Macroeconomics

Question

After reading chapter 1 or 2 as indicated, do the following exercises:(Textbook, Macroeconomics by William A. McEachern) Chapter 1: 1. To which category of resources does each of the following belong? a. A taxi b. Computer software c. One hour of legal counsel d. A parking lot e. A forest f. The Mississippi River g. An individual introducing a new way to market products on the Internet. 2. If behavior is governed by rational self-interest, why do people make charitable contributions of time and money? Chapter 2: 3. Discuss the ways in which the following conditions might affect the opportunity cost of going to a movie tonight: a. You have a final exam tomorrow. b. School will be out for one month starting tomorrow. c. The same movie will be on TV next week. d. The Superbowl is on TV. 4. You can either spend spring break working at home for $100 per day for five days or go to Florida for the week. If you stay home, your expenses will total about $120. If you go to Florida, the airfare, hotel, food and miscellaneous expenses will total about $1,000. What’s your opportunity cost of going to Florida? 5. You have the following information concerning the production of wheat and cloth in the United States and the United Kingdom: Labor Hours Required to Produce One Unit: United Kingdom United States  Wheat 2 1 Cloth 6 5 a. What is the opportunity cost of producing a unit of wheat in the United Kingdom? In the United States? b. Which country has an absolute advantage in producing wheat? In producing cloth? c. Which country has a comparative advantage in producing wheat? In producing cloth? e. Which country should specialize in producing wheat? In producing cloth?

Answer

According to McEachern in his first chapter, resources can be categorized into three main categories namely land, labor, and capital (McEachern, 2012). A taxi, computer software, and a parking lot are examples of capital resources while forest and the Mississippi River are examples of land or natural resources. One hour of legal counsel and an individual introducing a new way to market products on the internet represent labor resources. According to the ethical egoism theory, human behavior is motivated or governed primarily by the aim of self-interest. Everything that is done is aimed at the best interest of the individual. In light of this theory, it can be argued that people make charitable contributions of their time and money in order to ultimately generate good for themselves. Contrary to the popular belief that charitable donations are made in order to serve the community or the less disadvantaged members of society it is aimed at, these donations are made in order to improve the society’s perception of the individual making the donations. In giving of his/her time and money, the individual hopes to make people view him/her as a ‘good’ or ‘better’ person. These contributions may also be made in order to boost the individual’s esteem or perception of themselves. Both of these reasons demonstrate the ultimate aim of self-interest.

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Several conditions might affect the opportunity cost of going to a movie tonight. Having a final exam the next day and choosing to go for the movie might mean choosing entertainment over academic success or intensive study time. Choosing to stay at home and study would be a much better selection as it would be a more beneficial of the resource of time. The second condition would be if school would be out for one month starting from tomorrow. The opportunity cost in this case would be great as there is no other pressing engagement or activity to attend to in the evening. If the same movie was to be on TV the next week, the opportunity cost would be almost nil as there would be a high probability that would just re-watch on TV the next week The better selection would therefore be to save your money and instead of going to the cinema, wait for the movie to be aired on tv. If Super bowl was on TV, the opportunity cost would be largely dependent on an individual’s personal preferences. A lover of football? Would be greatly grieved if he/she went for a movie at the expense of a game while someone who is disinterested in the Super bowl would be very quick to go for the movie tonight. The opportunity cost of going to Florida for a week as opposed to working from home for $100 daily would be an unforgettable vacation experience. The chance to possibly tour a new state, relax after a long time of work and to experience an environment different from the norm would be some of the benefits of the trip toFlorida. The obvious financial implication would be expenses totaling to $1000 while the choice to remain and work from home would yield earnings of $600.

References

McEachern, W.A. (2012). Macroeconomics: A Contemporary Approach. London: Nelson Education.