Thinkers
Explain the Malthusian Theory of Population and its implications regarding population growth and resource availability.
Malthusian Theory posits that population growth will outpace the growth of food supply, leading to inevitable famine and poverty unless checked by moral restraint or disaster. It implies that unchecked population growth is unsustainable in the long run.
Suppose that there are 10 million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year.
What is the opportunity cost of producing a car in Canada and what is the opportunity cost of producing a bushel of wheat?
15 bushels of wheat per car and 1/15 of a car per bushel of wheat
What is the economic concept of scarcity?
People have limited resources to fulfill their unlimited wants.
What are the three basic economic questions?
What to produce?
How to produce it?
For whom to produce it?
Which entity typically intervenes to some extent in the U.S. free enterprise system to ensure consumer rights and manage economic stability?
The Government
What does the "invisible hand" of the marketplace do and who coined the term?
The term "invisible hand" was coined by the Scottish economist and philosopher Adam Smith. It's a metaphor used to describe the self-regulating nature of a free-market economy. According to this concept, individuals pursuing their own self-interest unintentionally contribute to the economic well-being of society as a whole.
Explain how each of the following events affects the location of a country's production possibilities curve:
a. The quality of education increases.
b. The number of unemployed workers increases.
c. A new technique improves the efficiency of extracting copper from ore.
d. A devastating earthquake destroys numerous production facilities.
a. Improved education shifts the production possibilities curve outward due to enhanced productivity.
b. Increased unemployment doesn't shift the curve but results in underutilized resources, operating inside the curve.
c. Efficient copper extraction techniques shift the curve outward by increasing production capabilities.
d. An earthquake destroys facilities, shifting the curve inward due to reduced production capacity.
You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing.
What is the true cost of going skiing?
The true cost of going skiing includes not only the monetary expenses like transportation, rental fees, and any other related costs but also the opportunity cost, which is the wage you could have earned if you had worked at your part-time job.
What are the four main types of economic systems?
Traditional, Command, Market, Mixed
Explain how absolute advantage and comparative advantage differ.
Absolute advantage refers to the ability of an entity to produce a good or service more efficiently than another entity using the same resources, while comparative advantage refers to the ability of an entity to produce a good or service at a lower opportunity cost than another entity
What is "Say's Law" and how does it relate to the relationship between supply and demand in an economy?
Say's Law states that "supply creates its own demand". It implies that producing goods and services generates the means and the requirement to purchase other goods and services.
Pat and Kris are roommates. They spend most of their time studying, but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a gallon of root beer and 2 hours to make a pizza. Kris takes 6 hours to brew a gallon of root beer and 4 hours to make a pizza.
a. What is each roommate's opportunity cost of making a pizza? Who has the absolute advantage in making pizza? Who has the comparative advantage in making pizza?
b. If Pat and Kris trade foods with each other, who will trade away pizza in exchange for root beer?
a. Pat's opportunity cost of making a pizza is 0.5 gallons of root beer, Kris's is 0.67 gallons; Pat has the absolute and comparative advantage in making pizza.
b. Pat will trade away pizza in exchange for root beer.
What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: Allocating a square block in the heart of NYC for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain
Opportunity cost refers to the value of the next best alternative forgone when making a decision.
It is integral to economics because economics studies how individuals, firms, and governments allocate their scarce resources among competing uses.
Allocating a square block in the heart of NYC for a surface parking lot would likely entail a greater opportunity cost than doing so in a suburb due to the higher potential value of alternative uses.
In which economic system might you find that decisions about what to produce are heavily influenced by rituals, beliefs, and seasons, with a strong emphasis on community involvement?
If a country is operating on its PPC, what does this imply about its resource allocation and economic efficiency?
If a country is operating on its PPC, it implies that it is utilizing all of its resources efficiently and is operating at its maximum production capacity.
Explain the role of government intervention in managing economic cycles according to Keynesian Economics.
Keynesian Economics advocates for government intervention to manage economic cycles. It suggests that during recessions, government spending should be increased to stimulate demand and during booms, it should be curtailed to avoid inflation.
An average worker in Brazil can produce an ounce of soybeans in 20 minutes and an ounce of coffee in 60 minutes, while an average worker in Peru can produce an ounce of soybeans in 50 minutes and an ounce of coffee in 75 minutes.
a. Who has the absolute advantage in coffee? Explain.
b. Who has the comparative advantage in coffee? Explain.
c. If the two countries specialize and trade with each other, who will import coffee? Explain.
d. Assume that the two countries trade and that the country importing coffee trades 2 ounces of soybeans for 1 ounce of coffee. Explain why both countries will benefit from this trade.
a. Brazil has the absolute advantage in coffee production as it takes fewer minutes for a worker to produce an ounce of coffee compared to Peru.
b. Brazil has the comparative advantage in coffee production because it has a lower opportunity cost (3 ounces of soybeans) compared to Peru's (1.5 ounces of soybeans).
c. Peru will import coffee because Brazil has the comparative advantage in coffee production.
d. Both countries benefit because Brazil trades 2 ounces of soybeans (40 minutes of work) for 1 ounce of coffee (60 minutes of work), saving 20 minutes, while Peru trades 1 ounce of coffee (75 minutes of work) for 2 ounces of soybeans (100 minutes of work), saving 25 minutes.
The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $3 million.
If it would cost $1 million to finish the development and make the product, should you go ahead and do so?
What is the most that you should pay to complete development?
Yes, you should go ahead and finish the development since the cost to complete ($1 million) is less than the expected sales ($3 million).
The most you should pay to complete development is $3 million, which is the expected revenue from the product sales.
Which economic system do these qualities describe?
Economic Freedom, Competition between businesses, & Decisions motivated by profit.
Market Economy
What is the definition of productivity?
The amount of output produced compared to the amount of input needed.
How does Karl Marx critique capitalism, and what is his vision for a future societal structure?
Marx critiqued capitalism as a system that exploits the working class and benefits the owning class. He envisioned a worker’s revolution leading to a classless society where resources and production are communally owned.
This production possibilities table for consumer goods (automobiles) and capital goods (forklifts)
+------------------+-----+-----+-----+-----+-----+
|Type of Production | A | B | C | D | E |
+--------------------+----+----+----+---+----+
| Automobiles | 0 | 2 | 4 | 6 | 8 |
| Forklifts | 30 | 27 | 21 | 12 | 0 |
+------------------+-----+-----+-----+-----+-----+
a. Show these data graphically. Upon what specific assumptions is this production possibilities curve based?
b. If the economy is at point C, what is the cost of one more automobile? Of one more forklift?
c. If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 forklifts, what could you conclude about its use of its available resources?
d. Is production at a point outside the production possibilities curve currently possible? Could a future advance in technology allow production beyond the current production possibilities curve? Could international trade allow a country to consume beyond its current production possibilities curve?
a. Its a graph, you got this
b. At point C, the cost of one more automobile is 4.5 forklifts (moving to point D). The cost of one more forklift is 1/3 of an automobile (moving to point B).
c. Producing 3 automobiles and 20 forklifts indicates underutilization of resources as it's inside the curve.
d. Production outside the curve is not possible currently but could be with technological advances or through international trade, allowing consumption beyond the current curve.
The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount he or she receives in Social Security benefits is typically reduced.
How does the provision of Social Security affect people's incentive to save while working?
How does the reduction in benefits associated with higher earnings affect people's incentive to work past age 65?
The provision of Social Security can decrease people's incentive to save while working because they anticipate receiving government support during retirement.
The reduction in benefits associated with higher earnings can diminish people’s incentive to work past age 65 as they might lose some Social Security benefits.
How does a mixed economic system attempt to address the drawbacks of both market and command economic systems?
A mixed economic system attempts to harness the advantages of both market and command systems by allowing market forces to operate freely in some sectors, while using government intervention to address market failures, inequality, and other issues in other sectors.
What is a fundamental principle of the U.S. free enterprise system that allows individuals to own and operate their own businesses?
Property Rights