Economics Homework 1 Answers - Student Six

AranM

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

A good is a new PC; a service is the tech support you need if it breaks.

Excellent examples!

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?

If you go out to eat at McDonald’s, you need to pay the transaction cost of gas to get there, the cost to pay the persons preparing the meal, and the tax on the food. If you eat at home you have to prepare the food, so you have the opportunity cost of the lost time, plus the gas it took to get that food in the first place. There are too many variables to come to a finale conclusion, for example of somebody makes $50 an hour it may be cheaper for him to pay someone else to prepare his food quickly rather than wasting his valuable time preparing it for himself.

You explain transaction costs well, and you make a good point about the value of time. But your answer misses how it takes only one trip to the grocery store to shop for many days, while going to McDonald's requires a new trip (and expense) each time. (-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 an item in a store (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?

A good or service is scarce when someone is willing to pay something for it. In a common sense something is scarce when there is a limited supply of it. To increase the scarcity of a good, make the supply even more limited and the price will go up in most cases. Scarcity can be exaggerated in someone’s mind if the seller uses terms such as “limited edition” even if the seller has no intention of limiting it.

Superb explanation.

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).

The invisible hand is what makes people want to do something that benefit themselves and in turn benefits other people.

Very good answer.

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?

16 And he told them this parable: “The ground of a certain rich man yielded an abundant harvest. 17 He thought to himself, ‘What shall I do? I have no place to store my crops.’18 “Then he said, ‘This is what I’ll do. I will tear down my barns and build bigger ones, and there I will store my surplus grain. 19 And I’ll say to myself, “You have plenty of grain laid up for many years. Take life easy; eat, drink and be merry.”’20 “But God said to him, ‘You fool! This very night your life will be demanded from you. Then who will get what you have prepared for yourself?’21 “This is how it will be with whoever stores up things for themselves but is not rich toward God.”

Economically this parable teaches not store up your wealth because that is removing it from the economy of the area.

Spiritually it teaches not store up treasures on earth where it can be taken away from you overnight but rather to look to Jesus, who is preparing your eternal home in heaven.

The gospel of Matthew probably has more economic parables than the gospel of Mark because Matthew was previously a tax collector so economic principles would've meant a lot more to him than they would have to Mark.

The finest answer in the class so far! Well done.

6. "Caveat emptor" or "carpe diem": pick one of these concepts and explain what it means to you.

Caveat emptor, this statement is very important to a seller as well as a buyer. It serves as a warning to buyer to be sure of the merchandise before purchasing, and as insurance to the seller in case the buyer is unsatisfied with their purchase.

The point about "insurance" is not entirely clear, but full credit for the explanation about the term with respect to a buyer.

Total: 59/60. Terrific start to this course!--Andy Schlafly 19:20, 26 February 2013 (EST)