Author Question: Suppose a smoker wants to quit smoking. The utility that he gets from smoking a cigarette now is 6 ... (Read 511 times)

eruditmonkey@yahoo.com · **on:** Jun 29, 2018

Suppose a smoker wants to quit smoking. The utility that he gets from smoking a cigarette now is 6 utils but, in the long run, that cigarette will generate undiscounted health problems of 10 utils (e.g., an elevated risk of lung cancer).

Use the concept of discounting to explain why impatient smokers may not quit smoking even though the undiscounted net utility of smoking is negative.

Question 2

Assume a candidate for president makes the argument that the United States should not trade with countries that have lower wages than we do because by doing so it will result in an export of American jobs abroad. Critically evaluate this claim.

What will be an ideal response?

Athena23 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Smokers may find it difficult to quit smoking depending on the discount weight that they attach to the future. Suppose that a smoker does not discount the future or attaches a low discount weight to the future. If the smoker discounts delayed utils with a weight of .5, then:
Benefit Discounted Cost = 6 (.5 10) = 1 .
She prefers 6 utils now to losing 10 utils in the future. In present value, the 10 lost utils in the future are worth only -5 utils now. So, she will smoke today.
But now suppose the smoker discounts the future with a higher discount weight of .8 . That is, we are assuming that a util in the future is worth .8 utils today. Then,
Benefit Discounted Cost = 6 (.8 10) = 2
With a discount weight of .8, the delayed discounted cost is -8 . This is high enough to exceed the current pleasure of smoking, which is 6 so the smoker will not smoke today.

Answer to Question 2

Wages are tied to productivity. If wages in a country are lower than in another one it is probably because productivity in that country is lower as well which offsets the advantage of having a lower wage. In addition, the comment by the candidate ignores the fact that there are other factors that can give a country a comparative advantage besides low wages. One of which might be cheap capital.