The Power of Markets 1 . What are the two basic assumptions that economists make about individuals and firms? First, we assume that all of these entities have unlimited wants. This assumption forms the basis of economics. It is the study of how entities try to fulfill these unlimited wants when confronted with limited resources. Second, we assume that all of these entities are rational actors. We assume that they typically act in ways that will help to achieve their goals.
This allows us to understand their actions which we would not be able to do if we assumed that they constantly acted on the basis of him.
2. What is the role and significance of prices in the market economy? What’s so great about a market economy anyway? Prices in the market economy are extremely useful because they help gauge what consumers want and how badly they want it. High prices indicate strong consumer desire for that product while low ones indicate little interest.
A market economy is so good because it corresponds with normal human behavior and allows for optimum allocation of resources.
It may not be completely fair, but it is the most stable and best option compared to a communist system. Chapter 2: Incentives Matter 3. Explain how each of the following relates to efficient outcomes in a market economy: Adverse selection, “perverse incentives”, principal-agent problem, and the prisoner’s dilemma. 4. So what’s the issue with the black rhinoceros and how can economics point to a possible solution? Chapter 3: Government and the Economy 5.
In your own words, explain the meaning of an externalities. 6. Besides addressing externalities, what other important and beneficial roles does government play in our market economy?
Chapter 4: Government and the Economy II 7. What are the main reasons why government should only take a limited role in a market economy? Chapter 5: Economics of Information 8. Whelan explains that basic economic models assume that all parties have “perfect information. ” How does “informational asymmetry’ undermine our market economy? Chapter 6: Productivity and Human Capital 9. After reading Wheal’s argument, do you agree that Bill Gates should be so much richer than you? Why? 10. Evaluate the following statement from p. 1 13: “We should not care about the gap between rich and poor as long as everybody is living better. Chapter 7: Financial Markets 1 1 . Explain how get-rich-quick schemes violate the most basic principles of economics. 12. What advice about investing in the stock market did you find most interesting and/or useful? Chapter 8: The Power of Organized Interests Naked Economics By Katharine decades? Chapter 9: Keeping Score 14. Explain why a nation’s GAP is both a good and poor measure of its economic well- being and progress? Chapter 10: The Federal Reserve 15. What is the primary role of the Federal Reserve? What is the significance of this role? 16. What is deflation and is it worse than inflation?
Why? Chapter 11: Trade and Globalization 17. What is the”good news about Asian sweatshops”? 18. What is there relationship between specialization and productivity? Chapter 12: Development Economics 19. After reading this chapter, what do you believe are the two greatest obstacles preventing poor countries from becoming rich? 20. After reading this chapter, explain and discuss what we can do to help developing nations. What do these nations need to do to help themselves? Epilogue: Life in 2050 21 . What economic question do you have about life in 2050? About today’s economy? About life in general?
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