2.3 Confronting Objections to the Economic Approach

Question 1

What are two arguments against economic decision making?

Answer 1

1. People, Firms, and Societies do not act like this
   (use economic analysis to study the behavior of people, firms, and society.)
2. People, Firms, and Societies Should Not Act Like This
   (The analysis of economics is rooted in a positive analysis of how people firms and governments actually behave vs. how they should)

Question 2

What 3 themes do the tradeoff diagram illustrate?

Answer 2

scarcity
tradeoffs
economic efficiency

Question 3

What is the theme of scarcity?

Answer 3

it is not feasible to have unlimited amounts of both goods

Question 4

What is the theme of tradeoffs?

Answer 4

It is necessary to forgo some of one good to gain more of the other good
Determined by the relative prices of the goods (relative price of two goods in the consumption choice budget constraint)
-Appear as a straight line on the PPF

Question 5

Even if the budget constraint or PPF Shifts _______ remains the same just at a different level

Answer 5

scarcity

Question 6

A _____ line represents the tradeoffs in many production possibilities frontiers because the law of diminishing returns holds that as we add resources to an area, the marginal gains tend to diminish.

Answer 6

Curved line

Question 7

What is the theme of economic efficiency?

Answer 7

getting the most benefit from scarce resources

Question 8

Why are all choices on the PPF show productive efficiency?

Answer 8

Because there is no way to increase the quantity of one good without decreasing the quantity of the other

Question 9

Choices on production possibilities set that are socialy preferred/ choices on an individuals budget constraint that is personally preferred displays what?

Answer 9

Allocative Efficiency

Question 10

What do the individual opportunity set & social production possibilities frontier show_______?

Answer 10

The tradeoff in choosing more of one good at the cost of less of the other

Question 11

The concept that individuals self interested behavior can lead to positive results.

Answer 11

The Invisible Hand

Question 12

What are 4 answers economists offer to teach people to care about others?

Answer 12

1. Economics is not a form of moral instruction, but instead seeks to describe economic behavior as it actually exists.
2. Self interested behavior can be labeled as personal freedom or choice
3. Self interested behavior can lead to positive social results
4. People who focus on self interest economically set aside narrow self interest in other areas of life

Question 13

What is the metaphor of the invisible hand?

Answer 13

Broader social good can emerge from selfish individual actions.`