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.
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 online instead of at the bookstore would be whatever is you would need to give up to get the book online. This would mean that the opportunity cost of buying online would include the sum of the shipping charge and the time that you would spend waiting on the book to arrive. If you buy the book at the store, you would be able to get the book the same day but it would also mean losing out on the possible savings that you would get if you bought it online.
b. Show the relevant choices for this student. What determines which of these options the student will choose?
So if Liza buys from the bookstore it would cost $65. If Liza decides to buy online from the first store the cost would vary. The price of the book from the first online store would be $55. Next day air to get the book in one business day would cost an additional $13.98. ($55 + $13.98 = $68.98). Her next choice would be to use 2 days shipping which is an $8.98 charge also from the first site. ($55 + $8.98 = $63.98). Next she could use 3-7 day shipping for a $3.99 shipping charge. ($55 + $3.99 = $58.99)
The next online site charged $57 for the book. If she chose 1 day shipping it would cost ($57 + $13.98 = $70.98), 2 day shipping would cost ($57 + $8.98 = $65.98) and 3-7 day shipping would cost ($57 + $3.99 = $60.99). So from looking at the information here it would be unlikely that Liza would purchase from the 2nd online store and I don’t see her buying it from the first online store and using next day shipping because that would cost her $68.98. It is hard to tell from the information whether or not Liza has enough time between now and her next class to wait the 2 or 3-7 for shipping. It would be helpful to know if her class was tomorrow or next week and depending on what time of day she orders the book online or if it is over a weekend or close to a holiday that would also push the shipping date back some. Also where she lives in the U.S. sometimes plays a factor in shipping times.
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.
I think in this case this may fall under Principle #10: One person’s spending is another person’s income according to our textbook. If you start from the top of the chain that may include lenders and financial institutions that are funding a construction or real estate project or they are finding that they are taking a high risk because more people are defaulting on the mortgage loans. If that takes place then this hurts the lenders because there will be less potential home buyers because of people losing jobs and finding it harder to find work so in return that will make the real estate market crash. This chain of events will make it harder for the contractors to keep some of their workers and be forced to fire people so that will make it harder for the Mexican community to send money back to their families which is why it will also hurt Wal-Mart’s wire-transfer business.
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. For this I would say that Principle #11: Overall spending sometimes gets out of line with the economy’s productive capacity, would fit this situation. Because there was not as much spending going on during the great depression that also would mean that there would be less people buying products such as foods from the fields. The food that was already produced or grown would be left to rot if the sellers could not find any buyers. As it says in our textbook, “in the 1930s, spending fell far short of what was needed to keep American workers employed, and the result was a severe economic slump. In fact, shortfalls in spending are responsible for most, though not all, recessions.”
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