Purdue University Opportunity Costs Government and Society’s Welfare Assignment

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Economics

Purdue University

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For question 1.a. give the textbook’s definition of “Opportunity Costs” For question 1.b. explain what you think are the opportunity costs in this situation For question 1.c. complete a chart of all the options, or list all of the options, then discuss the criteria by which such a decision would be made. For part a. of questions 2 and 3, choose the correct principle and explain why you think it is correct. For part b. of questions 2 and 3, list what you think would be the logical steps that would fit the situation. Econ’s Top Twelve 1. People must make choices because resources are scarce 2. The opportunity cost of an item-what you must give up in order to get it- is its true cost 3. “How much” decisions require making trade-offs at the margin: comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less 4. People usually respond to incentives, exploiting opportunities to make themselves better off 5. There are gains from trade 6. Because people respond to incentives, markets move toward equilibrium 7. Resources should be used as efficiently as possible to achieve society’s goals 8. Because people usually exploit gains from trade, markets usually lead to efficiency 9. When markets do not achieve efficiency, government intervention can improve society’s welfare 10.One person’s spending is another person’s income 11.Overall spending sometimes gets out of line with the economy’s productive capacity 12.Government policies can change spending Krugman, P., & Wells, R. (2018). First principles. Microeconomics (5th ed., pp. 6-19). New York, NY: Worth Publishing.

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Hints for Unit 1 Assignment For question 1.a. give the textbook’s definition of “Opportunity Costs” For question 1.b. explain what you think are the opportunity costs in this situation For question 1.c. complete a chart of all the options, or list all of the options, then discuss the criteria by which such a decision would be made. For part a. of questions 2 and 3, choose the correct principle and explain why you think it is correct. For part b. of questions 2 and 3, list what you think would be the logical steps that would fit the situation. Econ’s Top Twelve 1. People must make choices because resources are scarce 2. The opportunity cost of an item-what you must give up in order to get it- is its true cost 3. “How much” decisions require making trade-offs at the margin: comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less 4. People usually respond to incentives, exploiting opportunities to make themselves better off 5. There are gains from trade 6. Because people respond to incentives, markets move toward equilibrium 7. Resources should be used as efficiently as possible to achieve society’s goals 8. Because people usually exploit gains from trade, markets usually lead to efficiency 9. When markets do not achieve efficiency, government intervention can improve society’s welfare 10. One person’s spending is another person’s income 11. Overall spending sometimes gets out of line with the economy’s productive capacity 12. Government policies can change spending Krugman, P., & Wells, R. (2018). First principles. Microeconomics (5th ed., pp. 6-19). New York, NY: Worth Publishing.
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Unit 1 [BU224 Assignment Template]

Unit 1 Assignment: Opportunity Costs
Name:
Course Number and Section:
Date:
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to your computer with the following file naming format:
Course number_section number_last name_first name_unit number
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3. Insert your answers below, or in the appropriate space provided for in the question.
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the bottom of your last page, a list of references. Your answers should also be in
Standard English with correct spelling, punctuation, grammar, and style double-spaced,
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4. Upload the completed Assignment to the appropriate Dropbox.
5. Any questions about the Assignment, or format questions, should be directed to your
course instructor.
Assignment:
In this Assignment, you will demonstrate your understanding of certain economic
principles that underlie virtually all decisions that people make. Specifically, the concept
of Opportunity Costs by selecting the correct underlying principle and explaining in a
series of logical steps which would likely produce the results described.
Questions
1. Howard needs to buy a laptop computer to start online university courses. The price
at the local computer store is $650. The identical computer is available at one online
site for $605 and another site, for $622. All prices include the appropriate sales tax. The
accompanying table indicates the typical shipping and handling charges for the
computer ordered online.
Shipping method
Standard shipping
Second–day air
Next–day air

Delivery time
3–7 days
2 business days
1 business day

Charge
$13.99
$18.98
$23.98

a. Define “opportunity cost” in economic terms. (3 points)
The opportunity cost represents the cost of something that is given up to acquire
another product.
Page 1 of 3

Unit 1 [BU224 Assignment Template]

b. In this situation, what are the opportunity costs of Howard choosing to buy online
instead of at the local computer store? Note that if you buy the computer online, you
must wait to get it. (4 points)
The opportunity costs in the current example refer to the amount charged by the
company to deliver the computer earlier. These opportunity costs vary
depending on the shipping time of the computer.
c. List all the possible choices for Howard, including their relevant differences in price
and delivery time. (4 points)
According to the information provided, the total cost of the computer would be:
- 650 if purchased on the store. In exchange, Howard has immediate access to the
computer
- 628.98 if he purchases the computer on the cheapest online site and has it
delivered in 1 business day
- 623.98 if he purchases the computer on the cheapest online site and has it
delivered in 2 business days
- 618.99 if he purchases the computer on the cheapest online site and has it
delivered in 3-7 business days
If he purchases the computer on the expensive online site, the prices of the three
last options would increase by $17 to account for the difference in the listing
price, such that the total costs would be of $635.99 to receive the computer in
3-7 days, $640.98 to receive it in 2 days, or $645.98 to receive it the following
day.
Since the lowest price paid for the computer is of $618.99 assuming that Howard
purchased it in the cheapest site and got it delivered in 3-7 days, the
opportunity cost of any other alternative would be:
- 623.98 – 618.99 = $4.99 if he purchased the computer in the cheap online site and
got it delivered in only two days
- 628.98 – 618.99 = $9.99 if he purchased the computer in the cheap online site and
gets it delivered in only one day
- 635.99 – 618.99 = $17.00 if he purchased the computer in the expensive online
sit...


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