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Economics

R. Glenn Hubbard, Anthony Patrick O’Brien

Chapter 1

Economics: Foundations and Models - all with Video Answers

Educators

Section 1

Three Key Economic Ideas

03:42

Problem 1

Briefly discuss the meaning of each of the following economic ideas: People are rational, people respond to economic incentives, and optimal decisions are made at the margin.

Jennifer Stoner
Jennifer Stoner
Numerade Educator
01:44

Problem 2

What is scarcity? Why is scarcity central to the study of economics?

Daniel Cisneros
Daniel Cisneros
Numerade Educator
01:31

Problem 3

Discuss whether you agree with the following statement:
"The problem with economics is that it assumes that consumers and firms always make the correct decisions. But we know that everyone makes mistakes."

Ulysses Ng
Ulysses Ng
Numerade Educator
02:01

Problem 4

According to the FBI Bank Crime Statistics, there were more than 4,000 bank robberies in the United States in 2015, an increase of 3.9 percent over 2014 . The FBI claims that banks have made themselves easy targets by refusing to install clear acrylic partitions, called bandit barriers, that separate bank tellers from the public. According to a special agent with the FBI, "Bandit barriers are a great deterrent. We've talked to guys who rob banks, and as soon as they see a bandit barrier, they go find another bank." Despite this finding, many banks have been reluctant to install these barriers. Wouldn't banks have a strong incentive to install bandit barriers to deter robberies? Why, then, do so many banks not install them?

Daniel Cisneros
Daniel Cisneros
Numerade Educator
04:56

Problem 5

The grading system plays an important role in student learning. In their book Effective Grading: A Tool for Learning and Assessment in College, Barbara Walvoord and Virginia Anderson stated that "grading infuses everything that happens in the classroom." They also argued that grading "needs to be acknowledged and managed from the first moment that an instructor begins planning a class."
a. How could the grading system a teacher uses affect the incentives of students to learn the course material?
b. If teachers put too little weight in the grading scale on a certain part of the course, such as readings outside the textbook, how might students respond?
c. Teachers often wish that students came to class prepared, having read the upcoming material. How could a teacher design the grading system to motivate students to come to class prepared?

Ulysses Ng
Ulysses Ng
Numerade Educator
04:36

Problem 6

The federal government subsidizes some loans to college students. Typically, the more students who participate in these programs and the more they borrow, the higher the cost to the federal government. In 2011, President Barack Obama convinced Congress to pass these changes to the federal student loan programs: (1) Payments were capped at 10 percent of a borrower's discretionary income;
(2) any unpaid balances for people working for government or in the nonprofit sector were forgiven after making 120 monthly payments (10 years' worth of payments); and
(3) people working in the private sector had their loans forgiven after making 240 monthly payments (20 years of payments).
a. As a result of these changes in the federal student loan program, would you predict that the total amount that students borrowed under these programs increased or decreased? Briefly explain.
b. As part of his 2016 federal budget proposal, President Obama recommended significant changes to the federal student loan programs. Given your answer to part (a), do you think President Obama was likely to have recommended changes that would increase or changes that would decrease the payments that borrowers would have to make? Briefly explain.
c. How might President Obama and his advisers have failed to correctly forecast the effects of the 2011 changes to the loan programs?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
Numerade Educator
07:07

Problem 7

(Related to the Apply the Concept on page 5) Many universities and corporations offer a health and wellness program that helps their employees improve or maintain their health and get paid (a relatively small amount) for doing so. The programs vary but typically consist of employees completing a health assessment, receiving a program for healthy living, and monitoring their monthly health activities.
a. Why would universities and corporations pay employees to improve or maintain their health?
b. How does health insurance affect the incentive of employees to improve or maintain their health?
c. Would a wellness program increase or decrease the health insurance premiums that an insurance company would charge the university or corporation to provide insurance coverage? Briefly explain.

Manasvee Singh
Manasvee Singh
Numerade Educator
03:05

Problem 8

(Related to the Apply the Concept on page 5) Jay Bhattacharya and Kate Bundorf of Stanford University have found evidence that people who are obese and who work for firms that provide health insurance receive lower wages than workers at those firms who are not obese. At firms that do not provide health insurance, obese workers do not receive lower wages than workers who are not obese.
a. Why might firms that provide workers with health insurance pay a lower wage to obese workers than to workers who are not obese?
b. Is Bhattacharya and Bundorf's finding relevant to the question of whether health insurance provides people with an incentive to become obese? Briefly explain.

Daniel Cisneros
Daniel Cisneros
Numerade Educator
02:47

Problem 9

(Related to Solved Problem 1.1 on page 7) For many years, McDonald's used frozen beef patties to make its hamburgers. It recently began market testing how consumers in the United States would respond to hamburgers made of fresh beef that had never been frozen. In early 2017 , McDonald's expanded the market test from only 55 restaurants to more than 300 . The switch to fresh, neverfrozen beef patties would be a huge undertaking involving "how [the beef] is transported to the restaurants, how it is stored when it arrives and how much it affects employees' process of making burgers." If you were a manager at McDonald's, how would you go about analyzing whether to switch to fresh, never-frozen beef patties? In your answer, consider whether your decision would have to be all or nothing-all fresh, never-frozen beef patties in all McDonald's hamburgers- and whether you would have to switch in all McDonald's locations around the world (in 119 countries) or just in certain countries.

Jesse Leija
Jesse Leija
Numerade Educator
01:47

Problem 10

(Related to Solved Problem 1.1 on page 7 ) Late in the semester, a friend tells you, "I was going to drop my psychology course so I could concentrate on my other courses, but I had already put so much time into the course that I decided not to drop it." What do you think of your friend's reasoning? Would it make a difference to your answer if your friend has to pass the psychology course at some point to graduate? Briefly explain.

Daniel Cisneros
Daniel Cisneros
Numerade Educator
02:54

Problem 11

In a paper written by Bentley College economists Patricia
M. Flynn and Michael A. Quinn, the authors state:
We find evidence that Economics is a good choice of major for those aspiring to become a CEO [chief executive officer]. When adjusting for the size of the pool of graduates, those with undergraduate degrees in Economics are shown to have had a greater likelihood of becoming an S\&P 500 CEO than any other major. A list of famous economics majors published by Marietta College includes business leaders Elon Musk, Warren Buffett, Steve Ballmer, David Rockefeller, Arnold Schwarzenegger, Bill Belichick, Diane von Furstenberg, and Sam Walton, as well as Presidents George H.W. Bush, Gerald Ford, Ronald Reagan, and Donald Trump, and Supreme Court Justice Sandra Day O'Connor. Why might studying economics be particularly good preparation for being the top manager of a corporation or a leader in government?

Ulysses Ng
Ulysses Ng
Numerade Educator