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Macroeconomics 14th Edition by William Baumol,Alan Blinder,John Solow
Edition 14ISBN: 978-1337794985Macroeconomics 14th Edition by William Baumol,Alan Blinder,John Solow
Edition 14ISBN: 978-1337794985 Exercise 1
Indicate how each of the following changes would influence the incentive of a decision-maker to undertake the action described.
a. A reduction in the temperature from 80° to 50° on one's decision to go swimming
b. A change in the meeting time of the introductory economics course from 11:00 A.M. to 7:30 A.M. on one's decision to attend the lectures
c. A reduction in the number of exam questions that relate directly to the text on the student's decision to read the text
d. An increase in the price of beef on one's decision to buy steak
e. An increase in the rental rates of apartments on one's decision to build additional rental housing units
a. A reduction in the temperature from 80° to 50° on one's decision to go swimming
b. A change in the meeting time of the introductory economics course from 11:00 A.M. to 7:30 A.M. on one's decision to attend the lectures
c. A reduction in the number of exam questions that relate directly to the text on the student's decision to read the text
d. An increase in the price of beef on one's decision to buy steak
e. An increase in the rental rates of apartments on one's decision to build additional rental housing units
Explanation
Verified
Verified
It is believed that any rational human being essentially makes a personal cost and benefit comparison before choosing an option and the reason behind such behavior is that human beings respond positively to incentives. In light of this theory we need to analyze how the decisions are influenced under each of the following cases:
(a) When there is a fall in temperature from 80 0 to 50 0 ones decision to go to swimming would be affected adversely. A fall in temperature would reduce the pleasure of swimming.
(b) A change in the meeting time to introductory economics course to early hour of 7.30 A.M will impacts one's decision to attend lectures in a negative way. The reason for such decision would be the outcome of the fact that attending an introductory class in early morning is more costly in terms of the time and the benefit is less, hence the incentive is negative.
(c) A student would decide not to read the text more keenly knowing that the number of exam questions that relate directly to that text has reduced. There would be no reward to the extra effort in terms of questions in exams to the effort of reading the text and hence any incentive.
(d) An increase in the price of beef would lead to increase in the cost of steak and hence demand to buy steak would fall. One would prefer to buy less steak as the price rises.
(e) An increase in the rental rates of apartments would result in the increase in the demand for additional rental housing units. As the income of rental apartment increases the incentive to build rental apartment increases.
(a) When there is a fall in temperature from 80 0 to 50 0 ones decision to go to swimming would be affected adversely. A fall in temperature would reduce the pleasure of swimming.
(b) A change in the meeting time to introductory economics course to early hour of 7.30 A.M will impacts one's decision to attend lectures in a negative way. The reason for such decision would be the outcome of the fact that attending an introductory class in early morning is more costly in terms of the time and the benefit is less, hence the incentive is negative.
(c) A student would decide not to read the text more keenly knowing that the number of exam questions that relate directly to that text has reduced. There would be no reward to the extra effort in terms of questions in exams to the effort of reading the text and hence any incentive.
(d) An increase in the price of beef would lead to increase in the cost of steak and hence demand to buy steak would fall. One would prefer to buy less steak as the price rises.
(e) An increase in the rental rates of apartments would result in the increase in the demand for additional rental housing units. As the income of rental apartment increases the incentive to build rental apartment increases.
Macroeconomics 14th Edition by William Baumol,Alan Blinder,John Solow
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