Professional Documents
Culture Documents
Economics Today The Macro 17th Edition Roger Leroy Miller Solutions Manual
Economics Today The Macro 17th Edition Roger Leroy Miller Solutions Manual
https://testbankfan.com/download/economics-today-the-macro-17th-edition-roger-lero
y-miller-solutions-manual/
Chapter 2
Scarcity and the World of Trade-Offs
Overview
This chapter introduces the central concept of economics, scarcity. It is the existence of scarcity that
requires people to make choices both individually and collectively. Along with the concept of scarcity, the
chapter introduces the tools that economists use to analyze choice. These are the concepts of opportunity
costs, trade-offs, and the production possibilities model. The production possibilities model is used not
only to analyze trade-offs but also to illustrate economic growth and the implications of an inefficient use
of resources. Specialization is introduced along with a discussion of the basis for trade, comparative
advantage.
Learning Objectives
After studying this chapter students should be able to
Evaluate whether even affluent people face the problem of scarcity.
Understand why economics considers individuals’ “wants” but not their “needs.”
Explain why the scarcity problem induces people to consider opportunity costs.
Discuss why obtaining increasing increments of any particular good typically entails giving up more
and more units of other goods.
Explain why society faces a trade-off between consumption goods and capital goods.
Distinguish between absolute and comparative advantage.
Outline
I. Scarcity: Scarcity is a situation in which the ingredients for producing the things that people desire
are insufficient to satisfy all wants at a zero price. It exists in all societies and at all income levels
because human wants exceed what can be produced with the limited resources and time that nature
makes available.
A. What Scarcity Is Not: Scarcity is not a shortage. It is also not poverty. High incomes do not
reduce scarcity.
B. Scarcity and Resources: Resources or factors of production are inputs used in the production
of things that people want. Production is any activity that results in the conversion of resources
into products that can be used in consumption.
1. Land: Land is often called the natural resource, and consists of all the gifts of nature.
2. Labor: Labor is the human resource that includes all productive contributions made by
individuals who work, involving both mental and physical activities.
3. Physical Capital: Capital is all manufactured resources that are used for production. It also
includes improvements to natural resources, such as irrigation ditches.
4. Human Capital: The accumulated training and education workers receive that increases
their productivity.
5. Entrepreneurship: Human resources that perform the functions of organizing, managing,
and assembling the other factors of production to create and operate business ventures, and
takes the risks associated with introducing new methods and other types of new thinking that
could lead to more monetary income.
C. Goods versus Economic Goods: All things from which individuals derive satisfaction or
happiness.
1. Economic Goods: Goods that are scarce. The quantity of such goods desired exceeds the
quantity that is available at a zero price.
2. Services: Mental or physical labor or help purchased by consumers. They can be viewed as
intangible goods.
II. Wants and Needs: Needs are not objectively definable. Perhaps the best way to view a need is as an
absolute necessity to stay alive. Wants refer to desired goods and are unlimited.
III. Scarcity, Choice, and Opportunity Cost: Scarcity requires choices be made. When one choice is
made, then another is given up.
A. Valuing Forgone Alternatives: Only the individual can determine the value of each choice that
is available.
B. Opportunity Cost: The highest valued, next-best alternative that must be sacrificed for the
choice that was made. In economics, cost is always a forgone opportunity.
IV. The World of Trade-Offs: Whenever you engage in any activity using any resource you are trading
off the use of that resource for one or more alternative uses. For example, the more time devoted to
studying economics, the less time that can be devoted to studying mathematics. Thus, a higher grade
in economics has a “cost” of a lower history grade. (See Figure 2-1.)
A. Graphical Analysis: How Figure 2-1 is set up is explained.
B. The Production Possibilities Curve (PPC): A curve representing the maximum possible
combinations of total output that could be produced assuming a fixed amount of resources of a
given quality. A movement from one point to another on the PPC shows that some of one good
must be given up to have more of another. (See Figure 2-1.)
V. The Choices Society Faces: The production possibilities curve does not in practice have constant
trade-offs of one good for another and is typically a curve that is bowed outward. (See Figure 2-2.)
A. A Two-Good Example
B. Production Trade-Offs (See Figure 2-2.)
C. Assumptions Underlying the Production Possibilities Curve:
1. Resources are fully employed.
2. Production takes place over a specific time period—for example, one year.
3. Resources are fixed in both quantity and quality.
4. Technology does not change over this period of time.
a. Technology is defined as society’s pool of applied knowledge concerning how goods
and services can be produced.
D. Being Off the Production Possibilities Curve: Any point outside the PPC cannot be reached
for the time period assumed. Any point inside the PPC is attainable, but resources are not being
fully utilized. (See Figure 2-2.)
E. Efficiency: The case in which a given level of inputs is used to produce the maximum output
possible. It is also a situation in which a given output is produced at a minimum cost. An
economy is efficient when it is on its PPC. An inefficient point is any point below the
production possibilities curve.
F. The Law of Increasing Additional Cost: The fact that the opportunity cost of additional units
of a good generally increases as society attempts to produce more of that good. This accounts
for the bowed-out shape of the production possibilities curve. (See Figure 2-3.)
1. Increasing Additional Costs: As society takes more and more resources and applies them
to the production of any one item, the opportunity cost increases for each additional unit
produced. This law is illustrated by the PPC being bowed outward.
2. Explaining the Law of Increasing Additional Cost: The more highly specialized resources
are, the more bowed outward the PPC will be.
VI. Economic Growth and the Production Possibilities Curve: Economic growth is illustrated by
an outward shift of the production possibilities curve. (See Figure 2-4.)
VIII. Specialization and Greater Productivity: Specialization means working at a relatively well-defined,
limited activity. It means the organization of economic activity so that what each person or region
consumes is not identical to what each person or region produces.
A. Comparative Advantage: The ability to produce a good or service at a lower opportunity cost
compared to other producers. This is the basis for specialization.
B. Absolute Advantage: The ability to produce more units of a good or service using a given
quantity of labor or resource inputs. This is the ability to produce the same quantity of a good
or service using fewer units of labor or resource inputs. This is not the basis for specialization.
C. Scarcity, Self-Interest, and Specialization: Persons who are making decisions that further
their self-interest will make choices that maximize the benefits net of opportunity cost. The
result is that they choose their comparative advantage and end up specializing.
D. The Division of Labor: The segregation of a resource into different specific tasks.
IX. Comparative Advantage and Trade Among Nations: The analysis of absolute advantage,
comparative advantage, and specialization applies equally to nations.
A. Trade Among Regions: Specialization along lines of comparative advantage in agricultural
products in the plains states and industrial products in the northeastern states and resulting trade
between them allows each region to have higher incomes and living standards. The result would
be the same if the plains states and the northeastern states were separate countries.
B. International Aspects of Trade: A producer in one part of the United States must adapt to
improvements in production along lines of comparative advantage by those in another part.
Producers in the United States will try to raise political barriers to trade with foreign producers
by arguing about “unfair” competition and loss of U.S. jobs.
By the President:
Abraham Lincoln.
By the President:
William H. Seward,
Secretary of State.
A. G. Curtin,
John A. Andrew,
Richard Yates,
Israel Washburne, Jr.,
Edward Solomon,
Samuel J. Kirkwood,
O. P. Morton,
By D. G. Rose, his representative,
Wm. Sprague,
F. H. Peirpoint,
David Tod,
N. S. Berry,
Austin Blair.
Repeal of the Fugitive Slave Law.
The first fugitive slave law passed was that of February 12th, 1793,
the second and last that of September 18th, 1850. Various efforts had
been made to repeal the latter before the war of the rebellion,
without a prospect of success. The situation was now different. The
war spirit was high, and both Houses of Congress were in the hands
of the Republicans as early as December, 1861, but all of them were
not then ready to vote for repeal, while the Democrats were at first
solidly against it. The bill had passed the Senate in 1850 by 27 yeas to
12 nays; the House by 109 yeas to 76 nays, and yet as late as 1861
such was still the desire of many not to offend the political prejudices
of the Border States and of Democrats whose aid was counted upon
in the war, that sufficient votes could not be had until June, 1864, to
pass the repealing bill. Republican sentiment advanced very slowly in
the early years of the war, when the struggle looked doubtful and
when there was a strong desire to hold for the Union every man and
county not irrevocably against it; when success could be foreseen the
advances were more rapid, but never as rapid as the more radical
leaders desired. The record of Congress in the repeal of the Fugitive
Slave Law will illustrate this political fact, in itself worthy of grave
study by the politician and statesman, and therefore we give it as
compiled by McPherson:—
[22]
Second Session, Thirty-Seventh Congress.
REPEALING BILLS.
1864, April 19, the Senate considered the bill to repeal all acts for
the rendition of fugitives from service or labor. The bill was taken up
—yeas 26, nays 10.
Mr. Sherman moved to amend by inserting these words at the end
of the bill:
Except the act approved February 12, 1793, entitled “An act
respecting fugitives from justice, and persons escaping from the
service of their masters.”
Which was agreed to—yeas 24, nays 17, as follows:
Yeas—Messrs. Buckalew, Carlile, Collamer, Cowan, Davis, Dixon,
Doolittle, Foster, Harris, Henderson, Hendricks, Howe, Johnson,
Lane of Indiana, McDougall, Nesmith, Powell, Riddle, Saulsbury,
Sherman, Ten Eyck, Trumbull, Van Winkle, Willey—24.
Nays—Messrs. Anthony, Brown, Clark, Conness, Fessenden,
Grimes, Hale, Howard, Lane of Kansas, Morgan, Morrill, Pomeroy,
Ramsey, Sprague, Sumner, Wilkinson, Wilson—17.
Mr. Saulsbury moved to add these sections:
And be it further enacted, That no white inhabitant of the United
States shall be arrested, or imprisoned, or held to answer for a
capital or otherwise infamous crime, except in cases arising in the
land or naval forces, or in the militia when in actual service in time of
war or public danger, without due process of law.
And be it further enacted, That no person engaged in the
executive, legislative, or judicial departments of the Government of
the United States, or holding any office or trust recognized in the
Constitution of the United States, and no person in military or naval
service of the United States, shall, without due process of law, arrest
or imprison any white inhabitant of the United States who is not, or
has not been, or shall not at the time of such arrest or imprisonment
be, engaged in levying war against the United States, or in adhering
to the enemies of the United States, giving them aid and comfort, nor
aid, abet, procure or advise the same, except in cases arising in the
land or naval forces, or in the militia when in actual service in time of
war or public danger. And any person as aforesaid so arresting, or
imprisoning, or holding, as aforesaid, as in this and the second
section of this act mentioned, or aiding, abetting, or procuring, or
advising the same, shall be deemed guilty of felony, and, upon
conviction thereof in any court of competent jurisdiction, shall be
imprisoned for a term of not less than one nor more than five years,
shall pay a fine of not less than $1,000 nor more than $5000, and
shall be forever incapable of holding any office or public trust under
the Government of the United States.
Mr. Hale moved to strike out the word “white” wherever it occurs;
which was agreed to.
The amendment of Mr. Saulsbury, as amended, was then
disagreed to—yeas 9, nays 27, as follows:
Yeas—Messrs. Buckalew, Carlile, Cowan, Davis, Hendricks,
McDougall, Powell, Riddle, Saulsbury—9.
Nays—Messrs. Anthony, Clark, Collamer, Conness, Doolittle,
Fessenden, Foster, Grimes, Hale, Harris, Howard, Howe, Lane of
Indiana, Lane, of Kansas, Morgan, Morrill, Pomeroy, Ramsey,
Sherman, Sprague, Sumner, Ten Eyck, Trumbull, Van Winkle,
Wilkinson, Willey, Wilson—27.
Mr. Conness moved to table the bill; which was disagreed to—yeas
9, (Messrs. Buckalew, Carlile, Conness, Davis, Hendricks, Nesmith,
Powell, Riddle, Saulsbury,) nays 31.
It was not again acted upon.
1864, June 13—The House passed this bill, introduced by Mr.
Spalding, of Ohio, and reported from the Committee on the
Judiciary by Mr. Morris, of New York, as follows:
Be it enacted, etc., that sections three and four of an act entitled
“An act respecting fugitives from justice and persons escaping from
the service of their masters,” passed February 12, 1793, and an Act
entitled “An act to amend, and supplementary to, the act entitled ‘An
act respecting fugitives from justice, and persons escaping from their
masters,’ passed February 12, 1793,” passed September 18, 1850, be,
and the same are hereby, repealed.
Yeas 86, nays 60, as follows:
Yeas—Messrs. Alley, Allison, Ames, Arnold, Ashley, John D.
Baldwin, Baxter, Beaman, Blaine, Blair, Blow, Boutwell, Boyd,
Brandegee, Broomall, Ambrose W. Clarke, Freeman Clark, Cobb,
Cole, Creswell, Henry Winter Davis, Thomas T. Daavis, Dawes,
Dixon, Donnelly, Driggs, Eckley, Eliot, Farnsworth, Fenton, Frank,
Garfield, Gooch, Griswold, Higby, Hooper, Hotchkiss, Asahel W.
Hubbard, John K. Hubbard, Hulburd, Ingersoll, Jenckes, Julian,
Kelley, Francis W. Kellogg, O. Kellogg, Littlejohn, Loan, Longyear,
Marvin, McClurg, McIndoe, Samuel F. Miller, Moorhead, Morrill,
Daniel Morris, Amos Myers, Leonard Myers, Norton, Charles O’Neill,
Orth, Patterson, Perham, Pike, Price, Alexander H. Rice, John H.
Rice, Schenck, Scofield, Shannon, Sloan, Spalding, Starr, Stevens,
Thayer, Thomas, Tracy, Upson, Van Valkenburgh, Webster, Whaley,
Williams, Wilder, Wilson, Windom, Woodbridge—86.
Nays—Messrs. James C. Allen, William J. Allen, Ancona,
Augustus C. Baldwin, Bliss, Brooks, James S. Brown, Chanler,
Coffroth, Cox, Cravens, Dawson, Denison, Eden, Edgerton,
Eldridge, English, Finck, Ganson, Grider, Harding, Harrington,
Charles M. Harris, Herrick, Holman, Hutchins, Kalbfleisch, Kernan,
King, Knapp, Law, Lazear, Le Blond, Mallory, Marcy, McDowell,
McKinney, Wm. H. Miller, James R. Morris, Morrison, Odell,
Pendleton, Pruyn, Radford, Robinson, Jas. S. Rollins, Ross,
Smithers, John B. Steele, Wm. G. Steele, Stiles, Strouse, Stuart,
Sweat, Wadsworth, Ward, Wheeler, Chilton A. White, Joseph W.
White, Fernando Wood—60.
June 22—This bill was taken up in the Senate, when Mr.
Saulsbury moved this substitute:
That no person held to service or labor in one State, under the laws
thereof, escaping into another, shall, in consequence of any law or
regulation therein, be discharged from such service or labor, but
shall be delivered up on claim of the party to whom such service or
labor may be due; and Congress shall pass all necessary and proper
laws for the rendition of all such persons who shall so, as aforesaid,
escape.
Which was rejected—yeas 9, nays 29, as follows:
Yeas—Messrs. Buckalew, Carlile, Cowan, Davis, McDougall,
Powell, Richardson, Riddle, Saulsbury—9.
Nays—Messrs. Anthony, Brown, Chandler, Clark, Conness, Dixon,
Foot, Grimes, Hale, Harlan, Harris, Hicks, Howard, Howe, Johnson,
Lane of Indiana, Lane of Kansas, Morgan, Morrill, Pomeroy,
Ramsey, Sprague, Sumner, Ten Eyck, Trumbull, Van Winkle, Wade,
Willey—29.
Mr. Johnson, of Maryland, moved an amendment to substitute a
clause repealing the act of 1850; which was rejected—yeas 17, nays
22, as follows:
Yeas—Messrs. Buckalew, Carlile, Cowan, Davis, Harris, Hicks,
Johnson, Lane of Indiana, McDougall, Powell, Richardson, Riddle,
Saulsbury, Ten Eyck, Trumbull, Van Winkle, Willey—17.
Nays—Messrs. Anthony, Brown, Chandler, Clark, Conness, Dixon,
Fessenden, Foot, Grimes, Hale, Harlan, Howard, Howe, Lane of
Kansas, Morgan, Morrill, Pomeroy, Ramsey, Sprague, Sumner,
Wade, Wilson—22.
The bill then passed—yeas 27, nays 12, as follows:
Yeas—Messrs. Anthony, Brown, Chandler, Clark, Conness, Dixon,
Fessenden, Foot, Grimes, Hale, Harlan, Harris, Hicks, Howard,
Howe, Lane of Indiana, Lane of Kansas, Morgan, Morrill, Pomeroy,
Ramsey, Sprague, Sumner, Ten Eyck, Trumbull, Wade, Wilson—27.
Nays—Messrs. Buckalew, Carlile, Cowan, Davis, Johnson,
McDougall, Powell, Richardson, Riddle, Saulsbury, Van Winkle,
Willey—12.
Abraham Lincoln, President, approved it, June 28, 1864.
Seward as Secretary of State.
INTERNAL TAXES.
The system of internal revenue taxes imposed during the war did
not evenly divide parties until near its close, when Democrats were
generally arrayed against these taxes. They cannot, from the record,
be correctly classed as political issues, yet their adoption and the
feelings since engendered by them, makes a brief summary of the
record essential.
First Session, Thirty-Seventh Congress.
The bill to provide increased revenue from imports, &c., passed the
House August 2, 1861—yeas 89, nays 39.
Same day, it passed the Senate—yeas 34, nays 8, (Messrs.
Breckinridge, Bright, Johnson, of Missouri, Kennedy, Latham, Polk,
Powell, Saulsbury.)[24]
Second Session, Thirty-Seventh Congress.