Second Homework Assignment

ECON 272-4 (2:30 Class)

Due at the beginning of class on Friday, Jan. 20

 18 pts.

 

Directions:  Copy and paste this into a word document and then type your answers.  Leave the questions - do not delete them.  Make sure you follow the directions for homework assignments provided in the syllabus.

 

Warning: Never copy and paste answers from the notes in the packet, the book or from the internet (on any homework assignment)!  That is not learning.  Use your own words!  I will not give credit for answers that are not your own!

 

1.  Recently Lyft (the company that has private drivers pick up and drop off customers via an app) used the following promotion for its drivers (or potential drivers):  Lyft will rent a nice car for a driver for two weeks (which costs $200).  If, within the two weeks, the driver completes 70 customer rides, Lyft will pay the $200 rental fee.  But if the driver does not reach 70 customer rides, he or she has to pay the $200 rental fee.

 

Answer the questions below regarding this company promotion.

HINT:  Just choose ONE change in a cost OR ONE change in a benefit.  Make sure that whatever incentive change you talk about follows from the rule change and then the action change follows from your incentive (cost or benefit) change.

a.  What do you think the intended outcome (by Lyft) of this rule/policy change is?  You don't have to use the model here - just say what you think it is.  (2 pts.)

 

 

b.  Using the model we discussed in class (R - I - A - O), explain an unintended outcome (Hint:  this might have been intended to some extent?) that you think will happen with this new policy - make sure you clearly use the model in your analysis.  I am looking for your logic.  Use the following table below to guide your answer. Make sure you explain any assumptions you make -- and your theory in general. (6 pts.)

 

Rule or Institution Change

Incentives (change in cost or benefit)

Actions

Unintended Outcome

Lyft will pay for rental of nice car if driver gets 70 customers.  Otherwise driver pays.

 

 

 

 

 

For all multiple choice and true/false questions - you must type your answer, such as "a", "b", etc. or  "true" or "false" or it will not count.    All answers not typed in your homework will not count.  (2 pts. each)

2.  Most economists assume:

a.  That people act purposefully

b.  That people have perfect knowledge

c.  That people don't act in their own self interest

d.  That people don't really act, they only react

e.  More than one answer is correct.

Answer: 

3. Which of the following goods would be considered scarce?

I. Education

II. Gold

III. Time

 

a.  I only

b.  II only

c.  III only

d.  I and II only

e.  I, II and III

 

Answer:

4.  According to our discussions in class (and in your readings), which of the following is the key factor as to differences across economies?

a.  natural resource endowments

b.  how intelligent people are in the economy

c.  how much technology exists

d.  the rules or institutions

e.  none of the above make sense

Answer: 

5.  According to most economists, people have to make choices because:

a.  They don't know what they want

b.  They face scarcity

c.  They face uncertainty

d.  People really don't make choices - they simply react to the world

e.  More than one answer is correct.

Answer: 

6.  An example of uncertainty that might hinder coordination of scarce resources is:

a.  a producer not knowing what her potential customers want

b.  a producer not knowing how to make the donuts that are selling well

c.  a producer not knowing how many donuts her consumers will buy in a day

d.  a producer not getting the sugar delivered on time so that she could make donuts

e.  All of the above are correct

 

Answer: