6.An economist might say that colleges and universities “produce” education, using faculty members and students as inputs. According to this line of reasoning, education is then
“consumed” by households. a. Construct a circular-flow diagram to represent the sector of the economy devoted to college education: colleges and universities represent firms, and households both consume education and provide faculty and students to universities. b. What are the relevant markets in this diagram? - Colleges and universities buy faculty on the academic job market and attract students from the market for students. Many colleges and universities actively try to attract good student by offering scholarships and the like. c. What is being bought and sold in each direction? - They sell education to households in the market for education, and households buy education in the market from one or sometimes several of the sellers. d. What would happen in the diagram if the government decided to subsidize 50% of all college students’ tuition? -If the government subsidized half of all student’s tuition, households would demand more education. As a result, colleges and universities would hire more faculty and accept more students, meaning that more money in terms of salaries and scholarships would flow from universities and colleges to the households. 7. Evaluate the following statement: “It is easier to build an economic model that accurately reflects events that have already occurred than to build an economic model to forecast future events.” Do you think this is true or not? Why? What does this imply about the difficulties of building good economic models? - True. With hindsight it is easier to see the important features of the situation that a model should have captured. For predictive purposes, a model needs to anticipate which features of reality are important (and so should be included) and which are unimportant (and so can be ignored). This is why the famed British economist John Maynard Keynes referred to economics as an art as well as a science.8. Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef in Brazil? What is the opportunity cost of producing one pound of beef in the United States? - Brazil has the absolute advantage in producing beef and the United States has the
absolute advantage in autos. The opportunity cost of producing one pound of beef is 1/10 of an auto; in the United States it is 3/4 of an auto.9. In Germany it takes three workers to make one television and four workers to make one video camera. In Poland it takes six workers to make one television and 12 workers to make one video camera.
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- Spring '17
- Mrs. Charles