Economics Homework One Answers - Student Three

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AddisonDM 19:45, 8 September 2009 (EDT) Done

1.A good not listed in the lecture is a computer/electronic component. A service not listed is a bank account with an opening/low balance fee.


2.Going to McDonald’s incurs more transaction costs (going out to eat almost always will). Two transaction costs are workers’ salaries and cost of the meal being served to you already cooked, like a delivery charge. Overall eating at home will be cheaper. (For example a whole pound of hamburgers at the supermarket is often cheaper than one McDonald’s sandwich.)

Good, but the second "transaction cost" is not clearly correct. The "cost of the meal being served to you already cooked," includes the cost of the food itself, which is NOT a transaction itself. (Minus 1).

3.Scarcity could be defined as the quality of monetary value attached to a good or service. Increases in scarcity usually mean increases in price (supply and demand). For example, during a hurricane, goods like drinking water and gasoline become scare in the regular sense of the word, leading to sudden price hikes and even price gouging. Extra credit: People might exaggerate scarcity in their minds when they are influenced by advertising which implies scarcity. For example, at one time Kentucky Fried Chicken was failing, so they raised their prices! This made the product appear to be of more value, and their sales rose. Or people might exaggerate scarcity when the good in question has an emotional value of some kind, such as a dollar store item identical to one given by your relative, perhaps.

Superb, though "quantity of monetary value" might work better than "quality of monetary value." I particularly like you example of a good of emotional value, and how the mind will exaggerate its scarcity. Might use that as a model. Plus one for extra credit.

4.The “invisible hand” is sort of the collective mind of anyone involved in business or research. All the elements of the mind can work together, even unconsciously, and bring resources together efficiently. Oddly, it is often very difficult to make this process conscious, as in a planned economy, which is usually inefficient. Anything produced with many materials is an example of the invisible hand in use. Take a soda bottle. There is an astronomical number of people involved in its production. The oil drillers, the people who made the oil drillers’ equipment, the people who built the bottle factory, the people who built the components of the factory, the people who made the ink on the label, and the people who devise an efficient way of producing the bottle. There is actually very little coordination in the whole process but it still works.

Good explanation, though I think your suggestion of a "collective mind" is an oxymoron. Rest of the answer is excellent.

5.Lk 12:13-21:Parable of the rich fool. A man with a large farm wanted to hoard his harvest so he decided to build new, large barns. Then God told the man that he was going to die that night and asked him “who will get what you have prepared for yourself?” The economic point is that storing the harvest rather than immediately selling it is less beneficial to both the buyer and the seller, as the future might render the harvest non-saleable (or perhaps buyers would be poorer and DSnot able to pay as much). Spiritually, it repeats a rather recurring message: don’t keep your goods to yourself, share them with others, for your benefit and theirs.

Terrific, may use as a model. The parable also seems to underscore the concept of "carpe diem," or don't rely entirely on the distant future. (You didn't answer the extra credit question.)

6.“Caveat emptor.” To me this means that the buyer cannot trust the seller to be honest, rather the buyer must be a force for honest marketing and business. Ultimately the person who is handing his money over is the one who should find out if he is getting a good value or being ripped off, and in the process be a check against unfair selling practices.

Excellent, model-answer-quality.


8.“Money is a good servant, but a poor master.” I actually don’t know what the definitional meaning of this phrase is, so I’ll interpret it my own way. This means that money “serves” well or efficiently, “serve” meaning facilitating buying and selling. Money acts as a servant when exchanged in a transaction. However, it does not induce good actions when it becomes a “master” of the wealthy person, as in “money is the root of all evil.” Wealth itself is not bad, but one who possesses it should be master over it and use it wisely and reasonably, instead of allowing it to enslave him and make him into a miser or a scrooge (with a capital S!)

Terrific analysis!

10.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!)

Excellent answer, with good humor! Note that simply offering her the $5 would likely result in her declining the offer AND shutting up about it.

11.“There is no such thing as a free lunch.” Economically, this means that nothing is completely free of charge, whether in the form of outright price (Just $19.99!) or transaction costs (Yours free, with just $9.99 shipping and handling). Even things which are free to the consumer, such as giveaways at a business expo, cost money to produce, and thus represent a loss to the business giving them away. Even if the workers producing them worked for free, they would still be spending their time without compensation. The consumer may get the occasional free lunch, but in return the business and its workers must pay extra. The business could get a free lunch, but then its workers would have to be volunteers. In the end, literally the only free lunch is one supernaturally and instantaneously created and placed in front of you.

Good essay.
Terrific first homework, with some fabulous answers. 60/60 plus 40/40, for a total of 100. Congratulations, and great use of wiki-links in your answers, by the way!--Andy Schlafly 10:23, 11 September 2009 (EDT)