In each of the following situations, identify which of the twelve principles is at work.
a. You choose to shop at the local discount store rather than
... [Show More] paying a higher price
for the same merchandise at the local department store.
b. On your spring break trip, your budget is limited to $35 a day.
c. The student union provides a website on which departing students can sell items
such as used books, appliances, and furniture rather than giving them away to
their roommates as they formerly did.
d. After a hurricane did extensive damage to homes on the island of St. Crispin,
homeowners wanted to purchase many more building materials and hire many
more workers than were available on the island. As a result, prices for goods and
services rose dramatically across the board.
e. You buy a used textbook from your roommate. Your roommate uses the money to
buy songs from iTunes.
f. You decide how many cups of coffee to have when studying the night before an
exam by considering how much more work you can do by having another cup versus
how jittery it will make you feel.
g. There is limited lab space available to do the project required in Chemistry 101.
The lab supervisor assigns lab time to each student based on when that student is
able to come.
h. You realize that you can graduate a semester early by forgoing a semester of study
abroad.
i. At the student union, there is a bulletin board on which people advertise used
items for sale, such as bicycles. Once you have adjusted for differences in quality,
all the bikes sell for about the same price.
j. You are better at performing lab experiments, and your lab partner is better at
writing lab reports. So the two of you agree that you will do all the experiments,
and she will write up all the reports.
k. State governments mandate that it is illegal to drive without passing a driving exam.
l. Your parents’ after - tax income has increased because of a tax cut passed by
Congress. They therefore increase your allowance, which you spend on a spring
break vacation.
1. a. People usually exploit opportunities to make themselves better off. In this case,
you make yourself better off by buying merchandise at a lower price.
b. Resources are scarce. Since you have only $35 a day, your resources are limited
(scarce).
c. Markets usually lead to efficiency. The market here is represented by the buyers
and sellers who use the student union website to trade goods, in contrast to the
“nonmarket” of simply giving items away to one’s roommate. The market is efficient
because it enables people who want to sell items to find those who want to
buy those items. This is in contrast to a system in which items are simply left with
a roommate, who may have little or no desire to have them.
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1CHAPTER First Principles
KrugWellsECPS4e_Micro_CH01.indd S-1 9/23/14 9:35 AM
Solution
d. Overall spending sometimes gets out of line with the economy’s productive capacity.
The spending by St. Crispin homeowners on building materials and workers
fell short of the economy’s ability to produce those goods and services. As a result,
prices on the island rose across the board (inflation).
e. One person’s spending is another person’s income. Your spending on the used
textbook is your roommate’s income.
f. “How much” is a decision at the margin. Your decision is one of “how much”
coffee to consume, and you evaluate the trade - off between keeping yourself awake
and becoming more jittery from one more cup of coffee.
g. Resources should be used as efficiently as possible to achieve society’s goals.
Allocating scarce lab space according to when each student can use that space is
efficient.
h. The real cost of something is what you must give up to get it. The real cost of a
semester abroad is giving up the opportunity to graduate early.
i. Markets move toward equilibrium. Any bicycle a buyer chooses will leave him or
her equally well off. That is, a buyer who chooses a particular bicycle cannot change
actions and find another bicycle that makes him or her better off. Also, no seller
can take a different action that makes him or her better off: no seller can charge a
higher price for a bicycle of similar quality, since no one would buy that bicycle.
j. There are gains from trade. If each person specializes in what he or she is good at
(that is, in comparison with others that person has an advantage in producing
that good), then there will be gains from specialization and [Show Less]