Business Economics Problemset - 1887 Words

Business Economics Problem Set 1 1. The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount he or she receives in Social Security benefits is typically reduced. A. How does the provision of Social Security affect people’s incentive to save while working? The provision of Social Security will decrease people’s income after tax this leads to people not to save incentives while working. B. How does the reduction in benefits associated with higher earnings affect people’s incentive to work past age 65? The people’s incentive to work past age 65 will be decreased because the income after tax is reduced when they work past age 65. 2. Imagine†¦show more content†¦D. What is the range of prices at which trade can occur? (Please see the opportunity cost table of number 2-B) It’s obvious that the Boston will export white socks in exchange for red socks. 1 red socks will be traded for no more than 1 white socks ( the upper bound) and no less than 1/2 white socks(the lower bound). The Chicago will export red socks in exchange for white socks. 1 white socks will be trade for no more than 2 red socks( the upper bound) and no less than 1 red socks(the lower bound) 4. Are the following statements true or false? Explain in each case. A. â€Å"Two countries can achieve gains from trade even if one of the countries has an absolute advantage in the production of all goods.† : True – Because each country have a comparative advantage in producing some good. B. â€Å"Certain very talented people have a comparative advantage in everything they do.† : False – Because no one can have a comparative advantage in everything. Comparative advantage reflects the opportunity cost of one thing in terms of another. (It means that we must have a comparative disadvantage in the other thing) C. â€Å"If a certain trade is good for one person, it can’t be good for the other one.† : False – Because trades cannot occur if both sides do not benefit. D. â€Å"If trade is good for a country, it must be good for everyone in the country.† : False – Exporting and importing