Department of Banking and Insurance

University of Dhaka

Assignment on: Questions solve of chapter 1

Course name: Microeconomics
Course code: B-109

Submitted to Submitted by
Bipasha Barua Amreeto Kumar Mondol
th
Assistant professor Roll-55, section-B, batch- 26

Department of Banking and Insurance Department of Banking and Insurance

University of Dhaka. University of Dhaka

Date of submission: / /
1)Give three examples of important trade-offs that you face in your life .

1) Money spent on a new furniture could of been put in saving or used for food, clothing,
vacation expenses, education expenses etc.
2) Purchasing a smart television and its cost is less better than purchased a LED television and
save money for other purposes.
3) Studies microeconomics or I can spend that time by watching TV or playing video games.

2)what items would you include to figure out the opportunity cost of a
vacation to Disney world?

>> To figure out the opportunity cost of a vacation to Disney World, you would include the
monetary costs of: admission, travel, souvenirs. You would also include the cost of time spent on
vacation.

3)water is necessary for life. Is the marginal benefit of a glass of water large
or small ?

>> The marginal benefit obtained from consuming an additional unit of a glass of water is small.

4)why should policymakers think about the incentives ?

>> Because policies change the cost or benefits people face and, therefore, alter their behavior.

5)why isn’t trade among countries like a game with some winners and some
losers?
>>Trade among countries isn’t a game with some losers and some winners because trade can
make everyone better off. By allowing specialization, trade between people and trade between
countries can improve everyone’s welfare.

6) what does the “invisible hand” of the marketplace do?

>>The unobservable market force that helps the demand and supply of goods in a free market to
reach equilibrium automatically is the invisible hand.

7)what are the two main cause of market failure? Give an example of each.
>>Underproduction of merit goods: a merit good is a private good that society believes is under
consumed, often with positive externalities. For example, education, healthcare, and sports
centres are considered merit goods.

>>Overprovision of demerit goods: a demerit good is a private good that society believes is over
consumed, often with negative externalities. For example, cigarettes, alcohol, and prostitution are
considered demerit goods.
8)why is productivity important?
>>Productivity is a measure of the efficiency of production. High productivity can lead to greater
profits for businesses and greater income for individuals. For businesses, productivity growth is
important because providing more goods and services to consumers translates to higher profits.

9) what is inflation and what causes it?

>>Inflation is a measure of the rate of rising prices of goods and services in an economy. Inflation
can occur when prices rise due to increases in production costs, such as raw materials and wages.
A surge in demand for products and services can cause inflation as consumers are willing to pay
more for the product.

10)How are inflation and unemployment related in the short run?

>>In the short-run, inflation and unemployment are inversely related; as one quantity increases,
the other decreases. In the long-run, there is no trade-off.

PROBLEMS AND APPLICATIONS

1. (a) Money spent on a new car could of been put in saving or used for food,
clothing, vacation expenses, education expenses, purchasing other
equipment or home suppliants etc.
(b) When deciding how much money to allocate towards national parks,
members of Congress much calculate the trade-off with other important
expenses such as national defences, infrastructure (bridges and roads), social
programs (temple, mosque), education, national trade etc.
(c) Opening a new factory may limit investments in other projects, operation
expenses, capital on hand etc.
(d) when deciding how much to prepare for a class include time spent with
family, personal activities and research or anything else.
(e) A recent college graduate that goes to graduate school would trade-off
earning money now with a full time job or business and the money it costs to
go to graduate school.

2. The benefits of a vacation will vary from person to person. Most people
associate a vacation with relaxation, peace and a chance to spend quality
time with family. If a person feels they need these psychological benefits
then the costs of a vacation may be worth it.

3. The cost of skiing instead of working a part-time job is the cost of lost
wages plus the costs related to skiing.

4. The opportunity cost of spending the $100 now is the additional $5 I would
earn in interest after 1 year.

5. If I do not go ahead with production I would lose what was invested which
is $5 million.
If I go ahead with production it will cost me an additional $1 million.
Sales from the product will be $3 million.
The net loss will be $3 million. (5 + 1) – 3
I should go ahead with production since the loss is less ($3 million) than if I
stopped production ($5 million).

The total cost that I should pay to complete development is $3 million.

6. a. People will save less knowing they will receive money from the
government through the anti-poverty program.

b. The reduction in benefits based on the amount of earnings will cause

people to work less or not at all.

b. This change increases efficiency at the cost of equality. It creates pressure

on recipients to search for a job.
7. a. This shows the government’s concern about efficiency. The market
failure involved is due to market power where small group of persons or a
single person influences market prices.
b. This shows the government’s concern about equality.
c. This shows the government’s concern about efficiency. The market failure
involved is known as an externality. It shows the negative impact of the
smoker’s actions on the well-being of others.
d. This shows the government’s concern about efficiency. The market failure
involved is due to market power, where Standard Oil would unduly influence
the market prices of oil and exploit people.
e. This shows the government’s concern about equality.
f. This shows the government’s concern about efficiency. The market failure
involved is known as an externality. It shows the negative impact of the
intoxicated driver’s actions on the well-being of others.

8. a. Providing the best healthcare possible to everyone is an equality

concern. Doing so would reduce our nation’s efficiency since the costs of
providing the best healthcare for all would be astronomically high. It would
be more efficient to provide those who do not get healthcare through their
employer with quality healthcare or at least provide a discount.

b. Providing unemployment benefits until a person finds a job is an equality

concern. However, it would greatly hurt our economy since some may
receive it for months or even years. A more efficient approach would be to
provide it for a set period of time and to verify that the recipients are actively
seeking employment.

9.My standard of living is better than that of my grandparents’ standard of

living when they were my age. We have heating/air conditioning, reliable
cars, vaccines, antibiotics, televisions with beautiful color displays,
computers of all types and so much more. Most of these changes have
occurred because of the advancement of technology and medicine.
10. The savings made by people are mobilized by the banks. Banks in turn
provide loans to the business firms which use the funds to expand their
production by establishing new factories. This leads to faster growth in
productivity because when production capacities are increased so is the per
capita production.

The benefit from the increased productivity is enjoyed by workers,

entrepreneurs and all households.

Society is not getting a free handout because when people are saving their
money there is a trade-off. The people postponing their present needs and
saving for the future helps the economy improve productivity.

11.Inflation is an indirect tax on the people since it makes their money less
valuable.

Thank you