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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






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




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.










< 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; 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




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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