Tanya Tong #862078032 ECON 124: T/Th 11:10 October 25, 2018 Homework #1 1A. Competitive markets are important for continued economic progress because they provide a stimulated economy in which competitors are finding more efficient ways to utilize their resources. Competition maximizes the efficiency of resources and skills while keeping costs low and increasing productivity. Competition forces companies to be more innovative and strive to become the best in the industry. Profitable companies are able to stay in business while companies that are consistently suffering losses will go out of business to free up resources for those that are profitable. 1B. Excessive government regulation reduces the competitive environment by making it more difficult for new companies to start up which decreases innovation. New businesses can’t even start up or grow out of the small form if larger pre-existing ones are dominating the marketplace. If a larger business is being limited by the government, that does sometimes result in a small or newer business swooping in with innovation that the bigger company may not be able to do. Companies that are already profitable have no competition to compare themselves with in order for the economy to further maximize our resource potential. Regulations that limit the destruction of natural resources (environmental regulations), ensure safe business practices and minimum wage requirements should be imposed to maintain a safe working environment for society. Regulations that hinder the process of starting a business that don’t necessarily encourage safe business standards should not be imposed. 1C. An example of excessive regulation is when taxi drivers, who serve as independent contractors, had to limit their driving time while renting the taxi from 24 hours to 11 hours. This regulation was put into place to reduce accidents but ended up decreasing the demand for taxis and increasing the amount of accidents since drivers would end up driving constantly for 11 hours instead of spanning out their driving over the 24-hour time period. 2A. The Malthusian Trap refers to the human sex tendency to create more children despite not having the technology available to provide food. This trap implies that people will reach a steady state of equilibrium to maintain a subsistence level of existence. Malthus believed that we would be stuck in this trap since the resources are continuously decreasing as the population continues to increase at an exponential rate. 2B. The Endogenous Growth Theory argues that economic growth is generated by the growth of population which in turn leads to more innovations and technologies that can be used to support the larger population. This theory believes that innovations from within human capital will help support a lasting environment using incentives to lure people into innovating better technologies. Previous theories believed that humans will continuously grow without taking into consideration the sustainability of the future generations which will eventually lead to maintaining a subsistence lifestyle. 2C. Based on the world today, the endogenous growth theory seems to be the most accurate due to the increased population and increased innovation which has allowed us to further maximize our available resources to support the larger population. Advances in agricultural techniques and food storage has allowed for food surpluses so that only a small percentage of the population is in the agricultural industry while others are involved in specialized labor. 3A. The socially optimal solution would be if all 5 participants donated all $10 into the community pot in which each participant would receive a payout of $30 (a $20 profit for each person). The “self-interested” theory states that one individual will withhold their $10 while the remaining 4 will donate their money into the community pot. The self-interested individual will receive $34, a $24 profit, while the other participants who are playing the socially optimal strategy will only receive $24 or a $14 profit). 3B. The Hazda tribe would spend more time hunting a giraffe even with the lower chance of success since overall it would lead to “hunting insurance” and cooperation could potentially be traded for sexual favors within the community or a number of other resources as well. There is also a societal expectation that others will also cooperate which in turn should reduce the effort to hunt for extended amounts of time in addition to a greater chance of success thanks to the additional cooperation. 3C. Individuals are encouraged to cooperate using either one out of two methods in which uncooperative individuals are punished or if there was a greater incentive to cooperate. Typically, the most effective method as shown in the previous sections would be punishing those who did not follow the social norm to be cooperative. Whereas in the Hanza tribe, there was an incentive to be cooperative since men were able to gain more sexual relationships, and consequently, more children as well. SKIP 4 A-C 5A. One incentive created by a legal system that protects private property right is for owners to use their resources in ways that are considered beneficial to others in which the owner is maximizing the use and profitability of their property. A second incentive of private property rights is for owners to make sure that their property does not damage others’ property so that there are no repercussions to pay for by doing so. 5B. Money serves three functions: it acts as a medium of exchange, serves as a unit of account, and is a store of value. Since it acts as a medium of exchange, money is commonly accepted as a method of payment. A unit of account simplifies transactions by reducing the exchange ratio between goods giving them a monetary value instead of having to find a double coincidence of wants. Money also serves as a store of value in which it can be held under someone’s possession without losing its monetary value. 5C. Lower tax rates are important for economic growth since it will increase worker productivity and encourage working since they will have more disposable income after doing so. Lower tax rates will encourage individuals to generate innovations to reduce costs so that their profit margin will increase. If the higher tax brackets receive tax breaks that could possibly lead to more investments and eventually greater output.