Written Assignment 1

Written Assignment 1 - Written Assignment 1-Microeconomics...

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Written Assignment 1- Microeconomics (ECO-112)-Jimmy Morgan-1 Feb thru 24 Apr 2010 1. Define scarcity. Provide examples of goods that are not scarce. Scarcity is the economic problem of having unlimited human needs and wants in a society of limited resources. Goods that are not scarce are called “free goods”. A free good can be obtained without cost or effort. Air in my opinion is not a scarce good. Now, we may not be able to get clean air in many of our metropolitan cities, but for the most part, a person can always leave that area, go to the country, and breathe a sigh of relief. Because three fourths of the world is covered in seawater, I argue that seawater is also not scarce. Now, for those who are not very close to seawater or do not have the resources to filter that seawater into their location, would consider water as being scarce. Lastly, we can always count on it to rain one day. 2. How does Adam Smith's concept of the invisible hand explain why markets move toward equilibrium? Do market participants need to know about the invisible hand for it to function? Explain your answer. Adam Smith’s concept tells us that because of the “invisible hand”, people who participate in the economy are generally motivated by self-interest thus the “invisible hand” guides this self-interest into promoting economic well-being. I do believe that market participants need to be aware that the “invisible hand” does exist for it to function and attain desired outcomes. There are many people in the market who, if not for the “invisible hand” would only look out for their self-interest. An unconstrained and unregulated free market can at times have socially undesirable consequences. 3. Use the following demand curve to answer the questions that follow. a) How would point A be represented as an ordered (x,y) pair? (20, 24) b) What does this curve show? A demand curve c) Does this curve show a positive or negative correlation between price and quantity? It shows a negative correlation between price and quantity. d) Compute the slope of D 1 between points A and C. -8/20 or -2/5 e) What is the slope of D 1 between points C and E? Why would you not have to calculate this answer? -2/5; because the slope of a straight line is constant f) What is it called if we move from curve D 1 to curve D 2 ? An increase in demand g) How do you know that the slope of D 2 is the same as the slope of D 1 ? The two lines are parallel
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Written Assignment 1- Microeconomics (ECO-112)-Jimmy Morgan-1 Feb thru 24 Apr 2010 4. Using the same graph used for Question 3: a. Calculate the the elasticity of demand between points A and C, C and E. and B and D. Elasticity =(% change in quantity/% change in price); Between points A and C: ((40-20)/20)/((16- 24)/24)= -3; Between points C and E: ((60-40)/40)/((8-16)/16) = -1; Between points B and D: ((60- 40)/40)/((16-24)/24) = -1.5 b. As quantity demanded moves from point A to point E does the elasticity of demand become unitary at some point? Why or why not?
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This note was uploaded on 04/07/2012 for the course ACCT 201 taught by Professor Evans during the Spring '11 term at Thomas Edison State.

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Written Assignment 1 - Written Assignment 1-Microeconomics...

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