Source: http://www.econoclass.com/whatswrongwithpicture.html
Author: Lori Alden
Photo #1:
Concept: Public good. What's wrong with this picture? Sunsets are a non-excludable good, in that non-payers can't be prevented from enjoying them. Other examples of non-excludable goods are national defense, fireworks, and lighthouses. Private firms tend to underproduce non-excludable goods because customers have little incentive to pay for them. Public goods are both non-excludable and non-rival.
Photo #2:
Concept: Opportunity cost What's wrong with this picture? Most of the homes on this lakefront are expensive and built close to each other, so it's likely that the lakefront lots are highly valued. This, in turn, suggests that the opportunity cost of living in the shack is high. We rarely see shacks on expensive lots because the owners usually conclude that they'd do better by selling their property and buying a nicer house on a less desirable lot.
Photo #3:
Concept: Economies of scale What's wrong with this picture? It's hard to imagine that Mark and Sally will make a profit with their business. Suppose a customer asks them to deliver a small package to a city 200 miles away. Unless they have many other packages going to the same city, they'd have to charge a lot just to cover their variable costs--labor, gas, and depreciation. They wouldn't be able to compete against companies like UPS and FedEx, which can keep their costs down by handling a huge volume of parcels.
Photo #4:
Concepts: Equilibrium, law of one price. What's wrong with this picture? The more expensive gas station probably won't get many customers and will be forced to lower its prices. The Law of One Price says that identical goods in efficient markets must have only one price in equilibrium.
Photo #5:
Concept: Equilibrium. What's wrong with this picture? This is too good to be true. Since a business can get all the inexperienced home typists it wants at a much lower wage, it makes no sense for it to offer $40-$100 an hour.
Photo #6:
Concepts: Incentives, adverse selection and moral hazard. What's Wrong with this Picture? Adverse selection suggests that speeders will be more likely to sign up for this kind of insurance, while moral hazard suggests they'll have little incentive to slow down once they're insured. Both of these problems mean that the insurance company would have to pay out a lot of claims. The problems of adverse selection and moral hazard plague many insurance markets.
Photo #7:
Concept: Opportunity cost, comparative advantage What's wrong with this picture? It's nice of Superman to rescue a kitten, but has he considered the opportunity cost of doing so? Rescuing kittens is so easy that children often do it. With all the accidents, crimes, and natural disasters that occur in the world, surely he could spend his time more productively. The concept of comparative advantage suggests that Superman should focus on tasks that others can't do well, like stopping runaway trains or transporting nuclear weapons into deep space so they can detonate safely.
Photo #8:
Concepts: elasticity, price discrimination What's wrong with this picture? You'd think that movie theaters would charge students and children more than adults, since kids are more likely to spill popcorn and make noise. But theater owners know they can earn more revenue by charging students and children less. The reason is that kids are more price sensitive (in economic terms, they have a higher price elasticity of demand), and therefore less likely to come to the movies if the prices are high. The practice of charging price sensitive customers less is called price discrimination.
Photo #9:
Concept: Law of diminishing marginal utility (or benefit) What's wrong with this picture? It's not just the calories--a Big Mac with supersized fries has more. The law of diminishing marginal utility says that as a person increases consumption of a good, holding consumption of other goods constant, the marginal utility he or she gets from each additional unit of that good declines. This suggests that the marginal utility of the second egg will be smaller than that of the first, and the marginal utility of the third will be smaller still. For most people, the marginal utility of the tenth egg would likely be negative.
Photo #10:
Concept: comparative advantage, absolute advantage What's wrong with this picture? The man and the boy would probably get done more quickly if they switched chores. This isn't because the father can mow the lawn faster, since it's likely that he can mow AND sweep faster (i.e., he has an absolute advantage in both chores). They should switch since the boy likely has a comparative advantage in sweeping the driveway, while the man has one in mowing the lawn.
:)anGELA Lee
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