1.Derive a firm’s demand curve for investment, and determine its marginal cost of investing. Explain what determines the interest rate for loanable funds.Describe two (2) limitations that make rational economic decisions more challenging.
2.Describe four (4) reasons why interest rates differ across markets. Articulate how to convert future dollars into their present value.
3.Distinguish between stocks and bonds, and explain which involves more risk and why.Explain why the supply of loanable funds curve slopes upward to the right.
4.Explain why the demand for loanable funds curve slopes downward to the right. At any given time, a range of interest rates prevails in the economy. What four (4) factors contribute to differences in interest rates across consumers?
5.What entrepreneurial idea do you have? How would your idea contribute to the economy? Describe the three (3) ways in which corporations acquire funds for investment.
6.What role do securities exchanges play in financing corporations?Describe the criteria a firm should apply when deciding whether to produce a component part or to purchase that part in the market.
7.Explain the optimal amount of search for information when shopping for a product.Define asymmetric information, and explain why it may pose a problem for market operations.
8.Summarize how labor markets try to cope with the problem of asymmetric information.Identify two (2) types of limitations that can undermine rational decisions.
9.List the criteria a firm applies in deciding whether to produce a component part or purchase it in the market. Ashland Oil buys its crude oil in the market. Larger oil refiners, such as Texaco, drill for their own crude oil. Why do some oil companies drill for their own crude oil and others buy crude oil in the market?
10.Distinguish between economies of scale and economies of scope. Why do some firms produce multiple product lines, while others produce only one?Define asymmetric information. Distinguish between hidden characteristics and hidden actions. Which type of asymmetric information contributes to the principal-agent problem? Describe the functions of signaling and of screening in labor markets.
11.A management consultant advised a small business owner to fully analyze all transaction costs, delineate the boundaries of the business, and develop an equation to calculate exactly economies of scope. The owner replied that there were not enough hours in the day to gather all this information and so the owner would just keep running the business in the same way as usual. What assumption from traditional economics is in dispute here?
12.Differentiate four (4) categories of goods in terms of their exclusivity and rivalry.Identify four (4) categories of legislation based on the distribution of costs and the distribution of benefits and provide examples of each.
13.Explain why some people want to use government power to increase their income, while others try to avoid government.Outline the differences between government bureaus and for-profit firms.
14.Distinguish among private goods, natural monopolies, open-access goods, and public goods. Provide examples of each? Describe the four (4) different categories of legislation based on the distribution of costs and benefits and provide examples of each.
15.Major political parties typically offer “middle-of-the-road” platforms rather than take extreme positions. Is this consistent with the concepts of the median voter and rational ignorance discussed in this chapter? A firm is described as combining managerial coordination with market exchange in order to produce its good or service. Does similar behavior occur in government bureaus? Explain.
16.Explain how rent seeking can lead to a drop in production of goods and services. What role might the underground economy play in lessening the drop in productive activities?How do the incentives and feedback for government bureaus differ from those for profit-making firms?
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