Economics Model Answers One

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Introductory: 1. In three sentences or less, what do you hope to learn in this course?

To learn how businesses try to make money and how consumers try to keep money.

2. Give two short examples each of “normative statements” and “positive statements.”

Positive: fish live in trees. (NOTE that a positive statement is a factual claim that need not be true.)

Normative: people should eat less fast food.

3. Describe a few transaction costs associated with buying something.

Spending time looking for a store that sells it, and then spending more time look for the store that sells it at the lowest price, and then spending money and traveling to the store to buy it.

Intermediate: 4. Give some examples of scarcity created entirely by man (rather than nature), such as a ticket on the maiden voyage of the Titanic. Why do people create and emphasize scarce things? Does the illusion of scarcity increase the price? Does television prefer talking about scarce items? Why?

The office of President of the United States.

Tickets at the Super Bowl.

Being the first man to step foot on the moon.

5. What do you think are the main reasons that the “invisible hand” is preferable to government dictating how a pencil should be made? Rank your reasons in order of importance.

1. The invisible hand motivates people to work harder.

2. The invisible hand motivates people to reduce waste.

3. The invisible hand motivated people to invent and create.

4. No single entity, such as government, is smart enough at planning.

5. The invisible hand can adjust to change more quickly than government.

6. Why can volunteer work sometimes be more efficient and productive than hired labor? Where is the invisible hand for volunteer work?

Charity provides religious and spiritual rewards, which can be an even greater motivator than money. Also, there are fewer transaction costs in charity, as fewer people are trying to make money as middlemen.

Honors: Write an essay of about 300 words on one or more of the following topics: 7. Read the account of the multiplication of the loaves by Jesus. Matthew 14:13-21. After reading that, do you think scarcity really does exist?

Maybe not. It didn't on that day with Jesus. Perhaps scarcity is a human illusion, and the result of turning away from God.

8. What is money, really?

Perhaps it is only a form of speech. Often it is given more meaning than it really has. People who win the lottery end up worse off than those who lose.

9. Should spending money be protected by the free speech clause?

Yes, because otherwise politicians are censoring valid criticism of their work.

10. Does the U.S. Constitution protect private property?

Yes, such as the Fifth Amendment.