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Economic Work

Economic Work

2.) What are three ways of investing for retirement?

Many individuals have retirement plans called pension plans that provide retirement income. One of the most common types is a 401(k) plan, in which you allow a certain portion of your paycheck to be withheld, and the company matches that amount. Also, most people are eligible for Social Security payments when they reach retirement, social security is paid from the government taking money out of your pay check and this is them repaying you when you need it the most; during retirement. The third method of investing/saving for retirement would be an IRA (individual retirement account) which is a private retirement plan that allows individuals or married couples to save a certain amount of untaxed earnings per year with the interest being tax-deferred.

• How much do you spend on your fixed expenses?

• How much interest can you earn on your savings and, therefore, how fast will your savings grow?

• How much income do you think you will be earning in the future?

• What degree of risk are you willing to take?

• How important is it that your savings be readily available in case you need immediate cash?

• Will your standard of living at retirement depend largely on your accumulated savings?

4.) If you had money to invest, in which type of account you invest? Why?

If I had money I would invest into an IRA because at the moment the government likes to spend money out of social security on government controlled programs and it might not be available to me when I need it. Also because an IRA seems to be more flexible then the other types of accounts due to I get to decide how much to put into it each year.

Todd Sherman Wednesday, March 12, 2003

2.) How does the principle of voluntary exchange operate in a market economy?

The basis of activity in a market economy is the principle of voluntary exchange. A buyer and a seller exercise their economic freedom by working toward satisfactory terms of an exchange. For example, the seller of an automobile sets a price based on his or her view of market conditions, and the buyer, through the act of buying, agrees to the product and the price. In order to make the exchange, both the buyer and the seller must believe they will be better off-richer or happier-after the exchange than before.

The law of demand explains how people react to changing prices in terms of the quantities demanded of a good or service. There is an inverse, or opposite, relationship between quantity demanded and price. The law of demand states:

As price goes up, quantity demanded goes down.

As price goes down, quantity demanded goes up.

Cause Effect on Quantity Demanded

Real Income Effect People’s ability to purchase limits of a product

(Increase and Decrease) based on their income. If there is an increase in the real income effect the person would be able to buy more of the product and the demand for the product would go up. While if the real income went down the demand for the product would go down and that would cause the company producing the product to lose valued revenue. (Gas prices)

Substitution Effect If there is a product that several companies produce it is said that people would go for the lowered price one, if it still satisfies the consumers wants and needs. If someone picks the product because it isn’t as expensive as the competition product and still provides the consumers wants and needs this would mean that product that wasn’t picked would cause that company, whom didn’t win the sale, to lose business revenue due to it being substituted by a cheaper product thus leading to a decrease in demand for the competition product.

Diminishing Marginal Utility The ability of any good or service to satisfy consumer wants. For example if there are two landscaping business that offer the same service but one is cheaper then the other, while they still provide the same desire/quality to the consumer. The consumer would pick the cheaper landscaping business due it providing them the same service but at a lower price. This would cause the winning business to have a higher demand for their services then opposing business due the lower prices and providing the same quality service as the competition. Also it reflects on peoples opportunity costs (I can do it my self or pay someone to do it for me…Ill pick the cheaper service because I know Ill get the same effect if I had done it myself and I can make more use of my time then spending a hot summer day doing landscaping.) [Paying to avoid stressors]


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