Economics Questions Week One
a. A family deciding to buy a new car
When a family is considering buying a new car, the tradeoffs can be purchase of a new house one can say that the opportunity cost is seriously high but that one is not likely to achieve the same results from buying a house. However, one will still purchase anew car as opposes to a house because of the lower end of the opportunity cost range. A house would provide shelter to the family at all times and at times it will appreciate in value. Meaning that it has a high opportunity cost it has a high benefit as opposed to the car which depreciates as the time goes on. If this was tradeoffs in this situation and the family decides to buy a new car then the opportunity cost will be a family having to do without a house.
b. A politician deciding whether to spend on national parks
One of the possible tradeoffs for a politician spending money on national parks could possibly be using the money on further funding in education being that the opportunity cost for this though could be that half of the national park would be cleared for property development but the trade off being that all students have textbooks to study from. If this was a trade off in this situation and the money went to the national parks then the opportunity cost would be that of the students having their texts to study from.
C. A professor deciding whether to prepare for a lecture.
The tradeoffs for a professor deciding to prepare a lecture are possibly the use last years materials. Such action of sacrificing the preparation of a lecture can be termed as the opportunity cost. Therefore the opportunity cost in this case is the student having recycled materials without current development in their field. This kind of children if they go to the job market they will find it difficult.
2. Classify each of the following statements as either positive or normative,
a) Society faces a short-term trade-off between inflation unemployment. (Positive)
This statement is true because when there is increase in inflation unemployment rate increases. This is because there will be an increase in the level of the price in the market thus creating unemployment when there is wages increase unemployment increases. At low levels of unemployment wages could start to increase creating tradeoffs between the rate on unemployment and the rate of inflation, it means that there is a conflict between giving full employment and controlling inflation. The tradeoffs relationship between unemployment and inflation influences decision making in the society (Mankiw, 2008, P, 236).
b. A reduction in the rate of growth of money will reduce the rate of inflation. (Positive)
The statement saying that a reduction in the rate in money growth will reduce the rate of inflation is a positive statement. In that it is a true statement, that with the increase of money printed the rate of inflation will rise and prices will go up as the value of the dollar will fall and vice-versa, if there is less money printed then the value of the dollar will increase and lower inflation bringing prices down.
c. The reserve bank should reduce the rate of growth of money. (Normative)
This statement is true because it is an opinion and it is not necessarily necessary for the reserve bank to reduce the rate of growth of money. The reduction in the money supply in the market it is a preservative of a reserve bank therefore, it is up to the reserve bank to make decision whether to reduce the money supply to influence monetary factors in the market (Mankiw, 2008, p 236).
d. Society ought to require more people on social security benefits to look for jobs. (Normative)
This statement is true the society requires more people to join source of security benefit in order to look for jobs. However, this is merely opinion which will not influence the ability of one looking for a job. But there is no economic factor that will influence one who is a member of social security benefit to get a job as compared to the one who is not a member.
e. Lower tax rates encourage more work and more saving. (Positive)
This statement is true because it says a lower tax rate encourages people to work and save. If the tax is lower people will have desire to work and a desire to save because it will look worthwhile to work overtime if the tax is low well again if the tax is heavy and the pay is low one may be discouraged from working thus affecting savings.