Study Questions

Question-1

Several years ago, the orange growers of Florida launched a marketing campaign in which the spokesperson, while holding a can of California almonds, told viewers: "One can a week. That's all we ask."

Economically speaking, was this a wise way to run a marketing campaign? Why or why not?

Question-2

One of the arguments for wide, across-the-board military conscription is that it would lower the costs for the armed forces. The argument goes this way: At the present time, the U.S. Armed Forces are voluntary and depend upon enlistments. Because of this, the Armed Forces must offer financial incentives to entice people to go into military service instead of pursuing higher-paying civilian jobs. A draft would pull men and women from all kinds of occupations that would be useful to the Armed Forces, and authorities could pay them less than they do now for enlisted people who do the same things for the military services.

Therefore, the argument goes, if the government can save money for things like medical and legal services (draft doctors and lawyers along with others), then the whole country saves money because the cost of financing the armed forces is lower. Is this a sound economic argument? Why or why not?

Question-3

A college professor once wrote:

Economics-strongly affected by a mechanical rationalism borrowed from Cartesian influences and Newtonian mechanics-sought both a precise measuring rod for economic value and...a deterministic view of how economic value comes into being. The result was a price theory of value that today pervades both the halls of academia and everyday consciousness. Price theory holds that economically valuable things are those with prices, that economic value is proportional to price, and that nonpriced entities are economically valueless.

Please answer the following question: Is the writer correct in saying essentially that prices create value? Why or why not?

Question-4

The town of Lookout Mountain, Georgia, had become a desirable place to live, and property owners were subdividing some of their land within the city limits in order to build new homes. However, after some people complained about all of the new houses, the town's city council passed an ordinance requiring new homes to be built on at least one acre of land. (Before the ordinance, builders were constructing new houses on as little as a quarter acre of land.)

Assuming ceteris paribus (and, unless told otherwise, we ALWAYS assume ceteris paribus), explain the effect this new ordinance will have on the following things:

A. The per-acre price of land located in Lookout Mountain, Georgia. Why?

B. The per-acre price of land located just outside the Lookout Mountain city limits. Why?

C. The price of new houses in Lookout Mountain relative to housing prices before the new ordinance was passed. Why?

D. Property tax revenues in Lookout Mountain after the ordinance was passed relative to what they would have been had there been no such ordinance. Why?

Question-5

In the early 1970s, inflation was hitting the U.S. economy, and one of the results was that beef prices began to rise to record levels. Some of President Richard Nixon's advisers urged him to place price controls on the sale of beef cattle with the intended purpose being to hold down the price of cattle. If cattle prices were kept from rising, the advisers reasoned, then beef prices also would not rise. (The president did not follow their recommendations, but he did place overall wage and price controls on the economy for a while.)

Had the president implemented this recommendation of price controls on beef cattle, would that action have resulted in lower beef prices? Why or why not?