Chapter 1 critical thinking Flashcards
Is air scarce? Is clean air scarce?
Air is not scarce as you do not have to give up anything to get it.
Yes, clean air is scarce. you must give up something (such as equipment that create pollution) in order to have it.
What is the opportunity cost when an employee saves some of her paycheque
she could’ve spent some the money other things she enjoys
Why is there a trade off between equity and efficiency
The goals of equity and efficiency often conflict. for examples, taxes and welfare make people more equal but reduce incentives for hard work, thus lowering total output.
Water is necessary for life. diamonds are not. is this marginal benefit of an additional glass of water greater or less than the marginal benefit of an additional one carat diamond? why?
The marginal benefit of another glass of water is generally lower because water supply is so large that one more glass is of little value. the opposite is true for diamonds.
Tom’s car needs to be repaired. he has already spent $800 to have the transmission fixed, but it still does not work properly. Tom can sell the car :as is: for $2,000. if the car was fixed, Tom could sell the car for $2,500. the car can be fixed, with a guarantee, for another $300. should Tom repair the car? Why?
yes, because the marginal benefit of fixing the car is $2,500 - 2,000 = $500 and the marginal cost is $300. the original repair payment of $800 is not relevant.
Why have automotive air bags reduced deaths from auto crashes less than we had hoped?
The cost of an accident was lowered. this changed incentives, and therefore people drive faster and have more accidents.
Suppose one country is better at producing agriculture products (because it has more fertile land), while another country is better at producing manufactured goods (it has better educational system and more engineers). if each country produced its specialty and traded, would there be more or less total output than if each country produced enough of its own agricultural and manufactured goods to meet its own needs? Why?
There would be more total out put if each countries specialize and trade because each country is doing what it does most efficiently..
What are the short run effects of increasing the quantity of money?
Increasing the quantity of money stimulates the overall demand for goods and services, causing firms to increase their production of goods and services and increase their employment of workers, leading to lower unemployment. firms may also raise their prices, leading to higher inflation
If people save more and use it to build more physical capital, productivity will rise and people will have rising standards of living in the future. what is the opportunity cost of future growth?
The opportunity cost of future growth is the need to give up consumption today.
If the government printed twice as much money, what would happen to prices?
Prices would roughly double
A goal for a society is to distribute resources equitably or fairly. how should resources be distributed if everyone were equally talented and worked equally hard? what if people had different talents and some people worked hard, while others did not?:
If the first case, fairness would require that everyone get an equal share. in the second case, fairness would require that people not get an equal share.
Why are property rights important to a market economy ?
a farmer will not grow food if he expects his crop to be stolen. people rely on gov. to enforce their rights over the things they produce.
