ec-2 - E201 Spring 2009 ANSWERS to HOMEWORK #1 Reminder: If...

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E201 Spring 2009 ANSWERS to HOMEWORK #1 Reminder: If you are attending a learning group, you will hand in your homework at the beginning of each session. Full credit is given for a good faith effort on all problems. Group work is ok, even encouraged, but the answers you hand in must be your own. Please use a word processor or neatly write your answers on a separate paper. 1. Determine which category of resources each of the following belongs in: a. a train (capital ) b. computer software (capital) c. one hour of psychological counseling (labor) d. a parking lot (capital) e. a forest (land/natural resource) f. Lake Michigan (land/natural resource) g. a prison (capital) 2. The IDS is a free good. True /false/explain. The IDS is not free, neither to produce nor consume. Resources (land, labor, and capital) are diverted from other potential uses to produce the IDS. Other consumption activities are sacrificed to read the IDS (you could be reading something else, say, the Wall Street Journal instead). Shocking though it may seem, I have even noticed some people reading the IDS in class, sacrificing their attention to the lecture and perhaps distracting other students around them! Finally, the IDS is probably the second biggest item (after cigarette butts) polluting our beautiful campus, especially in classrooms. (We take up that issue in Chap 10.) 3. What is the opportunity cost of purchasing a $500 stereo system? Of producing a $500 stereo? The purchase of the stereo costs $500 of other consumption. More precisely, the next-best use of the $500 is given up, perhaps the purchase of a computer. The productive resources could have been employed to produce some other good, for example, a computer. 4. a. What do you sacrifice to attend your E201 class on a given day? (List all relevant alternatives.) Various answers: sleep, leisure activities, exercising, earning income, etc. b. What is the opportunity cost of attending E201 on a given day? Explain. The next-highest valued use of your time.
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This note was uploaded on 04/19/2011 for the course ECON 200 taught by Professor Staff during the Winter '09 term at Indiana.

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ec-2 - E201 Spring 2009 ANSWERS to HOMEWORK #1 Reminder: If...

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