Assignment

Economic Macro (C)

Pinasang, Gabriel Jason

Problem and Application

1. The trade-offs refer to the opportunity cost, an individual, or a group of people that suffers due to the
situational decisions.

In situation a, the trade-off occurs between the spending of the family and purchasing of the car.

In situation b, a trade-off occurs between the budgetary allocation of the government on national parks
and spending on other resources.

In situation c, the trade-off occurs between the cost of opening a new factory and the cost of allocating
it for some other purpose.

In situation d, the trade-off occurs between the spending of time for preparation and using it for
personal use.

In situation e, a trade-off occurs between the decision of whether to go for a job or to study.

2. The benefits of a vacation will vary from person to person. Most people associate a vacation with
relaxation, peace and a chance to spend quality time with family. If a person feels they need these
psychological benefits then the costs of a vacation may be worth it.

When you spend money for pleasure the cost question is not counted because here the cost has no
value as this money is spent for your pleasure which is a psychological matter and hence comparing the
cost to Benefits never arise here. At the maximum you can say is that it is an opportunity cost for you
and if the vacation gives you more psychological benefits then we can say the cost is cheaper compared
to the benefits.

3.a. What is the true cost of going skiing?

The cost of going skiing includes your out-of-pocket costs for lift tickets, ski rentals, food, and
transportation. Those are the explicit costs. In addition, there is an opportunity cost of not going to work
to earn money. That is an implicit cost.

b. Now suppose you had been planning to spend the day studying at the library. What is the cost of
going skiing in this case?

The explicit costs are the same as above. This time, the implicit cost is the time you would have studied.
That cost might be harder to measure, but it's still a cost.
4. The opportunity cost of spending $100 now will be the interest received from the bank. The interest
amount will be $5.

5. Yes,I should go ahead and invest addition $1 million to help in developing and finishing the new
product.

The reports by sale people about the reduction in expected sales to $ 3 million should not affect my
decision making process. I have to recognize that $ 5 million is gone and compare the additional $ 1
million vs expected sales $ 3 million

I have to acknowledge that what matters ,in my case, is marginal profit not total profit. Therefore , by
adding capital towards production of the commodity ,I'll make marginal profit of $ 2 million.

6. (a) The federal bill to reform antipoverty programs limiting the welfare recipients to only two years of
benefits decreases the incentive to leisure and increases the incentive to work. Thus it creates pressure
on the beneficiaries to search job in the mean time.

(b) This change might represent a trade-off between equality and efficiency due to the fact that it
increases efficiency at the cost of equality. The temporary nature of the benefits creates pressure for the
beneficiaries to search job.

7.

A. Motivated by the concern about efficiency, market failure due to monopoly power

B. Motivated by the concern about equality

C. Motivated by the concern about efficiency, market failure due to negative externality

D. Motivated by the concern about efficiency, market failure due to monopoly power

E. Motivated by the concern about equality

F. Motivated by the concern about efficiency, market failure due to negative externality

8. At first, terms of equality and efficiency have to be determined.

Efficiency means getting more benefits from scarce resources. Principle of equity suggests fair
distribution of benefits among all economic agents.

Guaranteed healthcare policy matches the principle of equity, but it doesn't meet the principle of
efficiency. It can be explained by the fact that the marginal benefit of maintaining additional healthcare
resource (good medical staff or modern hospital equipment) is always less than marginal cost on their
formation.
The policy of guaranteed benefits for unempoyed workers suggests the principle of equity for all
members of society in meeting their basic needs. At the same time it doesn't match the principle of
efficiency since it doesn't motivate people to look for a job and causes decrease of supply on the labor
market.

9. A significant difference existed between my parents or grandparents standards of living when they
were my age and me in the current society. Amy changes have occurred in between the periods,
especially the use of technology. Technology had not been utilized in all sectors of life, as it is happening
in the current era. Currently, with the help of technology, I can study online, work online, procure and
receive products while at home through online platforms, and many other innovations, which were not
available during the time of my parents or grandparents. Globalization has brought various changes in
society, which was not available at the time. Globalization has brought various changes, including
technology and other ways of life, which were not available in the previous years

10. Efficiency gains enable businesses to prepare more results for the same amount of input, earn more
revenues, and, as a result, start generating better Gross Domestic Product.

Yield refers to the quantity of work that can be done with the same number of resources. Greater
output per worker, in a larger sense, boosts a country's economic power by accelerating fiscal progress
and meeting more individual demands with the same materials.

11. If the state generates more currency, the average man will be taxed. This is since the price level
causes increased rates and currencies to depreciate over time. As a result, consumers carry less funds
with them, causing them to visit institutions more frequently.