# Economics Homework Five Answers - Student Two

DeborahB.

1. Define, in your own words, economic “efficiency”. Use it in an example sentence. Efficiency is consciously trying to save time, energy, and money in everything you do by making little changes to accomplish more in less time, spend less money, and waste less energy so the energy you're saving can be put back into the action. Example sentence: "Henry Ford was the epitome of efficiency when he invented the assembly line for making Ford cars."

Excellent.

2. Suppose the cross elasticity of demand for goods A and B is +3.8, and for goods X and Y is -2.7. What can you conclude about the relationship of the goods A and B, and of X and Y? We can conclude that A and B are substitutes, because they are positive, and goods X and Y are complements, because they are negative.

Superb.

3. Suppose it costs you \$500 to make your first 5 units, then \$200 to make your next 5 units, and then \$100 to make your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit? The marginal cost would be \$20 to make another unit.

Correct.

4. Suppose your annual income increases from \$20,000 to \$25,000. Suppose your demand for steak increases by 10% and your demand for fast food hamburgers decreases by 5%. Which type of goods are steak, and which type are hamburgers? The hamburger would be an example of an inferior good - when the income of someone increases, their demand for the food decreases. Steak would be an example of a normal good, because when the income of someone increases, their demand for that particular good increases.

Excellent.

5. What is the basic assumption of the Coase theorem, and why is that assumption so important to the result of the theorem? The basic assumption of the Coase theorem is that in the absence of transaction costs, an efficient or optimal economic result occurs regardless of who owns the property rights, It is extremely important because the result of the theorem is based on whether there is a lot of government control raising transaction costs and making everything less efficient and more expensive for people.

Terrific answer, may use as the model!

6. What does an owner do when his marginal revenue exceeds his marginal cost? Explain. Marginal cost is the additional cost to produce one more unit, marginal revenue is the additional revenue received by a business for selling one more unit. When an owners marginal revenue exceeds his marginal costs, he tries to sell more units. For example, the owner of a nail salon can decide to keep their store open on Sunday's, whereas all the other nail salons in town are only open till Saturday. The marginal cost for this decision would be the extra time and money he is spending keeping it open an extra day. But as long as the marginal revenue is exceeding the marginal cost, meaning as long as he is making enough money from keeping it open Sunday's to make up for the money he is spending keeping it open, then he is successfully selling more units.

Superb again!

7. What does the Coase theorem say about the desirability, and the effect, of government regulations that increase transaction costs? The Coase theorem says that the most efficient and optimal economic prosperity would be in effect if there were absolutely NONE of those government regulations that increase the transaction costs, regardless of who it is that owns the property rights that the government is increasing the transaction costs on!

Terrific.
Absolutely perfect and fantastic homework, the best in the class so far! Congratulations. 70/70.--Andy Schlafly 20:18, 16 October 2009 (EDT)