Micro Economics Summer Assignment

Question One

Price Elasticity

Suppose a firm’s production function is given by Q = L^1/2*K^1/2. The Marginal Product of Labor and the Marginal Product of Capital are given by:

MP_L =, and MP_K =.

a) (12 points) If the price of labor is w = 48, and the price of capital is r = 12, how much labor and capital should the firm hire in order to minimize the cost of production if the firm wants to produce output Q = 18?

Question Two

Here is the production possibilities table for producing computers and TV’s.

Here is an image you can copy and paste into Google Docs to create a graph in Google Docs. Below is a video on how to use the drawing tool.

How to use Google Docs drawing tool

Here is a link to print free graph paper.

Free graph paper

1. Draw a production possibilities curve for computers and TVs using the data above. You can do this using the drawing too in Google docs or by hand using graph paper. If you do it by hand take a picture of your graph and upload it as a jpg file. Make sure that the graph is clearly labelled.

2. Label the points where the economy would be efficient (A), underutilized (B) and unattainable (C).

USING THE INFORMATION IN THE TABLE ANSWER THE FOLLOWING IN TERMS OF OPPORTUNITY COST.

I am looking for a number.

3. What is the opportunity cost of moving from point A to point B?

4. What is the opportunity cost of moving from point B to point C?

5. What is the opportunity cost of moving from point E to point A?

Part A

6) Describe how in a free market economy individual meet the needs of consumers based on demand. What happens to products that people don’t want or are inefficiently made? Give an example.

7) In a command economy who sets the prices and decides what is made? Describe some of the problems that occur in a command economy. Give an example.

Fill in the Blank: Using the words below.

Market (2)

Illegal

Inequality

government controlled

exploitation(suffering)

Monopolies

Competition

Unproductive

8) Critics of market economies claim that they result in _______________________________ between the few that are wealthy and the many that are poor. Critics also claim that market economies can lead the __________________________ of the poor in less well off countries and large ______________________________ that stifle (stop) all other competitors.

9) Critics of command economies claim that _______________________________ workers are rewarded because everyone is treated the same. Critics also claim that command economies result in ______________________________ markets that operate outside the view of the government. Further, command economies can not compete with nations with ________________________________ economies because they do not promote entrepreneurship and ___________.

10) Critics of mixed economies claim that they often become too heavily ____and as a result are less competitive than nations with _________________________ economies.

Part B

Watch the following video: I pencil

11) Of the total of all the knowledge and skills involved in creating a pencil, how much does any single person contribute to the process, according to the author?

12) The author says that people involved in the making of pencils do not work because

13) They want a pencil. What is the reason they do their work cutting trees, mining graphite, or running a pencil factory?

14) What are some of the examples that the author mentions to show that when people

are left alone, without government interference, they can accomplish amazing things?

15) What is the lesson about freedom and free people that the author wants the reader

to learn from this story?

16) Why is supply an upward curve? Give an example.

17) Why is demand a downward curve? Give an example.

Use the Graph above to answer the following questions.

18) What is the price and quantity of candy bars at equilibrium?

19) How many chocolate bars will be produced at a price of .80?

At this price there will be ________ of candy bars. (shortage/ surplus)

20) The market will adjust by ______ the price of candy bars. (raising /lowering)

21) How many chocolate bars will be produced at 1.60?

22) At this price there will be a ______ of candy bars. (shortage / surplus)

23) The market will adjust by ______ the price of candy bars.

24) Create your own supply and demand graph.

Use the graph provided

Label all axis and lines

Graph all information including equilibrium price.

Take a picture of your graph and upload it to the lesson.

Question Three

Design a behavioral economics response to one of the two problems outlined below. You can choose either option 1 (obesity) or option 2 (energy conversation)

Depth, breadth and “multiplexity” of the analysis and its stakeholders, will determine the quality of the journal.

Word count: 2000-2350 words

Option 1

A recent report released by the Trust for America’s Health and the Robert Wood Johnson Foundation used population trends and other data to predict that half of U.S. adults will be obese by 2030 unless Americans change their ways. It is estimated that 35.7% of adults and 16.9% of children aged 2 to 19 are obese, as the Centers for Disease Control and Prevention (CDC) reported earlier this year. The CDC predicts that these numbers are going to increase and exceed 60 percent in the next few years. Obesity raises the risk of numerous diseases, from type-2 diabetes to endometrial cancer. This will impose a greater burden on healthcare systems and associated costs.  These projections supports a study published earlier this year in the American Journal of Preventive Medicine that found that by 2030, 42% of U.S. adults could be obese, adding $550 billion to healthcare costs over that period.

Trust for America’s Health sees an opportunity to change the growth in obese population with the right interventions. “We have learned that with a concerted effort you can change the culture of a community, including its level of physical activity, eating habits, what foods are offered in schools, and whether families eat together,” said Geoffrey Levi of George Washington University. In New York City, for instance, obesity for elementary and middle-school students dropped 5.5 percent from the 2006-07 school year to 2010-11, thanks mostly to healthier school lunches, public health experts said.

Source: Begley, S. (2012, Sep 18). Fat and getting fatter: U.S. obesity rates to soar by 2030. Reuters. Retrieved from http://www.reuters.com/article/2012/09/18/us-obesity-us-idUSBRE88H0RA20120918

Your task

Suppose you are appointed as a consultant to develop proposals for encouraging individuals or groups to make healthier choices.

Propose a specific intervention to encourage healthy behaviors which may lower the increasing obesity rate. You could choose to focus on the U.S., or even suggest a nudge in your home country. Please specify the target group and the behavior you want to change. For example, you can focus on reducing obesity among adolescent boys or old women. Likewise, you may reduce the obesity by increasing the level of physical activity or by consuming more vegetables and less saturated fat. Think about the decision process relevant to the target behavior and the factors might cause the problem and promote the desired behavioral change. Describe what behavioral principle you are using and how your solution intervenes the decision-making process in a way to induce the desired behavior. Next, please design and describe an experiment which will be helpful in testing the effectiveness of your intervention.  Max 2.000 words. 

 Source: Prof. Dilip Soman, University of Toronto Rotman.

Option 2

News reports from almost any country in the world suggest that electricity consumption is rising and that the use of electricity is creating pressures on production facilities and straining grids.

A recent report on the energy consumptions of major buildings in Seoul, the capital city of the South Korea, showed that some universities and office towers were large energy-hungry buildings in Seoul. One university alone consumed 4,403 tons of oil equivalent (TOE) from 2011 to 2012. After experiencing an hours-long black out which affected approximately 820,000 households in 2011, the city government plans to actively deal with the problem. In June 2013, the city government and 34 major universities in the city agreed to implement programs to reduce the level of electricity consumption around campuses.

Many years ago, an article in the Toronto Star (August 13, 2004) entitled “Blackout no catalyst for conservation” noted that at the first anniversary of the famous 2003 power grid “blackout” triggered possibly by excessive electricity consumption, Canadians were using electricity at the same rate (if not higher) as before. The article notes that catastrophic failures like the blackout should have delivered an important message to consumers to conserve energy, yet it seems to have had no such effect.

Other articles have noted that despite the fact that energy efficient appliances save money in the long run, many households are averse to purchasing them. They also bemoan the fact that many households fail to turn off the air conditioning, lights or fans when they are not at home.

Your task

Suppose you are appointed as a consultant to develop proposals for helping any city or town in your country to conserve energy. In particular, provide suggestions how can we get households or offices to better regulate and curb consumption of electricity.

Propose a specific intervention to encourage behaviors which may reduce excessive electricity use. Please specify the target behavior you want to change. For example, you can focus on reducing unneeded electricity use in vacant rooms or encouraging environment-friendly transportation methods. Think about the decision process relevant to the target behavior and the factors might cause the problem and promote the desired behavioral change. Describe what behavioral principle you are using and how your solution intervenes the decision-making process in a way to induce the desired behavior. Next, please design and describe an experiment which will be helpful in testing the effectiveness of your intervention. Max 2.000 words. 

Source: Prof. Dilip Soman, University of Toronto Rotman.