Module 1 Homework

Answer the following questions and submit using the Module 1 homework link.
Chapter 1
1. What is scarcity? Can you think of two causes of scarcity?
Scarcity means that human wants for goods, services and resources
exceed what is available. A rapid increase in demand and a rapid decrease
in supply.
2. Residents of the town of Smithfield like to consume ham, but each ham requires
10 people to produce it and takes a month. If the town has a total of 100 people,
what is the maximum amount of ham the residents can consume in a month?
10 hams a month
3. A consultant works for $200 per hour. She likes to eat vegetables but is not very
good at growing them. Why does it make more economic sense for her to spend
her time at the consulting job and shop for her vegetables?
It would make more sense for her to spend her time at the consulting job
because then, the consultant would have enough money to buy the
vegetables that the consultant needs instead of growing them.
4. Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio
than the United States?
Even though they are small countries, they export a higher ratio of goods
and services rather than the U.S.
5. Give the three reasons that explain why the division of labor increases an
economy’s level of production.
• A particular small job allows workers to focus on parts of the production
process where they have an advantage.
• Workers who specialize in certain tasks often learn to produce more
quickly and with higher quality.
• It allows businesses to take advantage of economies of scale.
6. What are the three main goals of macroeconomics?
• Virtually every major problem facing the world today has an economic
dimension.
• It is hard to overstate the importance of economics to good citizenship.
• A basic understanding of economics makes you a well-rounded thinker.
7. What are the three ways that societies can organize themselves economically?
Traditional economy, command economy, and market economy.
8. A balanced federal budget and a balance of trade are secondary goals of
macroeconomics, while growth in the standard of living (for example) is a primary
goal. Why do you think that is so?
Increasing the standard of living for its citizens is the first and most crucial
objective of any nation. The principal goal is supported by all other goals,
which are only incidental. The purpose of the federal budget is to support
the nation's citizens.
9. Macroeconomics is an aggregate of what happens at the microeconomic level.
Would it be possible for what happens at the macro level to differ from how
economic agents would react to some stimulus at the micro level? Hint: Think
about the behavior of crowds.
Yes it would be possible. It is plausible that while the economy may be
performing well at the micro level, it may be failing at the macro level.
Programs to help foreign nations could serve as an illustration.
10. Why do you think that most modern countries’ economies are a mix of command
and market types?
Because this strategy provides the best possible balance between market
forces and government involvement, the economies of the majority of
contemporary nations are a combination of market and command systems.
In addition to being able to effectively distribute resources, mixed
economies can also foster innovation, uphold economic stability, and solve
market imperfections and social problems.
Chapter 2
11. Could a nation be producing in a way that is allocatively efficient, but productively
inefficient?
No, because allocation efficiency deals with decisions made along the
boundary of production possibilities, it necessitates productive efficiency.
12. What are the similarities between a consumer’s budget constraint and society’s
production possibilities frontier, not just graphically but analytically?
Due to scarce resources and financial constraints, both PPF and budget
constraints demonstrate a trade-off, or negative relationship, between two
goods (for social production & personal consumption).
13. Would a research study on the effects of soft drink consumption on children’s
cognitive development be a positive or normative statement?
 Since truths support the assertion, it will be a positive statement. The
research will produce results based on actual data, or factual information.
There are tested implications and no scope estimates of importance. It will
therefore be a favorable comment.
14. Explain why scarcity leads to tradeoffs.
Trade-offs result from scarcity since resources are scarce while human
needs and wants are limitless. This puts decisions regarding resource
allocation on people, companies, and governments; these decisions
frequently require sacrificing one thing in order to obtain another.
15. What is productive efficiency? Allocative efficiency?
In an environment of productive efficiency, businesses look for the optimal
combination of inputs to reduce their production costs. When economic
resources are allocated in a way that maximizes customer pleasure in
relation to input costs, this is known as allocation efficiency.