Chapter 1 Problems and Applications
3) The cost of skiing instead of working a part-time job is the cost of lost wages plus the costs related to skiing. The cost of skiing instead of going to the library to study is the costs associated with skiing along with the knowledge that could of been gained by going to the library. Since the cost of going to the library cannot be measured in monetary terms, it will vary from person to person. A person who needs to study for a final to be taken on Monday may give up more than someone who is going to the library to work on a project that is not due for a few weeks.
5) If I do not go ahead with production I would lose what was invested which is $5 million. If I go ahead with production it will cost me an additional $1 million. Sales from the product will be $3 million. The net loss will be $3 million. (5 + 1) – 3. I should go ahead with production since the loss is less ($3 million) than if I stopped production ($5 million). The total cost that I should pay to complete development is $3 million.
6)
a) People will save less knowing they will receive money from the government through the Social Security program.
b) The reduction in benefits based on the amount of earnings will cause people to work less or not at all.
12) The savings made by people are mobilized by the banks. Banks in turn provide loans to the business firms which use the funds to expand their production by establishing new factories. This leads to faster growth in productivity because when production capacities are increased so is the per capita production. The benefit from the increased productivity is enjoyed by workers, entrepreneurs and all households. Society is not getting a free handout because when people are saving their money there is a trade-off. The people postponing their present needs and saving for the future helps the economy improve productivity.
Chapter 2 Problems and Applications
1)
2) When the economy is producing a lot of...