Exploring Exchange

5. Which salesman would you expect to be more likely to cheat his customers: a door-to-door salesman or a salesman from a large steel company selling to a major automobile manufacturer? Explain your answer in terms of the costs and benefits of cheating.

6. Yesterday after my wife got home from shopping, she discovered that she had been overcharged $.30 on an item she had purchased. Should she have gone back and demanded this mistake be corrected? Answer in the manner an economist would use to approach this problem.

7. Identity theft has become an organized crime, with specialization and a division of labor. The people who steal the information may not be the people who use it. They can sell it to others who extract cash from credit cards or bank accounts.

a) Why is it bad for potential victims that these thieves have discovered specialization and division of labor?
b) Those who steal the information sell it to complete strangers on the internet, and those who use it, called cashers, pay a percentage of their take back to those who stole the IDs. Why should the cashers pay anything? Why not just take the money and run? It cannot be a sense of honesty since they are in the business of being dishonest. Why should there be honor among thieves?

8. Dah, Ugh, and Sebastian are three cave men. On any day Dah can either gather 100 berries or hunt and kill three rabbits, Ugh can either gather 100 berries or kill two rabbits, and Sebastian can gather 100 berries or kill one rabbit.

a. Use these data to construct their joint production-possibilities frontier. (Fill in the blanks in the Rabbits column.)




b. Zjgf who can gather 100 berries per day but cannot kill any rabbits joins the group. What will happen to their production-possibilities frontier?



c. If each of these persons was self-sufficient and devoted half his time to gathering and half to hunting, what would the total production of berries and rabbits be? (Assume each can kill half a rabbit!)


d. Now the four of them decide to specialize and trade. Assuming they keep the number of berries the same as in part c, how many rabbits can they gain by specialization and trade?



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