6 Think about each of the items in List 20 and explaig how t

6. Think about each of the items in List 20 and explaig how they affect incentives and might change the choices that people make. List 2 .A hurricane hits Central Florida The World Series begins tonight, but a storm warning is in effect for the area around the stadium. . The price of a personal computer falls to $50 Unrest in the Middle East sends the price of gas to $5 a gallon.

Solution

1. A hurricane will limit the choices that people will make and so consumers will move down to a lower indifference curve and so make curtailed choices. This will also reduce the incentives that people have and also producers will cut back on production. So incentives will fall and so will the choices.

2. A storm warning will mean that people will be careful of their choice of whether to go the match or not. It gives them and incentive not to go the match and make alternative choices. The storm warning thus causes them to move to a lower indifference curve.

3. This means the demand for personal computers will rise if its a normal good and so people have a choice of buying more personal computers and so they move to a different indifference curve as the price falls. The incentives will also change as people will want to buy more personal computers as compared to before.

4. This will mean that as gas has become more expensive suppliers will supply less goods as production becomes more expensive. The production levels thus moves to a lower isoquant and so production is less. Producers will thus have an incentive to produce less.