Explanation:
ANSWERS TO END-OF-CHAPTER QUESTIONS
2-1 Explain this statement: "If resources were unlimited and freely available, there would be no subject called economics."
If resources were unlimited and freely available, making choices would not be necessary. Every person could have as much as they wanted of any good or service. Economics, the science of choice, would be unnecessary.
2-2 Comment on the following statement from a newspaper article: "Our junior high school serves a splendid hot meal for $1 without costing the taxpayers anything, thanks in part to a government subsidy."
Obviously the writer is confused. Government subsidies come from government revenues and taxpayers are the source of tax revenues. It may be true that local property taxes that fund the junior high school are not being used for the lunches, but the federal government�s funds do come from taxpayers across the country, including those in the town with the junior high. This example helps support the saying, "There ain�t no such thing as a free lunch!"
2-3 Critically analyze: "Wants aren�t insatiable. I can prove it. I get all the coffee I want to drink every morning at breakfast." Explain: "Goods and services are scarce because resources are scarce." Analyze: "It is the nature of all economic problems that absolute solutions are denied us."
It may be that you get all the coffee you want on a particular morning, but will that satisfy your wants forever? Not if you want coffee in the future. Therefore, even your desire for coffee is insatiable over time.
Goods and services are the product of resources. If resources were abundant without limit, then we would not have a scarcity of the products they produce.
Economic problems are problems of relative scarcity�wants exceed resources in the relative sense. We cannot absolutely solve all of our economic problems; that is, satisfy all of everyone�s wants and needs. If all our wants were completely fulfilled, nothing would have a price�why pay for anything if you�ve got everything already? And if there were no unfulfilled wants there would be no economic resources�why pay for an input when you�ve got all the outputs you could ever need? The fact that totally free goods and services do not exist provides support for the notion that total fulfillment of our wants is impossible.
2-4 What are economic resources? What are the major functions of the entrepreneur?
Economic resources are of four main types: labor, land (natural resources), real capital (machines, factories, buildings, etc.,) and entrepreneurs. Economic resources are also called factors of production or inputs in the productive process. As these names imply, economic resources are required to produce the outputs desired by society. Since certain outputs are desired, they command a price and so, therefore, do economic resources. This can lead to some things being economic resources in some circumstances but not in others. Water in the middle of a lake, for example, is not an economic resource: Anyone can have it free. But the same water piped to a factory site is no longer free: Its movement must be paid for by taxes or by a specific charge. It is now an economic resource because the factory owner would not pay for its delivery unless the water was to be used in the factory�s production. These four types of resources are highlighted in the circular flow diagram where the type of income accruing to each type of resource is shown.
Entrepreneurs are risk-takers: They coordinate the activities of the other three inputs for profit�or loss, which is why they are called risk-takers. Entrepreneurs sometimes manage companies that they own, but a manager who is not an owner is not necessarily an entrepreneur but may be performing some of the entrepreneurial functions for the company. Entrepreneurs are also innovators, or perhaps inventors, and profits help to motivate such activities.
2-5 (Key Question) Why is the problem of unemployment a part of the subject matter of economics? Distinguish between allocative efficiency and productive efficiency. Give an illustration of achieving productive, but not allocative, efficiency.
Economics deals with the "limited resources�unlimited wants" problem. Unemployment represents valuable resources that could have been used to produce more goods and services�to meet more wants and ease the economizing problem.
Allocative efficiency means that resources are being used to produce the goods and services most wanted by society. The economy is then located at the optimal point on its production possibilities curve where marginal benefit equals marginal cost for each good. Productive efficiency means the least costly production techniques are being used to produce wanted goods and services. Example: manual typewriters produced using the least-cost techniques but for which there is no demand.
2-6 (Key Question) Here is a production possibilities table for war goods and civilian goods:
Type of Production
Production Alternatives
