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1001majorch1

# 1001majorch1 - ECON1001AB Dr.KafuWONG KKL925 CliffordCHAN...

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ECON 1001 AB Introduction to Economics I Dr. Ka-fu WONG First week of tutorial sessions KKL 925 Clifford CHAN KKL 1109 [email protected]

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Covered and to be covered Covered last week Dr. Wong covered up to #63 of kf001.ppt You should have at least read up to Chapter 1 Thinking like an economist . If not, please press hard on it. Don’t pile all the readings until exam period! Start reading chapter 2 and 3 To be covered in tutorial sessions this week Problems in chapter 1: #1, #3, #5, #7 and #9 You are advised to work on the even ones as well
Problem #1, Chapter 1 The most you would be willing to pay for having a freshly washed car before going out on a date is \$6. The smallest amount of which you would be willing to wash someone else’s car is \$3.50. You are going out this evening, and your car is dirty. How much economic surplus would you receive from washing it?

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Solution to problem #1 (1) In Economics, we always assume rationality For example, you will pay \$3500 for a new mobile phone because you think the new mobile phone is worth at least \$3500 or the new phone will potentially bring you happiness or enjoyment that is worth at least \$3500 The first line says the most you would be willing to pay for a car wash is \$6 \$6 is actually your benefit of having a washed car You pay \$6 for a car wash because you think the service is worth \$6; you wont pay \$6 for a type of service that you think is only worth \$5
Solution to problem #1 (2) The question also says the smallest amount for which you would be willing to wash a car for someone is \$3.5 \$3.5 is actually your cost for performing a car wash for someone else \$3.5 is just right at compensating for the value of your effort and time spent on the car wash You would be happy if someone pays you more than \$3.5 for a car wash; however, you would not be willing to perform a car wash if someone pays you less than \$3.5 as the price does not cover the value of your alternate activity such as an afternoon tea or an afternoon nap

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Solution to problem #1 (3) Cost-benefit principle An action should be taken, if and only if, the extra benefits from taking the action are at least as great as the extra costs Benefit of performing a car wash = \$6 Cost of performing a car wash = \$3.5 Net benefit (economic surplus) is the difference between benefit and cost NB= B-C Economic surplus = \$6- \$3.5 = \$2.5
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1001majorch1 - ECON1001AB Dr.KafuWONG KKL925 CliffordCHAN...

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