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Economics_Ch05 - 05(110-127 EMC Chap 05 4:51 PM Page 110...

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Why It Matters J ust as a coin has two sides, so does a market. A coin has heads and tails; a market has a buying side and a selling side. The previous chapter discussed demand, which is the buying side of the market. This chapter discusses supply, the sell- ing side. In your life, you will be both buyer and seller. You will buy many goods, and you will also sell some goods. You will certainly end up selling a resource— your labor. In Chapter 4 we learned about you as a buyer. In this chapter, we will have the chance to learn about you as a seller. 110 These personally auto- graphed guitars are being examined prior to an auc- tion. Before reading this chapter, can you guess how the supply of these guitars will affect the price that people will pay for them in the auction?
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The following events occurred one day in April. 7:04 A.M. Tara has young twin boys, Dave and Quentin. She has tried repeatedly to get both Dave and Quentin to behave better than they have been behaving. Yesterday she promised that she would take them to a movie if they behaved better. Dave ended up behaving a lot better, but Quentin behaved only slightly better. Right now she is asking Quentin why his behav- ior didn’t improve as much as his brother’s. • What does a concept like “elasticity of supply” have to do with the twins? 9:10 A.M. Georgia and Tom are sitting on a train that is traveling from East Hampton, New York, into down- town Manhattan. Georgia is reading an article about taxes in the newspaper. It seems that the government wants to place a tax on the production of cigarettes. For every cig- arette pack produced, the government wants cigarette manufacturers to pay a $2 tax. Georgia tells Tom about the article. “What do you think of that?” she asks. Tom responds, “I think that tax is going to end up reducing the supply of cigarettes.” Will the tax reduce the supply of cigarettes? 11:03 A.M. Angie owns a small oil com- pany in Texas. She believes the price of a barrel of crude oil will be higher in three months than it is today. She is thinking about not selling her current oil supply until the oil price goes up. She knows she will lose the interest on the oil revenue she would have if she sold the oil now, but thinks that the higher price in three months might more than com- pensate for lost interest. Would you advise Angie to wait until later to sell her oil? 2:38 P.M. Frank and Pete are having coffee at their local Starbuck’s. Frank owns a construction company, and Pete is his business manager. Frank says, “I’m not sure how many more people will want to work for us if we pay a higher wage. No matter how much money we offer, people just don’t want to work in construction the way they once did.” Pete just says, “I don’t know. Money is a powerful motivator.” Will more people want to work in the construction industry if Frank increases the wage rate (dollars per hour) he pays his employees?
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