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two different short written (about 250 words) thoughtful account of what you learned in the previous week about economics that most impacted your daily life, point of view, or decision making process. (DO NOT WRITE A SUMMARY OF slides !!) Journal entries will be graded on coherence, grammar, spelling, organization of thought, and overall demonstration of concept application.

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SLIDES BY CHAPTER 2 SOLINA LINDAHL Economic Models: Trade-offs and Trade FOOD FOR THOUGHT…. SOME GOOD BLOGS AND OTHER SITES TO GET THE JUICES FLOWING: C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S What you will learn in this chapter ▪ Why models play a crucial role in economics ▪ Two simple but important models: the production possibility frontier and comparative advantage ▪ The circular-flow diagram, a schematic representation of the economy ▪ The difference between positive economics and normative economics ▪ When economists agree and why they sometimes disagree To First Active Learning To Video C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S MODELS IN ECONOMICS Model: a simplified representation of a real situation that is used to better understand real-life situations. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents “OTHER THINGS EQUAL” Other things equal assumption: all other relevant factors remain unchanged. We try to treat economics as close to a laboratory science as possible—with only one variable allowed to change at a time. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents THE PRODUCTION POSSIBILITIES FRONTIER C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents TRADE-OFFS: THE PPF We can use the PPF model to answer questions like: How much can we produce? What will it cost us to change our mix of production? Does it make sense to import the good from somewhere else? C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents TRADE-OFFS: THE PPF All points under the curve are feasible (but not efficient)… And all points above the curve are not feasible. All points on the curve are feasible and efficient. Quantity of Dreamliners The PPF line D Production Possibilities 30 A 15 Small Jets Dreamliners 30 15 9 0 0 20 28 40 B 9 C 20 28 40 Quantity of Small Jets C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents OPPORTUNITY COST Opportunity Cost: what must be given up in order to get a good. Production Possibilities Small Jets Dreamliners 30 15 9 0 0 20 28 40 EACH SMALL JET HAS AN OPPORTUNITY COST OF ¾ OF A DREAMLINER. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION Suppose you are stranded on an island. Luckily, this island is rich in clams and mangos. If you devote all of your time to harvesting clams, you can get 100 clams in a week. If you us all of your time to collect mangos, you can find 200 mangos in a week. Assume it is possible to collect fractional amounts of both goods and draw a sketch of your production possibility frontier for a week. (Place mangos on the x-axis and clams on the y-axis.) Calculate the opportunity cost of each good. To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION What is the opportunity cost of each lamp? a) ¼ of a sofa b) 1 sofa c) 4 sofas d) 200 sofas To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION With a partner, create your production possibilities curve for the following two activities: (a) drawing happy faces and (b) drawing elephants: 1. Take turns timing each other for 30 seconds and recording the following: The maximum number of happy faces drawn The maximum number of elephants drawn 2. Now construct your PPF with elephants on the vertical axis and faces on the horizontal axis. 3. Calculate your opportunity cost for each good. To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents INCREASING OPPORTUNITY COST Quantity of Dreamliners Producing the first 20 small jets . . . 35 …requires giving up 5 Dreamliners But producing 20 more small jets . . . 30 A 25 20 …requires giving up 25 more Dreamliners… 15 10 5 PPF 0 C 10 O P Y R I G 20 H T 2 0 1 30 5 W O 50 Quantity of small jets 40 R T H P U B L I S H E R S Back to Table of contents ECONOMIC GROWTH Quantity of Dreamliners THE ECONOMY CAN NOW PRODUCE MORE OF EVERYTHING. 35 E 30 A 25 20 15 10 5 Original New PPF PPF 0 10 C O P Y R 20 I G H T 25 2 0 30 1 5 40 W O R T 50 H P U B Quantity of small jets L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION If you invent a clam rake that doubles your clam production, what happens to your opportunity cost? Graph the effect of your new invention on the original PPF. To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents WHAT CAUSES ECONOMIC GROWTH? Two possibilities: 1. An increase in factors of production: resources used to produce goods and services. 2. Better technology: the technical means for producing goods and services. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents FACTORS OF PRODUCTION 1. Land includes natural resources, such as mineral deposits, oil, natural gas, water, and actual land acreage. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents FACTORS OF PRODUCTION 2. Labor is the mental and physical abilities of the workforce. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents FACTORS OF PRODUCTION 3. Physical capital is manufactured items used to produce other goods and services. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents ECONOMIC RESOURCES 4. Human capital is the educational achievements and skills of the labor force (which increase labor productivity). C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: APPLICATION VIDEO Check out how containerization shaped the modern world. Click here or on the picture below. Consider how the world’s PPF changed. (5 minutes) C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Theory of Comparative Advantage: It makes sense to produce the things you’re especially good at producing… and buy everything else from others. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents ORIGIN OF THE IDEA David Ricardo (1772–1823) Argued against Corn Laws in British Parliament. Corn Laws: high tariffs on imported grain that protected British landowners. His theory of comparative advantage is still the ideological foundation for free trade. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Suppose that there are just two goods, computers and shirts, and one input, labor. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Assume that in Mexico, it takes 12 units of labor to make one computer and 2 units of labor to produce one shirt C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Suppose that Mexico has 24 units of labor. It can produce 2 computers and 0 shirts… or 0 computers and 12 shirts C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE The PPF is about trade-offs. If Mexico wants to produce more shirts, it must produce fewer computers. Each computer “costs” 12 workers, who could produce 6 shirts. So a computer “costs” 6 shirts in Mexico. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE AND… Each shirt “costs” 2 workers, who could produce one-sixth of a computer. So a shirt “costs” one-sixth of a computer in Mexico. 1/6 C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Mexico’s Production Possibilities Frontier Computers 6 Production Possibilities Shirts Computers The PPF 5 2 1 0 4 3 0 6 12 The slope = the trade-off (“cost”) of one good for the other. (One-sixth of a computer = 1 shirt: 1 shirt “costs” 6 computers.) 2 1 2 C O 4 P Y R 6 I G H 8 T 2 0 10 1 5 Shirts 12 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION Erin has a choice between two activities: She can repair one transmission per hour or she can repair two fuel injectors per hour. What is the opportunity cost of repairing one fuel injector? a) 1 transmission b) 0.5 transmission c) 2 transmissions To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION Deirdre can write either one more book this year or five more articles this year. What is the opportunity cost of writing half of a book this year, in terms of articles? a) 0.2 article b) 1 article c) 2.5 articles d) 10 articles To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Enter the U.S. with its own production and cost ratios. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Assume that in the United States, there are 24 units of labor, and it takes 1 unit of labor to produce either good. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Each shirt “costs” 1 worker, who could produce 1 computer. So a shirt “costs” 1 computer in the United States. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Summary of costs: each country has a different opportunity cost for each good. Take a look at the opportunity costs for computers: Would there be a benefit to trade? If so, who should produce what? C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE A country has a comparative advantage in producing goods for which it has the lowest opportunity cost. The U.S. has the comparative advantage in (is the lower-cost producer of) computers: Each computer costs 1 shirt. (Mexico = 6 shirts.) Mexico has the comparative advantage in (is the lower-cost producer of) shirts: Each shirt costs onesixth of a computer. (United States = 1 computer.) C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE (a) U.S. Production Possibilities (b) Brazilian Production Possibilities Quantity of large jets Quantity of large jets 30 U.S. consumption without trade Brazilian consumption without trade 18 10 8 U.S. PPF 16 0 Brazilian PPF 40 0 Quantity of small jets 6 30 Quantity of small jets Since each country has a different opportunity cost, it makes sense to specialize and trade… C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE (a) U.S. Production Possibilities Quantity of large jets (b) Brazilian Production Possibilities Quantity of large jets If the U.S. specializes in large jets… 30 And Brazil specializes in small jets… U.S. consumption without trade Brazilian consumption without trade 18 10 8 U.S. PPF 16 0 Brazilian PPF 40 0 Quantity of small jets 6 30 Quantity of small jets More airplanes will be produced with the same resources (up from 26 (18 + 8) to 30 large jets and up from 22 (16+6) to 30 small jets). C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE AND GAINS FROM TRADE Both countries gain. (a) U.S. Production Possibilities Quantity of large jets (b) Brazilian Production Possibilities Then the U.S. will send some large jets to Brazil in return for small jets… 30 U.S. consumption without trade 20 18 And Brazil will send some small jets to the U.S. in return for large jets… Quantity of large jets U.S. consumption with trade Both are happy with 1 large jet trading for 2 small jets. 10 Brazilian consumption without trade Brazilian consumption with trade 8 U.S. PPF 16 20 0 Brazilian PPF 6 10 40 0 Quantity of small jets 30 Quantity of small jets Both countries will be happy to export their goods for any price ABOVE their cost of production and import for any price BELOW their cost of production. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents COMPARATIVE ADVANTAGE VS. ABSOLUTE ADVANTAGE Absolute advantage: a country can produce more output per worker than other countries. (a) U.S. Production Possibilities Quantity of large jets (b) Brazilian Production Possibilities Quantity of large jets U.S. has the absolute advantage in BOTH large and small jets. 30 10 U.S. PPF 0 Brazilian PPF 40 0 Quantity of small jets C O P Y R I G H T 2 0 1 5 W O R T H P 30 Quantity of small jets U B L I S H E R S Back to Table of contents Don’t confuse absolute with comparative advantage. Just because the United States can produce more of both goods doesn’t mean we’re better off without trade. Pay attention to opportunity costs: If it’s cheaper for Brazil to produce small jets than it is for the United States, the United States will want to import small jets from Brazil. Back to Table of contents C OPYRIGHT 2015 W ORTH P UBLISHERS LEARN BY DOING: PRACTICE QUESTION If Texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. If it specializes in clothing, it can produce 500 units of clothing and 0 units of food. This year Urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food. (assume linear production possibility frontiers) _______has the absolute advantage in the production of clothing and ________has the absolute advantage in the production of food. a) Texia; Texia b) Texia; Urbania c) Urbania; Texia d) Urbania; Urbania To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION If Texia specializes in food, it can produce 1,000 units of food and 0 units of clothing this year. If it specializes in clothing, it can produce 500 units of clothing and 0 units of food. This year Urbania can produce either 500 units of food and 0 units of clothing or 200 units of clothing and 0 units of food. (assume linear production possibility frontiers) _______has the comparative advantage in the production of clothing and ________has the comparative advantage in the production of food. a) Texia; Texia b) Texia; Urbania c) Urbania; Texia d) Urbania; Urbania To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION If a country specializes according to its own comparative advantage and then trades with other nations: a) it will operate at a point inside its production possibilities frontier. b) it can consume at a higher level than the domestic production possibilities frontier. c) its production possibilities frontier will shift or rotate inward. d) it can consume at the same level as the domestic production possibilities frontier. To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION Write down, then discuss with a partner: What do you think? Would the U.S. economy be better off if we did not import so much clothing from China? List the groups who you think would gain and the groups who would lose if Chinese clothing imports were restricted. To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION Suppose that in Australia, it takes 2 hours to harvest 10 bushels of apples and 4 hours to harvest 10 bushels of tomatoes. Suppose a worker in Brazil can harvest 10 bushels of apples in 4 hours or 10 bushels of tomatoes in 5 hours. Which of these statements is TRUE? a) Brazil has a comparative advantage in producing tomatoes. b) Brazil has a comparative advantage in producing apples. c) Brazil has an absolute advantage in producing both goods. d) In trade between these two countries, Australia would gain and Brazil would lose. To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents TRANSACTIONS: THE CIRCULAR-FLOW DIAGRAM Production and trade in an economy can be represented by the circular-flow diagram: Money Money Goods and service s Factors Trade in physical things such as goods, services, labor, and raw materials flows in one direction… …and the money that pays for these physical things flows in the opposite direction. Goods and services Factors Money C O P Y R I G H T Money 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION With a partner, trace the following events through the circular flow: (a) the introduction of a new technology that boosts productivity (b) the decision of consumers to save more money (c) an increase in government spending To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION An increase in household spending leads to an increase in jobs in the economy. a) True b) False To Next Active Learning C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents USING MODELS: POSITIVE VERSUS NORMATIVE ECONOMICS Positive economics is the branch of economic analysis that describes the way the economy actually works. Normative economics makes prescriptions about the way the economy should work. Positive economics is about description; normative economics is about prescription. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION Label each of the following statements as normative (a) or positive (b): 1. More than 60% of women are in the labor market. 2. Rent control laws should be implemented because they help to achieve equity or fairness in housing. 3. Society should take measures to end gun violence. 4. People who smoke pass on increased medical costs to the whole society. 5. Single mothers are more than twice as likely as married mothers to be in poverty. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents LEARN BY DOING: PRACTICE QUESTION Label each of the following statements as normative (a) or positive (b): 1. More than 60% of women are in the labor market. POSITIVE 2. Rent control laws should be implemented because they help to achieve equity or fairness in housing. NORMATIVE 3. Society should take measures to end gun violence. NORMATIVE 4. People who smoke pass on increased medical costs to the whole society. POSITIVE 5. Single mothers are more than twice as likely as married mothers to be in poverty. POSITIVE C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents USING MODELS: WHEN AND WHY ECONOMISTS DISAGREE Media coverage tends to exaggerate the real differences in views among economists. Economics is often tied up in politics. Powerful interest groups find and promote economists who profess supportive opinions. Economic modeling requires simplifying assumptions. Two economists can legitimately disagree about which simplifications are appropriate. In most cases such disputes are eventually resolved. But it can take a long time before research settles important disputes. C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S Back to Table of contents SLIDES BY CHAPTER 1 SOLINA LINDAHL First Principles FOOD FOR THOUGHT…. SOME GOOD BLOGS AND OTHER SITES TO GET THE JUICES FLOWING: C O P Y R I G H T 2 0 1 5 W O R T H P U B L I S H E R S What you will learn in this chapter ▪ A set of principles for understanding the economics of how individuals make choices ▪ A set of principles for understanding how economies work through the interaction of individual choices ▪ A set of principles for understanding economy-wide interactions To Video To First Active Learning C O P Y R I G H T 2 0 1 6 W O R T H P U B L I S H E R S CHOICE: THE HEART OF ECONOMICS. She must choose. And her choice affects others. Back to Table of contents INDIVIDUAL CHOICE: THE PRINCIPLES 1. Choices are necessary because resources are scarce. Back to Table of contents RESOURCES AND SCARCITY Resource: anything that can be used to produce something else. Scarce: in short supply; a resource is scarce when there is not enough of the resource available to satisfy all the various ways a society wants to use it. ECONOMICS: The study of the best allocation of limited resources to satisfy the unlimited wants of humans. Back to Table of contents INDIVIDUAL CHOICE: THE PRINCIPLES 2. The true cost of something is its opportunity cost. Opportunity cost: what you must give up in order to get something. Mark Zuckerberg understood the concept of opportunity cost—and dropped out of Harvard. Back to Table of contents INDIVIDUAL CHOICE: THE PRINCIPLES 3. “How much” is a decision at the margin. Trade-off: comparison of the costs and the benefits of doing something. Each bite of the candy bar has costs and benefits. Back to Table of contents INDIVIDUAL CHOICE: THE PRINCIPLES Marginal decision: decision made at the margin of an activity about whether to do a bit more or a bit less of that activity. Marginal analysis: the study of marginal decisions. Incentive: anything that offers rewards to people who change their behavior. Back to Table of contents LEARN BY DOING: DISCUSS New York City Mayor Michael Bloomberg proposed a ban on the sale of any sugary beverage over 16 ounces in any of the city's restaurants, delis, movie theaters, and street carts. “Obesity is a nationwide problem, and all over the United States, public health officials are wringing their hands saying, ‘Oh, this is terrible.’ New York City is not about wringing your hands; it’s about doing something. I think that’s what the public wants the mayor to do,” Bloomberg told The New York Times in making his proposal. Discuss: Do you agree that soda should be taxed or banned? Why or why not? To Next Active Learning Back to Table of contents INDIVIDUAL CHOICE: THE PRINCIPLES 4. People usually respond to incentives, exploiting opportunities to make themselves better off. In the United States, restaurant customers have the option of adding a tip to the restaurant bill. In much of Europe a tip is added automatically. Where would you expect waiters to be more attentive? Back to Table of contents LEARN BY DOING: BUSINESS CASE CAN YOU SPOT THE PROBLEM WITH THIS INCENTIVE SYSTEM? A juvenile prison in Pennsylvania offered judges bribes the more young people they sent to jail. One teen was jailed for a Facebook page that was critical of her high-school principal. Both judges pleaded guilty to accepting $2.6 million in bribes. To Next Active Learning Back to Table of contents INTERACTION AND INDIVIDUAL CHOICE 5. There are gains from trade. Trade allows us all to consume more than we otherwise could. Back to Table of contents INTERACTION AND INDIVIDUAL CHOICE Specialization: the situation in which each person specializes in the task that he or she is good at performing. Back to Table of contents INTERACTION AND INDIVIDUAL CHOICE 6. Markets move toward equilibrium. Equilibrium: an economic situation in which no individual would be better off doing something different. Back to Table of contents LEARN BY DOING: APPLICATION VIDEO For a look at a real-world equilibrium, click the picture below to see the Aalsmeer Dutch Tulip auction in action. (3 minutes) Back to Table of contents LEARN BY DOING: BUSINESS CASE Lane speeds reach equilibrium quickly as people respond to incentives. Back to Table of contents INTERACTION AND INDIVIDUAL CHOICE 7. Resources should be used efficiently to achieve society’s goals. Efficient: taking all opportunities to make some people better off without making other people worse off. Back to Table of contents INTERACTION AND INDIVIDUAL CHOICE Equity trumps efficiency in disabled parking space offerings. Equity: a condition in which everyone gets his or her “fair share.” (There are many definitions of equity.) EQUITY AND EFFICIENCY ARE OFTEN AT ODDS. Back to Table of contents INTERACTION AND INDIVIDUAL CHOICE 8. Markets usually lead to efficiency. People normally take opportunities for mutual gain. Back to Table of contents INTERACTION AND INDIVIDUAL CHOICE 9. When markets don’t achieve efficiency, government intervention can improve society’s welfare. Sometimes markets fail and need correction. Back to Table of contents ECONOMY-WIDE INTERACTIONS 10. One person’s spending is another person’s income. Back to Table of contents ECONOMY-WIDE INTERACTIONS During recessions, a drop in business spending leads to: Less income, less spending… …and further drops in business spending, layoffs, and rising unemployment. Back to Table of contents ECONOMY-WIDE INTERACTIONS 11. Overall spending sometimes gets out of line with the economy’s productive capacity. Back to Table of contents ECONOMY-WIDE INTERACTIONS 12. Government policies can change spending. The U.S. government funded the WPA and provided almost 8 million jobs between 1935 and 1943. Back to Table of contents
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Explanation & Answer

Thanks for understanding.

Individual choice involves a person deciding on what to do or not do. The scarcity of
resources drives individuals to make choices. The available resources may be insufficient to
satisfy all uses that are productive. Such uses include labor, capital, land, and human capital.
Since the resources are limited, choices should be made. Economics is a social science that
entails the study of choices. You cannot have everything you want for example when students
ask their parents' something, and they are told no!
Economics emphasizes the need of resources to be used more efficiently since they are
scarce. The unlimited wants and scarce resources ensure that the available resources and wants
are used more efficiently. This means that the greatest gain should be obtained from the given
limited resources that are available in the society. The trade is further deemed efficient if no one
is made worse off and everyone is made better off. Competition in markets allows firms to be
more efficient when using their resources. This allows saving of resources and reduces total
costs. Monopoly and environmental damage are the main causes of market ...


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