Marginal Decisions - Applications

1. Analyze how o divide your time on a Saturday afternoon when the possibilities are raking leaves to earn money, going roller skating with friends, and shopping at the mall with your aunt. Identify possible uses of your time and explain how devoting more time to one activity leaves less time for another.

2. Solve the following problem: Your grandmother gives you $30 for your birthday and you are trying to decide how to spend it. You are considering buying compact disks ($12 each), going to the movies ($5 per ticket), or taking some friends out for pizza ($7.50 per person). You do not have to spend all your money on one thing. How would you spend your money to get the greatest satisfaction?

3. Explain why, beyond some point, you are unwilling to buy and consume an additional slice of pizza.

4. Apply the concepts of marginal benefit and marginal cost to an environmental policy to find the optimal amount of pollution for two firms that have substantially different costs of reducing pollution.

5. Decide how many workers to hire for a profit-maximizing car wash by comparing the cost of hiring each additional worker to the additional revenues derived from hiring each additional worker.

6. Identify the incentives that would encourage you to read a book, to return your library books on time, to repay money you borrow from the school cafeteria for lunch, and to complete your homework assignments on time; explain why various students respond differently to incentives to do these things. Finally, explain why some students will do extra credit work and some will not.

7. Predict how students' study habits will change if the grading system changes from letter grades to pass/fail grades.

8. Analyze the impact (on consumers, producers, workers, savers, investors) of an increase in the minimum wage, a new tax policy, or a change in interest rates.