Chapterj01j-jLimits,jAlternatives,jChoices
Chapterj01j-
Limits,jAlternatives,jandjChoicesjMcConnelljBruejFly
j
nnj22e
DISCUSSIONjQUESTIONS
1. Whatjisjanhopportunityjcost?jHowjdoesjthehideajrelatejtojthejdefinitionhofjeconomics?jWh
ichjofjthejfollowingjdecisionsjwouldjentailjthejgreaterjopportunityjcost:jAllocatinghj ajsquar
ejblockhinjthejheartjofjNewjYorkjCityjforjajsurfacejparkinghlotjorjallocatingjajsqjuarejblockjat
jthejedgejofjajtypicaljsuburbjforjsuchjajlot? jExplain.jLO1
Answer:jAnjopportunityjcostjisjwhatjwasjsacrificedjtohdojorjacquirejsomethingjels
e.jThehconditionjofjscarcityjcreatesjopportunityjcost.jIfjtherejwasjnohscarcity,jthjerejwo
uldjbejnojneedjtohsacrificejonejthingjtojacquirejanother.jThejopportunityjcostjwouldjbeh
muchjhigherjinjNewjYorkjCityjasjthejalternativejusesjforjthatjsquarejblocjkjarejmuchhmo
rehvaluablejthanjforjajtypicaljsuburbanjcityjblock.
2.
Citejthreehexamplesjofjrecentjdecisionsjthathyoujmadejinjwhichjyou,jatjleastjimplicijtly,j
weighedjmarginaljcostjandjmarginaljbenefit.jLO1
Answer:jAnswersjwilljvary,jbutjmayjincludejthejdecisionjtojcomejtojclass,jtojskipjbrea
kfastjtojgetjajfewjextrajminutesjofjsleep,jtojattendjcollege,jorjtojmakejajpurchas
e.jMarginaljbenefitsjofjattendingjclassjmayjincludejthejacquisitionjofjknowledge,jpjarti
cipationjinjdiscussion,jandjbetterjpreparationjforjanjupcomingjexamination.j Majrginalj
costsjmayjincludehlostjopportunitiesjforjsleep,jmeals,jorjstudyingjforjotherjcljasses.jInje
valuatingjthejdiscussionjofjmarginaljbenefitsjandjmarginaljcosts,jbejcarefjuljtojwatchjfo
rjsunkjcostsjofferedjasjajrationalehforjmarginaljdecisions.
3. Whatjisj“utility”jandjhowjdoesjthejideahrelatejtojpurposefuljbehavior?jLO1
Answer:j“Utility”jrefersjtojthejpleasure,jhappiness,jorjsatisfactionjgainedjfromjengjagi
ngjinjanhactivityj(eatingjahmeal,jattendingjajballjgame,jetc.).jIthisjanjimportantjcojmpone
ntjofjpurposefuljbehaviorjbecausejpeoplejwilljallocatejtheirjscarcejtime,jenerjgy,jandjmo
neyjinjanjattemptjtojgainjthehmostjutilityjpossible.
4.
Whatjarejthehkeyjelementsjofjthejscientifichmethod,jandjhowjdoeshthisjmethodjrelatjejtoj
economicjprinciplesjandjlaws?jLO2
Answer:jThehkeyjelementsjincludejthejgatheringjofjdataj(observation),jthejformulajtio
1-1
©h2021j byj McGraw-
Hillj Education.j Thisj isj proprietaryj materialj solelyj forj authorizedj instructorj use.j Nothauthorizedj forj salehorj distributionj inj anyj manner.j
Thisj documentj mayj notj bej copied,j scanned,j duplicated,j forwarded,j distributed,j orj postedj onj aj website,j inj wholehorj part.
,Chapterj01j-jLimits,jAlternatives,jChoices
njofjpossiblejexplanationsj(hypothesis),jtestingjthejhypothesis,jdeterminingjthejv
1-2
©h2021j byj McGraw-
Hillj Education.j Thisj isj proprietaryj materialj solelyj forj authorizedj instructorj use.j Nothauthorizedj forj salehorj distributionj inj anyj manner.j
Thisj documentj mayj notj bej copied,j scanned,j duplicated,j forwarded,j distributed,j orj postedj onj aj website,j inj wholehorj part.
,Chapterj01j-jLimits,jAlternatives,jChoices
alidityjofjthehhypothesis,jandjrepeatedjtestingjofjhypothesesjthathhavejappearedhtojbjejv
alidjinjpriorjtests.
Thejscientificjmethodjisjthejtechniquejusedjbyjeconomistsjtojdetermineheconomicjljaws
jorjprinciples.jThesejlawsjorjprinciplesjarejformulatedjtojexplainjand/orjpredictjbehavio
rjofjindividualsjorjinstitutions.
5.
Makej(a)jajpositivejeconomicjstatementjofjyourjchoice,jandjthenj(b)jajnormativejeconjomic
jstatementjrelatingjtojyourjfirstjstatement.jLO3
Answer:jAnswersjwilljvary.j Example:j(a)jThejunemploymentjratejisj4.8jpercent;j(jb)jth
ejunemploymentjratejisjtoojhigh.jInjgeneral,jwejtreatj“whatjis”jstatementsjasjpjositive,j“
whatjshouldjbe”jasjnormative,jbutjkeepjanjeyehoutjforjstatementsjlikeh“atjfjulljemploym
entjanjincreasejinjthejproductionhofjpizzasjshouldjcomehatjthejcostjofjljessjrobots.”jSom
ehstudentsjmayjincorrectlyjidentifyjthejstatementhasjnormativejbecjausejofjthejtermj“sh
ould.”
6. Howjdoesjthejslopejofjajbudgetjlinejillustratehopportunityjcostjandjtrade-
offs?j Howjdoesjajbudgetjlinejillustratejscarcityjandjthejeffecthofjlimitedjincomes?jLOj4
Answer:jBudgetjlinesjarejalwaysjslopedjdownward.j Thisjdownwardjslopejshowsjanji
nversejrelationshipjbetweenjthejtwojgoods,jmeaningjthatjasjyoujincreasejone,jthjejotherj
musthdecrease.j Thisjdecreasejisjwhatjyoujarejgivinghup,jorjopportunityjcost,jofjthejgood
j youjarejgettingjmorejof.
Budgetjlinesjillustratehscarcityjinjthatjtheyjshowjyoujarejlimitedjbyjyourjincome.jSijncejt
heyjslopejdownward,jtheyjshowjyoujcannotjkeepjgettingjmorejandjmorejofjbotjhjgoods.j
Therejisjalwaysjajtrade-
off.j Thejareajbeyondjthejbudgetjlinejrepresentsjcombinationsjofjthejgoodsjthatjarejbey
ondjyourjincome.
7.
Whatjarejeconomicjresources?jWhatjcategoriesjdojeconomistsjusejtojclassifyjthem
?jWhyjarejresourcesjalsojcalledjfactorsjofjproduction?jWhyjarejtheyjcalledjinputs?jLOj5
Answer:jEconomichresourcesjarehthejnatural,jhuman,jandhmanufacturedjinputsjusejdjt
ojproducejgoodsjandjservices.
1-3
©h2021j byj McGraw-
Hillj Education.j Thisj isj proprietaryj materialj solelyj forj authorizedj instructorj use.j Nothauthorizedj forj salehorj distributionj inj anyj manner.j
Thisj documentj mayj notj bej copied,j scanned,j duplicated,j forwarded,j distributed,j orj postedj onj aj website,j inj wholehorj part.
, Chapterj01j-jLimits,jAlternatives,jChoices
Economicjresourcesjfalljintojfourjmainjcategories:j labor,jlandj(naturaljresources),jrealj
capitalj(machines,jfactories,jbuildings,jetc.,)jandjentrepreneurs.
Economicjresourcesjarejalsojcalledjfactorsjofjproductionjbecausejtheyjarejusedjtojpjrodu
cejgoodsjandjservices.jTheyjarejcalledjinputsjbecausejtheyjgojinjtojajproductiojnjprocessj
(likejingredientsjgojintojahbowljtojmakejajcake),jwithjthehresultingjgoodsjandjservicesja
lsojbeinghreferredjtojasjoutput.
8.
Whyjisjmoneyjnotjconsideredjtojbejajcapitaljresourcehinjeconomics?jWhyjisjentrepjrene
urialjabilityjconsideredjajcategoryjofjeconomicjresource,jdistinctjfromhlabor?jWhajtjrolesjd
ojentrepreneursjplayjinhthejeconomy?jLO5
Answer:jMoneyjisjnotjconsideredjajcapitaljresourcejbecausejmoneyjisjnotjproductijvej–
itjprovidesjaccessjtojresourcesjbutjitselfjdoesjnotjdirectlyjcontributejtojthejproductijonjo
fjgoodsjandjservices.jAdditionally,jthejquantityjofjmoneyjinhcirculationjdoesjnjotjdeter
minejanjeconomy’sjproductivejcapacity,jwhilejthejamountjofjcapitaljandjotjherjresourc
esjdoes.j Doublingjthejamountjofjmoneyjinjcirculationjdoesjnotjchangejtjhejeconomy’sjp
hysicaljcapacityjtojproducehgoodsjandjservices.j Moneyjis,jhowever
,jreferredhasjajfinancialjresourcehandhfinancialjcapital,jreflectingjitsjabilityjtojacquijrejr
ealjeconomicjresources.
Entrepreneurialjabilityjandjlaborjarejbothjhumanjresources,jbutjtheyjperformjdifferjentj
functionsjinjthejproductivejprocess.j Entrepreneurialjabilityjdoesjnotjdirectlyjprjoducej
goodsjandjservices;jithorganizesjthejresourcesjthathdo.j Laborjrefersjtojthehhujmanjinput
sjthatjdirectlyjengagejinjproduction.
Entrepreneursjarejrisk-
takers:j Theyjcoordinatejthejactivitiesjofjthehotherjthreejinputsjforjprofit—
jorjloss,jwhichjisjwhyjtheyjarejcalled jrisk-
takers.j Entrepreneursjsometimesjmanagejcompaniesjthatjtheyjown,jbutjajmanagerjwh
ojisjnotjanjownerjisjnotjnecessarilyjanjentrepreneurjbuthmayjbehperformingjsomejofjtheje
ntrepreneurialjfunctionsjforjthejcompany.j Entrepreneursjarehalsojinnovatorjs,jorjperha
psjinventors,jandjprofitsjhelpjtojmotivatejsuchjactivities.
9. Explainhthejtypicaljshapesjofjmarginal-benefitjandjmarginal-
costjcurves.jHowjarejthesejcurvesjusedjtojdeterminejthejoptimaljallocationjofjresourcesjtojaj
particularjproduct?jIfjcurrentjoutputjisjsuchjthatjmarginaljcostjexceedsjmarginaljbjenefit,js
houldjmorejorjfewerjresourcesjbejallocatedjtojthishproduct?jExplain.jLO6
Answer:jThehmarginaljbenefithcurvejisjdownwardhsloping,jMBjfallsjasjmorejofjajprjodu
ctjisjconsumedjbecausejadditionaljunitsjofjajgoodjyieldjlessjsatisfactionjthanhpr
1-4
©h2021j byj McGraw-
Hillj Education.j Thisj isj proprietaryj materialj solelyj forj authorizedj instructorj use.j Nothauthorizedj forj salehorj distributionj inj anyj manner.j
Thisj documentj mayj notj bej copied,j scanned,j duplicated,j forwarded,j distributed,j orj postedj onj aj website,j inj wholehorj part.
Chapterj01j-
Limits,jAlternatives,jandjChoicesjMcConnelljBruejFly
j
nnj22e
DISCUSSIONjQUESTIONS
1. Whatjisjanhopportunityjcost?jHowjdoesjthehideajrelatejtojthejdefinitionhofjeconomics?jWh
ichjofjthejfollowingjdecisionsjwouldjentailjthejgreaterjopportunityjcost:jAllocatinghj ajsquar
ejblockhinjthejheartjofjNewjYorkjCityjforjajsurfacejparkinghlotjorjallocatingjajsqjuarejblockjat
jthejedgejofjajtypicaljsuburbjforjsuchjajlot? jExplain.jLO1
Answer:jAnjopportunityjcostjisjwhatjwasjsacrificedjtohdojorjacquirejsomethingjels
e.jThehconditionjofjscarcityjcreatesjopportunityjcost.jIfjtherejwasjnohscarcity,jthjerejwo
uldjbejnojneedjtohsacrificejonejthingjtojacquirejanother.jThejopportunityjcostjwouldjbeh
muchjhigherjinjNewjYorkjCityjasjthejalternativejusesjforjthatjsquarejblocjkjarejmuchhmo
rehvaluablejthanjforjajtypicaljsuburbanjcityjblock.
2.
Citejthreehexamplesjofjrecentjdecisionsjthathyoujmadejinjwhichjyou,jatjleastjimplicijtly,j
weighedjmarginaljcostjandjmarginaljbenefit.jLO1
Answer:jAnswersjwilljvary,jbutjmayjincludejthejdecisionjtojcomejtojclass,jtojskipjbrea
kfastjtojgetjajfewjextrajminutesjofjsleep,jtojattendjcollege,jorjtojmakejajpurchas
e.jMarginaljbenefitsjofjattendingjclassjmayjincludejthejacquisitionjofjknowledge,jpjarti
cipationjinjdiscussion,jandjbetterjpreparationjforjanjupcomingjexamination.j Majrginalj
costsjmayjincludehlostjopportunitiesjforjsleep,jmeals,jorjstudyingjforjotherjcljasses.jInje
valuatingjthejdiscussionjofjmarginaljbenefitsjandjmarginaljcosts,jbejcarefjuljtojwatchjfo
rjsunkjcostsjofferedjasjajrationalehforjmarginaljdecisions.
3. Whatjisj“utility”jandjhowjdoesjthejideahrelatejtojpurposefuljbehavior?jLO1
Answer:j“Utility”jrefersjtojthejpleasure,jhappiness,jorjsatisfactionjgainedjfromjengjagi
ngjinjanhactivityj(eatingjahmeal,jattendingjajballjgame,jetc.).jIthisjanjimportantjcojmpone
ntjofjpurposefuljbehaviorjbecausejpeoplejwilljallocatejtheirjscarcejtime,jenerjgy,jandjmo
neyjinjanjattemptjtojgainjthehmostjutilityjpossible.
4.
Whatjarejthehkeyjelementsjofjthejscientifichmethod,jandjhowjdoeshthisjmethodjrelatjejtoj
economicjprinciplesjandjlaws?jLO2
Answer:jThehkeyjelementsjincludejthejgatheringjofjdataj(observation),jthejformulajtio
1-1
©h2021j byj McGraw-
Hillj Education.j Thisj isj proprietaryj materialj solelyj forj authorizedj instructorj use.j Nothauthorizedj forj salehorj distributionj inj anyj manner.j
Thisj documentj mayj notj bej copied,j scanned,j duplicated,j forwarded,j distributed,j orj postedj onj aj website,j inj wholehorj part.
,Chapterj01j-jLimits,jAlternatives,jChoices
njofjpossiblejexplanationsj(hypothesis),jtestingjthejhypothesis,jdeterminingjthejv
1-2
©h2021j byj McGraw-
Hillj Education.j Thisj isj proprietaryj materialj solelyj forj authorizedj instructorj use.j Nothauthorizedj forj salehorj distributionj inj anyj manner.j
Thisj documentj mayj notj bej copied,j scanned,j duplicated,j forwarded,j distributed,j orj postedj onj aj website,j inj wholehorj part.
,Chapterj01j-jLimits,jAlternatives,jChoices
alidityjofjthehhypothesis,jandjrepeatedjtestingjofjhypothesesjthathhavejappearedhtojbjejv
alidjinjpriorjtests.
Thejscientificjmethodjisjthejtechniquejusedjbyjeconomistsjtojdetermineheconomicjljaws
jorjprinciples.jThesejlawsjorjprinciplesjarejformulatedjtojexplainjand/orjpredictjbehavio
rjofjindividualsjorjinstitutions.
5.
Makej(a)jajpositivejeconomicjstatementjofjyourjchoice,jandjthenj(b)jajnormativejeconjomic
jstatementjrelatingjtojyourjfirstjstatement.jLO3
Answer:jAnswersjwilljvary.j Example:j(a)jThejunemploymentjratejisj4.8jpercent;j(jb)jth
ejunemploymentjratejisjtoojhigh.jInjgeneral,jwejtreatj“whatjis”jstatementsjasjpjositive,j“
whatjshouldjbe”jasjnormative,jbutjkeepjanjeyehoutjforjstatementsjlikeh“atjfjulljemploym
entjanjincreasejinjthejproductionhofjpizzasjshouldjcomehatjthejcostjofjljessjrobots.”jSom
ehstudentsjmayjincorrectlyjidentifyjthejstatementhasjnormativejbecjausejofjthejtermj“sh
ould.”
6. Howjdoesjthejslopejofjajbudgetjlinejillustratehopportunityjcostjandjtrade-
offs?j Howjdoesjajbudgetjlinejillustratejscarcityjandjthejeffecthofjlimitedjincomes?jLOj4
Answer:jBudgetjlinesjarejalwaysjslopedjdownward.j Thisjdownwardjslopejshowsjanji
nversejrelationshipjbetweenjthejtwojgoods,jmeaningjthatjasjyoujincreasejone,jthjejotherj
musthdecrease.j Thisjdecreasejisjwhatjyoujarejgivinghup,jorjopportunityjcost,jofjthejgood
j youjarejgettingjmorejof.
Budgetjlinesjillustratehscarcityjinjthatjtheyjshowjyoujarejlimitedjbyjyourjincome.jSijncejt
heyjslopejdownward,jtheyjshowjyoujcannotjkeepjgettingjmorejandjmorejofjbotjhjgoods.j
Therejisjalwaysjajtrade-
off.j Thejareajbeyondjthejbudgetjlinejrepresentsjcombinationsjofjthejgoodsjthatjarejbey
ondjyourjincome.
7.
Whatjarejeconomicjresources?jWhatjcategoriesjdojeconomistsjusejtojclassifyjthem
?jWhyjarejresourcesjalsojcalledjfactorsjofjproduction?jWhyjarejtheyjcalledjinputs?jLOj5
Answer:jEconomichresourcesjarehthejnatural,jhuman,jandhmanufacturedjinputsjusejdjt
ojproducejgoodsjandjservices.
1-3
©h2021j byj McGraw-
Hillj Education.j Thisj isj proprietaryj materialj solelyj forj authorizedj instructorj use.j Nothauthorizedj forj salehorj distributionj inj anyj manner.j
Thisj documentj mayj notj bej copied,j scanned,j duplicated,j forwarded,j distributed,j orj postedj onj aj website,j inj wholehorj part.
, Chapterj01j-jLimits,jAlternatives,jChoices
Economicjresourcesjfalljintojfourjmainjcategories:j labor,jlandj(naturaljresources),jrealj
capitalj(machines,jfactories,jbuildings,jetc.,)jandjentrepreneurs.
Economicjresourcesjarejalsojcalledjfactorsjofjproductionjbecausejtheyjarejusedjtojpjrodu
cejgoodsjandjservices.jTheyjarejcalledjinputsjbecausejtheyjgojinjtojajproductiojnjprocessj
(likejingredientsjgojintojahbowljtojmakejajcake),jwithjthehresultingjgoodsjandjservicesja
lsojbeinghreferredjtojasjoutput.
8.
Whyjisjmoneyjnotjconsideredjtojbejajcapitaljresourcehinjeconomics?jWhyjisjentrepjrene
urialjabilityjconsideredjajcategoryjofjeconomicjresource,jdistinctjfromhlabor?jWhajtjrolesjd
ojentrepreneursjplayjinhthejeconomy?jLO5
Answer:jMoneyjisjnotjconsideredjajcapitaljresourcejbecausejmoneyjisjnotjproductijvej–
itjprovidesjaccessjtojresourcesjbutjitselfjdoesjnotjdirectlyjcontributejtojthejproductijonjo
fjgoodsjandjservices.jAdditionally,jthejquantityjofjmoneyjinhcirculationjdoesjnjotjdeter
minejanjeconomy’sjproductivejcapacity,jwhilejthejamountjofjcapitaljandjotjherjresourc
esjdoes.j Doublingjthejamountjofjmoneyjinjcirculationjdoesjnotjchangejtjhejeconomy’sjp
hysicaljcapacityjtojproducehgoodsjandjservices.j Moneyjis,jhowever
,jreferredhasjajfinancialjresourcehandhfinancialjcapital,jreflectingjitsjabilityjtojacquijrejr
ealjeconomicjresources.
Entrepreneurialjabilityjandjlaborjarejbothjhumanjresources,jbutjtheyjperformjdifferjentj
functionsjinjthejproductivejprocess.j Entrepreneurialjabilityjdoesjnotjdirectlyjprjoducej
goodsjandjservices;jithorganizesjthejresourcesjthathdo.j Laborjrefersjtojthehhujmanjinput
sjthatjdirectlyjengagejinjproduction.
Entrepreneursjarejrisk-
takers:j Theyjcoordinatejthejactivitiesjofjthehotherjthreejinputsjforjprofit—
jorjloss,jwhichjisjwhyjtheyjarejcalled jrisk-
takers.j Entrepreneursjsometimesjmanagejcompaniesjthatjtheyjown,jbutjajmanagerjwh
ojisjnotjanjownerjisjnotjnecessarilyjanjentrepreneurjbuthmayjbehperformingjsomejofjtheje
ntrepreneurialjfunctionsjforjthejcompany.j Entrepreneursjarehalsojinnovatorjs,jorjperha
psjinventors,jandjprofitsjhelpjtojmotivatejsuchjactivities.
9. Explainhthejtypicaljshapesjofjmarginal-benefitjandjmarginal-
costjcurves.jHowjarejthesejcurvesjusedjtojdeterminejthejoptimaljallocationjofjresourcesjtojaj
particularjproduct?jIfjcurrentjoutputjisjsuchjthatjmarginaljcostjexceedsjmarginaljbjenefit,js
houldjmorejorjfewerjresourcesjbejallocatedjtojthishproduct?jExplain.jLO6
Answer:jThehmarginaljbenefithcurvejisjdownwardhsloping,jMBjfallsjasjmorejofjajprjodu
ctjisjconsumedjbecausejadditionaljunitsjofjajgoodjyieldjlessjsatisfactionjthanhpr
1-4
©h2021j byj McGraw-
Hillj Education.j Thisj isj proprietaryj materialj solelyj forj authorizedj instructorj use.j Nothauthorizedj forj salehorj distributionj inj anyj manner.j
Thisj documentj mayj notj bej copied,j scanned,j duplicated,j forwarded,j distributed,j orj postedj onj aj website,j inj wholehorj part.
