Economics Homework One Answers - Student Four

Anna M.

1. Give an example of a "good" not in the lecture, and an example of a "service" not in the lecture.

An example of a good would be buying a computer. You pay for it, and you receive it. It's tangible and in your hand. An example of a service would be paying to have said computer delivered or repaired. The act in itself does not have substance, but it produces a result, which is what you are paying for in the first place.

Excellent examples.

2. Imagine that your family has two options for dinner: eat at home, or go out to eat at McDonald's. Which option incurs more transaction costs? Identify two specific transaction costs. Which option is cheaper for your family, and why?

Each option has its costs, but it would probably be cheaper to eat at home. However, you have to consider the situation your family is in, and the food you have on hand at home. This question is really too vague to answer completely, so let's consider what I think is the average situation.

Eating at home has its perks. First of all, you don't need to drive anywhere, which cuts back on gas costs and your time. Two, there is no tax or profit cost, like you would have at a fast food restaurant. And, you get the family atmosphere, which usually benefits the family elsewhere. However, you do have to buy the food that you prepare. This isn't a major cost, since there is no tax on produce. You also have to consider the amount of time it takes to prepare a dinner for a family. Not to mention the clean up and the electricity and water costs.

Eating at McDonalds also has some good points. It's fast and affordable. If you are in a hurry to get somewhere, McDonalds is a good choice. You can have dinner in all of ten minutes, and have no dishes to wash. However, you would lose out on the family atmosphere, as well as having to spend more money on gas. There is a tax on fast food, as well as the extra money McDonalds charges as profit and to pay their employees.

In conclusion, McDonalds has more transaction costs and is more expensive.

Correct! Excellent points about how the McDonald’s meal is taxed, but many of the groceries would not be taxed. So taxes are an extra transaction cost when someone eats at McDonald’s. You make good points about some transaction costs at home, particularly the time to prepare the food. But the extra home costs for electricity and water are quite small for one meal.

3. Define the concept of "scarcity" in your own words, and give an example of how an increase in scarcity for a good or service increases its price. Your example might be a World Series ticket (a good) or a special medical operation (a service), or anything else you can think of that is "scarce" in an economic sense. Extra credit: when do people exaggerate scarcity in their minds?

Scarcity is basically anything that costs money. There can never be infinite amounts of anything (except, of course, air), and therefore, everything can be considered scarce. When there are less of an item, it's scarcity increases, and likewise it's price. An example would be the numerous health food stores or organic specialty stores. They don't put as many items on the shelves, and the things they put out have a label that says they are 'eco-friendly'. This causes people to buy them from the store, rather then a cheaper retail. An example of exaggerated scarcity would be a limited edition DVD. It's more expensive than the regular one, but not in less quantity.

Superb answer. Plus one for the extra credit.

4. What is the “invisible hand”? Discuss what it is, using an example (which could be from the story in the lecture about the making of a pencil).

The invisible hand is what causes people to do the things that most benefit them, and therefore, most benefit society. For example, someone who sells only organic items will attract more customers, and will therefore earn money and help the economy.

Correct.

5. There are many parables by Jesus in the Gospels of Matthew and Luke (and one in Mark) which use familiar concepts of money and economics in order to teach a deeper, more profound spiritual point. Examples are at Matthew 13:18-23 and 44-46; Matthew 18:21-35; Matthew 20:1-16 and 21:33-46; Mark 12:41-44; Luke 7:36-50; Luke 12:13-21; Luke 14:15-24; Luke 15:8-10; Luke 16:1-13 and 19-31; Luke 18:9-14; and Luke 19:11-27. Pick one of these parables and explain both the economic point and the deeper spiritual point. Extra credit: why might the Gospel of Matthew have more economic parables than the Gospel of Mark does?

Luke 14:15-24 is the story of the great supper. A man invites many people to his feast, but some of them do not come, so the master invites all the blind, lame, mute, deaf and poor. The people who refused the invitation lost an incredible opportunity to dine with this master, a once in a lifetime opportunity for them. And ultimately they lost a chance to enter into the kingdom of God, they were so focused on the good things in their lives they missed out on the best. The economic point would be "carpe diem", "seize the day", if a good opportunity comes your way, take it.

Excellent answer! Might use as a model.

6. "Caveat emptor" or "carpe diem": pick one of these concepts and explain what it means to you.

"Carpe Diem" means "seize the day". This means that if a good opportunity comes your way, you should take it, because you never know what could happen in your future. Don't plan your life around your future.

Good, concise answer.

Great start! 60/60 Congratulations.