Microeconomics Applications

Microeconomics

Microeconomics Applications

Week 6 includes four (4) applications in major areas in Microeconomics: 1) Scarcity/Incentives; 2) Opportunity Costs; 3) Supply and Demand; and 4) Market Equilibrium. You must complete all four applications. The options for each application are located in the textbook.

Students will complete a draft essay for each of the applications. The drafts will be submitted for grading by the end of Week 1.

The Week 6 Assignment grading is as follows.

Applications 1, 2, 3, and 4: 9 points each

Articulation and APA: 2 points

Students will complete your Final Essay for each application as part of the Economics Assessment due by the end of Week 3. Final Assessment grading is as follows:

Applications 1, 2, 3, and 4: 27 points each

Articulation and APA: 12 points

Student Should demonstrates a complete examination with in-depth and insight of all Applications how they are determinants of demand and supply .

Text:EConomic:Principles, Applications, and TOOLS by O’Sullivan,Authur

APPLICATION 1 – SCARCITY/INCENTIVES:

Prior to completing the application, it is highly recommended that students review Chapters 1 and 2 to gain a solid foundation.

Option 1: “INCENTIVES TO BUY HYBRID VEHICLES”

APPLICATION 2: OPPORTUNITY COSTS:

Prior to completing the application, it is highly recommended that students review Chapters 1 and 2 to gain a solid foundation.

Option 1: DON’T FORGET THE COSTS OF TIME AND INVESTED FUNDS

APPLICATION 3: Law of SUPPLY AND DEMAND:

Prior to completing the application, it is highly recommended that students review Chapter 3 to gain a solid foundation.

Option 1: LAW OF SUPPLY AND WOOLYMPICS

APPLICATION 4: Market Analysis (Equilibrium)

Prior to completing the application, it is highly recommended that students review Chapters 3 and 4 to gain a solid foundation.

Option 1: Equilibrium: CHINESE DEMAND AND PECAN PRICES

Student Should demonstrates a complete examination with in-depth and insight of all Applications how they are determinants of demand and supply .

TEXT: ECONOMIC:Principles,Applications, and TOOLS by O’Sullivan,Authur

APPLICATION1 Incentives to Buy Hybrid Vehicles

APPLYING THE CONCEPTS #1: How do people respond to incentives?

Consider the incentives to buy a hybrid vehicle, which is more fuel efficient but more expensive than a gas-powered vehicle. Between 2000 and 2007, the number of hybrid vehicles increased from fewer than 10,000 vehicles to more than 340,000 vehicles. Over this period, the price of gasoline increased significantly, and the higher price of gasoline was responsible for roughly one-third of the hybrid vehicles purchased in 2007. An additional factor in hybrid purchases was a federal subsidy of up to $3,400 per hybrid vehicle. The subsidy was responsible for roughly one-fifth of the hybrid vehicles purchased in 2007. The increase in the number of hybrid vehicles decreased the emission of the greenhouse gas carbon dioxide (CO2).

How efficient is the hybrid subsidy in reducing CO2? On average, the cost of abating one ton of CO2 through the hybrid subsidy is $177. There are less costly ways to reduce CO2emissions, including building insulation, energy-efficient lighting, reforestation, and switching to electric power systems that use fuels that generate less CO2. For example, a switch from coal to natural gas in power plants reduces CO2 emissions at less than one-third the cost associated with the hybrid subsidy.

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APPLICATION1 Don’t Forget the Costs of Time and Invested Funds

APPLYING THE CONCEPTS #1: What is the opportunity cost of running a business?

Suppose you run a lawn-cutting business and use solar-powered equipment (mower, edger, blower, truck) that you could sell tomorrow for $5,000. Instead of cutting lawns, you could work as a janitor for $300 per week. You have a savings account that pays a weekly interest rate of 0.20 percent (or $0.002 per dollar). What is your weekly cost of cutting lawns?

We can use the principle of opportunity cost to compute the cost of the lawn business. The opportunity cost of the $5,000 you have invested in the business is the $10 weekly interest you could have earned by selling the equipment and investing the $5,000 in your savings account. Adding in the opportunity cost of cutting lawns instead of earning $300 as a janitor, the weekly cost is $310. Related to  Exercise 1.7 .

PPLICATION2 Law of Supply and Woolympics

APPLYING THE CONCEPTS #2: What is the law of supply?

In the 1990s, the world price of wool decreased by about 30 percent, and prices have remained relatively low since then. Based on the law of supply, we would expect the quantity of wool supplied from New Zealand and other exporters to decrease, and that’s what happened. Land formerly used to grow grass for wool-producing sheep has been converted into other uses, including dairy products, forestry, and the domestication of deer.

There have been several attempts to revive the wool industry by boosting the demand for wool and thus increasing its price. The United Nations General Assembly declared 2009 as the International Year of Natural Fibres, with the objective “to raise awareness and stimulate demand for natural fibres.” In 2012, the Federated Farmers of New Zealand proposed that sheep shearing be added to the Commonwealth Games and Olympics as a demonstration sport. The favorites for Olympic titles are the current world record holders Ivan Scott (744 sheep in 24 hours) and Kerry-Jo Te Huia (507 sheep in 24 hours). Of course, it’s not obvious that Olympic shearing would increase the demand for wool, and then there is the problem of what to do with all the sheared wool. Speed knitting? Related to Exercises 2.6  and  2.10 .

APPLICATION4 Chinese Demand and Pecan Prices

APPLYING THE CONCEPTS #4: How does a change in demand affect the equilibrium price

Between 2006 and 2009, Chinese imports of U.S. pecans increased from 9 million pounds per year to 88 million pounds. The increase in demand from China is roughly 30 percent of the total annual crop. The increase in demand was caused in part by widespread reports in the Chinese media that pecans promote brain and cardiovascular health. As a result of the increase in demand, the equilibrium price of pecans increased by about 50 percent, increasing the price of pecan pie, a holiday favorite. Related to  Exercises 4.6  and  4.10 .

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