Economics Homework One Answers - Student Ten

'''Aran M.'''

1. Give an example of a "good" not in the lecture, and an example of a "service" not in the lecture.

Movies are a good as well as a service. They are a good because they can be bought, sold and traded. They are also a service since actors, directors, animators, etc, etc, make these for us to enjoy.

Excellent.

2. Imagine that your family has two options for dinner: eat at home, or go out to eat at McDonald's. Which option incurs more transaction costs? Identify two specific transaction costs. Which option is cheaper for your family, and why?

We will start with eating at home: OR Eat at McDonalds: • Gas to drive to the grocery store Gas to drive to McDonalds • Food, you must buy a pack Cost of hamburgers of buns, burgers, ketchup ect. Instead of individuals which is more expensive. • Labor time. McDonalds is therefore cheaper because of labor savings and no purchasing of extra ingredients.

No, a trip to the grocery store is not needed for every meal at home, but it is needed for every meal at McDonalds. Also, no taxes on food bought at the grocery store, but there are taxes on what is paid at McDonalds. In addition, there is the extra expense of labor at McDonalds. But the rest of your answer is good. (Minus 1).

3. Define the concept of "scarcity" in your own words, and give an example of how an increase in scarcity for a good or service increases its price. Your example might be a World Series ticket (a good) or a special medical operation (a service), or anything else you can think of that is "scarce" in an economic sense. Extra credit: when do people exaggerate scarcity in their minds?

Scarcity is the potential for a good to be bought and sold at a price. An example of increase in scarcity is: Frank's doodads. Millions of Frank's doodads where in stores when the factory burned down. Suddenly, everyone panics and MUST have a doodad. People will pay much more even if there is not a shortage, so the store owners can raise prices on their large stocks of doodads and the illusion of scarcity (regular term) will make will make the doodads more scarce (economic term). Extra credit: When people are afraid, they will be desperate to buy anything they think will help them survive no matter the price.

Good analysis, but I don't think the extra credit addresses the concept of scarcity well enough to earn credit.

4. What is the “invisible hand”? Discuss what it is, using an example (which could be from the story in the lecture about the making of a pencil).

If I think inventing a doodad will make me money I will make it, if it is useful to others, they will buy it and I will improve their lives with out even trying.

Good again, but you do "try" in your example.

5. There are many parables by Jesus in the Gospels of Matthew and Luke (and one in Mark) which use familiar concepts of money and economics in order to teach a deeper, more profound spiritual point. Examples are at Matthew 13:18-23 and 44-46; Matthew 18:21-35; Matthew 20:1-16 and 21:33-46; Mark 12:41-44; Luke 7:36-50; Luke 12:13-21; Luke 14:15-24; Luke 15:8-10; Luke 16:1-13 and 19-31; Luke 18:9-14; and Luke 19:11-27. Pick one of these parables and explain both the economic point and the deeper spiritual point. Extra credit: why might the Gospel of Matthew have more economic parables than the Gospel of Mark does?

I picked another parable Matt 25:14-30 14"Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. 15To one he gave five talents[a] of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. 16The man who had received the five talents went at once and put his money to work and gained five more. 17So also, the one with the two talents gained two more. 18But the man who had received the one talent went off, dug a hole in the ground and hid his master's money. 19"After a long time the master of those servants returned and settled accounts with them. 20The man who had received the five talents brought the other five. 'Master,' he said, 'you entrusted me with five talents. See, I have gained five more.' 21"His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!' 22"The man with the two talents also came. 'Master,' he said, 'you entrusted me with two talents; see, I have gained two more.' 23"His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!' 24"Then the man who had received the one talent came. 'Master,' he said, 'I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. 25So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.' 26"His master replied, 'You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? 27Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest. 28" 'Take the talent from him and give it to the one who has the ten talents. 29For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him. 30And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.'

I think the man with five talents and the man with two talents were applying carpe diem because they were doubling the money that the master gave them when they had the opportunity to do so. I think the spiritual meaning is to not be the man with the one talent and to waste the gifts that God gives you. Extra credit: gospel of mark talks about Jesus miracles and Matthew talks about everyday Jewish life.

Excellent, with an extra point for extra credit.

6. "Caveat emptor" or "carpe diem": pick one of these concepts and explain what it means to you. Carpe diem, “seize the day”, means don’t take chances; sell it today because it may be worth nothing tomorrow.

OK, though you might explain "don't take chances ... with the distant future."

60/60, with extra credit point. Good start!