Economics 104-Chapter 3 Review Questions & Answers.docx

Economics 104-Chapter 3 Review Questions & Answers.docx...

Info icon This preview shows pages 1–3. Sign up to view the full content.

Economics 104 Chapter 3 Review Questions & Answers ANSWERS TO QUESTIONS FOR REVIEW 1 . ( Households as Demanders of Goods and Services ) Classify each of the following as a durable good, a nondurable good, or a service: a. A gallon of milk b. A lawn mower c. A smartphone d. A manicure e. A pair of shoes f. An eye exam g. A personal computer h A neighborhood teenager mowing a lawn a. Nondurable b. Durable c. Durable d. Service e. Nondurable f. Service g. Durable h. Service 2. ( Evolution of the Firm ) Explain how production after the Industrial Revolution differed from production under the cottage industry system. In the cottage industry system, production was decentralized. Raw material was provided to rural households, each of which specialized in only one stage of production and was unsupervised. Transportation costs were relatively high since the raw material had to be transported to each of the households and the finished goods collected from each. After the Industrial Revolution, production became more centralized and urbanized. Technological developments allowed the organization of large factories, which led to a more efficient division of labor and direct supervision. Centralizing production led to reduced transportation costs. The use of machinery far larger in size than was possible in the cottage industry system permitted increased worker productivity and greater specialization of labor. 3. ( Household Production ) What factors does a householder consider when deciding whether to produce a good or service at home or buy it in the marketplace? The householder must consider factors such as (1) whether production requires specialized skills or resources that the householder does not have, (2) whether home production would allow the householder to avoid taxes, (3) whether transaction costs can be lowered through production at home, and (4) the availability of technological advances that make home production more efficient. In general, a householder performs a task if his or her opportunity cost is lower than the price of buying the good or service in the market.
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

4. ( Corporations ) How did the institution of the firm get a boost from the advent of the Industrial Revolution? What type of business organization existed before this? With the Industrial Revolution it became more efficient to organize several stages of production under a single entity. Prior to the Industrial Revolution, the main form of business organization was the cottage industry, in which households turned raw materials into finished goods.
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern