econ_211_solutions_to_text_problems - Solutions to Problems...

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Solutions to Problems CHAPTER 1 1. Answers will vary, but should include the notion that each activity provides benefits in the form of satisfaction or additional income, but also takes time away from the pursuit of other activities (opportunity cost). Time spent on each activity is limited because the additional benefit of devoting an extra unit of time to any one activity falls as more time is devoted to the activity. Hence, as more and more time is spent on one activity, it will become increasingly attractive to devote the next unit of time to some other activity. 2. Answers will vary. 3. (a) normative (b) positive (c) positive (d) normative 4. Average cost is $1.17(19.95 17). Marginal cost is $0. ÷ 5. (a) The state should allow the market to provide what people want. Since gambling is not mandatory, only those who want to gamble will do so. Tax revenues that arise from casino gambling are paid voluntarily. (b) Some argue that casino gambling is associated with criminal activity that has a cost to the community at large. In addition, gambling can be addictive, and sometimes entices those who can least afford it to participate. These concerns bear on the efficiency argument to the extent that there are costs from gambling not reflected in the price of gambling. These costs could potentially affect the community at large (e.g., more crime, the social cost of addiction) or the individual (to the extent that gambling creates unwanted addiction). The concern about the income bias of gambling (and the associated income bias of the tax revenue generated form gambling) is, in and of itself, an equity concern, not an efficiency one, although there could be social costs that arise from it. 6. (a) Tuition (which could have been spent on other things), forgone wages, study time, etc. (b) All the money (gas, depreciation of the car, etc.) could have been spent on other items; time spent en route could have been used for other activities. (c) A better grade, no headache, perhaps admission to a better grad school, a higher-paying job. He has traded off an investment in human capital (staying in to study) for present consumption (going to the party). (d) The other things that $200 could buy. (e) The $1 million could have been invested in other profit-making ventures or projects or it simply could have been put into the bank or loaned out to someone else at interest. 231
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232 Principles of Microeconomics (f) From the standpoint of the store, Alex is free. From AlexÊs standpoint he gives up other uses of time and wages that could be earned elsewhere. 7. Answers will vary. CHAPTER 1 APPENDIX 1. The slopes are as follows: line 1: 5; line 2: –5; line 3: 1; line 4: –1; line 5: slope is 1 as X goes from 0 to 20, and –1 as X goes from 20 to 40; line 6: –250. 25 X 20 15 10 5 12 SLOPE 5 SLOPE –5 SLOPE 1 SLOPE –1 SLOPE (0–20) = 1 SLOPE (20–40) = ±–1 slope is 1 as x goes from 0 to 20, and –1 as x goes from 20 to 40.
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This note was uploaded on 03/29/2010 for the course ECON 212 taught by Professor Sandraalsaghir during the Spring '10 term at American University of Beirut.

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econ_211_solutions_to_text_problems - Solutions to Problems...

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