Structured Homework Assignment 1 Ques

Topics: Supply and demand, Price elasticity of demand, Consumer theory Pages: 3 (662 words) Published: April 24, 2015
Structured Homework Assignment set (1)
Chapter 1, Problem & Application section, Questions 3, 5, 6 & 7. QUESTION 3
You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is the true cost of going skiing? Now suppose you had been planning to spend the day studying at the library. What is the cost of going skiing in this case? Explain.

QUESTION 5
The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your sales people report that the introduction of competing products has reduced the expected sales of your new product to $3 million. If it would cost $1 million to finish development and make the product, should you go ahead and do so? What is the most that you should pay to complete development?

QUESTION 6
The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount received in Social Security benefits is typically reduced.

a. How does the provision of Social Security affect people’s incentive to save while working? b. How does the reduction in benefits associated with higher earnings affect people’s incentive to work past age 65?

QUESTION 7
A 1996 bill reforming the federal government’s anti-poverty programs limited many welfare recipients to only two years of benefits.
a. How does this change affect the incentives for working?
b. How might this change represent a trade-off between equality and efficiency?

Chapter 4, Problem & Application section, Questions 1, 3, 5, 6 & 8 QUESTION 1
Explain each of the following statements using supply-and-demand diagrams. a. “When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.”
b. “When the weather turns warm in New England every summer, the price of hotel rooms in Caribbean resorts plummets.”
c. “When a war breaks out in the...
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