Government Expenditures & Opportunity Cost
1. Why do wild salmon populations face the threat of extinction while goldfish populations are in no such danger?
2. List the three most important expenditure programs of the federal government. How do they differ from the three most important expenditure programs of state and local governments? Explain why it makes more sense for the federal government to purchase “national defense” rather than state governments.
3. Answer these three:
a. What are opportunity costs? How do explicit and implicit costs relate to opportunity costs?
b. A key difference between accountants and economists is their different treatment of the cost of capital. Does this cause an accountant’s estimate of total costs to be higher or lower than an economist’s estimate? Explain.
c. Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop’s average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob’s economist explains that ATC is U-shaped for two reasons. The first is the existence of diminishing marginal product, which causes it to rise. What would be the second reason? Assume that the marginal cost curve is linear. (Hint: The second reason relates to average fixed cost. Just explain and no drawings please)
4. In markets where the government imposes an excise tax on unit sales, it also has a tendency to dabble with restrictions on advertising (for example, cigarettes and hard liquor). Do potential (or actual) restrictions on advertising in these markets serve the interest of a government that is interested in maximizing its tax revenue from the sale of these products? Explain your answer
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