Microeconomics assignment

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1. Liza needs to buy a textbook for the next economics class. The price at the college bookstore is $65. One online site offers it for $55 and another site, for $57. All prices include sales tax. The accompanying table indicates the typical shipping and handling charges for the textbook ordered online.

Shipping method	Delivery time	Charge
Standard shipping	3–7 days	$3.99
Second-day air	2 business days	$8.98
Next-day air	1 business day	$13.98

                                               

a. What is the opportunity cost of buying online instead of at the bookstore?   Note that if you buy the book online, you must wait to get it.

 The opportunity cost of buying the book online is a small savings and not having to make the trip to the bookstore. The savings would only be $4-6, but there would also be the saving of gas.

b. Show the relevant choices for this student. What determines which of these options the student will choose?

            If Liza has the time and the bookstore is nearby, she should buy the book at the store. After shipping and handling charges, there is not that much of a difference in costs. Also, she will get the book sooner and so she will be able to start studying from it sooner.

2. In August 2007, a sharp downturn in the U.S. housing market reduced the income of many who worked in the home construction industry. A Wall Street Journal news article reported that Wal-Mart’s wire-transfer business was likely to suffer because many construction workers are Hispanics who regularly send part of their wages back to relatives in their home countries via Wal-Mart. With this information, use one of the principles of economy-wide interaction to trace a chain of links that explains how reduced spending for U.S. home purchases is likely to affect the performance of the Mexican economy.

            Principle #10 could be applied to this scenario. “One person’s spending is another person’s income” (Krugman, P., & Wells, R., 2012, pp. 18). The housing market fell which means that the home construction industry workers did not have much work. They either made less money or were laid off. The Hispanics did not have as much money to send to their relatives, so there was not that money for the relatives to spend in the Mexican economy.

3. During the Great Depression, food was left to rot in the fields or fields that had once been actively cultivated were left fallow. Use one of the principles of economy-wide interaction to explain how this could have occurred.

            The principle of economy- wide interaction that best suits the issue of the fields is principle number 11. “Overall spending sometimes gets out of line with the economy’s pro- ductive capacity” (Krugman, P., & Wells, R., 2012, pp. 19). In this case, the Great depression had caused a lot of people to lose their jobs. They then did not have the money to spend on as much food as they did before. This lowered the demand of food that the markets needed, which meant that the farms did not have to grow as much food. This left farmers with less work and less need to use as much of their fields.

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References:

Krugman, P., & Wells, R. (2012). Microeconomics, Second Edition. New York: Worth Publishers