Scarcity means there are not enough resources, goods, and services to satisfy the wants and needs of all individuals, families, and societies.
Value judgments affect the relative importance a person assigns to an action or alternative. Opportunity costs measure the costs of a purchase or a decision in terms of the forgone alternative that is given up to make the purchase or decision.
2. a. capital - interest
b. labor - wages
c. land - rent
d. capital - interest
e. entrepreneur - profits
e. labor - wages
6. A production possibilities curve gives the various amounts of two goods that an economy can produce with full employment and fixed resources and technology. If the economy is producing at full employment, it can increase the production of one good only by decreasing the production of another good.
Unemployment can be illustrated by a point inside the production possibilities curve. Economic growth can be illustrated by shifting the entire curve to the right.
See Figures 1.6 (p. 20) and 1.7 (p. 20) in textbook.
7. A capital good is a good, such as machinery, that will be used in the future to produce other goods. A consumer good is a good, such as food or clothing, which is used immediately.
The more of its resources an economy chooses to devote to the production of capital goods, the lower its current standard of living because relatively few consumer goods are being produced. However, this economy's future standard of living will be higher because of this increased capital production. In the future, this economy can produce more of both consumer goods and capital goods.
8. a. GPA falls from 3.25 to 2.60 --- 0.65 points
b. Improved study habits, employing time management techniques
c. Reducing the amount of time spent studying, not attending class
d. The student's preference for money (hours worked) vs. good grades (GPA)
e. Yes. Both illustrate the choices that must be made when available resources are limited.
2. In a traditional economy, the basic economic decisions are made by relying on tradition, custom or ritual.
In a market economy, the basic economic choices are made through the interactions of individual buyers and sellers in the marketplace.
In a planned economy, the choices are made by the planners who are either associated with the government or are in some other way representative of the members of the society.
In a mixed economy, the choices are made by a combination of planning and individual decision- making.
5. Strengths of a market economy are:
* strong efficiency incentives;
* price allows direct signals between buyers and sellers;
* economic freedom;
* wide selection of goods and services;
* incentives for innovation and growth; and
* choices/prices of goods and services reflect buyers’ and sellers’ values
and priorities.
Weaknesses of a market economy are:
* no protection for people without marketable skills;
* nothing to ensure that all people get adequate goods and services;
* market power in the hands of a few sellers;
* nothing to protect people with inadequate knowledge to make informed market
decisions;
* few incentives to protect the environment; and
* age, race, or gender discrimination.
A market failure occurs when the market system creates a problem for society or when it fails to achieve a societal goal. Examples of market failure include insufficient public goods, pollution, and inadequate access to basic goods and services, such as food and health care.