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Chapter 1: Q 11. (page 25)

What are three reasons to study economics?

Short Answer

Expert verified

The three reasons to study economics are:

  1. Rational behavior of people
  2. Making better policy decisions
  3. Making an efficient thinker.

Step by step solution

01

Step 1. Meaning of Economics.

Economics is the study of how humans make decisions in the face of scarcity. It is about making choices and studying the impact of the choices on each other. It includes individual decisions, family decisions, business decisions, or societal decisions.

02

Step 2. The three reasons to study economics.

The three reasons to study economics are:

i. Rational behavior of people

Economics assumes that people are rational they perform activities that maximize their utility.

ii. Making better policy decisions.

Economics helps in choosing the best policy among the various alternatives and improves our decision-making skills.

iii. Making an efficient thinker

The knowledge of economics makes us knowledgeable thinkers. It helps us in making decisions like what to produce, how to produce, and for whom to produce.

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Most popular questions from this chapter

If a nation has high and persistent inflation, the most likely explanation is

A. the central bank creating excessive amounts of money.

B. unions bargaining for excessively high wages.

C. the government imposing excessive levels of taxation.

D. firms using their monopoly power to enforce excessive price hikes.

What is an example of a problem in the world today, not mentioned in the chapter, that has an economic dimension?

Suppose America decide to save more of their incomes. If banks lend this extra saving to business that use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from higher productivity? Is society getting a free lunch?

International trade benefits a nation when

  1. Its revenue from selling abroad exceeds its outlays from buying abroad.
  2. Its trading partners experience reduced economic well-being.
  3. All nations are specializing in producing what they do best.
  4. No domestic jobs are lost because of trade.

Adam Smith’s “invisible hand” refers to:

  1. The subtle and often hidden methods that businesses use to profit at customers’ expense.
  2. The ability of free markets to reach desirable outcomes, despite the self-interest of market participants.
  3. The ability of government regulation to benefit consumers even if the consumers are unaware of the regulations.
  4. The way in which producers or consumers in unregulated markets expose costs on innocent bystanders.
See all solutions

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