What Is Economic Lesson 1 Review Answer Key
Chapter 1. Welcome to Economics!
1.one What Is Economics, and Why Is Information technology Of import?
Learning Objectives
By the end of this section, you lot will exist able to:
- Discuss the importance of studying economic science
- Explain the relationship between product and division of labor
- Evaluate the significance of scarcity
Economic science is the report of how humans make decisions in the face of scarcity. These can exist individual decisions, family decisions, business decisions or societal decisions. If you lot look around carefully, y'all volition see that scarcity is a fact of life. Scarcity means that human being wants for goods, services and resources exceed what is available. Resources, such every bit labor, tools, state, and raw materials are necessary to produce the appurtenances and services nosotros desire simply they exist in limited supply. Of course, the ultimate deficient resource is time- everyone, rich or poor, has just 24 hours in the twenty-four hours to effort to larn the goods they want. At whatsoever point in time, in that location is only a finite amount of resource available.
Think about it this mode: In 2015 the labor force in the United States contained over 158.six million workers, co-ordinate to the U.S. Bureau of Labor Statistics. Similarly, the total area of the United States is 3,794,101 square miles. These are large numbers for such crucial resources, however, they are limited. Because these resource are express, then are the numbers of goods and services we produce with them. Combine this with the fact that man wants seem to be virtually infinite, and you lot can see why scarcity is a problem.
If yous nonetheless do not believe that scarcity is a problem, consider the following: Does anybody need nutrient to eat? Does everyone need a decent place to live? Does everyone have admission to healthcare? In every country in the globe, there are people who are hungry, homeless (for instance, those who call park benches their beds, as shown in Effigy 1), and in demand of healthcare, just to focus on a few disquisitional goods and services. Why is this the case? It is because of scarcity. Permit's delve into the concept of scarcity a little deeper, because it is crucial to understanding economics.
The Problem of Scarcity
Think well-nigh all the things you eat: food, shelter, clothing, transportation, healthcare, and entertainment. How practice you acquire those items? You practice not produce them yourself. You buy them. How do you afford the things you buy? You lot work for pay. Or if yous do not, someone else does on your behalf. Yet most of united states of america never accept enough to buy all the things we want. This is because of scarcity. And so how do we solve it?
Visit this website to read about how the United States is dealing with scarcity in resources.
Every guild, at every level, must make choices about how to use its resources. Families must decide whether to spend their money on a new machine or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or into the school system. Nations must decide whether to devote more funds to national defence force or to protecting the surroundings. In most cases, there just isn't enough money in the budget to practise everything. And then why do we not each but produce all of the things nosotros consume? The simple answer is most of united states of america do not know how, just that is not the principal reason. (When y'all study economics, you volition discover that the obvious choice is non always the right answer—or at least the complete respond. Studying economics teaches yous to remember in a different of style.) Remember back to pioneer days, when individuals knew how to practice so much more than we exercise today, from building their homes, to growing their crops, to hunting for food, to repairing their equipment. Most of united states practice non know how to do all—or whatever—of those things. Information technology is not because we could not larn. Rather, we exercise not take to. The reason why is something called the division and specialization of labor, a production innovation first put along past Adam Smith, Effigy two, in his volume, The Wealth of Nations.
The Division of and Specialization of Labor
The formal study of economics began when Adam Smith (1723–1790) published his famous book The Wealth of Nations in 1776. Many authors had written on economics in the centuries earlier Smith, but he was the first to address the subject in a comprehensive manner. In the kickoff chapter, Smith introduces the segmentation of labor, which means that the mode a expert or service is produced is divided into a number of tasks that are performed by different workers, instead of all the tasks being washed by the same person.
To illustrate the division of labor, Smith counted how many tasks went into making a pin: drawing out a slice of wire, cutting information technology to the right length, straightening it, putting a caput on one terminate and a point on the other, and packaging pins for sale, to proper name just a few. Smith counted 18 distinct tasks that were often washed by different people—all for a pin, believe it or not!
Modern businesses dissever tasks as well. Even a relatively simple business concern like a eating house divides up the task of serving meals into a range of jobs like peak chef, sous chefs, less-skilled kitchen help, servers to wait on the tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—not to mention the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where information technology is located. A complex business like a big manufacturing factory, such equally the shoe factory shown in Effigy 3, or a hospital can have hundreds of job classifications.
Why the Division of Labor Increases Production
When the tasks involved with producing a good or service are divided and subdivided, workers and businesses can produce a greater quantity of output. In his observations of pin factories, Smith observed that 1 worker alone might make 20 pins in a twenty-four hours, but that a small business of x workers (some of whom would need to do two or three of the 18 tasks involved with pin-making), could make 48,000 pins in a 24-hour interval. How can a group of workers, each specializing in certain tasks, produce and then much more the same number of workers who endeavor to produce the unabridged good or service by themselves? Smith offered three reasons.
First, specialization in a particular small job allows workers to focus on the parts of the production procedure where they have an advantage. (In after chapters, we will develop this idea by discussing comparative advantage.) People have different skills, talents, and interests, so they will exist better at some jobs than at others. The particular advantages may be based on educational choices, which are in plow shaped by interests and talents. Only those with medical degrees qualify to go doctors, for instance. For some appurtenances, specialization will exist affected by geography—it is easier to be a wheat farmer in N Dakota than in Florida, but easier to run a tourist hotel in Florida than in N Dakota. If y'all live in or most a big city, information technology is easier to attract enough customers to operate a successful dry cleaning concern or cinema than if y'all live in a sparsely populated rural area. Whatever the reason, if people specialize in the product of what they do best, they will be more than productive than if they produce a combination of things, some of which they are good at and some of which they are not.
Second, workers who specialize in certain tasks often learn to produce more speedily and with higher quality. This design holds true for many workers, including associates line laborers who build cars, stylists who cutting hair, and doctors who perform heart surgery. In fact, specialized workers often know their jobs well enough to advise innovative ways to practice their work faster and improve.
A similar pattern often operates inside businesses. In many cases, a business organization that focuses on 1 or a few products (sometimes called its "cadre competency") is more successful than firms that try to make a wide range of products.
Third, specialization allows businesses to take reward of economies of scale, which means that for many goods, as the level of production increases, the average cost of producing each private unit of measurement declines. For example, if a factory produces but 100 cars per twelvemonth, each auto will be quite expensive to make on average. Nevertheless, if a factory produces 50,000 cars each year, and then it can prepare an assembly line with huge machines and workers performing specialized tasks, and the average cost of production per car will be lower. The ultimate result of workers who tin focus on their preferences and talents, learn to do their specialized jobs meliorate, and work in larger organizations is that society as a whole can produce and eat far more than than if each person tried to produce all of their own goods and services. The partitioning and specialization of labor has been a force against the problem of scarcity.
Trade and Markets
Specialization but makes sense, though, if workers tin apply the pay they receive for doing their jobs to purchase the other goods and services that they need. In short, specialization requires merchandise.
Y'all practise not have to know anything most electronics or audio systems to play music—yous just buy an iPod or MP3 histrion, download the music and listen. You do non accept to know anything about artificial fibers or the construction of sewing machines if you need a jacket—you lot just purchase the jacket and clothing it. Y'all do not need to know anything about internal combustion engines to operate a car—you only get in and drive. Instead of trying to acquire all the knowledge and skills involved in producing all of the goods and services that you wish to eat, the market allows you to learn a specialized set of skills and and so use the pay you receive to buy the goods and services you need or desire. This is how our modern lodge has evolved into a stiff economy.
Why Written report Economics?
At present that we have gotten an overview on what economics studies, allow's apace discuss why y'all are right to study it. Economics is not primarily a collection of facts to be memorized, though there are enough of important concepts to exist learned. Instead, economics is ameliorate idea of every bit a collection of questions to be answered or puzzles to be worked out. Most important, economic science provides the tools to piece of work out those puzzles. If y'all have even so to exist been bitten past the economic science "issues," there are other reasons why you should study economic science.
- Virtually every major problem facing the world today, from global warming, to world poverty, to the conflicts in Syrian arab republic, Afghanistan, and Somalia, has an economic dimension. If yous are going to exist part of solving those bug, y'all need to be able to understand them. Economic science is crucial.
- It is hard to overstate the importance of economic science to skillful citizenship. You need to exist able to vote intelligently on budgets, regulations, and laws in general. When the U.Due south. government came shut to a standstill at the terminate of 2012 due to the "financial cliff," what were the issues involved? Did you know?
- A basic understanding of economic science makes you a well-rounded thinker. When yous read manufactures about economical bug, y'all will understand and be able to evaluate the writer's argument. When y'all hear classmates, co-workers, or political candidates talking well-nigh economics, you will be able to distinguish between common sense and nonsense. Yous will find new ways of thinking near electric current events and about personal and business organization decisions, as well as current events and politics.
The study of economic science does non dictate the answers, just it can illuminate the unlike choices.
Primal Concepts and Summary
Economic science seeks to solve the problem of scarcity, which is when human wants for goods and services exceed the available supply. A mod economic system displays a partition of labor, in which people earn income by specializing in what they produce and and so use that income to purchase the products they need or desire. The division of labor allows individuals and firms to specialize and to produce more for several reasons: a) It allows the agents to focus on areas of reward due to natural factors and skill levels; b) It encourages the agents to learn and invent; c) It allows agents to take advantage of economies of scale. Division and specialization of labor simply piece of work when individuals tin purchase what they do not produce in markets. Learning well-nigh economics helps you understand the major problems facing the globe today, prepares you to be a skillful citizen, and helps you become a well-rounded thinker.
Self-Bank check Questions
- What is scarcity? Can you call back of two causes of scarcity?
- Residents of the town of Smithfield similar to consume hams, but each ham requires 10 people to produce it and takes a month. If the boondocks has a total of 100 people, what is the maximum amount of ham the residents can eat in a month?
- A consultant works for $200 per hour. She likes to consume vegetables, but is not very adept at growing them. Why does it make more economic sense for her to spend her time at the consulting job and store for her vegetables?
- A reckoner systems engineer could paint his business firm, simply it makes more sense for him to rent a painter to do it. Explain why.
Review Questions
- Requite the 3 reasons that explain why the division of labor increases an economy's level of production.
- What are three reasons to study economics?
Disquisitional Thinking Questions
- Suppose you take a team of two workers: one is a bakery and one is a chef. Explicate 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 practise everything from appetizer to dessert.
- Why would partitioning of labor without trade non piece of work?
- Can y'all call back of whatever examples of free goods, that is, goods or services that are not deficient?
References
Bureau of Labor Statistics, U.South. Section of Labor. 2015. "The Employment Situation—Feb 2015." Accessed March 27, 2015. http://www.bls.gov/news.release/pdf/empsit.pdf.
Williamson, Lisa. "US Labor Market in 2012." Bureau of Labor Statistics. Accessed Dec 1, 2013. http://world wide web.bls.gov/opub/mlr/2013/03/art1full.pdf.
Glossary
- division of labor
- the way in which the work required to produce a expert or service is divided into tasks performed by different workers
- economics
- the written report of how humans make choices under atmospheric condition of scarcity
- economies of scale
- when the average toll of producing each individual unit declines as full output increases
- scarcity
- when human being wants for goods and services exceed the available supply
- specialization
- when workers or firms focus on item tasks for which they are well-suited within the overall production process
Solutions
Answers for Self-Check Questions
- Scarcity means man wants for goods and services exceed the bachelor supply. Supply is limited because resource are limited. Demand, however, is virtually unlimited. Whatever the supply, it seems human nature to desire more.
- 100 people / 10 people per ham = a maximum of 10 hams per calendar month if all residents produce ham. Since consumption is express by production, the maximum number of hams residents could consume per month is 10.
- She is very productive at her consulting job, but non very productive growing vegetables. Time spent consulting would produce far more income than it what she could save growing her vegetables using the same amount of time. So on purely economic grounds, information technology makes more sense for her to maximize her income by applying her labor to what she does all-time (i.e. specialization of labor).
- The engineer is meliorate at estimator science than at painting. Thus, his fourth dimension is improve spent working for pay at his job and paying a painter to paint his house. Of class, this assumes he does not pigment his firm for fun!
Source: https://opentextbc.ca/principlesofeconomics/chapter/1-1-what-is-economics-and-why-is-it-important/