Question

In each of the following situations, identify which of the twelve principles is at work. a. You choose to shop at the local discount store rather than paying a higher price for the same merchandise at the local department store. b. On your spring break trip, your budget is limited to $\$ 35$ a day. c. The student union provides a website on which departing students can sell items such as used books, appliances, and furniture rather than give them away to their roommates as they formerly did. d. After a hurricane did extensive damage to homes on the island of St. Crispin, homeowners wanted to purchase many more building materials and hire many more workers than were available on the island. As a result, prices for goods and services rose dramatically across the board. e. You buy a used textbook from your roommate. Your roommate uses the money to buy songs from iTunes. f. You decide how many cups of coffee to have when studying the night before an exam by considering how much more work you can do by having another cup versus how jittery it will make you feel. g. There is limited lab space available to do the project required in Chemistry 101. The lab supervisor assigns lab time to each student based on when that student is able to come. h. You realize that you can graduate a semester early by forgoing a semester of study abroad. i. At the student union, there is a bulletin board on which people advertise used items for sale, such as bicycles. Once you have adjusted for differences in quality, all the bikes sell for about the same price. j. You are better at performing lab experiments, and your lab partner is better at writing lab reports. So the two of you agree that you will do all the experiments and she will write up all the reports. k. State governments mandate that it is illegal to drive without passing a driving exam. I. Your parents' after-tax income has increased because of a tax cut passed by Congress. They therefore increase your allowance, which you spend on a spring break vacation.

Name: Problem 1, Chapter 1: Economics
Uploaded: 2022-03-24T04:00:08-08:00
Duration: 4 min 21 s
Channel: Jennifer Stoner

In each of the following situations, identify which of the twelve principles is at work.
a. You choose to shop at the local discount store rather than paying a higher price for the same merchandise at the local department store.
b. On your spring break trip, your budget is limited to $\$ 35$ a day.
c. The student union provides a website on which departing students can sell items such as used books, appliances, and furniture rather than give them away to their roommates as they formerly did.
d. After a hurricane did extensive damage to homes on the island of St. Crispin, homeowners wanted to purchase many more building materials and hire many more workers than were available on the island. As a result, prices for goods and services rose dramatically across the board.
e. You buy a used textbook from your roommate. Your roommate uses the money to buy songs from iTunes.
f. You decide how many cups of coffee to have when studying the night before an exam by considering how much more work you can do by having another cup versus how jittery it will make you feel.
g. There is limited lab space available to do the project required in Chemistry 101. The lab supervisor assigns lab time to each student based on when that student is able to come.
h. You realize that you can graduate a semester early by forgoing a semester of study abroad.
i. At the student union, there is a bulletin board on which people advertise used items for sale, such as bicycles. Once you have adjusted for differences in quality, all the bikes sell for about the same price.
j. You are better at performing lab experiments, and your lab partner is better at writing lab reports. So the two of you agree that you will do all the experiments and she will write up all the reports.
k. State governments mandate that it is illegal to drive without passing a driving exam.
I. Your parents' after-tax income has increased because of a tax cut passed by Congress. They therefore increase your allowance, which you spend on a spring break vacation.

Economics

Paul Krugman, Robin… 4th Edition

Chapter 1, Problem 1

Instant Answer

Solved by Expert Jennifer Stoner

03/24/2022

Step 1

This is an example of the principle that people respond to incentives. The incentive here is the lower price at the discount store. So, the principle at work here is: **People respond to incentives**. Show more…

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In each of the following situations, identify which of the twelve principles is at work. a. You choose to shop at the local discount store rather than paying a higher price for the same merchandise at the local department store. b. On your spring break trip, your budget is limited to $\$ 35$ a day. c. The student union provides a website on which departing students can sell items such as used books, appliances, and furniture rather than give them away to their roommates as they formerly did. d. After a hurricane did extensive damage to homes on the island of St. Crispin, homeowners wanted to purchase many more building materials and hire many more workers than were available on the island. As a result, prices for goods and services rose dramatically across the board. e. You buy a used textbook from your roommate. Your roommate uses the money to buy songs from iTunes. f. You decide how many cups of coffee to have when studying the night before an exam by considering how much more work you can do by having another cup versus how jittery it will make you feel. g. There is limited lab space available to do the project required in Chemistry 101. The lab supervisor assigns lab time to each student based on when that student is able to come. h. You realize that you can graduate a semester early by forgoing a semester of study abroad. i. At the student union, there is a bulletin board on which people advertise used items for sale, such as bicycles. Once you have adjusted for differences in quality, all the bikes sell for about the same price. j. You are better at performing lab experiments, and your lab partner is better at writing lab reports. So the two of you agree that you will do all the experiments and she will write up all the reports. k. State governments mandate that it is illegal to drive without passing a driving exam. I. Your parents' after-tax income has increased because of a tax cut passed by Congress. They therefore increase your allowance, which you spend on a spring break vacation.

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Key Concepts

Law of One Price

The law of one price states that in an efficient market, identical items will sell for the same price once quality and other factors are adjusted for. This concept points to the role of arbitrage in eliminating price discrepancies across markets.

Income Effect

The income effect explains how a change in an individual’s income can affect their consumption patterns. When income rises, consumers typically increase their spending on goods and services, reflecting how financial resources directly influence purchasing decisions.

Government Intervention

Government intervention involves the use of policy or regulation to correct market failures or protect public welfare. Mandated requirements, such as licensing or tests, are examples of how the government can ensure that markets function in a way that safeguards consumers.

Comparative Advantage

Comparative advantage is the principle that individuals or groups can gain by specializing in tasks where they have lower opportunity costs, and then trading. This specialization allows all parties involved to enjoy higher overall efficiency and productivity.

Marginal Analysis

Marginal analysis involves evaluating the additional benefits and additional costs that come from consuming or producing one more unit. This decision-making tool helps individuals balance the gain from an extra unit against its cost, guiding optimal choices.

Resource Allocation

Resource allocation is the process of distributing scarce resources among competing uses. In situations where resources are limited, such as lab space, non-price mechanisms like scheduling are used to ration the available resources efficiently.

Voluntary Exchange

Voluntary exchange occurs when parties engage in trade by choice, believing that each will be better off as a result. This principle explains how individuals can benefit from specialization and mutually beneficial transactions.

Opportunity Cost

Opportunity cost is the value of the next best alternative that must be forgone when making a decision. It highlights the trade-offs inherent in every economic choice, as selecting one option means giving up the benefits of another.

Trade-offs

Trade-offs represent the idea that because resources are scarce, choosing one option often requires sacrificing another. This concept underlines the importance of considering what is being lost when a particular decision is made.

Supply and Demand

The principle of supply and demand explains how prices are determined in a market. When scarcity increases or demand surges (as in the case of damaged supply after a disaster), prices rise, signaling the relative scarcity of goods and services.

Budget Constraint

A budget constraint reflects the limited resources that individuals face, forcing them to prioritize and allocate their spending. It is a key concept for understanding how scarcity of funds influences decision-making in everyday life.

Incentives

Incentives are the benefits or costs that motivate people to act in a certain way. They shape behavior by influencing the choices individuals make, such as opting for a lower-priced option or adjusting consumption to fit a limited budget.

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