Economics Homework Five Answers - Student Five

Anna M

1\. Define, in your own words, economic “efficiency”. Use it in an example sentence.

Economic efficiency is using your time to it's best advantage. You do more work in less time and increase your profits and/or productivity. Being efficient is basically "Time is money". The more time you put into something, the greater the result.

"its best", not "it's best". Excellent answer otherwise.

2\. Suppose the cross elasticity of demand for goods A and B is +3.8, and for goods X and Y is -2.7. What can you conclude about the relationship of the goods A and B, and of X and Y?

A & B are substitutes, X & Y are complements.

Correct.

3\. Suppose it costs you $500 to make your first 5 units, then $200 to make your next 5 units, and then $100 to make your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit?

The marginal cost would be $20.

Correct again!

4\. Suppose your annual income increases from $20,000 to $25,000. Suppose your demand for steak increases by 10% and your demand for fast food hamburgers decreases by 5%. Which type of goods are steak, and which type are hamburgers?

Steak is a normal good, hamburgers are an inferior good.

Right.

5\. What is the basic assumption of the Coase theorem, and why is that assumption so important to the result of the theorem?

The basic assumption of the Coase theorem is that perfect efficiency can be reached without transaction costs. This assumption is important because it creates perfect efficiency in society.

A bit awkward ("it creates perfect efficiency" - how does a theorem "create"), but otherwise good.

6\. What does an owner do when his marginal revenue exceeds his marginal cost? Explain.

Tries to sell more goods. His income is now higher than his cost, and this is good for him.

Excellent.

7\. What does the Coase theorem say about the desirability, and the effect, of government regulations that increase transaction costs?

The Coase theorem says that with increasing government regulations, transaction costs increase and efficiency is lost.

Superb, could use as a model.

Perfect work! Well done. 70/70.--Andy Schlafly 20:35, 16 October 2009 (EDT)