WHAT IS ECONOMICS?
Answers to the Review Quiz
1. List some examples of scarcity in the United States today.
An example of scarcity at the economy-wide level would be people with lower incomes being forced to choose between food and gasoline due to high prices for both. An example of scarcity at an individual level would be a person unable to afford life-saving(or life-enhancing) medicine. At a more student-oriented level, examples of scarcity include not enough income to afford both tuition and a nice car and not enough learning capacity to study for both an economics exam and a chemistry exam in one night.
Use the headlines in today’s news to provide some examples of scarcity around the world.
A headline in The Wall Street Journal on July 25,2008 was “Last-Frontier Forest is at Risk From Boom.” This story discusses how the “global resource boom is threatening one of the world’s last tropical-forest frontiers: the Merauke region of Indonesia …”. The story points out the scarcity of tropical rain forests as well as the scarcity of mineral reserves and how the two are colliding.
Use today’s news to illustrate the distinctionbetween microeconomics and macroeconomics.
Microeconomics: Examples of today’s news that illustrate microeconomic issues are: What will happen to the wages of the average grocery clerk if the grocery workers chose to unionize? What will happen to the number of students attending college if tuition were to increase 55 percent? What will happen to lowskilled workers if the minimum wage is increased?Macroeconomics: Examples of today’s news that illustrate macroeconomic issues are: How will U.S. defense spending in Iraq, Afghanistan and elsewhere influence the national debt? What would happen to total output in the economy if the income tax rates were increased?
1. Describe the broad facts about what, how, and for whom goods and services are produced.
What gets produced issignificantly different today than in the past. Today the U.S. economy produces more services, such as medical operations, teaching, and hair styling, than goods, such as pizza, automobiles, and computers. How goods and services are produced is by businesses determining how the factors of production, land, labor, capital and entrepreneurship, are combined to make the goods and services we consume. Landincludes all natural resources, both renewable natural resources such as wood, and nonrenewable natural resources such as natural gas. Labor’s quality depends on people’s human capital. In the U.S. economy, human capital obtained through schooling has increased over the years with far more people completing high school and attending college than in past years. Finally, for whom are goods andservices to be produced depends on the way income is distributed to U.S. citizens. This distribution is not equal; the 20 percent of people with the lowest income earn about 5 percent of the nation’s total income while the 20 percent of people with the highest incomes earn about 50 percent of total income. On the average, men earn more than women, whites more than non-whites, and college graduates morethan high school graduates.
Use headlines from the recent news to illustrate the potential for conflict between self-interest and the social interest.
Your students’ examples will vary according to the headlines. One example of an issue concerns import restrictions. Take the ethanol industry for an example and the February 4, 2008 headline from Reuters “Bush budgetdoesn't alter ethanol import tariff”. When domestic ethanol producers convince the government to limit or eliminate imports of ethanol from other nations such as Brazil, it helps the workers and businesses in the domestic ethanol industry earn higher wages and profits, respectively. This outcome serves their self-interest. However, it hurts all companies that use ethanol in their products, as well...