2. Describe some of the opportunity costs when you decide to do the following.
An opportunity cost is the cost of what we give up every time we make a choice. No matter what decisions we make, something else must be given up. Many decisions are going to be based on our personal viewpoints. However, companies try to break down decision into two mutually exclusive situations. Let’s take the first example:
a. Attend college instead of taking a job
An opportunity cost of going to college rather than taking job may be that you will not have money to buy a new car because you have spent it on tuition.
b. Watch a movie instead of driving your car.
An example of an opportunity cost of watching a movie over driving your car could be that you don’t go to a friend’s house to see her new baby.
Economics is a science that provides tools to assist us in making the best choices, whether personally or for the benefit of our employer/company. Often times, the best decisions can be made by stacking marginal benefits versus their associated marginalcosts. This leads us to your next question.
5. In the following examples, state how you would use the principle of marginal analysis to make a decision.
The principle of marginal analysis identifies different choices by looking at the additional benefits and additional costs of different alternatives caused by a small change in one or the other.
- Deciding how many days to wait before doing your laundry
In this case, the decision can be weighed by assuming if you wait one more day to do your laundry, will you run out of clean underwear before you go on job interview. Will waiting a day to wash your clothes, thus having to wear possibly smelly, dirty underwear the next day, affect your chance for landing that job?In this example, marginal benefit or cost is the one day (or one unit) delay of doing your laundry and how it will affect the outcome of your job interview.
b. Deciding how much library research to do before writing your term paper
In this case, you must weigh whether additional research will result in a more favorable grade on your term paper. Other factors to consider in your decision may be what effect the term paper will have on your overall class grade and how much time you need to spend researching before you feel comfortable that your efforts will result in a favorable grade.
c. Deciding how many bags of chips to eat
This is going to be based on personal interpretation. If you have eaten one bag of chips, is the next bag of chips you eat going to taste as good as the initial bag? Will eating another bag of chips make you sick to your stomach? How much other food have you eaten before you had the first bag and how many additional calories will that add to your daily quota (if dieting)?
d. Deciding how many lectures of class to skip
This one has to be weighed on how well you feel you know the subject matter taught in class, possible downsides in missing a certain number of classes (ie: failing the class, being forcibly withdrawn, etc.), how much missing class time will affect your test grades, etc.
9. In each of the following cases, explain whether you think the situation is efficient or not. If it is not efficient, why not? What actions would make the situation efficient?
Efficiency in economic terms is using resources in order to maximize the production of goods and services. In many cases, these are also subject to our own personal interpretations and beliefs. However, we have to try to break it down into something “black and white,” which is not always easy to do. Let’s look at your examples:
a. Electricity is included in the rent at your dorm. Some residents in your dorm leave lights, computers, and appliances on when they are not in their rooms.
Some might conclude that leaving the electricity on when a resident is not in their dorm room is not efficient because the use of extra electricity will eventually drive up the cost of rent. In this case, it will cost the landlord more to provide this service that is rolled into your rent. An action that may make the situation efficient would be to create a deterrent by asking the landlord to tell all residents to conserve electricity so he/she does not have to raise the price of rent.
b. Although they cost the same amount to prepare the cafeteria in your dorm consistently provides too many dishes that diners don’t like, such as tofu casserole, and too few dishes that diners do like, such as roast turkey with dressing.
This would be a situation that would have to be weighed from both sides of the coin. You can choose which way you want to answer it. First, it may be seen as efficient from the standpoint of the Cafeteria Manager because it may cost less money to serve tofu casserole more often than turkey and dressing. By cutting costs, the cafeteria may be able to afford to provide extras such as an ice cream machine. It would not be efficient from the standpoint of the consumer because very few people will pay to eat tofu casserole. If the cafeteria wants their business, they should provide more options of things people want to eat.
c. The enrollment for a particular course exceeds the spaces available. Some students who need to take the course to complete their major are unable to get a space while others who are taking it as an elective do get space.
Again, two sides to this one and you can answer it either way. The university may see this as efficient because they feel that the number of spaces allocated is sufficient and that allocating more spaces will result in an extra class, as well as having to pay an additional teacher, that can not be completely filled. They may also feel that if you know you need the class to complete your major, you should take it upon yourself to sign up for it as early as possible. The students may not feel it is efficient because there are a certain number of people who can not take the class when they need to take it. They may feel that university has a duty to provide better and more complete services to its “customers.” Not providing these “services” may result in a drop in enrollment in that particular major.
12. In each of the following situations, explain how government intervention could improve society’s welfare by changing people’s incentives. In what sense is the market going wrong?
a. Pollution from auto emissions has reached unhealthy levels.
Government intervention could improve society’s welfare by regulating emission standards set by all auto makers and establishing an organization (EPA) to regulate compliance. To offset the newly associated costs of government regulation, which auto makers have added to the price of new cars, the EPA may give the manufacturers vouchers to help the consumers offset the cost of purchasing a new car that is in compliance with the new regulations. The market is going wrong because government intervention tends to lead to increased consumer costs and it takes away the consumer’s right to choose whether or not to pollute the environment, which is not stated by our constitutional rights.
b. Everyone in Woodville would be better off if streetlights were installed in the town.
But no individual resident is willing to pay for installation of a streetlight in front of his or her house because it is impossible to recoup the cost by charging other residents for the benefit they receive from it.
In this case, local government intervention could improve Woodville’s welfare If they prove that neighborhood crime statistics show increases in home robberies in areas that are unlighted versus those that are lighted. By installing streetlights, they can justify the forced cost increased under the guise of “public safety.” They can also try to justify their case by stating that lower crime rates throughout the city make the city more attractive to companies that may be willing to relocate to Woodville. The market is going wrong because local government intervention is forcing homeowners to pay for these “improvements” whether they are willing to do it or not. Thus, the consumer’s “freedom of choice” is taken away.
I hope these answers help. Please let me know if you need additional information and please provide feedback for me. Thanks!