Economic Incentives in our Community
1. What opportunity costs did you incur in reading this chapter? If you read four more chapters of this text today would your opportunity costs (per chapter) increase or decrease? Explain. Opportunity cost = next best alternative = giving up playing computer games. If one reads additional four chapters, the opportunity cost will increase. As you increase the time allotted for reading, you also increased the time you sacrificed for playing computer games. Opportunity cost is all about sacrificing or giving up the second best alternative. A decision made between choosing will incur opportunity cost (“Opportunity Cost”, 2007).
2. Markets reward individuals according to their output; communism rewards people according to their needs. How might these different systems affect work effort? Rewards are given to individuals who perform well and give higher output than others. Rewards are used in economics in order to boost the individuals (for example, labor) output for the benefit of the market and the economy itself. If rewards exist, then there is a chance that individual outputs will be boosted. In the case of communism, rewards have been perceived differently. In a communist country, rewards maybe harmful to their economy.
Giving rewards to those in need may affect the individual outputs. If one works so hard and produces more output, his or her efforts to boost outputs are useless. Economy in a communist country is limited and sometimes economic growth is suppressed (Council for Economic Education, 2005). 3. Why is per capita GDP (output per person) so much higher in the United States than in Mexico? GDP per capita is determined first by GDP and second by the countries population. GDP is also influenced by many factors such as consumption, investments, spending, imports and exports. Definitely, United States GDP is far better than that of Mexico.
Besides a higher GDP, United States is also one of the top ‘developed’ countries in the world. Mexico might be categorized under ‘developing’ country. Despite United States high population than Mexico, United States GDP is far, far better than Mexico making its GDP per capita so much higher than Mexico (Council for Economic Education, 2005). 4. Why should the government regulate how goods are produced and can regulation be excessive? Government regulation of goods is looked by people as bad thing. In fact, government regulation is the way of the government in balancing people’s rights and people’s behavior.
Government regulations help domestic goods to compete against the surge of foreign goods. Moreover, some government regulations are demanded by people for the protection of the environment, workers and consumers. However, government regulations can have bad impacts to the economy. When the government abuses its power to use regulations, excessive regulations occur. Excessive regulations are regulations which are overly complicated that can cause higher costs of goods and can hinder the production of goods (Better Regulation Task Force [BTRF], 2003).
5. Explain the interaction between supply and demand if the government set a minimum price (floor) of $3. 00 per apple? What would the interaction between supply and demand be if the government set a maximum (ceiling) price of $3. 00 per apple? Two situations can happen whenever minimum price is set by the government. If the price floor is below the price equilibrium, then the price floor will not have an effect to the market because the market is already using prices higher than the price floor in producing goods.
If the price floor is above the equilibrium price, then prices are set to that price and supply will increase on the other hand, demand will decrease because consumers are forced to buy products at higher price than the equilibrium price (“Government Intervention: Price Floor”, 2009). Two situations can happen whenever the government set a ceiling price. If the ceiling price is above the equilibrium price, there will be no effect to the market because the market is already producing at an equilibrium price and producers will be unable to produce at a high ceiling price.
If the ceiling price is below the equilibrium price, demand will go up because consumers can now buy goods (apple) at a much lower price than what the market expect to sell and supply will go down because producers are forced to produce at a much lower price than the market dictates driving them away of the market (“Government Intervention: Price Ceiling”, 2009). 6. Explain market failure in terms of the production possibilities curve. Fig 1. The Production Possibility Curve. Retrieved from http://faculty. mc3. edu/kbaird/ProductionPossibilitiesCurve/sld016.
htm Market failures can be explained using the production possibilities curve. If the market is unable to produce goods due to improper allocation of labor and resources, then it is said that there is production inefficiency. In this case, the production possibility curve will have a point inside but not on the curve itself. This means that market is possibly in a recession or the market failed to produce goods (Montgomery County Community College [MCCC], 1999).
References Better Regulation Task Force (BTRF). (2003). Principles of Good regulation. Retrieved April 9, 2009 from http://archive. cabinetoffice. gov. uk/brc/upload/assets/www. brc. gov. uk/principlesleaflet. pdf Council for Economic Education. (2005). Closing the Gap. Retrieved April 9, 2009 from http://www. econedlink. org/lessons/print. php? lesson=EM602&page=teacher Council for Economic Education. (2005). Economic Incentives in our Community. Retrieved April 9, 2009 from http://www.econedlink.org/lessons/index. php? lesson=EM390 Government Intervention: Price Ceiling. (2009). College-cram.
Retrived April 9, 2009 from http://www. college-cram. com/study/economics/presentations/634 Government Intervention: Price Floor. (2009). College-cram. Retrived April 9, 2009 from http://www. college-cram. com/study/economics/presentations/635 Montgomery County Community College (MCCC). (1999). Production Possibilities Curve. Retrieved April 9, 2009 from http://faculty. mc3. edu/kbaird/ProductionPossibilitiesCurve/index. htm Opportunity Cost. (2007). NetMBA. Retrieved April 9, 2009 from http://www. netmba. com/econ/micro/cost/opportunity/Sample Essay of Custom-Writing