ECON200_Homework1_answers

ECON200_Homework1_answers - Econ 200 Homework 1: Answer Key...

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Econ 200 Homework 1: Answer Key Chapter 1 problems 1. Consumers and producers reveal their preferences for goods by consuming and supply goods at certain prices. If a consumer buys a hamburger for $5, it sends a signal to the suppliers that he is willing to forgo $5 worth of other goods to have a hamburger. Then suppliers who can produce hamburgers for less than $5 will know it will be profitable for them to enter the market. The price then also reflects the cost of production for the supplier. It is through the information sent through prices that an economy can settle on how many goods to consume and produce even without some “planner” to guide market activity. 10. No, it is not necessarily true that people in the Pacific Northwest like water better. There are other factors that affect water consumption besides taste that vary between the Pacific Northwest and the Southwest. Water is cheaper in the Pacific Northwest, for example, which may partly explain the difference in consumption. 11. For a good to be scarce, it has to be a ‘good’, i.e. somet hing that humans value. Economics is the study of how humans allocate scarce resources. 14. There is an opportunity cost associated with going to college since most people have to forgo something else to attend school. Many people forgo working full time in order to go to school, which means that lost income is part of the opportunity cost of being in school. Chapter 1 problems
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ECON200_Homework1_answers - Econ 200 Homework 1: Answer Key...

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