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Critical Analysis Questions Chapters 1 & 2 Macroeconomics Week 1

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Critical Analysis Questions (Chapter 1 & 2)
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?
Ans:-The ration goods are based on price mechanism in market economy. While Price is affected by
demand and supply. Normally the producers sell their products to suppliers who sell products in
the market for small margins. Producers ask price whatever they think is good price for them.
However price increases with increased demand of goods (Walter,2006). Suppliers supply/sells
goods, products and services to other people in order to earn money and they use this earned
money on buying other products, goods and services they need, This rationing method is influenced
by the price mechanism of products, goods or services as higher the prices of goods, products and
services the more the incentives of the individuals to supply goods, services and resources to
others.
(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 best.
How would this method of rationing influence student behavior?
(Ans)In economics class Grades are based students’ handwork and performance in exams and
homework etc. Students will have to work hard and do well in their exams and course work in
order get good grades. It’s pretty much similar to price based market economy were rationing of
goods is linked to payment of price similarly in order to ration good grades in economics class
students will have to work hard . In this case Good grades are incentive to student’s hard work and
good performance. In Case students are awarded with good grades based on teacher`s favoritism
students will have less incentive to work hard and do well in their exams. This will have huge
impact on student`s behavior as students will start believing that they can not get good grades by
hard work . Therefore student will not working hard for exams. Until Unless teacher admire the
students who work hard and do well in exams. If Teacher let the students work hard for good
grades , it will be more influential for students to work hard. Higher the price paid in terms of hard
work, higher the grades as incentives in economics class.
7:- A restaurant offers an “all you can eat” lunch buffet for $10. Shawn has already eaten three
servings, and is trying to decide whether to go back for a fourth. Describe how Shawn can use
marginal analysis to make his decision.
(Ans) According to “Law of diminishing marginal utility” the initial or first consumption of any
goods, services or resource will yield more utility as compared following second ,third and forth
consumptions while the second consumption will yield higher utility as compared to third. The
utility of consumption will decrease subsequently with each unit consumed.(Roger,2006). As the
marginal utility falls with each unit consumed the person will become in equilibrium as marginal
utility yielded with consumption becomes equal to commodity price. Similarly Shawn should
consume fourth unit if his marginal utility is not yet equal to price paid i,e 10$. and marginal benefit
is greater than zero. Shawn will continue to eat until marginal benefit becomes zero as marginal
costs of additional serving is zero.

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Critical Analysis Questions (Chapter 1 & 2)3. a. What method is used to ration goods in a market economy? How does this rationing method influencethe incentive of individuals to supply goods, services, and resources to others?Ans:-The ration goods are based on price mechanism in market economy. While Price is affected bydemand and supply. Normally the producers sell their products to suppliers who sell products inthe market for small margins. Producers ask price whatever they think is good price for them.However price increases with increased demand of goods (Walter,2006). Suppliers supply/sellsgoods, products and services to other people in order to earn money and they use this earnedmoney on buying other products, goods and services they need, This rationing method is influencedby the price mechanism of products, goods or services as higher the prices of goods, products andservices the more the incentives of the individuals to supply goods, services and resources toothers.(b)How are grades rationed in your economics class? How does this rationing method influencestudent behavior? Suppose the highest grades were rationed to those whom the teacher liked best.How woul ...
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