Microeconomics Week 1

Week 1 Assignment

Chapter 1

3. a.) What method is used to ration goods in a market economy? How does this rationing method influence the incentive of individuals to supply goods, services, and resources to others?

* In a market economy the price mechanism is used to ration goods and services. Individuals supply goods, services and resources to others in order to attain money to buy other goods, services and resources. The higher the price an individual can receive for a good or service they supply, the more incentive they will have to do so.

b.) How are grades rationed in your economics class? How does this rationing method influence student behavior? Suppose the highest grades were rationed to those whom the teacher liked the best. How would this method of rationing influence student behavior?

* In class, grades are rationed (hopefully) based on student performance on tests, homework and papers. Students who wish to achieve good grades must therefore study, do homework and work hard. If the grades were rationed based on who the teacher liked bests, students would have less incentive to study and do the homework (unless the teacher liked the smart students who did their work the best), and more incentive to try to gain the teacher's favor for a good grade

7. A restaurant offers an “all you can eat” lunch buffet for $10. Shawn has already eaten three servings, and is trying to decide whether to go back for a fourth. Describe how Shawn an cause marginal analysis to make his decision.

* The use of scarce resources is costly, so tradeoffs must be made. Someone must give up something if we are to have more scarce goods. The highest-valued alternative that must be sacrificed is the opportunity cost of the choice. Economic reasoning focuses on the impact of marginal changes. Decisions will be based on marginal costs and marginal benefits (utility).

* So Shawn will calculate the marginal benefit by consuming fourth serving and will compare with its...