Christopher Twyman

Econ 102

Dr. James J. Itangata

24 June 2018

Week #1 Individual Assignment

Chapter 1 Questions and Exercises:

4(a).

Cost of attending college per day: $50

Private coaching per day: $60
Online support per day: $40

Opportunity Cost = $50 (Cost of attending college) - $60 (Private coaching cost) = $ - 10

(b.)

Cost of Economics: $500

Cost of English: $520
Cost of History: $460
Cost of Science: $550
Cost of Mathematics: $480

Opportunity Cost = $500 ( Economics; Cost of preferred alternative) - $520 (English; Cost of
next best preferred alternative) = $ - 20.

(c.)

Cost of attending yesterday’s lecture = $10

Cost of doing self study with the help of online support = $12
Cost of resting = $5
Opportunity Cost = $10 (Cost of attending yesterday’s lecture) - $20 (Cost of doing self study
with the help of online help) = $ - 2
5.

Marginal cost of pizza (Being equal to its cost): $10

Cost of burger: $6 (With the marginal benefit being greater than its price)
The marginal benefit from the burger exceeds the marginal benefit from the pizza. Therefore, we
should choose the burger.

6.

The cost of $29.95 is a sunk cost that cannot be given back no matter how far your drive. Since
the first 150 miles are free, he drives 200 miles. The next 50 miles has to be considered for
calculating the marginal cost. 50 miles x 15 cents = 750 cents = 7.5

7.

A cost/benefit approach can’t be applied in this scenario because the use of drugs are harmful.
According to the Economic Decision Rule, an event should not occur if the marginal cost
exceeds the marginal benefit. Within this scenario, the marginal cost is greater than the marginal
benefit. Hence, the government should not spend $4,170 to deter one person from using drugs.

8.

If $20,000 had been deposited in a savings account, then its future value could have been
increased. If $20,000 had been used for investment purposes, then the future income could have
been increased. The opportunity cost of buying a $20,000 car is giving up other possible
alternatives, or anything else that could be purchased using $20,000 rather than spending it on a
car.

9.

Current earning = $30,000

Increase in lifetime earnings = $3,000,000
Annual cost of doing an MBA = $25,000
The cost of doing a bachelor’s degree is a sunk cost, so it would be irrelevant for decision
making. The opportunity cost of doing an MBA is the cost of sacrificing the other best
alternatives. The cost and benefit of doing a job is relevant to making a proper decision.

Chapter 1 Questions and Alternative Perspectives:

1.

Objective economic analysis separates economist’s value judgements from the analyst’s view. It
doesn’t say anything about how things should be, but it gives proper suggestions regarding how
to achieve economic goals. Therefore, it is possible to use objective economic analysis as a basic
for government planning.

6(a).

Radical position implies that normative economics is important for the solution of economic
problems. Positive economics gives framework of the economy, but normative approach helps to
decide goals. Therefore, the normative approach should be used for economic analysis.

(b).

Distinction between positive and normative economics is tenable. Positive and normative
economics are the two branches of economics. These branches have their own perspective for
economic analysis. Positive economics is based on the objective analysis whereas the normative
economics is based on the subjective analysis.

Chapter 2 Questions and Exercises:

1.

The figure shows that there is an increase in the production of commodity-x. The output of
commodity-x increased due to an improvement in technology. Therefore, the production
possibility curve rotates to the right from ab to ab1.

2.
Increases in productivity leads to a rise in the production of both commodities. If the production
of both commodities x and y increases, then the production possibility curve shift to the right as
indicated in the above figure.

3.

*The production possibility curve embodies the principle of increasing marginal opportunity
costs. For each 10-point gain in this person’s history grade, the number of points lost on the
Mathematics grade increases gradually.

History Mathematics

50 90

60 70

70 4600

4(a).

The trade of is that if JustBron Candies produces 30,000 Peeps then it must produce 90,000
Mikes and Ikes (Or vice versa). For every 1 candy of Peep, the producer is losing 3 Mikes and
Ike's candies.
(b).

(c ).

(d).
5.

The production possibility curve moves alongside according to the changes in the marginal
opportunity cost.

6(a).

(b).

As the output of food increases, the marginal opportunity cost is increasing.

(c ). With better production of food, the area where the production possibility curve intersects the
horizontal axis will move to the right because now more is produced by employing the same
factors of production.

(d).
With better production of food and clothing, the production possibility curve will shift out along
both axes by the same proportion because more of both the outputs is produced by using the
same factors of production.

Chapter 2 Questions from Alternative Perspectives:

1.

The market’s main goal is profit maximization, and the only way they can achieve that is through
doing things efficiently to keep consumers happy. If there are no consumers, then the market will
not survive. Competition often increases efficiency by urging firms to keep their prices low,
which leads to more consumers. This is where the government struggles, as they often try to
avoid competition

5(a).

The division of labor exists in today’s world and it has a positive impact on productivity. The
allocation of work is done through the specialization of workers. Workers’ productivity can be
increased through the division of labor.

(b).

The theory of division of labor states that performing a few simple operations would lead to
creating efficiency and finally increasing the productivity. This theory has various policy
implications. The marginal productivity of labor can b increased by using the division of labor
theory.

Chapter 3 Questions and Exercises:

6.

If people don’t demand the goods and services produced by businesses, then economic expansion
is not possible. People control the government and businesses indirectly through the power of
choice. Expenditure by the people governs business decisions regarding what to produce. Labor
supply, which is determined by the people, affects the production process of businesses.
Therefore, an economy’s strength resides in the people.
7.

Entrepreneurship is a central part of any economy because it bears the market risks for making
profit. The profitability of any business is dependent on the decisions of entrepreneurship. All of
the new challenges, such as competition, efficiency, and the use of modern technology are all
controlled by entrepreneurship. Entrepreneurs are the ones who acquire business license, permits,
and approval from various government agencies to start a business. Without them, businesses
would not exist.

8(a).

Sole proprietorship is the most common for of business (72% of businesses in the US are sole
proprietorships) as it requires minimum bureaucratic hassle to operate.

(b).

Corporations account for the largest proportion of sales as they cater to every need of the
consumer and are world-wide.

9.

If someone is going to start a software company, they should use sole proprietorship as their
form of business organization. This is because with it, there are fewer bureaucratic hassles and
owners can control business related activities directly.

10.

The two largest categories of federal government expenditures are on security (Takes up 31% of
spending) and health and education (Takes up to 27% of spending). In total, both take up 60% of
our nation’s spending.

Chapter 3 Questions from Alternative Perspectives:

1(a).

Government intervention leads to the creation of inefficiency in the market. If the government
provides basic services free of cost, then people will not be serious about its use. Free services
lead to an increase in excessive expenditure and an increase in tax rates. Therefore the
government’s decision to provide free services would hurt the economy.

(b).

Government provided free services often lead to further interference by central planners in
family decisions. For example, people may lose the opportunity to pick where they’d like to
receive their healthcare.