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Flashcards in chapter 1 critical thinking long answers Deck (13):
1

People respond to incentives. gov can either alter incentives with public policy, and hence behavior however, sometimes public policy generates unintended consequences by producing results that were not anticipated. describe one unintended consequence for each of the following public policies

a. to help the "working poor", the gov. raises the minimum wage to $25 per hour.

many would want to work at $25 per hour but few firms would want to hire low-productivity workers at this wage; therefore, this would create more unemployment

2

People respond to incentives. gov can either alter incentives with public policy, and hence behavior however, sometimes public policy generates unintended consequences by producing results that were not anticipated. describe one unintended consequence for each of the following public policies

b. To help homelessness, the gov places rent controls on apartments that restrict rent to $100 per month.

many renters would want to rent an apartment for $100 Per month, but few landlords could produce an apartment at this price; therefore, this rent control would create more homelessness

3

People respond to incentives. gov can either alter incentives with public policy, and hence behavior however, sometimes public policy generates unintended consequences by producing results that were not anticipated. describe one unintended consequence for each of the following public policies

c. To limit the consumption of gasoline, the government raises the tax on gasoline by $2.00 per litre.

higher gas prices would reduce the number of km driven. this would lower auto accidents, put less wear and tear on roads and cars, and reduce the demand for both cars and road repairs.

4

People respond to incentives. gov can either alter incentives with public policy, and hence behavior however, sometimes public policy generates unintended consequences by producing results that were not anticipated. describe one unintended consequence for each of the following public policies

d. to reduce the consumption of drugs, the gov makes drugs illegal.

this raises the price of drugs and makes selling them more profitable. this creates more drug sellers and increases violence as they fight to protect their turf.

5

People respond to incentives. gov can either alter incentives with public policy, and hence behavior however, sometimes public policy generates unintended consequences by producing results that were not anticipated. describe one unintended consequence for each of the following public policies

e. To raise the population of wolves, the government prohibits the killing of wolves.

restrictions on killing wolves reduce the population of other animals upon which wolves may feed (eg. rabbits, deer)

6

#2 Opportunity cost is what is given up to get an item. because there is no such thing as a free lunch, what would likely be given up to obtain each of the items listed below?

a. susan can work full time or go to university. she chooses univesity

she gives up income from work (and must pay tuition)

7

#2 Opportunity cost is what is given up to get an item. because there is no such thing as a free lunch, what would likely be given up to obtain each of the items listed below?

b. susan can work full time or got to university. she choose work

She gives up a university degree and the increase in income throughout life that it would have brought her. (but she does not have to pay tuition)

8

#2 Opportunity cost is what is given up to get an item. because there is no such thing as a free lunch, what would likely be given up to obtain each of the items listed below?

c. Farmer Jones has 100 hectares of land. he can plant corn, which yields 100 tonnes per hectare, or he can plant beans, which yields 40 tones per hectare. he chooses to plant corn

he gives up 4000 tonnes of beans

9

#2 Opportunity cost is what is given up to get an item. because there is no such thing as a free lunch, what would likely be given up to obtain each of the items listed below?

d. c. Farmer Jones has 100 hectares of land. he can plant corn, which yields 100 tonnes per hectare, or he can plant beans, which yields 40 tones per hectare. he chooses to plant beans.

he gives up 10,000 tonnes of corn

10

#3 suppose university decides to lower the cost of parking on campus by reducing the price of a parking permit from $300 per semester to $50 per semester.

1. what would happen to the number of students desiring to park their cars on campus?

more students would wish to park on campus

11

#3 suppose university decides to lower the cost of parking on campus by reducing the price of a parking permit from $300 per semester to $50 per semester.

2. What would happen to the amount of time it would take to find a parking spot?

it would take much longer to find a parking spot

12

#3 suppose university decides to lower the cost of parking on campus by reducing the price of a parking permit from $300 per semester to $50 per semester.

3. Thinking in terms of opportunity cost, would the lower price of a parking sticker necessarily lower the true cost of parking?

no, because the value of the time spent looking for a parking place would have to be factored in.

13

#3 suppose university decides to lower the cost of parking on campus by reducing the price of a parking permit from $300 per semester to $50 per semester.

4. Would the opportunity cost parking be the same for students with no outside employment and students with jobs earning $15 per hour?

no. students who could be earning money working are giving up more while looking for a parking place than those with no outside employment. therefore, their opportunity cost is higher.