Economics Homework One Answers - Student One

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1. Give an example of a "good" not in the lecture, and an example of a "service" not in the lecture. Salt is a very important and vital “good”. Salt helps to season meals and it is important for your health. If there was no salt in the world, everything would be bland and life would be tasteless. Hiring a lawyer or buying insurance is a “service”. You pay for the service but you do not actually get anything in your hand.

Superb examples, worthy of the model answers.

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? Having dinner at home is cheaper that going to McDonald’s to eat. For McDonald’s you have to pay for the cost of gasoline used to commute there and the food, also including the cost for the service and electricity used in making your meal. Overall, eating at home is a cheaper way of fulfilling the source of energy your body needs to survive.


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 is the situation in which there is a limited supply or amount of a specific good for which you need to pay a price. Take for example watermelon. It is expensive since it needs a specific climate for it to grow properly and it is grown only in the summer. The price is increased because there is not much watermelon in the world which makes it “special” since it is not abundant. Some people exaggerate scarcitity in their minds when they read an article that a certain good is part of a “limited edition”. They create the idea that this specific good is rare even though there are millions of the same good being made and sold.

Good, with a superb example. Plus 1 for the extra credit.

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 the influence that motives people to work harder and create their own opinions and ideas. An example where the “invisible hand” made its mark was when the USA began their mission to space so that they may prove to the Soviet Union, who at that time was the most advanced in space technology, that we can do an even better job. The “invisible hand” helped the USA to progress the knowledge of space and open more doors for the next generation.

Fascinating explanation of the "invisible hand"! May use as a model.

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? I chose the parable Luke 15:8-10, which explains the story of a woman who lost one of her ten silver coins. You might ask why she searched for it even though it was not worth much, but the scarcity of the coin that the woman had made it more valuable to her. For example, if a rich man lost one of his hundred silver coins it would not be worth the time he would have spent on searching for it. This is a perfect example of how scarcity can change the value of a certain good. The less you have, the more you appreciate what you have. The gospel of Mathew had more economic parables because Mathew was a tax collector before he joined Jesus.

Superb answer. You hit a bulls-eye with the extra credit. Plus 1.

6. "Caveat emptor" or "carpe diem": pick one of these concepts and explain what it means to you. I particlarly like “carpe diem”, “seize the day”, because it motivates you to be your best all the time since you might not have the priviladge 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.

Very nice conclusion! I've learned something now: why the present is a "present"!

8. "Money is a good servant, but a poor master." Please explain. “Money is a good servant, but a poor master” is one of the truths about life. Money is wonderful to have because you can get goods you want with it but you must control yourself so that it will not take advantage of you. It is easy to be controlled by money because it helps one forget fear and sorrow for a period of time, but all your worries will slowly come back. Even though money may seem an innocent good that benefits you, you may be surprised how many people become self absorbed with money and all they think about is a way to get or earn more. Eventually, you will become of servant of money instead of being the master of money. When God is not the center of your life you know that something is wrong and that you had better change your lifestyle or you will fall in trouble later on. Money is like alcohol, the more you have the more you want.

Terrific essay. So true about the vice of money: "the more you have the more you want." Keeping it as a servant rather than a master helps overcome that.

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. If I was stuck in this type of situation I would just give the complaining lady $5 so that I would be able to complete my project in time. If I would have continued to try to finish my project while letting the woman complain I would be at risk of loosing $500 instead of spending $5 of transation cost so that I may have a greater chance of completing the job that I must do before the plane lands. You would rather loose $5 to obtain $500 than spend nothing, but gain nothing. In life you have to take chances to get oportunities, but if you play it safe there will be nothing for you to reap. If we did not take chances, life would be dull and not worth living. Life is about the decisions we make and how we deal with our problems.

Fantastic analysis and discussion. Very well done!
62/60 (with extra credit), plus 40 for the honors. 102! A superb start!!!--Andy Schlafly 17:22, 10 September 2009 (EDT)