Question

In: Economics

1. Assume you have a three person economy, J, T, and M. In scenario 1, all...

1. Assume you have a three person economy, J, T, and M. In scenario 1, all transactions between the three are mutually voluntarily and based on the economic decision rule. Under Scenario 2, J sets herself up as Queen and uses coercion to force T and M to produce and sell goods to her.

A) Under which Scenario will Society as a whole be better off? How do you know?

B) What term might Adam Smith use to describe what is going on in Scenario 1?

2. Using the concept of opportunity cost and the economic decision rule, make an argument of why all businesses in Utah should open up despite high and rising cases of COVID.

3.State how wages are determined for (A) college football coaches and (B) college football players in the U.S. and for each explain whether you think that this is a good method.

4. What do you think is the most fundamental reason why the average wage is Utah is higher than in Mexico?

5. What would likely occur in the U.S. and Mexico regarding relative wages if the U.S. and Mexico became institutionally similar? Why?

6.A)Explain why markets are better at producing goods and services as compared to government direction (i.e.,political forces?B) In this context, what is meant by “better”?

7.A) Will a market-based economy typically result in an unequal distribution of income? B) Is an equal distribution of income better than an unequal distribution of income?

8.

A) Briefly explain why the U.S. exports aircraft to China and imports televisions from China?

B) Can the U.S. and China, through specialization and trade, jointly produce and consume more of both goods? Why?

9. What is there about the nature of the physical world that results in trade and specialization?

10. Draw a PPC and clearly label:

A) A possible but inefficient point.

B) An unattainable point.

C) An attainable and efficient point.

D) What would make the unattainable point attainable in the future?

11. Draw a PPC that illustrates

(A) increasing marginal opportunity costs,

(B) constant marginal opportunitycosts and C) decreasing marginal opportunity costs.

12. Note two characteristics of each: Feudalism, Mercantilism, Socialism, and the Market system?

13. In what century did average output/income begin to rise rapidly in Europe? Why?

14. Could it be argued that Adam Smith’s book, The Wealth of Nations, and the U.S. Constitution sprang fromthe same intellectual/philosophical framework? Explain.

15. A) List three causes of market failure.B) What is meant by the term market failure?

16.Show a market for cheese such that there is a (A) surplus (excess supply), (B) shortage (excess demand), andC) market equilibrium.

17.How does a market economy solve the problems of shortages and surpluses?

19. Using a separate supply and demand diagram for milk, show the effects of each of the following:

A) A pandemic that shuts down the milk processing plants.

B) A pandemic that causes households to consume more cold cereal, a compliment good to milk.

C) A pandemic that causes households to consume less soft drinks, a substitute good to milk.

D) higher incomes, assuming milk is a normal good.E) higher incomes, assuming milk is an inferior good.

Solutions

Expert Solution

Ans 1.

A- Society as a whole be better off in scenario 1. In a three person economy, J, T, and M when all transactions between the three are mutually voluntarily and based on the economic decision rule the society will be better off as against under Scenario 2, J sets herself up as Queen and uses coercion to force T and M to produce and sell goods to her. This is because in the first case, goods and services would be divided between the two individuals based on their endowments and capabilities and not coercion. such an initial distribution will maximise production of goods and services and thus maximise the societal welfare.

B- Smith uses the term "invisible hand" of the market to describe such a scenario. He introduced this phrase invisible hand in his book 'The Wealth of Nations'. This is used to denote his concept that an economy can work well in a free market scenario where everyone will work for his/her own interest.

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