Question

1-10 Consider the five situations described. Which one situation seems most suitable for solution by eco- nomic analysis? (a) John has met two college students that interest him. Beth is a music major who is lots of fun to be with. Alice is a fellow engineering student, but she does not like to party. John wonders what to do. (b) You drive periodically to the post office to send or pick up packages. The parking meters cost $1 for 15 minutes-about the time required for medium length lines. If parking fines cost $20, do you put money in the meter or not? (c) The cost of car insurance varies widely from company to company. Should you check with several insurance companies when your policy comes up for renewal? (d) There is a special local sales tax "sin tax") on a variety of things that the town council would like to remove from local distribution. As a result, a store has opened up just outside the town and offers an abundance of these specific items at prices about 30% less than is charged in town. Should you shop there? (e) One of your professors mentioned that you have a poor attendance record in her class. You won der whether to drop the course now or wait to see how you do on the first midterm exam. Unfortu nately, the course is required for graduation.

Answer 1

The situation (b) requires an economic analysis. Since it deals with the process of decision making taking into consideration constraint of being fined. It requires a normative approach of economics which helps the agents in taking a decision under various sets of constraints and limited availability of resources. Suppose you have no constraint of wealth then there is no issue of putting money in the meter due to your abundant wealth. Hence I find the situation in (b) to be analyzed economically.