1. Why do most governments have a policy of not negotiating with kidnappers? Why do relatives of kidnap victims not have the same policy? 2. Slavery persists to this day, particularly in some parts of the Sudan. Raiding parties steal children from their home villages and sell them in slave markets many miles away. When news of this ongoing tragedy came to public attention, well-intentioned charitable foundations raised money for slave redemption - buying victims out of slavery to return them to their families. Was that a good idea? 3. Rupert is a cattle farmer. He invests all his spare cash in buying calves and raising them on otherwise useless captured land behind his house. The cows double in weight during the first year, after which time they are sold. Cows are bought and sold at a constant price per pound. Rupert's friend, Wally, wants a loan from Rupert. What is the interest rate Wally have to pay for Rupert to recover his opportunity cost of making the loan? 4. Renee used to work at an accounting firm where she earned $3 million a year. After saving up, she invested $20 million in her own accounting consultancy. Her profit is $4 million a year, which Renee receives as her only compensation. She concludes that the investment paid off because the 20 percent return that the profit represents is much better than the 8 percent interest the bank was paying on her savings account. Explain why her conclusion is wrong. 5. Annual revenue for a small restaurant is shown in the table at right. The average price of a meal was $50 in 2012. The restaurant raises the prices of all its menu items by exactly 10 percent every year. Calculate the real sales of the restaurant each year and interpret the results. 6. Kingston often suffers from a water shortage that results in lock- offs and restrictions on water use. How would an economist analyze and solve this problem? 7. From the dozen seeds you planted in a small flower bed in front of your house, ten of them germinated and grew into plants. Liking how they look, you planted another dozen seeds in the same bed. This time, only seven of the seeds grew into plants. a) What is the marginal product of the first planting? The second planting? b) Comparing the two values of the marginal product exemplifies which economic property? DEPARTMENT OF ECONOMICS ECON1000: Principles of Economics Problem Set 1: The Foundation Year Revenue 2012 $157,100 2013 $164,450 2014 $180,532 2015 $216,953