Economics Homework Eleven Answers - Student One

VeronikaF

Answer 5 out of 6:

1.If you were to loan someone money, why would you want him to pay you something extra (interest) when he pays back the loan? Give at least one reason.

I would want the borrower to pay me interest because it would pay for the lost opportunity of me using my money to earn more another way. Also, interest will help demonstrate that the borrower will be able to back your money including interest and not spend it recklessly, because the borrower would not agree to pay interest if he was planning not to use it wisely.

Good points.

2.Suppose I loaned you $1000 today, and interest rates are 5% per year (compounded annually), and you repaid the loan plus interest in 2 years, then what is the total you would pay to satisfy this debt?

$1102.50

Correct!

3.Review: is the cost of the bus for a trip to D.C. a "fixed cost" or a "variable cost"? Explain, assuming for the purpose of this question that one and only one bus can be used (in reality, we may have several buses).

The cost of a bus for a trip to D.C. would be a “fixed cost” since the price for the bus is ‘fixed’ and most likely will not change . Also, the price for the bus would not depend on how many passengers would ride to D.C. If we would pay for several buses it would be a variable cost since it would vary with the number of passengers.

Superb.

4.Which concept in Economics do you think is the best self-motivator, which you might use to achieve more?

“Carpe Diem”, seize the day, motivates you to accomplish as much as you can in the time you are given. You would use your time wisely if it was to be your last day on earth. We do not take the possibility of not having the privilege of living tomorrow it seriously. So live each day to the fullest as if it were your last.

Excellent, could be a model answer!

5.Pick another question from the midterm exam that you answered incorrectly, and explain the correct answer.

Question number 19 on the girl’s midterm exam, ”When a firm shuts down and goes out of business, jobs are lost and that makes the community poorer. What else is always lost from the reduction input which also makes the society poorer?” asks what else does the public loose when a firm shuts down. The correct answer to this question is (B), consumer surplus, because there will be less competition for the widgets that they used to produce, which would increase the price for that certain good and reduce consumer surplus.

Very good, but note that less output means fewer sales even if the price does not increase. Your point about the lost consumer surplus is correct. (A common misspelling on many homeworks is "loose" when the correct spelling is "lose").

Honors

Answer 3 out of 4:

6.Explain what “economic rent” is in your own words, using your own example. “Economic rent” is an excess amount of cost put in without increasing the input. The cost of business seats on an airplane is an economic rent because you pay more for them than economy seats but you do not receive more goods. The only thing you receive is better service and larger seats, but not an extra amount of goods.

Interesting, good. You take the perspective of the buyer rather than the seller who is charging the economic rent, but that's OK.

7.An agreement by different firms with each other to reduce output is illegal. Why should that be illegal?

An agreement by different firms should be illegal because the firms could then settle on their own higher price for their goods without being limited by competition. This would result in higher prices for the widgets and the public would be forced to pay the high cost for these goods since all the firms would have the same price. The firms would have the ability to decide on the cost of their goods and control the market for that widget. This would eliminate all competition, which causes firms to decrease the prices of their goods to appeal to the public. The free market would be a past dream.

Terrific!

9. What is your favorite concept in Economics, and why?

Gresham’s law, bad drives out good, is one of my favorite concepts in the study of economics because it truly applies to our present society. As a seed cannot survive in unfertile land so good cannot thrive in bad. Also, bad money drives out good money because it attracts all of us since it is easier to gain and does not require as much work. When one person begins to do something bad or earn bad money, other people become more comfortable with that idea since someone else did it. It is basically a long chain reaction and all good is pushed away by the increasing “bad”.

Excellent choice, and superb explanation.

Perfect! Congratulations. 80/80.--Andy Schlafly 19:45, 4 December 2009 (EST)