Question

4. Assume that a paper copy of the text for this course costs $150.00 and that you can get an ebook packaged with learning software for $90.00. Discussion over time has indicated that the majority of students still prefer a paper copy of the text. Use opportunity cost to explain why you think this might be the case. What is your personal preference?

5.

In class we discussed the effect that Wal-Mart has had not just on the economy in general but on the micro economic decisions made every day by ordinary people. Conventional wisdom suggests that Wal-Mart has had the effect of reducing the price paid for goods and services. (10 points total)

A.) Graph XM1SAG1 correctly illustrates the effect of Wal-Mart's price lowering activities according to our model. Do you agree or disagree and why? (4 points)

B.) In graph XM1SAG1 the point labelled '6' represents that point at which the firm is maximizing profit. Do you agree or disagree and why? (3 points)

C.) Explain what might cause the movement from point '6' to point '7' on graph XM1SAG1. (3 points)

Answer 1

Answer number (4)

The cost of paper book say (X) = $ 150

The cost of ebook say (Y) = $ 90

(A) Oppurtunity costs  means benefit forgone due to choosing X over Y, i.e benefit the consumer ( decision maker) losing by choosing one alternative over other.

(B) the analysis of benefit must be based on same criterion for both options or alternatives, (X) and (Y). like cost, benefit,  (objectively criterion). durability, time, and scarcity ( subjective ).

In this case on the basis of visible cost as given, alternative (Y) shall be prefered.

but the difference in the nature of good i.e X is readly available to be used at the given point of time. where as goods (Y) requires more input to be used and for that what is the required additional cost is unknown but it is additional over the cost of (Y) i.e $90.

so the preference for paper book is justified on the following grounds.

1) X is a complete good, where as Y to be used need to be complemented by other goods like electricity, computer.

2) X availability always be independant of anything other, whereas Y's use will always depend on the conditional availibility and quality of other complementaries.

3) additional cost in using Y is not mentioned or assessed over time in the question.

my preference will surelly be based on the cost which will be additionally incured over time on maintaning computer and electricity ovwer time for choosing Y over X.

thus I will go for paper book rather than for ebooks.