Economics Homework Twelve Answers - Student Five

Allie T.

1. A monopsony is only one buyer.

Correct!

2. The Production Possibilities Curve represents the point at which the economy is most efficient in producing two goods.

Good definition, but doesn't explain how the curve displays the tradeoff in production as one moves up and down the curve. (Minus 1).

3. If the price elasticity of demand for a product continues to climb, then the price of elasticity of labor will grow as well. The company producing the good will have to higher more workers to keep up with the growing demand. However, if the price elasticity of demand of a product declines, then a company will have to fire workers. They will have to do this to be able to keep their business running and making money.

Price and demand rise and fall in inverse relation to each other, the price elasticity of demand does not usually rise and fall. Rather, the price elasticity of demand measures how much the demand rises in response to a fall in price. Please see the model answers when available. (Minus 1).

4. The Lorenz curve compares the distribution of income in society against a hypothetical equal distribution of income. I don’t think that Lorenz curve should be a high priority for government economic policy. If the government were to get involved, they would see that large differences in income amongst families and they would try to “redistribute the wealth”. This action does not help our economy, but rather hinders it. We have to have a competitive market to drive down the costs of goods and the cost of wages. Like goods, competing for jobs helps us strive for higher goals and a higher education. Competition is the overall best way for us to operate our economy upon.

Superb, may use as the model answer!

Please also see: http://ingrimayne.com/econ/AllocatingRationing/MeasuringIncomeDist.html (Note the shape of the actual income distribution is different from the erroneous step function I described in Lecture 12. Sorry!)

6. Average Fixed Cost is the total fixed cost divided by quantity of units produced

   Average Variable cost is the total variable cost divided by quantity of units produced
   Average Total Cost is equal to Average Fixed Cost plus Average Variable Cost

Excellent, but missed answering the final part of the question about when the firm shuts down in the short run (when P<AVC). (Minus 1).

7. An increase in output forces a production possibilities curve to shift outward.

True, but what causes an increase in overall output? Please see the model answers. (Minus 1).

56/60. Good work on a tough homework assignment.--Andy Schlafly 23:04, 12 December 2009 (EST)