Difference between revisions of "Talk:Economics"

Revision as of 15:37, February 17, 2007

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Question two in assignment two says: "Suppose the price demand curve is P=$20-Q, where P is price and Q is quantity. Also suppose the price supply curve is P=$4+Q. At what price and quantity will the good be sold?" The lecture does not address how to work with these equations. Are we supposed to graph them using the price as the slope and Q as the y intercept? ~ SharonS 17:55, 16 February 2007 (EST)

Sharon, we can expect the good to be sold where supply equals demand. If supply were greater than demand, then the price would be lowered to sell the surplus. If supply were less than demand, then the price would be raised to increase profits.

You can find where supply equals demand either by graphing the supply and demand curves and seeing where they intersect, or by solving the two equations to find the common values of P and Q through use of algebra.

Hope that helps!--Aschlafly 23:29, 16 February 2007 (EST)

P.S. Just as in class and in the lecture, P (price) is graphed using the y-axis, and Q (quantity) is graphed using the x-axis. --Aschlafly 00:49, 17 February 2007 (EST)

Thank you! I didn't think of finding the common values of P and Q using algebra. Solving the equations with algebra gives the answers for P and Q in dollars. Should I just take the dollar sign off the number I get for Q and treat that as the quantity sold? ~ SharonS 10:30, 17 February 2007 (EST)

Yes, just remove the dollar sign. There is always a mismatch in units in graphing Price (in dollars) as a function of Quantity (a non-dollar variable)--Aschlafly 10:37, 17 February 2007 (EST).

Prior discussion

1) How does economic theory explain why anyone ever gives anything but money as a gift?

If someone gives me (say) The New Annotated Sherlock Holmes: The Complete Short Stories I might be pleased, but if someone gave me $95 I could buy The New Annotated Sherlock Holmes: The Complete Short Stories, in which case I would be just as pleased. Or, I might use the money to buy something different which I liked better. Or, I might know of a place to buy it at a discount, in which case I could have my book and extra money, too.

If someone gives me money, the worst case is that I do not know of anything that would please me more than the intended gift. In every other case, I can do better with the money than with the gift. Therefore, it would seem that the economist's "rational man" would always prefer to give and receive the money. Dpbsmith 15:51, 8 February 2007 (EST)

The "rational man" is not merely interesdted in money but in total utility (the economic term for overall satisfaction); he might get more utility by reciving a gift that he knows was specially chosen for him by the giver than from a cash gift that has no personal meaning. Likewise he would get utility from giving a meaningful gift. In fact, if it were simply about money the "rational man" probably would not be giving at all!

--BenjaminS 12:38, 9 February 2007 (EST)

Good point Ben. Also, remember that money really has no inherent value- it must be exchanged before it is useful to anyone except perhaps a coin collector. Thus, by giving someone a useful item as a gift rather than money, you are sparing the receiver of the gift the transaction costs involved in exchanging money for that item. So if we assume (1) that the giver knows what gift the reciever wants, (2) that the reciever would consider it a chore to take the neccesary steps to obtain the gift, and (3) that the giver will not mind, or perhaps even enjoy, taking those same steps, then the traditional mode of gift giving becomes economically rational. -Chris J

2) Consider a company whose stock pays no dividends, and whose management's states that their intention is not to pay them in the future. The present value of a future stream of zero dividends is zero. How does economic theory explain why people are willing to buy such stock? Dpbsmith 16:39, 8 February 2007 (EST)

There are two scenario's that come to mind. The straightforward explanation is that the firm is a charitable organization, and the investors by stock in view of the beneficial effect the firm has on thier community. The second explanation is that the economic activity of the aforementioned firm is beneficial to the investor. For example, small business owners in a certain town might be willing to invest in a ski-mountain, golf resort, amusement park etc. moving in thier town even if it were not directly profitable, if it would attract tourists and increase the demand for thier own goods and services. -Chris J

Well, that wasn't all that hypothetical an example. Many stocks pay no dividends. For example, that described Digital Equipment Corporation for at least three decades; it was no charity; and investors were willing to pay quite a lot of money for Digital shares. Dpbsmith 21:05, 16 February 2007 (EST)