,
,
,
,Openstax Principles of Economics 3e
Solution: Globalization is an increase in connections and economic activity across international
lines. Globalization allows small economies to take fuller advantage of the division of
labor.
Critical Thinking Questions
20. Suppose you have a team of two workers: one is a baker and one is a chef. Explain
why the kitchen can produce more meals in a given period of time if each worker
specializes in what they do best than if each worker tries to do everything from
appetizer to dessert.
Solution: The baker and the chef have specialized skills that allow them to be more productive
in certain areas than in others. The baker will be able to make a pie faster than the chef,
and the chef will be better at cooking the main course. By each worker doing what he
does best, productivity and efficiency are maximized and total output is greater.
21. Why would division of labor without trade not work?
Solution: With no trade, each individual must produce all the goods and services he wants to
consume. Therefore, by definition, he cannot specialize and so he can obtain the
benefits of specialization. With trade, on the other hand, by specializing on what the
individual does best, he can maximize product and income and trade for whatever else
he wants to consume. In short, specialization results in a net gain rather than a loss.
22. Can you think of any examples of free goods, that is, goods or services that are not
scarce?
Solution: Air for breathing is, in most cases, not scarce. Of course, for the scuba diver or the
astronaut, this is far from the case. Even goods that are not scarce for most practical
purposes can become scarce under certain circumstances.
23. A balanced federal budget and a balance of trade are considered secondary goals of
macroeconomics, while growth in the standard of living (for example) is considered a
primary goal. Why do you think that is so?
Solution: A Balanced federal budget and the balance of trade do not have direct effects on the
well-being of individuals. While we can argue about what their long term effects are, the
standard of living (as measured by economic growth, for example) is directly responsible
for how well off people are within an economy, so that is what economists care about.
24. Macroeconomics is an aggregate of what happens at the microeconomic level. Would
it be possible for what happens at the macro level to differ from how economic agents
would react to some stimulus at the micro level? Hint: Think about the behavior of
crowds.
This file is copyright 2023, Rice University. All Rights Reserved.
, Openstax Principles of Economics 3e
Solution: While the macroeconomy is ultimately the sum of individual actions, we can
sometimes see a different result from collective action than we do for individual action.
This can happen for a number of reasons, including crowd psychology, concentrated
benefits and dispersed costs, and difficulties in coordination.
25. Why is it unfair or meaningless to criticize a theory as “unrealistic?”
Solution: Economic models and the accompanying theories typically employ simplifying
assumptions that, by definition, make the models less than perfectly realistic. If the
models are good ones, they are still useful for understanding how a system works, in the
same way that a physicist might assume an absence of friction to simplify his
understanding of how a ball rolls across a surface. By making models simple, we can
understand the basic mechanisms of how things like supply and demand work without
having to worry too much about all the real world complications
26. Suppose, as an economist, you are asked to analyze an issue unlike anything you have
ever done before. Also, suppose you do not have a specific model for analyzing that
issue. What should you do? Hint: What would a carpenter do in a similar situation?
Solution: In this situation, most economists would attempt to construct a model to describe the
issue in question, using observation and reasonable assumptions. This model can then
be applied to the problem to get a consistent answer.
27. Why do you think that most modern countries’ economies are a mix of command and
market types?
Solution: Markets have historically been very good at creating wealth and innovation, but the
governments of most modern countries have decided that certain market outcomes, for
extreme wealth inequality, are undesirable, and therefore intervene for the sake of
what they view as fair or humane treatment of their citizens
28. Can you think of ways that globalization has helped you economically? Can you think
of ways that it has not?
Solution: Some people may have benefitted from the inexpensive and diverse goods made
available through global trade, while others may feel that they have lost jobs or
opportunities due to competition from producers in foreign countries.
This file is copyright 2023, Rice University. All Rights Reserved.
,
,
,Openstax Principles of Economics 3e
Solution: Globalization is an increase in connections and economic activity across international
lines. Globalization allows small economies to take fuller advantage of the division of
labor.
Critical Thinking Questions
20. Suppose you have a team of two workers: one is a baker and one is a chef. Explain
why the kitchen can produce more meals in a given period of time if each worker
specializes in what they do best than if each worker tries to do everything from
appetizer to dessert.
Solution: The baker and the chef have specialized skills that allow them to be more productive
in certain areas than in others. The baker will be able to make a pie faster than the chef,
and the chef will be better at cooking the main course. By each worker doing what he
does best, productivity and efficiency are maximized and total output is greater.
21. Why would division of labor without trade not work?
Solution: With no trade, each individual must produce all the goods and services he wants to
consume. Therefore, by definition, he cannot specialize and so he can obtain the
benefits of specialization. With trade, on the other hand, by specializing on what the
individual does best, he can maximize product and income and trade for whatever else
he wants to consume. In short, specialization results in a net gain rather than a loss.
22. Can you think of any examples of free goods, that is, goods or services that are not
scarce?
Solution: Air for breathing is, in most cases, not scarce. Of course, for the scuba diver or the
astronaut, this is far from the case. Even goods that are not scarce for most practical
purposes can become scarce under certain circumstances.
23. A balanced federal budget and a balance of trade are considered secondary goals of
macroeconomics, while growth in the standard of living (for example) is considered a
primary goal. Why do you think that is so?
Solution: A Balanced federal budget and the balance of trade do not have direct effects on the
well-being of individuals. While we can argue about what their long term effects are, the
standard of living (as measured by economic growth, for example) is directly responsible
for how well off people are within an economy, so that is what economists care about.
24. Macroeconomics is an aggregate of what happens at the microeconomic level. Would
it be possible for what happens at the macro level to differ from how economic agents
would react to some stimulus at the micro level? Hint: Think about the behavior of
crowds.
This file is copyright 2023, Rice University. All Rights Reserved.
, Openstax Principles of Economics 3e
Solution: While the macroeconomy is ultimately the sum of individual actions, we can
sometimes see a different result from collective action than we do for individual action.
This can happen for a number of reasons, including crowd psychology, concentrated
benefits and dispersed costs, and difficulties in coordination.
25. Why is it unfair or meaningless to criticize a theory as “unrealistic?”
Solution: Economic models and the accompanying theories typically employ simplifying
assumptions that, by definition, make the models less than perfectly realistic. If the
models are good ones, they are still useful for understanding how a system works, in the
same way that a physicist might assume an absence of friction to simplify his
understanding of how a ball rolls across a surface. By making models simple, we can
understand the basic mechanisms of how things like supply and demand work without
having to worry too much about all the real world complications
26. Suppose, as an economist, you are asked to analyze an issue unlike anything you have
ever done before. Also, suppose you do not have a specific model for analyzing that
issue. What should you do? Hint: What would a carpenter do in a similar situation?
Solution: In this situation, most economists would attempt to construct a model to describe the
issue in question, using observation and reasonable assumptions. This model can then
be applied to the problem to get a consistent answer.
27. Why do you think that most modern countries’ economies are a mix of command and
market types?
Solution: Markets have historically been very good at creating wealth and innovation, but the
governments of most modern countries have decided that certain market outcomes, for
extreme wealth inequality, are undesirable, and therefore intervene for the sake of
what they view as fair or humane treatment of their citizens
28. Can you think of ways that globalization has helped you economically? Can you think
of ways that it has not?
Solution: Some people may have benefitted from the inexpensive and diverse goods made
available through global trade, while others may feel that they have lost jobs or
opportunities due to competition from producers in foreign countries.
This file is copyright 2023, Rice University. All Rights Reserved.
