ECON 105 Study Guide - Midterm Guide: Unintended Consequences, Problem Set

• School: Simon Fraser University
• Department: Economics
• Course: ECON 105
• Professor: Gregory Harder

Document Summary

Problem set #1 answer key: you are planning to spend saturday working at your part-time job, but a friend asks you to go swimming. Now suppose that you had been planning to spend the day studying at the library. Government can alter people"s incentives with public policy. However, sometimes public policy generates unintended consequences by producing results that were not anticipated. Is a more realistic model always better: give two reasons why economists disagree. Answer: if you are thinking of going swimming instead of working at your part-time job, the cost of swimming includes its monetary cost and time cost, which includes the wage income you are giving up by not working. Self-interest results in maximization of social wellbeing: market works only if property rights are enforced. A farmer won"t grow food if he expects his crops to be stolen. We rely on government to enforce our rights over the things we produce.