Marginal Costs and Marginal Benefits - Assignment Example

Marginal Costs and Marginal Benefits Answer 1 The recent decisions in which I had to weigh marginal costs and marginal benefits to reach a conclusion are as follows: 1. I recently purchased a laptop computer. I had a budget of $1000. Given the innumerable options I had to choose from, I had to consider the marginal benefits that I was getting from different brands of laptops in order to find the best possible laptop for me. 2. I went to a restaurant recently for dinner. After having food, I had to decide whether I should order dessert or not.

I was not hungry anymore, but the marginal benefit, in terms of utility, that I was going to get from having dessert was more than the marginal cost of the dessert. Therefore, I decided to order dessert. 3. I had to buy a t-shirt for a party. I liked one, but it was very expensive and I realized that I was never going to wear it again because it was too fancy for everyday use. Therefore, as the additional cost of the shirt, as compared to other alternatives, was more than the marginal benefits, I decided not to buy the t-shirt.

Answer 2 The main factor that drives producers to keep producing is profits (Case & Fair, 2007). As long as a business is making profits, catering a demand, production will keep going. Before starting production, producers do secondary research to find out the best combinations of resources to use in production, and from there onwards, they may use their experience to optimize their use of resources. These resources can be in the form of raw material, provided by different suppliers for making profits, or human resource for earning wages.

It is the management’s job to observe the trends and market demand for different kinds of products, and then produce the best combination of products, given the limited resources, to generate maximum possible revenues. Answer 3 a. The demand for small automobiles would go up. b. The demand will be shifted to smaller cars. c. If income declines, less money would be available for consumers to spend. However, as small autos are inferior goods, their demand would rise. (Case & Fair, 2007) d. This would reduce the price of small autos as consumers would want to wait till the price goes down so they could buy them for a lower price in near future e.

As cars and gasoline are complementary products, if the price of gasoline goes down, it will increase the demand for cars. (Case & Fair, 2007) Answer 4 The two characteristics of public goods are: a. They are non-rivalry i.e. the number of individuals using it does not affect its value. b. They are non-excludable i.e. no individual can be prevented from using the good. They oppose the private good characteristics because private good characteristics include rivalry, as well as excludability.

The free rider problem is when individuals use non-excludable public goods without having to pay for it U.S. border patrol is a public good because they provide me services without me having to pay for them and my usage of their services does not affect their value for any other individual. Similarly, satellite TV is also public good as users do not have to pay for it. Answer 5 The statement is false. US exports and foreign imports of US products would cause the demand for US Dollar to increase because the purchases would be made in the currency exporting the products.

(Case & Fair, 2007) Increasing income and decreasing exports would cause dollar to appreciate as demand for local products and investments in the local economy would increase. This increased demand would cause the prices of local products to go up and as a result, reducing the demand for US products. Works Cited Case, K., & Fair, R. (2007). Principles of Economics. Eighth Edition. Pearson Education.