DESY WAHYU RAHMAWATI

IMaBS A (20180410104)

ECONOMICS ASSIGNMENT

QUESTION FOR REVIEW

1. Give three examples of important tradeoffs that you face in your life.
a. When waiting for something or someone.
b. When I decided whether to buy new phone.
c. When I want to go to college or not or if I want to study more.

2. What is the opportunity cost of seeing a movie?

The opportunity cost of seeing a movie includes the monetary cost of admission plus the time cost
of going to the theatre and attending the show. The time cost depends on what else you might do
with that time; if it is staying home and watching TV, the time cost may be small, but if it is
working an extra three hours at your job, the time cost is the money you could have earned.

3. Water is necessary for life. Is the marginal benefits of a glass of water large or small?
The marginal benefit of a glass of water is dependent on the individuals. However, water is
important but water is so abundant that it’s marginal benefit is relatively small.

4. Why should policymakers think about incentives?

Policymakers should think about incentives because incentives encourage people to work harder. If
people are motivated by an incentive they will be more productive.

5. Why isn’t trade among countries like a game, with some winners and some losers?
In reality trade between two countries can make both countries better off. Trade allows others
countries to enjoy what one country specialises in, while letting countries enjoy variety of goods
and services. Trade among countries is not a game because not trading to a specific country doesn’t
really benefit that country because they are not opening a market in that specific country. In the
long run they could become losers for not trading with that specific country.

6. What does “invisible hand” of the marketplace do?

The invisible hand determines the outcome of the market such as buyers determining the price to
demand and sellers determine how much to supply.
7. Explain the two main causes of market failure and give an example of each.
Two main causes:
a. Externality. Example : Pollution
b. Market Power. Example : One person has owns well in town, and everyone needs water. Price
of water will go high because there is only one seller.

8. Why is productivity important?

Productivity is an indication to efficiency of an individual or group of people in a firm or nation. It
is a measurement of the number of output produced by each workforce or machinery. Efficiency
determines the success of any individuals or firms as it refers to how well resources such as raw
material, labor and capital can be used to produce a product or service. productivity is vital as it
indicates the efficiency of an individual or group of people. Furthermore, efficiency determines the
success of any individuals or firms.

8. What is inflation, and what causes it?

Inflation is the long term rise in the prices of goods and services caused by the devaluation of
currency. Causes of inflation : the money supply, the national debt, demand-pull effect, cost-push
effect, exchange rates,

9. How are inflation and unemployment related in the short run?

When the inflation is going up, the interest rate will going up too, so that will affect on the
investment transactions since the people will goes to deposit their money with higher required rate
of return instead of the losses because of the inflation, so that will be push the manufactures to close
and make the employee to quit the job.
SUMMARY
1. The fundamental lesson about People face tradeoffs is to get something you want, you have to
give up something else you want. Scarce resources. Think of allocating your time or money. There
is sometimes a tradeoff between the environment and jobs. equity: fair treatment, efficiency:
producing the biggest possible "pie". tradeoff between the two: will you sacrifice to become a
doctor if your wealth is taxed?

2. The fundamental lesson about The cost of something is what you give up to get it.
example: College education. The benefits are the job opportunities and personal satisfaction, but
there are costs besides “out of pocket” costs like tuition and books. Make sure you count the 4
years' lost earnings. Just count the room and board costs over and above what you would have paid
if you didn't go to college. Opportunity cost--what you give up in order to obtain the item in
question.

3. The fundamental lesson about Rational people think at the margin.

A marginal change is a small adjustment to an existing plan of action. example: Suppose you are an
airline executive deciding whether to sell a standby ticket for $300. The 200 seat plane is nearly, but
not quite, sold out, and the total costs for the flight are $100,000, or an average cost of $500. Should
you sell a standby seat "below cost”? Yes, since the marginal benefit, $300, exceeds the marginal
cost (cost of peanuts, soda, extra fuel costs, discomfort due to congestion--at most $20). A rational
decision maker (who can finely adjust his/her action) chooses the level of action where the marginal
benefit equals the marginal cost.

4. The fundamental lesson about People respond to incentives.

One obvious source of incentives is the price of goods and services. If gas becomes more expensive,
people adjust their behaviour. Public policies can affect private incentives, often in unintended
ways. example: seat belt laws. The direct effect is that the driver is more likely to survive an
accident, so seat belts save lives. The indirect effect on incentives is that accidents are now less
costly, so the new cost- benefit calculation causes drivers to drive faster. One 1975 study found that
the laws led to more accidents, but fewer driver deaths per accident. Overall driver deaths remained
about the same but pedestrian deaths increased.

5. The fundamental lesson about Trade can make everyone better off.
Don't think of trade as having one side win and the other side lose. No one is forcing people to
trade, so both sides think they benefit. Trade involves competition. Your family competes with
other families in the job market and in the grocery store. Yet, not allowing trade would make
everyone worse off. Trade allows you to specialise in what you do best, allowing more consumption
for everyone. The same point applies to trade between countries. If we are relatively more efficient
at producing services than certain manufactured goods, we benefit from having trading partners
who supply those goods.

6. The fundamental lesson about Markets are usually a good way to organize economic activity.
A market economy is an economic system where prices are determined and resources are allocated
through the decentralised decisions of many firms and households. firm--any producer of a good or
service. Adam Smith and the "invisible hand": Everyone, by acting selfishly, does their part in
maximising the welfare of society as a whole. (Because prices measure the marginal benefit to
consumers, and the marginal cost to firms. The net benefit is maximised.) Then governments can
disrupt the invisible hand with excessive taxation or regulation. In centrally planned economies (old
Soviet Union), firms have to be told what inputs they will receive and the output they are required
to produce. Households are sometimes told what they will be able to consume.
1. Central planners would have a tough time figuring out the right prices even if they wanted to
maximise society's welfare. The market forces of supply and demand give people and firms exactly
the information they need.
2. Besides informational problems, central planners face incentive problems as well. Corruption at
the top, lack of incentives to work hard, etc.

7. The fundamental lesson about Governments can sometimes improve market outcomes.
A market failure is a situation where the market, on its own, fails to allocate resources efficiently.
externalities (pollution, R&D activities) public goods (national defence, parks and roads) market
power (monopoly, oligopoly). Governments can intervene to promote efficiency when there are
market failures. Governments can sometimes intervene to promote equity.

8. The fundamental lesson about A country's standard of living depends on its ability to produce
goods and services.
Things like raising the minimum wage or restricting foreign competition will not affect our standard
of living in the long run, because they do not serve to improve productivity.

9. The fundamental lesson about Price rise when the government prints too much money.
When too much money is floating in the economy, there will be higher demand for goods and
services. This will cause firms to increase their price in the long run causing inflation.

10. The fundamental lesson about Society faces a short-run tradeoffs between inflation and
unemployment.
In the short run, when prices increase, suppliers will want to increase their production of goods and
services. In order to achieve this, they need to hire more workers to produce those goods and
services. More hiring means lower unemployment while there is still inflation. However, this is not
the case in the long-run.