Question

Short Answer Questions
1. A bumper sticker reads: “Remember: Pillage first, then burn.” How does the humor of this sticker illustrate the idea of maximization?
2. “Anything worth doing is worth doing well.” Comment from an economics point of view.
3. You have probably heard it said “The grass is always greener on the other side of the fence.” Presumably this means we always want things we don’t have. Indeed, the Hebrew 10th Commandment says “Do not covet (want) your neighbor’s wife, donkey, etc.”. This leads to a puzzle. If the grass is always greener on the other side of the fence, why don’t you own the other side of the fence to begin with? If you like your neighbor’s donkey, why didn’t you originally purchase that donkey instead of the one you have? What economic idea easily explains this puzzle?
4. A local paper ran the following headline “University Enrollment Up Despite Economic Hard Times”. Why shouldn’t an economist be surprised at this observation?
5. Why are there so few gas stations in the center of large cities? With such heavy traffic one ought to be able to do an excellent business.
6. In his hit song “Lean on Me”, BillWithers says:

Lean on Me, when you’re not strong,
And I’ll be your friend, I’ll help you carry on
For it won’t be long ’Til I’m gonna need somebody to lean on. . . .
If there’s a load you have to bear
That you can’t carry, I’m right up the road
I’ll share your load, If you just call me . . .
I just might have a problem that you’d understand,
We all need somebody to lean on.
What economic principle is reflected in the lyrics?

7. One of the common traffic rules car drivers must know is how to proceed at a four-way stop. This happens in intersections where drivers from all directions must stop and then proceed on a “first come, first go” basis; that is, the first person to the intersection goes first, the second person goes second, etc. If there is a tie, the person on the right goes first. Suppose a busy intersection has a four-way stop procedure, is such a rule Pareto efficient?
8. In Canada there is a universal health care system that provides “free” care to citizens and prevents doctors and hospitals from charging user fees. Users of the system face large delays in receiving care and often are on wait-lists for months. On the other hand, there is no universal health care in the U.S., where no such wait-lists exist to see a doctor or health care specialists.
Why would universal free care lead to people having to wait?

9. The song “If I had a million dollars” goes
If I had a million dollars
We wouldn’t have to walk to the store
If I had a million dollars
Now, we’d take a limousine ’cause it costs more
If I had a million dollars
We wouldn’t have to eat Kraft Dinner
But we would eat Kraft Dinner
Of course we would, we’d just eat more
And buy really expensive ketchups with it
That’s right, all the fanciest like . . . dijon ketchups
Based on the lyrics, which goods are normal and which inferior?
10. Consider the demand function Q = 20 - 2P. What are the point elasticities of demand for
prices between 3 and 8 (consider only integer values)? What are the associated total revenues?
At which point is total revenue maximized?

Answer 1

1. The theory of maximisation states that rational entities (human beings, companies, countries) want to get the highest benefit from their economic decision. Individuals want to maximise their utility given a fixed income and firms try to maximise their profits given the resources. This is what the saying demonstrates as well: Pillage first, then burn