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Why does the textbook author focus on coordination rather than on scarcity when defining economic?
To emphasize the subsidiary nature of scarcity to the overall concept of coordination.
E
Economics is not merely about our wants or the means of fulfilling those wants; it is also about reconciling our wants with reality, where reality consists of decision-making mechanisms, social customs, and political realities.
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State whether the following are primarily microeconomics or macroeconomics:
a) Should U.S. interest rates be lowered to decrease the amount of unemployment?
b) Will the fact that more and more doctors are selling their practices to managed care networks increase the
efficiency of medical providers?
c) Should the current federal income tax be lowered to reduce unemployment?
d) Should the federal minimum wage be raised?
e) Should Sprint and Verizon both be allowed to build local phone networks?
f) Should commercial banks be required to provide loans in all areas of the territory from which they accept deposits?
- a) Macro
- b) Micro
- c) Macro
- d) Micro
- e) Micro
- f) Micro
Micro: Studies how economic forces influence individual choices such as the pricing policies of firms, households' decisions on what to buy, and how markets allocate resources among alternative ends.
Macro: studies aggregate relationships such as how household consumption is related to income and how government policies can affect growth.
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List two microeconomic and two macroeconomic problems.
Two microeconomic problems are the pricing policies of firms (price-fixing in particular) and the way wages are determined in labor markets. (Why do athletes and celebrities make so much money, anyway?)
Two macroeconomic problems are unemployment and inflation (business cycles and growth are also macroeconomic problems).
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You rent a car for $29.95. The first 150 miles are free, but each mile thereafter costs 15 cents. You plan to
drive it 200 miles. What is the marginal cost of driving the car?
The marginal costs are the additional costs of the additional activity. In this case, the additional activity is driving (200 − 150) miles. The marginal cost is the 10 cents per mile for all miles over 150 plus the additional cost of gas. Therefore, the marginal cost is plus the cost of gas. The initial payment can be forgotten because it is a sunk cost; it is not part of the marginal costs.
$29.95 + 50miles($0.15)= $37.45
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Economist Henry Saffer of Bentley College estimated that the government must spend $4,170 on drug control to deter one person from using drugs and that the cost one drug user imposes on society is $897. Based on this information
alone, should the government spend the money on drug control?
No, since the marginal cost of drug control exceeds the marginal benefit; the government should not spend $4,170 to deter one person from using drugs.
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What is the opportunity cost of buying a $20,000 car?
The opportunity cost of buying a $20,000 car is the benefit you would have gained by using that $20,000 for the next-best alternative, which could be spending it on other goods and services or saving it.
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Suppose you currently earn $30,000 a year. You are considering a job that will increase your lifetime earnings
by $300,000 but that requires an MBA. The job will mean also attending business school for two years at an annual cost of $25,000. You already have a bachelor’s degree, for which you spent $80,000 in tuition and books. Which of the above information is relevant to your decision on whether to take the job?
Only the marginal costs and benefits of taking the job are relevant. That means that the sunk cost of the bachelor’s degree is irrelevant. Therefore, the relevant costs are the opportunity cost of taking the job (forgone earnings from your current job) and other things you could have done with the money you need to pay for business school. The relevant benefit is the increased lifetime earnings of $600,000.
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Suppose your college has been given $5 million. You have been asked to decide how to spend it to improve your college. Explain how you would use the economic decision rule and the concept of opportunity costs to decide how to spend it.
You should spend the $5 million on projects that provide the highest marginal benefit per dollar spent.
The opportunity cost of spending the money on one project is the lost benefit that the college would have received by spending it on a different project. Thus, another way to restate the decision rule is to spend the money on the project that minimizes opportunity cost per dollar.
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Give two examples of social forces and explain how they keep economic forces from becoming market forces.
Two examples of social forces are: Our unwillingness to charge friends interest & our unwillingness to “buy” friends.
These issues are still subject to economic forces; however, there is no market in “friends” or in loans to friends, and so the economic force does not become a market force.
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Give two examples of political or legal forces and explain how they might interact with economic forces.
Two examples of political or legal forces are: Rent control laws & restrictions on immigration.
Both prevent the invisible hand from working. Rent control laws place a price ceiling on rent, causing shortages of apartments, and immigration restrictions cause the number of immigrants seeking entry to exceed the number allowed to enter, which tends to cause wage rates to differ among countries.
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