Economics Homework Thirteen Answers - Student Seven

AddisonDM 12:01, 17 December 2009 (EST)

2\. The loss of jobs to foreign countries is a result of free trade. Protectionism would advocate keeping the jobs here and generally lessening trade with foreign countries.

Correct.

4\. Your good is price inelastic, meaning that an increase in price only causes a small decrease in demand. The extra revenue gained from the price increase is greater than the revenue lost from decrease in demand.

Superb!

5\. C, P > MC. In a perfectly competitive firm, price will have to equal marginal cost because if the firm increases its price even a little it will immediately be undersold by its other competitors.

Correct again.

6\. The illustration of short run and long run is that having a long run plan for traveling is more efficient than a short run or last minute plan. The short run answer, buying the expensive ticket right before the trip, is pretty much a patch-up fix to make up for the lack of a long run plan in this case.

Excellent.

7\. The “market power” of firms in monopolistic competition. This is similar to brand loyalty. For example, Target and WalMart sell many items that are virtually identical, but some people simply prefer one store over the other, and will not just choose the cheaper of the nearly identical items. One store can increase its price and some consumers, preferring the store for some reason, will continue to shop there.

Good analysis, but not the best example because Wal-Mart seems to compete purely on price. I doubt there is much brand loyalty, although I have heard of people camping out in its parking lots so maybe there is some kind of following. But I doubt that support would continue if Wal-Mart lost its price advantage, and perhaps that focus on price is why Wal-Mart works so hard to keep unions out of its workforce.

Honors

8\. If the price charged in long-run equilibrium is equal to average total cost, this means that in the long run the firm is breaking even, but not making much or even any extra profit. This is true because when price goes higher than average total cost, another firm will almost certainly jump in and cause a possibly detrimental decrease in the first firm’s demand. It’s too risky to raise the price significantly above the average total cost.

Excellent.

9\. This is an odd answer, but economics is not so dismal after all because of inefficiencies. If a completely efficient free market economy were to exist, there would be less extra money and abundance of goods. If sellers and producers could not make any extra profits, many would exit the field and fewer people would replace them. You might almost end up with a situation like communism- no one is benefiting from their work, so they simply leave the work to others. Almost everyone thinks this, and so production and prosperity decline. Perfect efficiency largely strips away the incentive of money-making that is a main force behind business and production.

Interesting approach! Not sure I agree, but you may be right!

10\. Actually, there is nothing pejorative about the word “protectionism” itself, only the negative image or feeling that has become associated with it. But, a more positive term could be something like “Domestic economic fostering.”

Good suggestion, but a bit awkward! See model answers when finished to see what others suggest.

Perfect finish to superb homework the entire course. 80/80. Congratulations!--Andy Schlafly 22:58, 19 December 2009 (EST)