Deck 38: The Economic Approach

Question 1

"Individuals who economize are missing the point of life. Money is not so important that it should rule the way we live." Evaluate this statement.

Answer 1

In the given statement, economizing has been solely linked to the money and has been conveyed that economizing pertains to spending or earning money in such a manner that individual concerned make choice in order to get greatest benefit at least cost.
Statement also points out that whenever an individual economize he is solely thinking about how best to spent or earn money and in this way money has been put as central perspective of a person who economize.
However, in reality, economizing is not solely related to money matters.
In fact, economizing is a general behavior because in every sphere of life whether related to money or not, we practice economizing that is we always try to choose those options that provides us with greatest benefits at least possible cost.
As we know, cost and benefits are both subjective as well as objective therefore to state them in monetary terms is not possible.
In same way, economizing is not exclusively linked with money.
So, whether money is important in your life or not you will economize because economizing behavior covers various matters pertaining to our life and not just monetary matters.

Question 2

"Positive economics cannot tell us which agricultural policy is better, so it is useless to policy makers." Evaluate this statement.

Answer 2

Positive economics is the economics of reality. Although it does not involve any value judgment but it helps to analyze and introspect about the outcome of a policy based on the available evidences and data. It can be said to be like a mirror that reflects facts and highlights the probable outcome of a policy. A sound economic logic when analyzed in the framework of positive economics leads to success in policy formulation.
Given this nature of positive economics in spite of the fact that it does not tell us which agricultural policy is better but it certainly acts as a guiding light in evaluating which policy may yield what kind of result.

Question 3

"I examined the statistics for our basketball team's wins last year and found that, when the third team played more, the winning margin increased. If the coach played the third team more, we would win by a bigger margin." Evaluate this statement.

Answer 3

Establishing a cause and effect relationship with a sound logic is a prerequisite in any analysis not only economics. When any analysis is solely based on statistics and data from past experiences it becomes a blind analysis as it might become difficult to distinguish between introspection and fact and result in logical fallacy.
The fact that basketball team has won when coach played in the team does not guarantee any further win since it does not give any logical foundation to the analysis and perhaps ignores various other events which may be crucial to the basketball match. The outcome might have been incidental and not logical.

Question 4

Which of the following are positive economic statements and which are normative?
a. The speed limit should be lowered to 55 miles per hour on interstate highways.
b. Higher gasoline prices cause the quantity of gasoline that consumers buy to decrease.
c. A comparison of costs and benefits should not be used to assess environmental regulations.
d. Higher taxes on alcohol result in less drinking and driving.

Question 5

Why can't we consume as much of each good or service as we would like? If we become richer in the future, do you think we will eventually be able to consume as much of everything as we would like? Why or why not?

Question 6

Suppose that in an effort to help low-skill workers the government raises the permissible minimum wage to $15 per hour. Can you think of any unintended secondary effects that will result from this action? Will all low-skill workers be helped by the minimum wage law?

Question 7

Should the United States attempt to reduce air and water pollution to zero? Why or why not?

Question 8

Indicate how each of the following changes would influence the incentive of a decision-maker to undertake the action described.
a. A reduction in the temperature from 80° to 50° on one's decision to go swimming
b. A change in the meeting time of the introductory economics course from 11:00 A.M. to 7:30 A.M. on one's decision to attend the lectures
c. A reduction in the number of exam questions that relate directly to the text on the student's decision to read the text
d. An increase in the price of beef on one's decision to buy steak
e. An increase in the rental rates of apartments on one's decision to build additional rental housing units

Question 9

"The government should provide such goods as health care, education, and highways because it can provide them for free." Is this statement true or false? Explain your answer.

Question 10

a. What method is used to ration goods in a market economy? How does this rationing method influence the incentive of individuals to supply goods, services, and resources to others?
b. How are grades rationed in your economics class? How does this rationing method influence student behavior? Suppose the highest grades were rationed to those whom the teacher liked best. How would this method of rationing influence student behavior?

Question 11

In recent years, the child tax credit has been increased in the United States. According to the basic principles of economics, how will the birthrate be affected by policies that reduce the taxes imposed on those with children?

Question 12

"The economic way of thinking stresses that good intentions lead to sound policy." Is this statement true or false? Explain your answer.

Question 13

Self-interest is a powerful motivator. Does this necessarily imply that people are selfish and greedy? Do self-interest and selfishness mean the same thing?

Question 14

A restaurant offers an "all you can eat" lunch buffet for $10. Shawn has already eaten three servings, and is trying to decide whether to go back for a fourth. Describe how Shawn can use marginal analysis to make his decision.