Chapter 1 Assignment
2. For sure you can't compare real costs of vacation (measured in dollars) to benefits, which are measured in psycological pleasure. But you can compare benefits to the opportunity cost. The opportunity cost is something that must be given up to obtain an item. Making good desicions requires comparing the costs and benefits of alternative choices.
3. The true cost of going skiing in first case is the money I could've earned while working, instead of skiing. In the second case it is my time for studying and an opportunity to get a good grade in class. I could've learnt something new, or I could've read the material ahead, so I would be prepared for the class, but instead I decided to have fun with a friend.
6. a. Knowing that you'll have a SS (Social Security) system pay you a monthly income weakens people's incentives to save while they're working, because they have a guaranteed good future with stable income. b. And here we'll notice how many people won't be willing to work after the age of 65, because it will reduce their guaranteed SS money help. This happens because people don't want to lose their «free money». Therefore, people respond to incentives in different ways.
7. a. The more benefits the government provides, the less people want to work hard. And vice versa: the less welfare payments or years of benefits people have, the more they are willing to work. b. One of the possible ways to represent a trade-off between equality and efficiency, is to evaluate the government's choice. By reducing the number of years of benefits, government saved money for efficiency. The money might go to something that needs to be
