Discussion:
1) In the following examples state how you would use the principle of marginal analysis to make a decision.
1. Deciding how many days to wait before doing your laundry
2. Deciding how much library research to do before writing your term paper
3. Deciding how many bags of chips to eat
4. Deciding how many lectures of a class to skip
2) Which of the following situations describes an equilibrium? Which does not? If the situation does not describe an equilibrium, what would an equilibrium look like?
1. Many people regularly commute from the suburbs to downtown Pleasantville. Due to traffic congestion, the trip takes 30 minutes when you travel by highway but only 15 minutes when you go by side streets.
2. At the intersection of Main and Broadway are two gas stations. One station charges $3.00 per gallon for regular gas and the other charges $2.85 per gallon. Customers can get service immediately at the first station but must wait in a long line at the second.
3. Every student enrolled in Economics 101 must also attend a weekly tutorial. This year there are two sections offered: section A and section B, which meet at the same time in adjoining classrooms and are taught by equally competent instructors. Section A is overcrowded, with people sitting on the floor and often unable to see what is written on the board at the front of the room. Section B has many empty seats.
3) In each of the following cases, explain whether you think the situation is efficient or not. If it is not efficient, why not? What actions would make the situation efficient?
4. Electricity is included in the rent at your dorm. Some residents in your dorm leave lights, computers, and appliances on when they are not in their rooms.
5. Although they cost the same amount to prepare, the cafeteria in your dorm con- sistently provides too many dishes that diners don't like, such as tofu casserole, and too few dishes that diners do like, such as roast turkey with dressing.
6. The enrollment for a particular course exceeds the spaces available. Some students who need to take this course to complete their major are unable to get a space even though others who are taking it as an elective do get a space.
4) Governments often adopt certain policies in order to promote desired behavior among their citizens. For each of the following policies, determine what the incentive is and what behavior the government wishes to promote. In each case, why do you think that the government might wish to change people's behavior, rather than allow their actions to be solely determined by individual choice?
1. A tax of $5 per pack is imposed on cigarettes.
2. The government pays parents $100 when their child is vaccinated for measles.
3. The government pays college students to tutor children from low-income families.
4. The government imposes a tax on the amount of air pollution that a company discharges.