Explain this statement: “If resources were unlimited and freely available, there 2-1 would be no subject called economics. ” If resources were unlimited and freely available, making choices would not be necessary. Every person could have as much as they wanted of any good or service. Economics, the science of choice, would be unnecessary. 2-2 Comment on the following statement from a newspaper article: “Our Junior high school serves a splendid hot meal for $1 without costing the taxpayers anything, thanks in part to a government subsidy.
Obviously the writer is confused. Government subsidies come from government revenues and taxpayers are the source of tax revenues. It may be true that local property taxes that fund the junior high school are not being used for the lunches, but the federal government’s funds do come from taxpayers across the country, including those in the town with the Junior high. This example helps support the saying, “There anti no such thing as a free lunch! ” 2-3 Critically analyze: “Wants arena insatiable. I can prove it. I get all the coffee I want to drink every morning at breakfast. Explain: “Goods and services re scarce because resources are scarce. ” Analyze: “It Is the nature of all economic problems that absolute solutions are denied us. ” It may be that you get all the coffee you want on a particular morning, but will that satisfy your wants forever? Not If you want coffee In the future. Therefore, even your desire for coffee Is Insatiable Goods and services are the product of resources. If resources were over time. Abundant without limit, then we would not have a scarcity of the products they produce. Economic problems are problems of relative scarcity-?wants exceed resources In the relative sense.
We cannot absolutely solve all of our economic problems; that Is, satisfy all of everyone’s wants and needs. If all our wants were completely fulfilled, nothing would have a price-?why pay for anything if you’ve got everything already? And if there were no unfulfilled wants there would be no economic resources-?why pay for an input when you’ve got all the outputs you could ever need? The fact that totally free goods and services do not exist provides support for the notion that total fulfillment of our wants is impossible. 2-that are economic resources?
What are the major functions of the entrepreneur? Economic resources are of four main types: labor, land (natural resources), real capital (machines, factories, buildings, etc. ,) and entrepreneurs. Economic resources are also called factors of production or Inputs In the productive process. As these names imply, economic resources are required to produce the outputs desired by society. Economic resources. This can lead to some things being economic resources in some circumstances but not in others. Water in the middle off lake, for example, is not an economic resource: Anyone can have it free.
But the same water piped to a factory tit is no longer free: Its movement must be paid for by taxes or by a specific charge. It is now an economic resource because the factory owner would not pay for its delivery unless the water was to be used in the factory production. These four types of resources are highlighted in the circular flow diagram where the type of income accruing to each type of resource is shown. Entrepreneurs are risk- takers: They coordinate the activities of the other three inputs for profit-?or loss, which is why they are called risk-takers.
Entrepreneurs sometimes manage companies that they own, but a manager who is not an owner is not necessarily an entrepreneur but may be performing some of the entrepreneurial functions for the company. Entrepreneurs are also innovators, or perhaps inventors, and profits help to motivate such activities. 2-5 (Key Question) Why is the problem of unemployment a part of the subject matter of economics? Distinguish between allocation efficiency and productive efficiency. Give an illustration of achieving productive, but not allocation, efficiency. Economics deals with the “limited resources-?unlimited wants” problem.
Unemployment represents valuable resources that could have been used to produce more goods and services-?to meet ore wants and ease the economizing problem. Allocation efficiency means that resources are being used to produce the goods and services most wanted by society. The economy is then located at the optimal point on its production possibilities curve where marginal benefit equals marginal cost for each good. Productive efficiency means the least costly production techniques are being used to produce wanted goods and services. Example: manual typewriters produced using the least-cost techniques but for which there is no demand. -6 (Key Question) Here is a production possibilities table for war goods and civilian goods: I Type of Production ID Automobiles I Production Alternatives 16 18 112 10 14 I I Rockets 130 127 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? One more rocket? Explain how this curve reflects c. What must the economy do to operate at some increasing opportunity costs. Point on the production possibilities curve? A) See curve DECCA.
The assumptions are full employment and productive efficiency, fixed supplies of resources, and fixed technology. [pick] fleeted in the concave-from-the-origin shape of the opportunity costs are curve. This means the economy must give up larger and larger amounts of rockets to get constant added amounts of automobiles-?and vice versa. (c) It must obtain full employment and productive efficiency. 2-7 What is the opportunity cost of attending college? In 2000, nearly 80% of college-educated Americans held Jobs, whereas only about 40% of those who did not finish high school held Jobs.
How might this difference relate to opportunity costs? The opportunity cost of attending college (and of doing anything else) consists of the income forgone while attending college (and of doing anything else such as enjoying leisure) and the value of the goods that the student or the student’s parents sacrifice in order to pay tuition and buy books, and other items necessary for college but not necessary otherwise. Those who are college-educated have the potential of earning more income than those who did not finish high school.
The opportunity cost (sacrifice of goods and services) of not working is much greater for those with the higher earning potential. 2-8 Suppose you arrive at a store expecting to pay $100 for an item, but learn that a store two miles away is charging $50 for it. Would you drive there and buy it? How does your decision benefit you? What is the opportunity cost of your decision? Now suppose you arrive at a store expecting to pay $6000 for an item, but learn that it costs $5950 at the other store. Do you make the same decision as before? Perhaps surprisingly, you should! Explain why.
Driving to the other store to save $50 does involve some cost in terms of time and inconvenience. However, for most of us the time it takes to drive two miles would be worth $50. For example, if it takes about ten minutes extra time and a negligible amount of gasoline (unless your time is worth 300 an hour, or $50 per each ten-minute period), it would benefit you to drive to the other store. While in the second case, $50 may seem like less compared to the $6000 total price, for you the $50 is still a $50 savings, exactly the same as in the first case. Therefore, you should apply the same reasoning.
Is the $50 benefit from driving the extra two miles worth the cost? The conclusion should be the same in both cases. 2-9 (Key Question) Specify and explain the shapes of the marginal-benefit and marginal- cost curves and use these curves to determine the optimal allocation of resources to a particular product. If current output is such that marginal cost exceeds marginal benefit, should more or less resources be allocated to this product? Explain. The marginal benefit curve is downward sloping, MBA falls as more of a product is consumed because additional units of a good yield less satisfaction than previous units.
The marginal cost curve is upward sloping, MAC increases as more off product is produced since additional units require the use of increasingly unsuitable resource. The optimal amount of a particular product occurs where MBA equals MAC. If MAC exceeds MBA, fewer resources should be allocated to this use. The resources are more valuable in some alternative use (as reflected in the higher MAC) than in this use (as reflected in the lower MS). 2-10 (Key Question) Label point G inside the production possibilities curve you have drawn for question 6. What does it indicate?
Label point H outside the curve. What does this point indicate? What must occur indicated unemployment, productive inefficiency, or both. H is at present unattainable. Economic growth-?through more inputs, better inputs, improved technology-?must be achieved to attain H. 2-11 (Key Question) Referring again to question 6, suppose improvement occurs in the technology of producing rockets but not in the production of automobiles. Draw the new production possibilities curve. Now assume that a technological advance occurs in producing automobiles but not in producing rockets.
