EBK PRINCIPLES OF MICROECONOMICS (SECON
2nd Edition
ISBN: 9780393616149
Author: Mateer
Publisher: W.W.NORTON+CO. (CC)
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Chapter 1, Problem 2QR
To determine
Identification of incentive problem.
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10.Before starring in Iron Man, Robert Downey Jr. had appeared in 45 movies that grossed an average of $5 million on the opening weekend. In contrast, Iron Man grossed $102 million.
a.How do you expect the success of Iron Man to influence the opportunity cost of hiring Robert Downey Jr.?
b.How have the incentives for a movie producer to hire Robert Downey Jr. changed?
11.What might be an incentive for you to take a class in summer school? List some of the benefits and costs involved in your decision. Would your choice be rational?
Identify each of the following quotes as being an example of either: the coordination problem, the invisible hand, creative destruction, or the incentive problem. a. “If you compare a list of today’s most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries.” b. “Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets.” c. “Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly.” d. “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”
Question 1. What is the difference between normative and positive approaches to public policy?
Question 2. What is “predatory pricing”?
Chapter 1 Solutions
EBK PRINCIPLES OF MICROECONOMICS (SECON
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- When a ticket is given to a pedestrian for jaywalking, what type of incentive exists? Select one: a. a complementary incentive b. a neutral incentive c. a positive incentive d. a negative incentivearrow_forwardUsing an economic point of view, please describe and explain the following two situations: Describe how you might determine the economically efficient number of exit doors on an airline, or the economically efficient number of safety marshals assigned to an airline flight. In 1938, the FDA was given the authority to require drug manufacturers to test and prove the safety of their product before distribution. What are some opportunity costs of this decision?arrow_forwardAfter Hurricane Maria, hundreds of nonprofit organizations streamed to Puerto Rico and other Caribbean islands to provide disaster relief. Research has found that coordination between nonprofits during disasters is difficult to maintain—it’s easy for individual nonprofits to fundraise and pursue programming on their own while ignoring other organizations working on the same issues. Additionally, there are incentives to do projects that are cheap and have fast turnaround, since donors respond to the visibility of organizations providing disaster relief. Consider two nonprofit organizations working in Puerto Rico. Together, they could spend time coordinating their efforts and run a shelter for hurricane victims, providing each organization with 100 utils. Alternatively, they could individually distribute paper towels—a simple, low-cost, fast, and visible project—and receive 5 utils. This situation can be modeled with the following payoff matrix: Nonprofit 2 Run Shelter…arrow_forward
- What do we mean by the economics of education? To what extent do you think educational planning and policy decision ought to be guided by economic considerations. Explain.arrow_forwardExplain how people respond to incentives and how markets turn self-interested behavior to the benefit of consumers.arrow_forwardexplain why education is under consumed in the market place and what this means for societyarrow_forward
- Suppose you currently earn $40,000 a year. You are considering a job that will increase your lifetime earnings by $400,000 but that requires an MBA. The job will mean also attending business school full time for two years at an annual cost of $50,000. You already have a bachelor’s degree, for which you spent $150,000 in tuition and books. Which of the above information is relevant to your decision on whether to take the job? What is the opportunity cost of going to school to study MBA? Should you take the job? [Note: You will need to get the MBA]arrow_forwardThe bar exam for lawyers is written by practicing lawyers. Why might having practicing lawyers write the exam limit the entry of new lawyers into the profession? Why might they want to limit entry?arrow_forwardOne of the important concepts for understanding cities is “path dependency.” Which of the following best represents the concept of path dependency? a. Highways have become necessary for the export and import of goods to cities. b. Many things that happen in the present are determined by things that happened in the past c. The location of a firm depends upon whether procurement costs or distribution costs are greater d. Commuters get used to traveling the same way to workarrow_forward
- Suppose you currently earn $40,000 a year. You are considering a job that will increase your lifetime earnings by $400,000 but that requires an MBA. The job will mean also attending business school full time for two years at an annual cost of $50,000. You already have a bachelor’s degree, for which you spent $150,000 in tuition. Which of the above information is relevant to your decision on whether to take the job? What is the opportunity cost of going to school to study MBA? Should you take the job? [Note: You will need to get the MBA]arrow_forwardIncentives matter. Which of the below situations that find DOES NOT indicate a strong positive alignment of incentives with higher output and creativity? Bill Gates dropped out of Harvard to found Microsoft, which made him one of the richest men on the planet and launched the computer revolution in the process - making all of us better off too. When we are paid on commission we work harder. "From each according to his abilities, to each according to his needs."arrow_forward
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