Question

The Questions 1-Describe some of the trade-offs faced by each of the following: a. a family deciding whether to buy a new car b. a member of Congress deciding how much to spend on national parks c. a company president deciding whether to open a new factory d. a professor deciding how much to prepare for class a recent college graduate deciding whether to go to graduate school

this is microeconomics assignment. please help

Answer 1

1. A family deciding whether to buy a new car faces a trade-off between the cost of the car and
other things they might want to buy. For example, buying the car might mean they must give
up going on vacation for the next two years. Also, fuel efficient cars are more expensive but
regular cars require spending more on gas. Smaller cars are less expensive, but bigger cars
mean saving time by avoiding multiple trips.

2. For a member of Congress deciding how much to spend on national parks, one trade-off is
between parks and other spending items or tax cuts. If more money goes into the park
system, that may mean less spending on national defense or on transportation. Or instead of
spending more money on the park system, taxes could be reduced. Another tradeoff when
deciding how much to spend on national parks is spending a small amount on a lot of parks
or a larger amount on a single park.

3. When a company president decides whether to open a new factory, the decision is based on
whether the new factory will increase the firm’s profits compared to other alternatives. For
example, the company could upgrade existing equipment or expand existing factories. The
bottom line is: Which method of expanding production will increase profit the most?

4. In deciding how much to prepare for class, a professor faces a trade-off between the value
of improving the quality of the lecture compared to other things she could do with her time,
such as working on additional research or enjoying some leisure time.

5. In deciding whether to go to graduate school, the student faces a trade-off between his
possible earnings with a bachelor’s degree and the benefits of an increased education (such
as higher future earnings and greater knowledge). The student also faces the trade-off
between spending time with family or on leisure and spending time studying. Also, the
student may face the tradeoff between taking out student loans and buying a home or car with a loan

1. Consider the market for minivans. For each of the event listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans Answer: a. If people decide to have more children, they will want larger vehicles for hauling their kids around, so the demand for minivans will increase. Supply will not be affected. The result is a rise in both the price and the quantity sold, as the figure 1 shows. Figurel Figure2 S2 D2 Quantity of Minivans Quantity of Minivans b. If a strike by steelworkers raises steel prices, the cost of producing a minivan rises and the supply of minivans decreases. Demand will not be affected. The result is a rise in the price of minivans and a decline in the quantity sold, as Figure 2 shows. Price of Minivans Price of Minivans

c. The development of new automated machinery for the production of minivans is an improvement in technology. This reduction in firms' costs will result in an increase in supply. Demand is not affected. The result is a decline in the price of minivans and an increase in the quantity sold, as Figure 3 shows. Figure3 Figure4 S S2 D1 . D2 Quantity of Minivans Quantity of Minivans d. The rise in the price of sport utility vehicles affects minivan demand because sport utility vehicles are substitutes for minivans. The result is an increase in demand for minivans. Supply is not affected. The equilibrium price and quantity of minivans both rise, as Figure 1 shows e. The reduction in peoples' wealth caused by a stock-market crash reduces their income, leading to a reduction in the demand for minivans, because minivans are likely a normal good. Supply is not affected. As a result, both the equilibrium price and the equilibrium quantity decline, as Figure 4 shows Price of Minivans Price of Minivans