Author Question: If the population increases and input prices increase, the equilibrium price of a product will ... (Read 94 times)

washai · **on:** Jun 29, 2018

If the population increases and input prices increase, the equilibrium price of a product will definitely increase.

Indicate whether the statement is true or false

Question 2

A lawyer quits his job at a top legal firm where he was making 100,000 per year. He was just informed that his late aunt has bequeathed to him 1 million in cash. He decides to use all of the money to open and run his own hardware store.

Assume at the end of the first year of business that his accountant has informed him that he earned a 90,000 accounting profit. Why would an economist not be quite as impressed? Explain.

matt · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

TRUE

Answer to Question 2

An economist would not be impressed because he has not taken into account all his opportunity cost. The first one of course is the 100,000 that he could have been earning had not quit the law firm. That puts him 10,000 in the red right out of the starting gate. The second one of course is the forgone interest that could have been earned from the 1 million that could have been invested elsewhere. In short the economist would conclude that he has made a loss.