Macroeconomics Homework 2
Since optimization is used to analyze people's choices and help them improve the outcomes of their choices, its
both normative and positive
What is the difference between marginal values and average values?
Marginal values show the additional benefit or cost from consuming an additional unit of a good, while average values are the benefit or cost per unit of a good.
Some people choose to live close to the city center; others choose to live away from the city center and take a longer commute to work every day. Does this mean that those who stay away from the city center are being irrational?
No, because their opportunity cost of commuting must be lower.
When optimizing for total value, opportunity cost must be ___________ total cost. Assuming __________ benefits, the lowest cost option is the optimal choice.
added to; equal
Suppose you had information on the sales of similar homes just east and just west of the boundary between two school districts. Also suppose schools on one side of the school boundary are better than the schools on the other side in terms of test scores. You could estimate the average value that parents place on a one-point increase in test scores by ___________.
dividing the difference in the prices of similar homes between districts by the difference in test scores between districts.
Optimization is the process that describes __________.
the choices that householdshouseholds make.
Optimization in levels examines ___________, while optimization in differences analyzes ____________.
total net benefits of alternatives; the change in net benefits.
