Economics Homework Eleven Answers - Student Four

AddisonDM 10:16, 3 December 2009 (EST)

1\. One reason is to make up for what you could have made had you invested the money and gained interest, or for what you would have bought with the money. Another reason is to offset the risk that the loan will not be repaid. Charging interest on a loan is kind of like insurance.

Superb, could use as a model. But the interest is not insurance: if the borrower "defaults" (does not pay back the loan), then he's not going to pay the interest either.

2\. $1102.50.

Correct!

3\. I think the answer is a fixed cost. Fixed costs do not change with input. Let’s say input is how many people buy tickets. Whether input is high, as in filling the bus, or low, the bus still needs to be rented. (However, since you can rent a different size bus based on the input you get, it could also be a variable cost.)

Excellent. Good point about different sized buses, but 47 seats seems to be standard for this type of trip.

4\. Probably opportunity cost and the time value of money, since they state in a clear way that doing something is worth more than not doing something. Knowing that encourages you not to waste time, and to be more productive.

Excellent.

6\. I got number five wrong because I misremembered the definition of “Law of Demand.” (That was the answer I gave). Thought Law of Demand had to do with appealing to the demand of the public, but it really means that demand varies inversely with price. Thus the answer is Invisible Hand, not Law of Demand.

Right.

Honors

7\. Economic rent is like a tax a seller can charge because of a special quality in his product. For example, price gouging on a product with restricted supply is a form of economic rent. If a sports team wins a championship and then charges more for its tickets, that is economic rent.

Very insightful.

8\. This should be illegal because it is an attempt to create a monopoly out of the public eye. It could also be described as creating economic rent that would not exist in the unmanipulated market. Reducing output impedes the free market and causes loss of wealth, and to impede the market unnecessarily to make more money is harmful to the consumers. In fact, banning false reduction of output is a less involved procedure than breaking up a monopoly, and so possible harm due to regulation is also diminished by making this illegal.

Excellent again, could use as a model.

9\. I don’t know that I have a favorite concept, but Gresham’s Law comes to mind. It’s an interesting concept theoretically, but it’s also good investing advice- invest the strong money and spend the weak money. I like it because it’s both useful and interesting.

Terrific.

Perfect score with some superb answers. One of the best homeworks in the entire class all year. 80/80. Well done!--Andy Schlafly 19:13, 5 December 2009 (EST)