EOC1: End of Chapter Problems - Ch. 1: The Big Ideas (assessment)

A headline in the New York Times read: "Study Finds Enrollment Is Up at Colleges Despite Recession." How would you rewrite this headline now that you understand the idea of opportunity cost?

"Study Finds Enrollment Is Up at Colleges Because of Recession."

In the textbook, we claim that the Great Depression was so destructive partly because economists did not understand how to use government policy very well in the 1930s. a. If you had asked economists at the time for their opinion of why the Great Depression was so disastrous, what would have been their reply?

"The Depression was so bad because the government ignored our wise advice ."

The chapter lists four things that entrepreneurs save and invest in. Which of the four are actual objects, and which are more intangible, like concepts or ideas or plans?

objects - physical capital intangibles - human capital, efficient organization, innovation

Economics is sometimes called "the dismal science." Choose the big ideas which sound dismal.

Big Idea Eight: Economic Booms and Busts Cannot Be Avoided but Can Be Moderated. Big Idea Ten: Central Banking Is a Hard Job.

Some people worry that machines will take jobs away from people, making people permanently unemployed. Only 150 years ago in the United States, most people were farmers. Now, machines do almost all of the farm work and fewer than 2% of Americans are farmers, yet that 2% produce enough food to feed the entire country while still exporting food overseas. a. What happened to all of those people who used to work on farms?

Former farm workers are now working in other industries.

How much did national output fall during the Great Depression? According to the chapter, which government agency might have helped to avoid much of the Great Depression had it acted more quickly and appropriately?

Output fell by about 30% The Federal Reserve might have been able to limit the damage with more appropriate policies.

b. Some people say that it's okay for machines to take jobs, because we'll get jobs fixing the machines. Just from looking around, do you think that most working Americans are earning a living by fixing farm equipment? If not, what do you think most working people are doing instead? (We'll give a full answer later in this book.)

No, most people do not work fixing farm equipment because high productivity in the agricultural sector frees resources for other desirable activities.

Let's connect Big Ideas Six and Nine: Could a country get richer by printing more pieces of paper called "money" and handing those out to its citizens?

Printing and distributing money would cause prices to rise but not increase purchasing power, so no.

According to the United Nations, there were roughly 300 million humans on the planet a thousand years ago. Essentially all of them were poor by modern standards. Today, between 1 and 3 billion humans are poor out of about 7 billion total humans. Over the last thousand years, what has happened to the fraction of humans who are poor: Did it rise, fall, or stay about the same? What happened to the total number of people living in deep poverty: Rise, fall, or no change?

The fraction of poor people fell. The number of people in deep poverty rose.

In recent years, Zimbabwe has had hyperinflation, with prices tripling (or more!) every month. According to what you learned in this chapter, what do you think the government can do to end this hyperinflation?

The government of Zimbabwe should reduce the money supply.

Who has a better incentive to work long hours in a laboratory researching new cures for diseases: a scientist who earns a percentage of the profits from any new medicine she might invent, or a scientist who will get a handshake and a thank you note from her boss if she invents a new medicine?

The scientist who receives a percentage of the profits will be more motivated.

Nobel Prize winner Milton Friedman said that a bad central banker is like a "fool in the shower." How does this apply to central banking?

The temperature of the water is like economic conditions. There is a delay between when the faucet is turned and when the water changes temperature.

Some problems that economists try to solve are easy as economic problems but hard as political problems. Medical doctors face similar kinds of situations: Preventing most deaths from obesity or lung cancer is easy as a medical problem (eat less, exercise more, don't smoke), but hard as a self-control problem. With this in mind, how is ending hyperinflation like losing 100 pounds?

We know the cure but lack the will to pursue it.

In the discussion of Big Idea Five, the chapter says that "self-sufficiency is death" because most of us would not be able to produce for ourselves the food and shelter that we need to survive. In addition to death, however, one could also say that self-sufficiency is boredom or ignorance. How does specialization and trade help you to avoid boredom and ignorance?

Without specialization and trade even if you had time to read educational books, there may not be authors with time to write them. the phrase, "I stand on the shoulders of giants," may disappear as a common refrain when someone is honored for an advance in knowledge or technology, because the giants are now busy gathering and hunting. most people would have to spend almost all of their time procuring basic necessities even though they may rather do something else. reading a mystery novel you wrote yourself would not be much fun. even though everyone has some things they enjoy doing and others they consider drudgery, the attitudes about which specific things go in which category differ across people.

As Nobel prize winner and New York Times columnist Paul Krugman has noted, the field of economics is a lot like the field of medicine: They are fields where knowledge is limited, and where many cures are quite painful, but where regular people care deeply about the issues. What are some other ways that economics and medicine are alike?

alike - it is difficult to run randomized experiments - Charlatans offer useless or damaging remedies for problems - Person-on-the-street is over-confident about personal knowledge - There is lots more to learn not alike - Practitioners must be licensed - Professionals are well-respected

b. The answer in part a tells you that economists and other experts _______ in their work.

have a great deal of confidence

When bad weather in India destroys the crop, does this sound like a fall in the total "supply" of crops or a fall in people's "demand" for crops?

supply