Chapter 1 Qfr

Chapter 1: Ten Principles Of Economics

1. Give three examples of important trade-offs that you face in your life.

* Going to class instead of sleeping.

* Driving to the store instead of walking to the store.

* Cooking my own food instead of ordering take-out

2. What is the opportunity cost of seeing a movie?

Opportunity cost is giving up something to get another. In this case for a movie, the opportunity cost is time. You give up your time to watch a movie when you could be at another sport event or doing homework/studying.

3. Water is necessary for life. Is the marginal benefit of a glass of water large or small?

More than 70% of the Earth’s surface is covered in water. When we compare this to the marginal benefit of a glass of water, this is very small. Unless we use a case where water is scarce (ex: a desert) then the marginal benefit is minimal.

4. Why should policymakers think about incentives?

Incentive is something that induces a person to act, such as the prospect of a punishment or reward. Many policies change the costs or benefits which in turn alters consumer behavior. These policies can lead to a direct impact on people’s incentives.

5. Why isn’t trade among countries like a game with some winners and some losers?

Trade is not a game of winners and losers because a trade is always a benefit to both sides. There is no country that will reasonable go into a trade that will make their country lose out on resource or supply. A trade will benefit both sides by gaining what they will need.

6. What does the “invisible hand” of the marketplace do?

The invisible hand is the price of goods and services in the marketplace, which directs the economic activities. Prices adjust according the buyers price through demand and the suppliers price determined through quantity of supply.

7. Explain the two main causes of market failure and give an example of each.

The two main causes of market failure is...