Economics Homework Ten Answers - Student Four

AddisonDM 12:09, 19 November 2009 (EST)

1.Externalities are results of a transaction, but that do not themselves entail or require a transaction for anyone to be affected by them.

Interesting, but the noun "results" does not seem to capture the concepts of benefit or harm to third parties. But in terms of credit, your lack of completeness is compensated for by your insight here.

2.First of all, a situation where total revenue is maximized is pretty much purely theoretical. But, if total revenue is maximized, that means that what might be called a “revenue ceiling” has been reached, and no more revenue can be made. From this point, it is easy to see that, if revenue is already maximized at the point of another transaction, the marginal revenue of that transaction must be zero.

Pretty good, but doesn't fully explain why marginal revenue must be zero. Still, I'll give you full credit.

3\. Question 24 on unit elasticity. That's a neat concept that I unfortunately forgot the definition of!

Good. Unit elasticity is a neat concept, though not very realistic. It would be like balancing a pen on its point.

4.When a local business is patronized and the money stays in the town instead of being sent to a distant corporate headquarters, the community’s wealth increases; this is a positive externality. The converse is a negative externality. The “negative effects” (you’ll know what I’m referring to!) of a sewage plant opening up in the middle of town are also a negative externality.

Good examples!

5.Public goods are difficult to sell at their real prices. A private firm would rather sell a well-defined good or service geared towards individuals rather than collective society.

Right.

6.A,B are substitutes. C,D are complements.

Correct.

7.The four factors of production are land (probably the location of factories), labor (employees), capital (money, especially money to draw on when starting up shop), and entrepreneurship (advertising, good minds for business, promoting the company, etc.).

Correct. But be sure to follow instructions: you only had to answer 6 out of the above 7, not all 7.

Honors

9.A public good is better called a resource or a service, something set up for the benefit of the whole society. For example, a church is a public good. A park is a public good. A bulletin board of local events and services is a public good. Government services are also often public goods. You could also define a public good as something which can simultaneously benefit large numbers of the general public, or which are at the immediate disposal of the general public.

A park, yes, government services, often yes, bulletin board, yes, but a church? A church could easily exclude someone, or charge on an individual basis. In the Puritan era perhaps churches were not as "public" as they are today. But your answer is thorough and thought-provoking. Full credit.

10.Number 16, the one with maximized total revenue. I don’t think there is such a thing as a “revenue ceiling,” so it is rare or impossible for a firm to have achieved, at some point in the past, revenue so high it cannot be increased anymore. Other than that, I don’t know exactly why this is an unlikely situation, but I know that it is.

Right. It is difficult to imagine when revenue would ever be maximized. Perhaps a completely sold-out baseball or football stadium, or airplane flight? In those cases the firm has not maximized its overall revenue, unless the firm consisted of only one game (perhaps the "Rose Bowl" event) or one flight (perhaps the maiden voyage of the Titanic).

11.The correct answer is shortage of 600. A shortage occurs because a price ceiling increases demand, without adjusting output- in fact, output will probably decrease, because producers are now making less money. Specifically, the shortage can be measured by measuring the quantity between where a line representing the price ceiling intersects the supply curve and demand curve.

Excellent ... except that output almost certainly decreases due to the lower price, not merely "probably decrease."

Perfect! The best homework in the class so far. Well done! 90/90.--Andy Schlafly 18:25, 25 November 2009 (EST)