Montana Tech Principle of Microeconomic Discussion Questions

write a brief reply to each discussion with at least 50 words each.

1- The cost to increase border security would not benefit the Untied Sates. There are already billions of dollars spent each year on border security. Taking into account the length of the border and how the majority of it is a great distance from any town, increasing the security would cost much more and have little affect. The economic way of thinking would be to invest scarce resources into something new and not continue a practice that isn’t making up for it’s cost.

2- The fresh produce demand in winter are not in high demand in the winter which will cause the price to be lower on the other spectrum in the fall or the spring the demand of produce will be high which will cause the price to be high.

3- When looking at why there are more one-year scholarships available for incoming Freshmen we must consider time. Time is a factor in whether a person is going to behave elastic or inelastic. If a person has time, there are willing to be more elastic and school happens to be a big expense so people will try and be elastic. So, to make incoming Freshmen inelastic or willing to jump in they use scholarships. These scholarships create a ceiling like affect. Scholarships do this by lessening the amount a student has to come up with for school and usually demand far exceeds the supply creating a shortage. Where upper class men are invested in school already and the remaining expense of school is less, so they tend to already act inelastic where expense does not matter.

4- The total cost curve would have an upward shift to reflect the change in variable costs. This cost increase will then be counter acted, if the training is effective. As the efficiency of the worker(s) increases, the variable cost per output unit would decrease, causing a shift downward in the total cost and average total cost, which if effective, will be lower than the initial curves.

5- This is a good example of perfect information, or the sellers and buyers being fully aware of market opportunities. The “Got Milk?” advertisement does not cater to a specific farm or milk brand, but to the entire dairy industry, therefore the farmers do not have to advertise in this perfectly competitive firm. Milk is a standardized product: one farmer’s milk is the same as another’s. The advertisement increases the demand for all firms in the market.

6- Gas stations/convenience stores are in perfect competition. They sell standardized products, and have many different sellers, which also leads to an increase in supply, and decrease in price. When they are located very closely, not all pumps will be used. Their unused capacity is due to the amount of choices in which station people can use, and the slight variation in price. Although the prices are usually similar, someone might pick one over the other due to ease of getting there, price, and what is inside the convenience store.

7- The player’s union wanted to keep a player’s remuneration high.So, allowing all players for free agency would mean higher supply of players than demanded by teams. This causes the remuneration at market equilibrium to be low. A player’s value is judged by spectator’s demand for that player. So only a limited number of players granted free agency in a given year based on merit would mean that teams would be competing among themselves to get the best player, this raises the value or remuneration of these eligible players. This also creates a certain thrill among the audience and adds to the popularity of the sport.

8- Economic regulation, or government control on prices, wages, conditions of entry, standards of service, etc. is assumed to be at work in this situation of $12/gallon gasoline. The government will regulate when the industry is a natural monopoly, which is the market that gasoline is in. Spillover benefits are the result of underproduction/underallocation of the resources (gasoline). In simple terms, not enough gasoline was being produced to meet the demand at the specific gas price set, therefore the government stepped in and “paid the difference”.

9- With regression taxation, a smaller fraction of income is taken in taxes as income increases. This type of tax is considered regressive because the average tax rate and the marginal tax rate fall as income increases. A regressive tax imposes a relatively large burden on the poor than on the wealthy and therefor contradicts the ability to pay principle of taxation. The federal tax is $0.18 and the state tax is $0.27. It is regressive because the less wealthy can least afford the tax.

10- For most cases, I think having a high GDP would be desirable for a country. However, we must look at whether or not the country can maintain that GDP, how much money they owe another country, and pollution. Although it is not talked about much right now in this chapter, it very important to consider our environment. With increasing pollution (due to an increase in production), more people will get sick- therefore loosing workers. The growth in GDP will drop off unless the negative impacts can be managed, so the country would end up not benefiting from a high GDP.

11- Setting 0 percent unemployment would not be a better goal or a better definition of full employment. The natural rate of unemployment is the sum of frictional and structural unemployment, which economists consider as essentially unavoidable. Even in a well ran economy, there will always be a natural rate of unemployment. Economists tend to say that full employment is having some unemployment. It isn’t realistic that every single person in the US would be employed. There wouldn’t be anyone to fill the jobs that are made available. Therefor the definition of full employment as something less than 100 percent employment of the labor force is an accurate definition.

12- During a recession, or basically any time, a classical economist would essentially recommend to do nothing. They would most likely believe that any government interference would only make the situation worse. That the economy with correct itself, because of the thought that supply creates its own demand, aka Say’s Law. However, an economist with a Keynesian view would recommend increasing government intervention, cost, decreasing taxes but also increasing transfer payments. The economist would focus on increasing spending in order to help create revenue and and get the economy out of the recession. The two opinions differ greatly- government interference or none at all.

13- I don’t see a pro Federal debt argument. The Federal debt is incredibly large, as we continue to borrow money. The amount of money we spend versus the amount we make is continuing to increase. 9 years ago, we only spend 73% of what was made, but this year is about 100%. We will continue to grow this debt. We need to lower our spending habits, and allow for private spending to happen to stop having a deficit. I’m not sure that we still need as much government stimulation on our economy, if it means the debt will only continue to grow.

14- The government cannot print more cash as needed because it might cause some dangerous problems like hyperinflation. If there is too much money floating in the market, the productivity in the economy does not have time to increase the quantity of supply, the power of buying will decrease or we call this situation inflation. Instead, the banks have to be involved in the money creation process to influence the money supply. It is pretty difficult to know exactly the quantity of money in the contemporary market, so in order to avoid printing too much money; the banks would rather control the amount of money through changing the interest rate than making more money.

15- If the Federal Reserve wants to slow down the economy’s inflation rate, they use contractionary monetary policies. The idea behind contractionary monetary policies is to decrease the supply of money. There are three forms of monetary policy, but I just want to go over the contractionary parts. The Federal Reserve can sell securities to banks, increase discount rates so banks don’t want to borrow money, and an uncommon method is to increase reserve requirements for banks. Monetary policy is necessary because it is America’s first defense against economic instability, it is quick to respond, and it is not part of the Federal government. Discretionary fiscal policy is not enough because it is not quick enough to help keep the economy stable.

16- Using tariff on goods imported from China needs to be considered carefully by the current administration because of some following reasons. Firstly, China is not the only one who pays those tariffs. The American consumers pay those too. They will see higher prices for some Chinese products. Secondly, tariff can hurts the American companies who depend on the raw the materials imported from China. If they cannot pass all the cost to the end consumers, they will have to cut down the number of labors or stop hiring new employees. Thirdly, China also responds back to American tariffs on Chinese-base producers by raising its own taxes on American imports, which again hurts the American farmers and manufacturers.