8.An economist might say that colleges and universities “produce” education, using faculty members and students as inputs. According to this line of reasoning, educa-tion is then “consumed” by households. Construct a circular-flow diagram to repre-sent 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. What are the relevant markets in this diagram? What is being bought and sold in each direction? What would happen in the diagram if the government decided to subsidize 50% of all college students’ tuition?8.The accompanying diagram shows the circular flow for the education sector. S-16 CHAPTER 2 ECONOMIC MODELS: TRADE-OFFS AND TRADE KrugWellsECPS4e_Micro_CH02.indd S-16 KrugWellsECPS4e_Micro_CH02.indd S-16 9/30/14 12:51 PM 9/30/14 12:51 PM
Solution 9.Your dormitory roommate plays loud music most of the time; you, however, would prefer more peace and quiet. You suggest that she buy some earphones. She responds that although she would be happy to use earphones, she has many other things that she would prefer to spend her money on right now. You discuss this situation with a friend who is an economics major. The following exchange takes place:He: How much would it cost to buy earphones?You: $15.He: How much do you value having some peace and quiet for the rest of the semester?You: $30.He: It is efficient for you to buy the earphones and give them to your roommate. You gain more than you lose; the benefit exceeds the cost. You should do that.You: It just isn’t fair that I have to pay for the earphones when I’m not the one making the noise.a.Which parts of this conversation contain positive statements and which parts contain normative statements?b.Construct an argument supporting your viewpoint that your roommate should be the one to change her behavior. Similarly, construct an argument from the view-point of your roommate that you should be the one to buy the earphones. If your dormitory has a policy that gives residents the unlimited right to play music, whose argument is likely to win? If your dormitory has a rule that a person must stop
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