newnansm1 - Chapter 1: Making Economic Decisions 1-1 A...

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Unformatted text preview: Chapter 1: Making Economic Decisions 1-1 A survey of students answering this question indicated that they thought about 40% of their decisions were conscious decisions. 1-2 1-3 Of the three alternatives, the $150,000 investment problem is most suitable for economic analysis. There is not enough data to figure out how to proceed, but if the desirable interest rate were 9%, then foregoing it for one week would mean a loss of: 1 / 52 (0.09) = 0.0017 = 0.17% immediately. It would take over a year at 0.15% more to equal the 0.17% foregone now. (a ) Yes. The choice of an engine has important money consequences so would be suitable for engineering economic analysis. (b ) Yes. Important economic- and social- consequences. Some might argue the social consequences are more important than the economics. (c) ? Probably there are a variety of considerations much more important than the economics. (d ) No. Picking a career on an economic basis sounds terrible. (e ) No. Picking a wife on an economic basis sounds even worse. The chocolate bar problem is suitable for economic analysis. Compared to the investment problem it is, of course, trivial. Joes problem is a real problem with serious economic consequences. The difficulty may be in figuring out what one gains if he pays for the fender damage, instead of having the insurance company pay for it. 1-4 Gambling, the stock market, drilling for oil, hunting for buried treasurethere are sure to be a lot of interesting answers. Note that if you could double your money every day, then: 2 x ($300) = $1,000,000 and x is less than 12 days. 1-5 Maybe their stock market systems dont work! 1-6 It may look simple to the owner because he is not the one losing a job. For the three machinists it represents a major event with major consequences. 1-7 For most high school seniors there probably are only a limited number of colleges and universities that are feasible alternatives. Nevertheless, it is still a complex problem. 1-8 It really is not an economic problem solely it is a complex problem. 1-9 Since it takes time and effort to go to the bookstore, the minimum number of pads might be related to the smallest saving worth bothering about. The maximum number of pads might be the quantity needed over a reasonable period of time, like the rest of the academic year. 1-10 While there might be a lot of disagreement on the correct answer, only automobile insurance represents a substantial amount of money and a situation where money might be the primary basis for choosing between alternatives. 1-11 The overall problems are all complex. The student will have a hard time coming up with examples that are truly simple or intermediate until he/she breaks them into smaller and smaller sub-problems....
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newnansm1 - Chapter 1: Making Economic Decisions 1-1 A...

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