Reference no: EM132418187

Step 1 Evaluate an economic day in the life.

Kyle is a notoriously motivated individual who thrives on a packed schedule. He has been the star pitcher for his college baseball team since freshman year, and balances that with his class work and a full-time job at the local grocery store. Generally, Kyle trains for 2 hours every day after school, then studies his grammar class assignments for 2 hours after that. His average for the grammar class is 80%, which is required of anyone on the team. Kyle recently started training for 3 hours a day, and has studied only 1 hour for his grammar class. Already he has seen his grade drop to 70%. That's not even accounting for his job at the grocery store!

Kyle lives 25 minutes from the grocery store, so he is always watching for news on gas prices.

Economists believe that when gas prices rise by 10%, the quantity of gas purchased will fall by one or two percent. But Kyle remembers that in 2009 when the price of gas rose from $3.00 to $4.00, purchases of gasoline only fell by 3.5%. With the substantial increase in gasoline prices, the demand for ethanol has also increased. Because ethanol is made from corn, the price of corn has risen. This in turn has increased the price of many of the items in Kyle's grocery store. For example, the price of cheese has risen 25% from 2009 to 2010, and apple juice has risen 36%.

Step 2 Answer the following questions.

With so much going on, Kyle has asked you to help get his time and expenses under control. In a one- to two-page blog entry, illustrate for him how knowledge of economics can help the rest of his day fall into place. Address the following in your blog entry, making sure to show all calculations.

1. What was Kyle's opportunity cost for the extra hour training for baseball each day?
2. Because Kyle trained for 3 hours, what can be concluded about the marginal benefit and marginal cost of the third hour of training?
3. Was Kyle's decision to play an extra hour of baseball each day a rational decision? Why or why not?
4. What is price elasticity of demand for gasoline? Do you think price elasticity of demand for gasoline is inelastic, or elastic?
5. Explain why the demand for ethanol has increased the price of corn.
6. Explain how food prices in the U.S. can rise as people in India and China become richer and can afford to buy more beef and chicken.
7. If Kyle finishes school and starts a business instead of working for a company, what items will you consider as his opportunity cost?