All Terrain Thinking

A Compendium of things I think are Important

Economics: It's not just whats' in your wallet

Questions of the Day
Input Use and Pricing

Overview

1. What will happen to the demand for university faculty as a result of:

• an increase in student enrollment
• a rollback in tuition
• a decrease in average class size

2. Let's return to our local retailer who is experiencing theft problems at its new super store and who has decided to hire security guards. The firm wants to maximize the profit earned by the security force. The following table shows how the number of security guards affects the number of jewelry pieces per week.

• a. If each security guard is paid $200 a week, the fixed cost of the security guards (camera) is $200, and the cost of a stolen piece of jewelry is $25, how many security guards should the firm hire?
• b. If the cost of a stolen piece of jewelry is $25, what is the most the firm would be willing to pay to hire the first security guard?
• c. If each security guard is paid $200 a week and the cost of a stolen piece of jewelry is $50, how many security guards should the firm hire?

To answer these questions you will need to fill in the figures in the table below. This looks very much like the work you did before - in fact it is almost identical.   The difference is that now you will be looking at the number of guards as the decision variable so that the Average and Marginal variables will be based in terms of number of guards and not number of pieces of jewelry saved.  The answer is.

3. If you travel to Mexico you will see that they do not build roads the way we do in the US.  The question is: who has it right?  Why do we see such different production techniques?  Why does Mexico use so many people while in the US we use so much machinery? 

Land and rent

1. What did the invention of the elevator do to rents in our large cities?

2. Why are housing prices so different across the country while interest rates are nearly identical everywhere in the US?

3. How can we explain why firms launch expensive legal battles to restrict access to a certain market?

4. How do you explain the enormous salary of Shaq?

5. In 1998 there were a number of reports in the New York Times that in Manhattan near Canal Street many printers that had been in the area for many years were not having their leases renewed.  Please explain why you might have been seeing this decision on the part of the landlords.

Capital and Interest Rates

1. How can you explain that Japanese companies tend to value the future more than American companies?

2. What impact should the movement of the baby boomers into their prime saving years have on interest rates?

3. In the 1980s Japanese banks were the source of funding for investments in the US, but in the 1990s a severe recession in Japan prompted a reduction in the flow of funds to the US. What impact would this have on interest rates in the US?

4. What is the difference between a variable and fixed rate mortgage?

5. Why is a variable rate mortgage lower than a fixed rate mortgage?

6. What would be the monthly payment on a $150,000 home if you took out a mortgage for $120,000 at an interest rate of 7.5%? What would the payment be if the rate went to 8.5%?

Present Value Problems

1.  Do you take $1 million a year for twenty years or $11,000,000 today? 

2.  Is it time buy that cemetery plot? While this may not be on the top of your list of concerns, a company has run ads for their funeral services in which they encourage individuals to "beat inflation by paying for future services at today's prices." How could a company make these claims? Wouldn't they lose money? Would you advise someone to pay $250 now to cover funeral costs of $400 in 6 years?

3. These are tough times for state government finances. Taxpayers want to have their taxes cut and the federal government is reducing its financial support. As a result, state governments have been looking for ways to raise money in recent years. Can you think of a plan that could help? For example, can you design a program (tax) that would allow the government to advertise a payoff from the program to taxpayers of $1,000,000, but only have it cost the state $600,000 to provide the payoff?

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