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[answered] CHAP TER 1 Economics: The Study of Choice START UP: ECONOMICS IN THE NEWS 2008 seemed to be the year of economic news. From the worst nancial crisis


Can I please get some assistance with this essay assignment? I will include the reading material needed. This economic topic needs to about something that is currently happening in the US economy. Please provide 2-3 resources in APA format. This needs to be able to pass a plagiarism scanner. A good tip will be left for work well done.

- For the term paper, you are required to pick a current economic topic that relates to the material we have covered or will cover in this course. You will research and find an article that covers the topic you have chosen. You can use an article online or offline from any reputable source. You will write up a review of the article and integrate course concepts into your review. Please make sure you both summarize the article and discuss how it relates to the course.

Complete this essay in a Microsoft Word document in?APA format.?Your work will automatically be submitted?to Turnitin for plagiarism review. Please make corrections as required. ?Please note that a minimum of 700 words for your essay is required.


CHAP TER 1 Economics: The Study of

 

Choice

 

START UP: ECONOMICS IN THE NEWS

 

2008 seemed to be the year of economic news. From the worst ?nancial crisis since the Great Depression to the

 

possibility of a global recession, to gyrating gasoline and food prices, and to plunging housing prices, economic

 

questions were the primary factors in the presidential campaign of 2008 and dominated the news generally.

 

What causes the prices of some good to rise while the prices of some other goods fall? Price determination is

 

one of the things that we will study in this book. We will also consider factors that lead an economy to fall into a recession?and the attempts to limit it.

 

While the investigation of these problems surely falls within the province of economics, economics encompasses a far broader range of issues. Ultimately, economics is the study of choice. Because choices range over every

 

imaginable aspect of human experience, so does economics. Economists have investigated the nature of family life,

 

the arts, education, crime, sports, job creation?the list is virtually endless because so much of our lives involves

 

making choices.

 

How do individuals make choices: Would you like better grades? More time to relax? More time watching

 

movies? Getting better grades probably requires more time studying, and perhaps less relaxation and entertainment. Not only must we make choices as individuals, we must make choices as a society. Do we want a cleaner environment? Faster economic growth? Both may be desirable, but e?orts to clean up the environment may con?ict

 

with faster economic growth. Society must make choices.

 

Economics is de?ned less by the subjects economists investigate than by the way in which economists investigate them. Economists have a way of looking at the world that di?ers from the way scholars in other disciplines

 

look at the world. It is the economic way of thinking; this chapter introduces that way of thinking. 8 PRINCIPLES OF MICROECONOMICS 1. DEFINING ECONOMICS

 

L E A R N I N G O B J E C T I V E S 1. De?ne economics.

 

2. Explain the concepts of scarcity and opportunity cost and how they relate to the de?nition of

 

economics.

 

3. Understand the three fundamental economic questions: What should be produced? How

 

should goods and services be produced? For whom should goods and services be produced? economics

 

A social science that

 

examines how people

 

choose among the

 

alternatives available to them. Economics is a social science that examines how people choose among the alternatives available to

 

them. It is social because it involves people and their behavior. It is a science because it uses, as much as

 

possible, a scienti?c approach in its investigation of choices. 1.1 Scarcity, Choice, and Cost

 

All choices mean that one alternative is selected over another. Selecting among alternatives involves

 

three ideas central to economics: scarcity, choice, and opportunity cost. Scarcity scarcity

 

The condition of having to

 

choose among alternatives.

 

scarce good

 

A good for which the choice

 

of one alternative requires

 

that another be given up. free good

 

A good for which the choice

 

of one use does not require

 

that another be given up. Our resources are limited. At any one time, we have only so much land, so many factories, so much oil,

 

so many people. But our wants, our desires for the things that we can produce with those resources, are

 

unlimited. We would always like more and better housing, more and better education?more and better of practically everything.

 

If our resources were also unlimited, we could say yes to each of our wants?and there would be

 

no economics. Because our resources are limited, we cannot say yes to everything. To say yes to one

 

thing requires that we say no to another. Whether we like it or not, we must make choices.

 

Our unlimited wants are continually colliding with the limits of our resources, forcing us to pick

 

some activities and to reject others. Scarcity is the condition of having to choose among alternatives. A

 

scarce good is one for which the choice of one alternative requires that another be given up.

 

Consider a parcel of land. The parcel presents us with several alternative uses. We could build a

 

house on it. We could put a gas station on it. We could create a small park on it. We could leave the

 

land undeveloped in order to be able to make a decision later as to how it should be used.

 

Suppose we have decided the land should be used for housing. Should it be a large and expensive

 

house or several modest ones? Suppose it is to be a large and expensive house. Who should live in the

 

house? If the Lees live in it, the Nguyens cannot. There are alternative uses of the land both in the sense

 

of the type of use and also in the sense of who gets to use it. The fact that land is scarce means that society must make choices concerning its use.

 

Virtually everything is scarce. Consider the air we breathe, which is available in huge quantity at

 

no charge to us. Could it possibly be scarce?

 

The test of whether air is scarce is whether it has alternative uses. What uses can we make of the

 

air? We breathe it. We pollute it when we drive our cars, heat our houses, or operate our factories. In

 

e?ect, one use of the air is as a garbage dump. We certainly need the air to breathe. But just as certainly,

 

we choose to dump garbage in it. Those two uses are clearly alternatives to each other. The more

 

garbage we dump in the air, the less desirable?and healthy?it will be to breathe. If we decide we want

 

to breathe cleaner air, we must limit the activities that generate pollution. Air is a scarce good because

 

it has alternative uses.

 

Not all goods, however, confront us with such choices. A free good is one for which the choice of

 

one use does not require that we give up another. One example of a free good is gravity. The fact that

 

gravity is holding you to the earth does not mean that your neighbor is forced to drift up into space!

 

One person?s use of gravity is not an alternative to another person?s use.

 

There are not many free goods. Outer space, for example, was a free good when the only use we

 

made of it was to gaze at it. But now, our use of space has reached the point where one use can be an alternative to another. Con?icts have already arisen over the allocation of orbital slots for communications satellites. Thus, even parts of outer space are scarce. Space will surely become more scarce as we

 

?nd new ways to use it. Scarcity characterizes virtually everything. Consequently, the scope of economics is wide indeed. CHAPTER 1 ECONOMICS: THE STUDY OF CHOICE 9 Scarcity and the Fundamental Economic Questions

 

The choices we confront as a result of scarcity raise three sets of issues. Every economy must answer

 

the following questions:

 

1. What should be produced? Using the economy?s scarce resources to produce one thing requires

 

giving up another. Producing better education, for example, may require cutting back on other

 

services, such as health care. A decision to preserve a wilderness area requires giving up other

 

uses of the land. Every society must decide what it will produce with its scarce resources.

 

2. How should goods and services be produced? There are all sorts of choices to be made in

 

determining how goods and services should be produced. Should a ?rm employ a few skilled or a

 

lot of unskilled workers? Should it produce in its own country or should it use foreign plants?

 

Should manufacturing ?rms use new or recycled raw materials to make their products?

 

3. For whom should goods and services be produced? If a good or service is produced, a decision

 

must be made about who will get it. A decision to have one person or group receive a good or

 

service usually means it will not be available to someone else. For example, representatives of the

 

poorest nations on earth often complain that energy consumption per person in the United States

 

is 17 times greater than energy consumption per person in the world?s 62 poorest countries.

 

Critics argue that the world?s energy should be more evenly allocated. Should it? That is a ?for

 

whom? question.

 

Every economy must determine what should be produced, how it should be produced, and for whom it

 

should be produced. We shall return to these questions again and again. Opportunity Cost

 

It is within the context of scarcity that economists de?ne what is perhaps the most important concept

 

in all of economics, the concept of opportunity cost. Opportunity cost is the value of the best alternative forgone in making any choice.

 

The opportunity cost to you of reading the remainder of this chapter will be the value of the best

 

other use to which you could have put your time. If you choose to spend $20 on a potted plant, you

 

have simultaneously chosen to give up the bene?ts of spending the $20 on pizzas or a paperback book

 

or a night at the movies. If the book is the most valuable of those alternatives, then the opportunity cost

 

of the plant is the value of the enjoyment you otherwise expected to receive from the book.

 

The concept of opportunity cost must not be confused with the purchase price of an item. Consider the cost of a college or university education. That includes the value of the best alternative use of

 

money spent for tuition, fees, and books. But the most important cost of a college education is the value

 

of the forgone alternative uses of time spent studying and attending class instead of using the time in

 

some other endeavor. Students sacri?ce that time in hopes of even greater earnings in the future or because they place a value on the opportunity to learn. Or consider the cost of going to the doctor. Part of

 

that cost is the value of the best alternative use of the money required to see the doctor. But, the cost

 

also includes the value of the best alternative use of the time required to see the doctor. The essential

 

thing to see in the concept of opportunity cost is found in the name of the concept. Opportunity cost is

 

the value of the best opportunity forgone in a particular choice. It is not simply the amount spent on

 

that choice.

 

The concepts of scarcity, choice, and opportunity cost are at the heart of economics. A good is

 

scarce if the choice of one alternative requires that another be given up. The existence of alternative

 

uses forces us to make choices. The opportunity cost of any choice is the value of the best alternative

 

forgone in making it.

 

K E Y

 

<

 

<

 

<

 

< T A K E A W A Y S Economics is a social science that examines how people choose among the alternatives available to them.

 

Scarcity implies that we must give up one alternative in selecting another. A good that is not scarce is a

 

free good.

 

The three fundamental economic questions are: What should be produced? How should goods and

 

services be produced? For whom should goods and services be produced?

 

Every choice has an opportunity cost and opportunity costs a?ect the choices people make. The

 

opportunity cost of any choice is the value of the best alternative that had to be forgone in making that

 

choice. opportunity cost

 

The value of the best

 

alternative forgone in making

 

any choice. 10 PRINCIPLES OF MICROECONOMICS T R Y I T ! Identify the elements of scarcity, choice, and opportunity cost in each of the following:

 

1. The Environmental Protection Agency is considering an order that a 500-acre area on the outskirts of a

 

large city be preserved in its natural state, because the area is home to a rodent that is considered an

 

endangered species. Developers had planned to build a housing development on the land.

 

2. The manager of an automobile assembly plant is considering whether to produce cars or sport utility

 

vehicles (SUVs) next month. Assume that the quantities of labor and other materials required would be the

 

same for either type of production.

 

3. A young man who went to work as a nurses? aide after graduating from high school leaves his job to go to

 

college, where he will obtain training as a registered nurse. Case in Point: The Rising Cost of Energy ? 2010 Jupiterimages Corporation Oil is an exhaustible resource. The oil we burn today will not be available for use in the future. Part of the opportunity cost of our consumption of goods such as gasoline that are produced from oil includes the value

 

people in the future might have placed on oil we use today.

 

It appears that the cost of our use of oil may be rising. We have been using ?light crude,? the oil found in the

 

ground in deposits that can be readily tapped. As light crude becomes more scarce, the world may need to

 

turn to so-called ?heavy crude,? the crude oil that is found in the sandy soil of places such as Canada and

 

Venezuela. That oil exists in such abundance that it propels Venezuela to the top of the world list of available

 

oil. Saudi Arabia moves to the second position; Canada is third.

 

The di?culty with the oil mixed in the sand is that extracting it is far more costly than light crude, both in

 

terms of the expenditures required and in terms of the environmental damage that mining it creates. Northern

 

Alberta, in Canada, boasts a Florida-sized area whose sandy soils are rich in crude oil. Some of that oil is 1,200

 

feet underground. Extracting it requires pumping steam into the oily sand and then pumping up the resultant

 

oily syrup. That syrup is then placed into huge, industrial-sized washing machines that separate crude oil. What

 

is left over is toxic and will be placed in huge lakes that are being created by digging pits in the ground 200

 

feet deep. The oil produced from these sands has become important?Alberta is the largest foreign supplier

 

of oil to the United States. CHAPTER 1 ECONOMICS: THE STUDY OF CHOICE 11 Sands that are closer to the surface are removed by bulldozers and giant cranes; the forest over it is cleared

 

away. The oily sand is then hauled o? in two-story dump trucks which, when ?lled, weigh more than a Boeing

 

747. Total SA, a French company, is leading the race to develop Canada?s oil. Jean Luc-Guiziou, the president of

 

Total SA?s Canadian operations, says that the extraordinarily costly process of extracting heavy crude is

 

something the world is going to have to get used to. ?The light crude undiscovered today is getting scarcer

 

and scarcer,? he told The Wall Street Journal. ?We have to accept the reality of geoscience, which is that the next

 

generation of oil resources will be heavier.?

 

Already, Total SA has clear-cut thousands of acres of forest land in order to gain access to the oily sand below.

 

The process of extracting heavy crude oil costs the company $25 a barrel?compared to the $6 per barrel cost

 

of extracting and re?ning light crude. Extracting heavy crude generates three times as much greenhouse gas

 

per barrel as does light crude. By 2015, Fort McMurray, the small (population 61,000) town that has become

 

the headquarters of Northern Alberta?s crude oil boom, will emit more greenhouse gas than the entire country

 

of Denmark (population 5.4 million). Canada will exceed its greenhouse gas quota set by the Kyoto Accords?an international treaty aimed at limiting global warming?largely as a result of developing its heavy

 

crude deposits.

 

No one even considered the extraction of heavy crude when light crude was cheap. In the late 1990s, oil cost

 

just $12 per barrel, and deposits of heavy crude such as those in Canada attracted little attention. By mid-2006,

 

oil sold for more than $70 per barrel, and Canada?s heavy crude was suddenly a hot commodity. ?It moved

 

from being just an interesting experiment in northern Canada to really this is the future source of oil supply,?

 

Greg Stringham of the Canadian Association of Petroleum Producers told Al Jazeera.

 

Alberta?s energy minister, Greg Melchin, defends the province?s decision to proceed with the exploitation of its

 

oily sand. ?There is a cost to it, but the bene?ts are substantially greater,? he insists.

 

Not everyone agrees. George Poitras, a member of the Mikisew Cree tribe, lives downstream from the oil sands

 

development. ?You see a lot of the land dug up, a lot of the boreal forest struck down and it?s upsetting, it ?lls

 

me with rage,? he says. Diana Gibson of the Parkland Institute, an environmental advocacy group, says that you

 

can see the environmental damage generated by the extraction of oil sands around Fort McMurray from the

 

moon. ?What we are going to be having is destruction of very, very valuable ecosystems, and permanent pollution,? she says.

 

Sources: ?Alberta?s Heavy Oil Burden,? Al Jazeera English, March 17, 2008 (see english.aljazeera.net); and Russell Gold, ?As Prices Surge, Oil Giants Turn

 

Sludge into Gold,? The Wall Street Journal Online, March 27, 2006, A1. A N S W E R S T O T R Y I T ! P R O B L E M S 1. The 500-acre area is scarce because it has alternative uses: preservation in its natural state or a site for

 

homes. A choice must be made between these uses. The opportunity cost of preserving the land in its

 

natural state is the forgone value of the land as a housing development. The opportunity cost of using the

 

land as a housing development is the forgone value of preserving the land.

 

2. The scarce resources are the plant and the labor at the plant. The manager must choose between

 

producing cars and producing SUVs. The opportunity cost of producing cars is the pro?t that could be

 

earned from producing SUVs; the opportunity cost of producing SUVs is the pro?t that could be earned

 

from producing cars.

 

3. The man can devote his time to his current career or to an education; his time is a scarce resource. He

 

must choose between these alternatives. The opportunity cost of continuing as a nurses? aide is the

 

forgone bene?t he expects from training as a registered nurse; the opportunity cost of going to college is

 

the forgone income he could have earned working full-time as a nurses? aide. 12 PRINCIPLES OF MICROECONOMICS 2. THE FIELD OF ECONOMICS

 

L E A R N I N G O B J E C T I V E S 1. Explain the distinguishing characteristics of the economic way of thinking.

 

2. Distinguish between microeconomics and macroeconomics. We have examined the basic concepts of scarcity, choice, and opportunity cost in economics. In this

 

section, we will look at economics as a ?eld of study. We begin with the characteristics that distinguish

 

economics from other social sciences. 2.1 The Economic Way of Thinking

 

Economists study choices that scarcity requires us to make. This fact is not what distinguishes economics from other social sciences; all social scientists are interested in choices. An anthropologist might

 

study the choices of ancient peoples; a political scientist might study the choices of legislatures; a psychologist might study how people choose a mate; a sociologist might study the factors that have led to a

 

rise in single-parent households. Economists study such questions as well. What is it about the study of

 

choices by economists that makes economics di?erent from these other social sciences?

 

Three features distinguish the economic approach to choice from the approaches taken in other

 

social sciences:

 

1. Economists give special emphasis to the role of opportunity costs in their analysis of choices.

 

2. Economists assume that individuals make choices that seek to maximize the value of some

 

objective, and that they de?ne their objectives in terms of their own self-interest.

 

3. Individuals maximize by deciding whether to do a little more or a little less of something.

 

Economists argue that individuals pay attention to the consequences of small changes in the

 

levels of the activities they pursue.

 

The emphasis economists place on opportunity cost, the idea that people make choices that maximize

 

the value of objectives that serve their self-interest, and a focus on the e?ects of small changes are ideas

 

of great power. They constitute the core of economic thinking. The next three sections examine these

 

ideas in greater detail. Opportunity Costs Are Important

 

If doing one thing requires giving up another, then the expected bene?ts of the alternatives we face will

 

a?ect the ones we choose. Economists argue that an understanding of opportunity cost is crucial to the

 

examination of choices.

 

As the set of available alternatives changes, we expect that the choices individuals make will

 

change. A rainy day could change the opportunity cost of reading a good book; we might expect more

 

reading to get done in bad than in good weather. A high income can make it very costly to take a day

 

o?; we might expect highly paid individuals to work more hours than those who are not paid as well. If

 

individuals are maximizing their level of satisfaction and ?rms are maximizing pro?ts, then a change in

 

the set of alternatives they face may a?ect their choices in a predictable way.

 

The emphasis on opportunity costs is an emphasis on the examination of alternatives. One bene?t

 

of the economic way of thinking is that it pushes us to think about the value of alternatives in each

 

problem involving choice. Individuals Maximize in Pursuing Self-Interest

 

What motivates people as they make choices? Perhaps more than anything else, it is the economist?s

 

answer to this question that distinguishes economics from other ?elds.

 

Economists assume that individuals make choices that they expect will create the maximum value

 

of some objective, given the constraints they face. Furthermore, economists assume that people?s objectives will be those that serve their own self-interest.

 

Economists assume, for example, that the owners of business ?rms seek to maximize pro?t. Given

 

the assumed goal of pro?t maximization, economists can predict how ?rms in an industry will respond

 

to changes in the markets in which they operate. As labor costs in the United States rise, for example,

 

economists are not surprised to see ?rms moving some of their manufacturing operations overseas. CHAPTER 1 ECONOMICS: THE STUDY OF CHOICE 13 Similarly, economists assume that maximizing behavior is at work when they examine the behavior of consumers. In studying consumers, economists assume that individual consumers make choices

 

aimed at maximizing their level of satisfaction. In the next chapter, we will look at the results of the

 

shift from skiing to snowboarding; that is a shift that re?ects the pursuit of self-interest by consumers

 

and by manufacturers.

 

In assuming that people pursue their self-interest, economists are not assuming people are sel?sh.

 

People clearly gain satisfaction by helping others, as suggested by the large charitable contributions

 

people make. Pursuing one?s own self-interest means pursuing the things that give one satisfaction. It

 

need not imply greed or sel?shness. Choices Are Made at the Margin

 

Economists argue that most choices are made ?at the margin.? The margin is the current level of an

 

activity. Think of it as the edge from which a choice is to be made. A choice at the margin is a decision to do a little more or a little less of something.

 

Assessing choices at the margin can lead to extremely useful insights. Consider, for example, the

 

problem of curtailing water consumption when the amount of water available falls short of the amount

 

people now use. Economists argue that one way to induce people to conserve water is to raise its price.

 

A common response to this recommendation is that a higher price would have no e?ect on water consumption, because water is a necessity. Many people assert that prices do not a?ect water consumption

 

because people ?need? water.

 

But choices in water consumption, like virtually all choices, are made at the margin. Individuals do

 

not make choices about whether they should or should not consume water. Rather, they decide whether to consume a little more or a little less water. Household water consumption in the United States

 

totals about 105 gallons per person per day. Think of that starting point as the edge from which a

 

choice at the margin in water consumption is made. Could a higher price cause you to use less water

 

brushing your teeth, take shorter showers, or water your lawn less? Could a higher price cause people

 

to reduce their use, say, to 104 gallons per person per day? To 103? When we examine the choice to

 

consume water at the margin, the notion that a higher price would reduce consumption seems much

 

more plausible. Prices a?ect our consumption of water because choices in water consumption, like other choices, are made at the margin.

 

The elements of opportunity cost, maximization, and choices at the margin can be found in each

 

of two broad areas of economic analysis: microeconomics and macroeconomics. Your economics

 

course, for example, may be designated as a ?micro? or as a ?macro? course. We will look at these two

 

areas of economic thought in the next section. margin

 

The current level of an

 

activity.

 

choice at the margin

 

A decision to do a little more

 

or a little less of something. 2.2 Microeconomics and Macroeconomics

 

The ?eld of economics is typically divided into two broad realms: microeconomics and macroeconomics. It is important to see the distinctions between the...

 


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