Micro Economics Questions - Essay Example

? Micro Economics Contents Question 3 Question 2 3 Question 3 4 Question 4 5 Question 5 5 Question 6 7 Question What is the opportunity cost of your going to college? List components of the opportunity cost. Be sure to include all costs, including the value of what you might otherwise have done with your time (including forgone leisure time, working) as well as the price of tuition, books, et cetera. [You do not have to turn in money amounts, but it may be useful for you to consider the value of your leisure time, forgone work, and so on.] What is the approximate percent of the opportunity cost each? What is the greatest cost of college? Answer: The opportunity cost of going to the college is the amount of money the college goers would have earned if he would have worked elsewhere. On one hand the college goers loose the salary of four years while trying to get the degree and on the other hand the college goers expect to earn more during the course of the career. The opportunity cost is zero for the students who manages to have the fees to be paid by others as well as for those for whom the higher degree provides higher income in the long run. The components of opportunity costs are tuition fees, time, salary, cost of books, salary that could have earned. The percentage of opportunity cost will depend on the money value associated with the costs. The greatest cost of going to the college is the tuition fees of the college where the college goers decide to take the admission. Question 2 What do we mean by a "decision taken on the margin"? Define and give an example of an economic decision you make on a marginal basis. Can you think of a decision that is taken not on a marginal basis but on the basis of total cost or average cost? Answer: One of the key factors of decision making is the decisions which are taken at the margin. In this case the decision maker takes into account the marginal cost or the benefit of a decision and judges if the incremental benefit is greater than the cost associated when the action is actually taken. In respect to employment the employer will judge the marginal sales benefit from recruiting an additional person as well as the additional cost of recruiting that worker. If the additional revenue from the extra sales is greater than the cost of recruiting the worker then only the worker will be hired. The investment as well as tax decisions are taken on the basis of average cost. Question 3 Look at today’s Wall Street Journal. Provide two microeconomic statements and two macroeconomic statements (make sure to include references). Classify your statements as positive or normative. Explain why. Answer: The statement “Asian Shares Rise on Stimulus Hopes” (Wall Street Journal, 2012). The statement is a positive statement as it can be accepted or rejected depending on the available evidences. The statement “Economics Journal: It’s Hard to Measure Indian Productivity” (Wall Street Journal, 2012). The statement is normative because one can launch up to some opinion regarding the statement. The statement “Deadly Floods Strike the Philippines” (Wall Street Journal, 2012). The statement is positive for the same reason as above. The statement “India Consortium Bids for Afghan Deposits” (Wall Street Journal, 2012). The statement is positive for the same reason as above. Question 4 Pick one of the behaviors below and explain what might act as incentives and disincentives. You can use the suggested Web site to do research. You may also refer to other sources of information as necessary. A. For a seamstress to produce 15 dresses an hour instead of 10 dresses an hour B. For a company to invest $1 billion in research on an anticancer drug C. For a rancher in Wyoming to protect the local environment (refer to Sierra Club) D. For an energy consumer to conserve electricity Answer: Suppose the seamstress decides to produce more dresses an hour than he usually does. The incentives for such an action may be subsidy on the prices of dresses from the government, rise in the price of the electricity necessary for the waiving of the clothes, the reduction in the price of raw materials needed to produce cloth, fall in the cost of transport facilities necessary to deliver the goods to the outlets, rise in seasonal demands, export possibilities etc. The disincentives which might also play the part are uncertainty in the export possibilities, sudden reduction in the anticipated level of demand. The political, cultural as well as the legal aspects can also play a role. If the producer has to pay more taxes by producing more, then he will not take any initiative to do so. Question 5 A small farmer can grow both corn and beans on his farm. All the possible combinations of the amounts of each he can grow are summarized by the equation C = 300 - 2B, where C equals the quantity of corn and B equals the quantity of beans. This means that the following amounts are on the PPF. Corn (MT) Beans (MT) 300 0 250 25 200 50 150 75 100 100 50 125 0 150 A. Graph the different amounts of corn and beans the farmer can grow if he uses all his land efficiently. What is this called in economics? B. What is the farmer's opportunity cost of corn at each level of production? His marginal cost? C. What is the slope of the PPF you graphed in "A"? How is it related to the marginal costs? Answer: If the farmer uses all his land efficiently, the following denotes the total amount of beans and corn that he can produce. The above graph represents the different units of corn and beans that can be produced by the farmer. When the farmer chooses to produce no corn, he can produce 150 units of beans and when he chooses to produce no beans then he can produce 300 units of corn. Such action is called in economic as efficient use of resources. The opportunity cost of corn at each level of production is 25 units of beans. The marginal cost of the farmer at each level of production is the cost of 25 units of beans. The slope of the line is 25. The slope of the line is same as the marginal cost. Question 6 You are comparing the skills of two people in mowing the lawn and painting the fence. Is it possible for one of the two persons to have an absolute advantage in neither skill? Is it possible for one of the two persons not to have a comparative advantage in either of the two skills? Answer: The two skills that can be compared in this case are mowing the land and painting the fence. Suppose the first person is more skilled to mow the land while the second person is skilled to paint the fence. If they both spent half their day in doing both the jobs, the pay offs will not be the same. A better pay off can be achieved if he do only that job in which their skills lie. Now when they trade their skills, the pay offs will be the same for both the persons and so it is not possible for anyone of them to have comparative advantage in neither skill. The absolute advantages are of no use in order to find the comparative advantages. In order to compare the comparative advantages it is necessary to compare the opportunity costs. One of the features of comparative advantage is that everyone has comparative advantage in doing something. Everyone gains from trade either directly or indirectly. Some are smart enough to focus only those skills that they can produce at comparatively low cost. Therefore, it is not possible for anyone not to have comparative advantage in neither of the skills. References Wall Street Journal, 2012. “Asian Shares Rise on Stimulus Hopes.” Available at: http://online.wsj.com/article/SB10000872396390444423704577575974272668242.html?mod=WSJINDIA_hpp_LEFTTopStories. [online]. [Accessed: 8th August, 2012]. Wall Street Journal, 2012. “Economics Journal: It’s Hard to Measure Indian Productivity”. Available at: http://blogs.wsj.com/indiarealtime/2012/08/08/economics-journal-its-hard-to-measure-indian-productivity/. [online]. [Accessed: 8th August, 2012]. Wall Street Journal, 2012. “Deadly Floods Strike the Philippines”. Available at: http://online.wsj.com/article/SB10000872396390444246904577573912397790638.html?mod=WSJINDIA_hpp_MIDDLESecondNews. [online]. [Accessed: 8th August, 2012]. Wall Street Journal, 2012. “India Consortium Bids for Afghan Deposits”. Available at: http://online.wsj.com/article/SB10000872396390444246904577574271568350932.html?mod=WSJINDIA_hpp_LEFTTopWhatNews. [online]. [Accessed: 8th August, 2012]. Read More