Economics Homework Seven Answers - Student Eighteen

Michelle F

1\. Identify the four elements of perfect competition.
a) lots of supply and demand; a large market
b) perfect substitutes
c) perfectly informed buyers and sellers
d) identical variable and fixed costs

Correct!

2\. Describe how you might use competition, perhaps even competing with yourself, to motivate you to achieve more.

One way is by comparing previous test and homework scores, and trying to achieve the same score or better the next time.

Right.

3\. We are going to have our midterm in two weeks. Think of a question that you would like to see answered or clarified at the next class.

I had a little bit of trouble with the concept of a price ceiling. I think I understand it now, but would like to be sure, because it would stink to think I understand it, then get to the exam and realize I don’t.

A price ceiling is like a real ceiling: you (price) can't go above it. In practice it is the same as a price control, because the control acts as an upper limit on price. If the government says gas cannot be sold for more than $1, then that is a price ceiling.

4\. Do you think the converse of Gresham's Law is true with respect to speech and conversation, such that good speech or conversation (such as discussing the Bible) drives out bad? Explain.

I think that it could be, but isn’t always. Sometimes people hoard their good speech just like they would hoard good money. If you truly believe and value the good speech or conversation, it would be the converse, but if you didn’t actually care, and were doing it just to impress people, you would only use it when you needed to. I also think that in today’s society, good speech and conversation is not the normal, and it can be hard to go against the flow. So in some instances, peer pressure can drive out quality.

Excellent point, especially about hoarding "good speech." Often people keep prayers and compliments to themselves, when they should be more vocal about it to "drive out the bad."

5\. Explain the difference between total cost, average cost, and marginal cost.

Total cost is the total of all the costs, fixed and variable. Average cost is the total cost/quantity. You would use the same costs whether you are averaging total, fixed, or variable costs. Marginal cost is the additional cost to produce one more unit.

Correct, but I'm not sure what you mean by "You would use the same costs whether you are averaging total, fixed, or variable costs." You divide by the same QUANTITY, but the numerators are different.

7\. Is there perfect competition between homeschooling and public schools? If not, explain the imperfections.

Homeschooling does not have as large of a market as public schools. The services are not perfect substitutes either. Homeschooling has more individual instruction than public schools do, and the courses and curriculum can be tailored to the individual student. There is not perfect knowledge of the market, although it is growing rapidly. And there is a definite difference in mobility of resources. The resources of a homeschool depend on the income of the family, and it varies widely. There are homeschoolers in most every class of society.

Excellent.

Honors

8\. Define the term "competition" in a new way by using another powerful term developed in this course.

The definition I would choose would be “free market”. That may not make sense at first, but I think that the free market and competition are synonymous. Competition defines the free market, and vice versa. Imagine trying to describe the free market without the word competition. It would be impossible!

Good!

9\. Suppose the underlying labor market is perfectly competitive, but there is a minimum wage above the market rate. Then suppose that the supply of labor increases. Explain what the result is and why.

The result is a shortage of jobs. The supply of people willing to work increases as wages increase, but at the same time, less employer are willing to pay quite so many employees as before at the higher wage. When using the free market, it is difficult to get the benefits of the free market if the supply and demand is being artificially adjusted.

Excellent, with superb commentary. Could use as a model.

10\. What is the firm's profit or loss when Q=0 in the honors discussion above? (Answer simply in terms of another cost measure.) Is the firm profitable?

The firm isn’t making anything, so they can’t sell anything, so they couldn’t possibly make a profit. They are actually losing money, because they have already paid their fixed costs. The firm is not profitable.

OK, but you could say their loss is their fixed costs. They are probably still paying that off with payments on a loan.

90/90. Perfect! Congratulations.--Andy Schlafly 22:36, 31 October 2009 (EDT)