1.Suppose your friend is strong on defense and insists we must bolster our national defense, whatever the cost. How can you use economic logic to make him or her aware of the opportunity costs with his or her objective?
2.The following schedules are for bushels of apples in a local market.
a. What are the equilibrium price and quantity?
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|
Price
|
Quantity Demanded
|
Quantity Supplied
|
|
|
|
$20
|
200
|
1,000
|
|
|
|
$18
|
400
|
800
|
|
|
|
$16
|
600
|
600
|
|
|
|
$14
|
800
|
400
|
|
|
|
$12
|
1,000
|
200
|
|
|
|
|
|
|
|
3.Now, assume that an early freeze has decreased the apple harvest, and the new supply schedule is shown below.
- Has supply increased or decreased?
- What are the new equilibrium price and quantity? (Note that the demand curve is unchanged.)
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Price
|
Quantity Supplied
|
|
$20
|
600
|
|
$18
|
400
|
|
$16
|
200
|
|
$14
|
0
|
4.Do you think a nation's output should be distributed according to income or according to some other standard (such as basic human need)? Explain your answer.
5.You are at an oasis in a large desert and you have a lot of ice cream in an immovable refrigerator. (Assume, for the sake of the story, that ice cream is the only food available and it is good for you.) The people in the next oasis some miles away have no ice cream (and no other food) and are too old and infirm to travel. You have plenty of ice cream and you can transport it to the next oasis, but on the journey, some of it will melt. Now the question: How much of the ice cream (what percent from zero to 100%) would have to survive the journey for you to believe it to be worth transporting the ice cream to the next oasis? There is no right or wrong answer to this question, so don't get hung up on what is the right answer. Suppose the people in the other oasis were your family. Suppose you didn't know them at all. Make no assumptions and give me just one answer: ___ %)
According to economist, James Tobin, the most liberal would transport if only the smallest percentage survived the journey. The most conservative would want a large proportion to survive before undertaking the redistribution. He is not saying which one is right and which one is wrong. The focus here is on understanding the tradeoff between fairness and efficiency, not the value of one over the other.