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Hints for Unit 1 Assignment

For question 1.a. give the textbook’s definition of “Opportunity Costs”

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For question 1.b. explain what you think are the opportunity costs in this situation For question 1.c. complete a chart of all the options, or list all of the options, then

discuss the criteria by which such a decision would be made.

For part a. of questions 2 and 3, choose the correct principle and explain why you think

it is correct.

For part b. of questions 2 and 3, list what you think would be the logical steps that would

fit the situation.

Econ’s Top Twelve

1. People must make choices because resources are scarce

2. The opportunity cost of an item-what you must give up in order to get it- is its true

cost

3. “How much” decisions require making trade-offs at the margin: comparing the

costs and benefits of doing a little bit more of an activity versus doing a little bit

less

4. People usually respond to incentives, exploiting opportunities to make

themselves better off

5. There are gains from trade

6. Because people respond to incentives, markets move toward equilibrium

7. Resources should be used as efficiently as possible to achieve society’s goals

8. Because people usually exploit gains from trade, markets usually lead to

efficiency

9. When markets do not achieve efficiency, government intervention can improve

society’s welfare

10. One person’s spending is another person’s income

11. Overall spending sometimes gets out of line with the economy’s productive

capacity

12. Government policies can change spending

Krugman, P., & W ells, R. (2018). First principles. Microeconomics (5th ed., pp. 6-19).

W orth Publishing.

Hints for Unit 3 Assignment

Remember that the Unit 3 Assignment includes work from both Units 2 and Unit 3.

Question 1 is from Unit 2 Question 1a is asking whether or not that level of production can be achieved, given the existing PPF

curve, and asks you to explain W HY. Remember what I had people type in during the seminar about resources?

Question 1b is asking you to compute the marginal opportunity cost of one 200 pound batch of corn (800lbs to 1,000lbs) in pounds of poultry that must be given up to get this batch of corn.

Question 1c is asking you to compute the marginal opportunity cost of a similar 200 pound batch of corn (200lbs to 400lbs) in pounds of poultry that must be given up to get this batch of corn.

– Remember from the Unit 2 Seminar:

Remember what I had everyone type about resources during the Seminar.

– Also remember how to compute marginal opportunity costs.

o after catching the FIRST batch of 20 fish Tom would still have enough TIME to get 25

coconuts

o after catching the SECOND batch of 20 fish Tome would not have any time left to get

coconuts, so he would have 0 coconuts.

o The marginal opportunity cost of the SECOND batch of 20 fish was that Tom had to

give up ALL of the remaining 25 coconuts because Tom no longer had time to get them.

Question 1d asks why these two answers are different and what that implies about the SHAPE of the

PPF curve.

Go back and re-listen to the Unit 2 Seminar for a full explanation. Remember the things that I ask you

to type in the chat that night during the seminar.

– Remember that the best resources for producing one thing are used first. If more output of that

thing is needed, resources that are not as good must be used, therefore increasing the

Marginal Opportunity Costs of the additional output.

o If the FIRST batch of 20 fish had a marginal opportunity cost of 5 coconuts, and the

SECOND batch of 20 fish had a marginal opportunity cost of 25 coconuts, what is

happening to the marginal opportunity costs of fish? Are the marginal opportunity costs

increasing, staying the same, or decreasing?

o If Marginal Opportunity costs of additional batches of fish are increasing, what does this

imply about the shape of the Production Possibility Frontier curve? (Remember what I

had everyone type during the seminar).

——————-

Questions 2 and 3 deal with determining who has the absolute advantage and who has the

comparative advantage for different products and in different situations. – Absolute Advantage has nothing to do with world trade. Absolute advantage only indicates who

could produce the most of something, but not necessarily at the lowest marginal opportunity cost. – Comparative advantage means who can produce the item for the LOW EST marginal opportunity

cost, and is relevant in world trade. – Knowing who has the comparative advantage (knowing what they trade) says nothing about who

has the absolute advantage.

The following are sample calculations to determine the marginal opportunity cost, in order to determine who has the comparative advantage in a particular situation. The simplified production

possibility frontier graph shows that Tom can produce a maximum of either 30 coconuts, or 40 fish and Hank can produce a maximum of either 20 coconuts, or 10 fish.

How many coconuts does ONE fish cost for Tom? ONE fish costs = 30 coconuts / 40 fish = 3/4 of a coconut = 0.75 coconuts

And how many fish does ONE coconut cost for Tom? ONE coconut costs = 40 fish / 30 coconuts = 1 and 1/3- fish = 1.33 fish

And…

How many coconuts does ONE fish cost for Hank? ONE fish costs = 20 coconuts / 10 fish = 2 coconuts

And how many fish does ONE coconut cost for Hank? ONE coconut costs = 10 fish / 20 coconuts = 1/2 of a fish = 0.50 fish

Item Tom’s Opportunity Cost

Hank’s Opportunity Cost

One fish 3/4 coconut 2 coconuts

One coconut 4/3 fish 1/2 fish

Tom has the ABSOLUTE advantage in both fish and coconuts because Tom can produce MORE of

each compared to Hank.

Although Tom can produce more fish than Hank, Tom’s marginal opportunity cost of each fish is only

0.75 coconuts, compared to Hanks marginal opportunity cost of producing a fish, which is two

coconuts. Therefore, Tom has the comparative advantage in producing fish.

Although Tom can produce more coconuts than Hank, Tom’s marginal opportunity cost of each

coconut is 1.33 fish, compared to Hanks marginal opportunity cost of producing a coconut, which is

0.50 fish. Therefore, Hank has the comparative advantage in producing coconuts.

——————-

Question 4 is from Unit 3 and is a straight supply and demand question.

Go back and re-listen to the Unit 3 Seminar.

For questions 4 b-e, pay particular attention to the example in the seminar of selling to the one group

of consumers and then suddenly also being able to sell to an additional group of consumers. The

assignment question is very similar.

See part 8 and part 9 of the supply and demand videos under the Video icon that is under the

Unit 3 Reading.

Question 4 is like the example in the seminar. You add the original country’s demand to the new

country’s demand to get a NEW total demand. Then, see at what price that NEW total amount

demanded is equal to the same amount that suppliers are willing to supply. That is the new price.

Then, go back to the original country’s demand and see how much they are willing to demand at this

new higher price.

Did you add your references and coversheet information to the template with your answers?

Hints for Unit 4 Assignment Marginal Utility and Satisfaction Maximization

Think of the marginal utility as a SCORE that you give the last ONE of that thing, based on how much satisfaction it gives you.

In the parts of problem 1, make up a score (marginal utility) for the last one of each item, according to what the problem says.

In a., the 2nd pair of sneakers AND the 5th sweater get the SAME SCORE, so make up a number. Maybe you give the 2nd pair of sneakers a score of 50 AND you also give the 5th sweater a score of 50.

Next, divide that score you gave for the 2nd pair of sneakers by the price of sneakers to get the 2nd pair of sneakers’ marginal utility PER DOLLAR. Next, divide the score you

gave the 5th sweater by the price of sweaters to get the 5th sweater’s marginal utility per dollar. Are those answers the same? If not, which item should more be purchased and which item should less be purchased to make those answers as close to the same as is

possible. ===============================================

Remember that a person MAXIMIZES their utility when the marginal utility PER DOLLAR of the last one of each item purchased IS THE SAME.

Remember that the law of diminishing marginal utility says that one MORE of an item will give LESS marginal utility (satisfaction score), and conversely, one LESS of

that item will have MORE marginal utility (satisfaction score). Remember that ANY combination of items that does NOT produce the equal marginal

utility per dollar will yield LESS total utility than the ideal combination. ================================================

In part b., the 20th pencil gets a score (you make up the number) and the 6th pen gets a score that is FIVE times as large as the score you made up for the 20th pencil. Now do

the division by the price of each to see if the answers are the same In part c., the 2nd soccer ticket gets a score (you make up the number) and the 3rd

football ticket gets a score that is TWICE as much as the score you made up for the 2nd soccer ticket. Now do the division by the price of each to see if the answers are the same, or not.

If the answers in a, b, or c are not the same, using the law of diminishing marginal utility, which item should you purchase more of (if you have enough budget left) or

which item should you purchase less of.

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