Economics concepts and applications

Economics

The opportunity cost of 200,000 bushels of wheat in this redrawing is 1000 tanks for each 200,000 bushels of wheat. In this example, the law of increasing opportunity cost does not apply to bushels of wheat. The opportunity cost of each 200,000 bushels remains stable in this particular example.

A technological innovation in lifesaving would have the following impact on Figure 7. The curve would be shifted outward. Essentially, society would produce the same amount, the number of lives saved would increase. The increased potential for livesaving would be the new curve. At the point this happens, point a would be inside the curve area. This means that goods production would be inefficient. Over time, it would be expected that fewer assets would be allocated to saving lives, since fewer would be needed to save the same amount of lives. As a result, over time more goods would be produced as more assets are allocated towards goods production. This will bring goods production and life-saving back into equilibrium.

9. a) This opportunity cost assumes the full $31,917 of explicit costs. Room and board is included because without school, there would not be any room and board costs. The foregone income of $16,500 is also included. This results in a total opportunity cost of $48.417.

A b) in this scenario, the room and board is not included in the opportunity cost, as those expenses would be incurred regardless of university attendance. The tuition and fees are also not included in the cost, since those costs will not be incurred. Therefore, the opportunity cost is the books, transport and foregone income. This results in a total opportunity cost of $19,390.

A c) the opportunity cost in this scenario is $32, 376. The explicit costs are in full, with the exception of room and board, which would be paid regardless of university attendance. The foregone income, however, is only $8,250. The student makes the full amount of summer income, leaving $16,500 in income, but the half-time work allows for $8,250 to be made during the school year.

Chapter 3 #1. This statement is false. The statement erroneously draws a causal relationship from this correlation. The relationship typically is that a decrease in supply will result in an increase in price. In this case, there is a rational explanation for the decrease in prices at the same time as the decrease in supply. New housing starts are a lagging indicator. Housing prices will typically begin to fall before new housing starts. Therefore, the two can fall at the same time, but the relationship is not as implied in the true or false proposition.

3. a) a blight killing off the Brazilian crop would result in a decrease in global coffee supply. Demand would remain unchanged. Therefore, coffee would be subject to an increase in price.

A b) a change in the price of tea may or may not impact the global coffee market. In some markets, they are substitutes but in many countries consumption is dominated by one or the other.

Thus, there is little correlation between the global tea and coffee markets, and none could be expected unless one of those markets completely collapsed.

A c) the labor situation would likely result in an increase in the price of coffee. The coffee market is only somewhat price sensitive, however, due to the strong habitual consumption of the drink. As a result, there will only be a minor decline in demand for coffee.

A d) if coffee was shown to cause cancer, demand for coffee can be expected to decline significantly. This would result in a steep reduction in price and production for coffee worldwide. The coffee that remains in production will be on the world market at a lower price than before the cancer announcement.