Econ Ch 2 Assignment

c. Suppose that an increase in the labor supply causes the price of labor to fall to $1.50 per unit, all other resource prices remaining unchanged. Which technique will the producer now choose?

Technique 1

a. With the resource prices shown, which technique will the firm choose? Why? Will production using that technique entail profit or loss? What will be the amount of that profit or loss? Will the industry expand or contract?

Technique 2 This technique represents the least-cost combination Profit $6 Expand

Assume now that a new technique, technique 4, is developed. It combines 2 units of labor, 2 of land, 6 of capital, and 3 of entrepreneurial ability. In view of the resource prices in the table, will the firm adopt the new technique?

Yes

d. Evaluate this statement: "The market system causes the economy to conserve most in the use of resources that are particularly scarce in supply. Resources that are scarcest relative to the demand for them have the highest prices. As a result, producers use these resources as sparingly as is possible." Does your answer to part c, above, bear out this contention?

Yes

Suppose Natasha... Should she quit her current job to become an entrepreneur? b. If she does quit her current job, which opportunity would she pursue?

Yes; The Internet-based company

a. Suppose that businesses buy a total of $160 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $84 billion in wages, $22 billion in rent, and $32 billion in interest, how much are households paid for providing entrepreneurial ability? b. If households spend $85 billion on goods and $75 billion on services, how much in revenues do businesses receive in the product market?

a) $22 billion b) $160 billion

With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 10 units of labor, 7 units of land, 4 units of capital, and 3 units of entrepreneurial ability, selling at prices of $20, $60, $40, and $20, respectively. Assume the firm can sell these 400 loaves at $2 per unit. a. What is the firm's total revenue? b. What is its total cost? c. Calculate the amount of economic profit or loss. d. Will it continue to produce banana bread? e. If this firm's situation is typical for the other makers of banana bread, will resources flow toward or away from this bakery good?

a) $800 b) $840 c) $-40 d) No e) Away-from

Suppose that businesses buy a total of $160 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $84 billion in wages, $22 billion in rent, and $32 billion in interest, how much are households paid for providing entrepreneurial ability? a. A woman who wants to start a flower shop finds she cannot do so unless the central government has already decided to allow a flower shop in her area: b. Shops stock and sell the goods customers want but the government levies a sales tax on each transaction to fund elementary schools, public libraries, and welfare programs: c. The only taxes levied by the government are to pay for national defense, law enforcement, and a legal system designed to enforce contracts between private citizens:

a) Command b) Market c) Laissez-faire

a. An institution that brings buyers and sellers together: b. The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property: c. The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit: d. The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice: e. What each individual or firm believes is best for itself and seeks to obtain: f. Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off: g. The freedom of resource owners to dispose of their resources as they think best; of workers to enter any line of work for which they are qualified; and of consumers to spend their incomes in whatever way they feel is most appropriate:

a) Market b) Private property c) Competition d) Freedom of enterprise e) Self-interest f) Mutually agreeable g) Freedom of choice