Hi All,
Question One had to do with the principle of economic surplus, while question two had to do with microbehavior in the face of trash pick-up fee change.
First, the economic surplus from taking any action is the benefit of that action minus its cost. This problem is therefore an example of the cost-benefit principle.
Benefit of performing a car wash = $6
Cost of performing a car wash = $3.50
Net benefit (economic surplus) NB = B-C
Economic surplus = $6 - $3.50 = $2.50
Just so you all remember, the Cost-Benefit Principle states that an individual (or form, or a society) should take an action if, and only if, the extra benefits from taking the actions are at least as great as the extra costs.
Question Two is about the difference between a fixed weekly fee for unlimited garbage pickup and a 'tag' system where one garbage bin costs $2 and they are reusable. The question is about the total quantity of garbage collected in the city (not about revenue, which would clearly drop in this system). Given the cost-benefit principle, once again, most residents would presumably wish to save on their garbage bill, and would therefore limit their weekly trash output to somewhere between one and three cans of garbage. Perhaps they would reduce their trash output by doing more recycling, composting, or burning. It is also feasible that some people would purchase more than three tags and put out four or five bins of garbage. However, from a macro-standpoint, the total amount of trash generated by this scheme would indeed be less than the $6 unlimited policy.
I will have your quizzes graded tomorrow.
Also, don't forget that Chapter Two Study Questions from the text are due this Thursday, and your quantitative exercises (handed out yesterday) will be due the following Tuesday.
Finally, we will begin talking about absolute and comparative advantage tomorrow. Absolute advantage is where one person can produce more of that good than the other person in the same period of time. Comparative advantage is where one person is relatively more efficient than the other person at producing that good, meaning that his/her opportunity cost of producing it is lower than her counterpart's. Specialization based on comparative advantage is the basis for economic exchange. When each person specializes in the task at which he/she is relatively most efficient, the economic pie is maximized, making possible the largest slice for everyone. This is true because people all have different production possibilities curve (PPC).
Hi class, upon further reflection on question two from the quiz, I've decided that answers which adequately explain your initial normative argument about quantity will receive full credit.
ReplyDeleteFrankly, the question should have said that 'tags' are NOT reusable. But because it said they are, it is reasonable to expect that in the long-term, a family could purchase one or two tags per week for a year, reduce their overall garbage bill, and substantially increase the amount of garbage collected in the city. The question was not specific enough on the period of time we would measure quantity of garbage collected. Sorry for the confusion.