Economics Homework Seven Answers - Student Six

AddisonDM 16:53, 30 October 2009 (EDT)

1.The four elements of perfect competition are 1) many buyers and sellers, 2) equal access to resources or perfect mobility of resources, 3) perfect knowledge in the market, both for consumers and producers, and 4) the presence of perfect substitutes.

Correct.

2.You can usually use competition to motivate yourself when you lose! It’s always possible to do a little better, so try. Perhaps you could use compete with yourself by remembering some time you did something, and trying to do it again- beating yourself!.

Superb, could use as a model answer.

4.It seems rather odd that if bad drives out good, good would drive out bad also- almost a contradiction. However, I have thought of this very idea and I called it the “slippery slope of morality.” I think it depends on the knowledge and education of the people. For example, when Christianity first appeared it did drive out some undesirable customs such as human sacrifice. But today, messages like “sexual freedom” are driving out Christianity. That’s because many people today are simply uneducated about Christianity. So some decent level of education is required for the good to drive out the bad.

Fascinating insight: a level of understanding (perhaps a better term than "education", particularly for the growing homeschooling movement, as "education" can falsely connote formal schooling) is necessary for the good to drive out the bad.

5.Total cost is all the costs that the owner of a firm pays- rent, production costs, raw materials, electricity, employees, etc. Average cost is the total cost divided by the number of units (widgets) produced; thus the cost per widget. Marginal cost is the cost only of producing one more widget.

Correct.

6.First of all, although there certainly was a loss in consumer surplus, I can’t see there being a loss in wealth. Spending money is always more expensive than not spending money (You know how they say “save money”: buy our stuff at half-price? Really, you’re just spending less). Ignoring any non-monetary benefit of attending the dance, money was saved by its being cancelled. However, the consumer surplus lost is $425. (Of course, the wealth saved in tickets not purchased is $2250, and even subtracting the surplus from this, $1825 were saved).

Your figure for the consumer surplus, but it's a mistake to ignore "any non-monetary benefit of attending the dance." The fact that people were willing to pay $15 for it shows that the dance was worth at least as much for them. Nothing is "saved" by not holding the event given the strong demand. (Minus 1).

7.There is not perfect competition here. Let’s look at the four elements and what the public schools vs. homeschooling each have. Perfect mobility of resources: no. Public school students have access to teachers and materials without any individual charge, and school taxes are paid regardless of school attendance. Homeschoolers have to pay individually for all school supplies, and are rarely allowed to take part in public school activities. Goods that are perfect substitutes: I suppose this would refer to the education or educational materials. I think there are not completely perfect substitutes, although the books and methods are not always vastly different. Perfect knowledge in the market: nope. Many who use the public schools are ignorant of homeschooling, and many homeschoolers are ignorant of public schools. Many buyers and sellers: not really, public schools have a near monopoly over education.

Superb analysis.

Honors

8.Competition is a means of reaching greater efficiency among participants in the free market.

Excellent, may use as a model answer.

9.If you have a perfectly competitive labor market and more labor is introduced, there will be a labor surplus- no more jobs are needed. A competitive market is also an efficient one, with an optimal number of employees. Adding new labor will cause a surplus. The same will occur whether there is a minimum wage or not. The new labor will just sit there, with no one to employ it.

Right: unemployment will increase.

10.When output is zero, the firm is not profitable. The loss is the recurring or relevant fixed costs such as mortgage or rent, electricity (if facilities remain open while not selling or producing), etc.

Correct.

Superb answers. 99/100. Congratulations.--Andy Schlafly 13:02, 31 October 2009 (EDT)