as your time in this situation is worth a lot more than five dollars (don’t give her more than five, because then she might keep interrupting to tell you how kind you are). Of course, if you knew that she would then go on about her mother-in-law or the price of gas, you would keep your $5 and let her complain about that. But knowing just that you have a well-paying project to do and that she is bothering you, give her the $5. (I can’t think of 300 words to explain this in!) (Addison)
Essay on student's own initiative: "What is money really?"
- In class, an interesting question was asked; is money a service or good? Or maybe a category entirely its own? I was so intrigued by this that I decided to do some research on the subject, and see what money really is.
- First, a working definition of money is required. Money is a measure of worth, a means of exchange, which need not have any intrinsic value of its own; a legally established exchangeable equivalent for all other commodities. It can be backed by a gold or silver standard, but does not have to be; in the U.S., we have a “fiat” currency, which is any money not backed by gold or silver, and not necessarily redeemable in coin.
- So money is obviously not a service. It isn’t an action, or entertainment, etc. However, it often shows work, thought, performance, and effort, all of which are types of services. A dollar symbolizes a percentage of your day, a portion of energy and exertion, and other various services. Therefore, while money is not actually a service, it represents them.
- But what of the question of whether or not money is a good. It certainly isn’t free, so it is scarce. Work must be done to obtain it, services or goods provided in exchange. Apart from the value ascribed to is by the foreign exchange market, it is worthless. Money has no value of its own, no importance or desirability other than the goods or services someone would give you in exchange for it. So its value is not in use, but in exchange, like a precious metal or stone.
- The conclusion I reached is that while money is not a service, it represents those things, like a ticket to a concert, or sports game. And it is a good, because although it has no value in use, money has value in exchange. So in a way, money is in a category of its own, because it has value as both a service and a good. (Michelle)