Project #44947 - Econ 203

Week 1 Homework

1a) Why are markets important in answering the question of who consumes products?  Does

government also play a role?  Elucidate.

1b) What is scarcity and why is it relevant to economics?

2a) The Intercounty Connector (or ICC) recently opened in the state of Maryland. [For more details,

see:  <http://www.mdta.maryland.gov/TollFacilities/ICC.html >.]  Provide an economic rationale for

the creation and toll structure of this road.

2b) Use the data in question A.4 and curve in A.4 (a) {see page 26 of the text} to finish this question.

Table and curve based on truck rental of \$50 per day plus one hour per delivery (0 to 20 deliveries,

with an hourly wage of \$8)

Number of Deliveries              Total Costs

0                                       50

5                                       90

10                                      130

15                                      170

20                                      210

*The slope of the cost curve is _____ per ________.   (Fill in the blanks)

*To draw the curve, what variables are held fixed?

*A change in __________ would cause a movement upward along the curve.  (Fill in the blank)

*Changes in __________ would cause the entire curve to shift upward.  (Fill in the blank)

3a) Suppose that you decide to leave your current job (with a salary of \$60,000) to start your own

business in a building (with a market value of \$400,000) you already own.  You pay \$45,000 per

year for supplies, and  have a bank account that pays 4% interest.  Calculate the annual economic

3b) Using the data in question 2.7

Marginal Airlines.  Marginal Airlines runs 10 flights per day at a total cost of \$50,000, including \$30,000 in fixed costs for airport fee and the reservation system and \$20,000 for flight crews and food service.

a.            If an 11th flight would have 25 passengers, each paying \$100, would it be sensible to run the flight?

b.            If the 11th flight would have only 15 passengers, would it be sensible to run the flight?

*Does it make sense to run an 11th flight with 15 passengers, each paying \$100?  Show your work.

*Does it make sense to run an 11th flight with 25 passengers, each paying \$100?  Show your work.

3c)  True, False, or Uncertain and Explain: “If agriculture did not experience diminishing returns,

we could feed the world using the soil from a small flowerpot.”   <see question 4.6 on page 46>

3d)  Suppose that you currently live in Virginia, earn a salary of \$45,000 and spend \$7,500 on housing.

You are considering a new job in San Francisco where housing is 120% more expensive.  If you

wish to keep you  real income constant <based on housing costs>, what is your target salary?

Explain.

4) Using the tables below to answer this question [the tables indicate the combinations of wine and

cheese that each country can produce in a day].

France                                                        United States (U.S.)

Wine    Cheese                                                      Wine       Cheese

(Bottles)  (Pounds)                                                 (Bottles)   (Pounds)

0              8                                                              0              15

1              6                                                              1              12

2              4                                                              2                9

3              2                                                              3                6

4              0                                                              4                3

5                0

*Does France or the U.S. have an absolute advantage in either product?  Explain.

*Does France or the U.S. have a comparative advantage in either product?  Explain and

provide relevant quantitative details.

*If France is currently producing 1 bottle of wine and 6 pounds of cheese, and the U.S. is

currently producing 3 bottles of wine and 6 pounds of cheese, would both countries be better off

by specializing in one good and trading (based on comparative advantage, of course)?  Provide

relevant details.

*Are there any potential political ramifications if specialization and trade take place?  Elucidate.

5a) What is outsourcing and why is it important in today’s economy?  Is outsourcing inherently bad?

Explain.

5b)  Use the scenario in question 3.7 to answer this question.

3.7          Unemployment Insurance.  Each worker would charge Safe Business has a 20 percent chance of losing his or her job in the next year. Each worker employed by Safe Business has a 2 percent chance of losing his or her job. You manage an insurance company that provides a lump sum of \$10,000 to each unemployed worker.

a.            What is the minimum amount you would charge Risky Business for each employee covered by the unemployment policy?

b.            What is the minimum amount you would charge Safe Business for each employee covered by the unemployment policy?

c.             Suppose you charge the same premium to both businesses. The companies have the same number of workers and are required to purchase unemployment insurance. What is the minimum amount you would charge?

*What is the minimum amount you would charge Risky Business for each employee covered by

the unemployment policy?  Explain.

*What is the minimum amount you would charge Safe Business for each employee covered by

the unemployment policy?  Explain

*Suppose you charge the same premium to both businesses, and the companies have the same

number of employees, and the employees are required to purchase the insurance.  What is the

minimum amount you would charge?

 Subject Business Due By (Pacific Time) 10/26/2014 12:00 pm
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