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principles of economics

Questions and Answers of Principles Of Economics

Because of scarcity, there is a need for a rationing device.A rationing device is a means of deciding who gets what quantities of the available resources and goods.
Scarcity implies choice. In a world of limited resources, we must choose which wants will be satisfied and which will go unsatisfied.
Entrepreneurship refers to the particular talent that some people have for organizing the resources of land, labor, and capital to produce goods, seek new business opportunities, and develop new ways
Capital consists of produced goods that can be used as inputs for further production, such as machinery, tools, computers, trucks, buildings, and factories.
Labor refers to the physical and mental talents that people contribute to the production process.
Land includes natural resources, such as minerals, forests, water, and unimproved land.
Economists divide resources into four categories: land, labor, capital, and entrepreneurship.
A bad is anything that gives a person disutility or dissatisfaction.
How do changes in government spending and taxes affect the economy?• A good is anything that gives a person utility or satisfaction.
How do changes in the money supply affect the economy?
What might cause interest rates to be low one year and high the next?
Why do some national economies grow faster than other national economies?
Why is the unemployment rate sometimes high and sometimes low?
Can government policy affect consumer behavior?On the other hand, a macroeconomist might be interested in answering such questions as:
Can government policy affect business behavior?
How does a consumer determine how much of a good he or she will buy?
What price does a firm charge for the good it produces?
What level of output does a firm produce?
How does a market work?
3. You stay up an added hour to study for a test. The intended effect is to raise your test grade. What might be an unintended effect of staying up an added hour to study for the test?
2. There are both costs and benefits of studying. If you continue to study (say, for a test) as long as the marginal benefits of studying are greater than the marginal costs and stop studying when
1. Give an example to illustrate how a change in opportunity cost can affect behavior.
3. How does choice arise out of scarcity?
2. How does competition arise out of scarcity?
1. Scarcity is the condition of finite resources. True or false? Explain your answer.
8. Can the objective of greater collective self-reliance in Third World nations be reconciled with the tendency toward increased global economic and noneconomic interdependence? Explain.
7. What was the NIEO of the 1970s and what happened to it in the 1980s? Do you think the NIEO demands were sensible, unrealistic, threatening, absurd, etc.? Explain your answer.
6. What is your outlook on the future of the debt crisis? What needs to be done to turn the situation around and reignite the development process in heavily indebted nations?
5. What kinds of policies, both domestic and international, are required to reverse the African decline? Explain.
4. "The crisis in sub-Saharan Africa arose out of the unique circumstances and special conditions in Africa that negated traditional development strategies." Do you agree or disagree with this
3. Why were other Third World commodity-producing nations unable to form equally effective joint-supply policies as OPEC did for oil? What do you think caused the dramatic decline in commodity prices
2. OPEC's ability to form a highly effective "cartel" of oil-producing nations in the 1970s gave it great economic power and wealth. What happened to that power and wealth in the 1980s? Do you think
1. The 1970s ushered in an era in which, for the first time, developed nations began to recognize their growing dependence on and vulnerability to the policies of certain Third World groups of
7. Summarize the arguments for and against the establishment of state- owned enterprises (SOEs) in developing nations. Do you think that SOEs should or should not be discouraged? What are the
6. What policy alternatives (both fiscal and monetary) do Third World governments possess in coping with the worldwide inflation like that which occurred during the 1970s and 1980s? Is it possible
5. Distinguish between "demand-pull," "cost-push," and "structural" inflation. Is it possible to have them all occurring simultaneously? Explain.
4. What is meant by the terms "inflation" and "recession"? Is it possible for an economy to experience an inflation and a recession simultaneously? If so, can you explain how this could come about
3. What is meant by financial repression, financial liberalization, currency substitution, and unorganized money markets, and how do they relate to monetary policy in developing countries.
2. Keynesian-type macro monetary and fiscal policies have proved to be effective instruments of government economic policy in developed nations but their relevance and effectiveness in most Third
1. The current debate on the role and limitations of development planning in mixed Third World economies turns on the age-old economic question of how much economic activity should be guided by
6. There is much talk today of a crisis in Third World planning. Many have even claimed that development planning has for the most part been a failure. List and explain some of the major reasons for
5. "A developing country should choose the most sophisticated quantitative planning model when drawing up a comprehensive plan." Comment on this statement, being sure to include in your answer a
4. Compare and contrast three basic types of planning models: aggregate growth models, input-output analysis, and project appraisal. What do you think are some of the strengths and weaknesses of
3. Planning is said to be more than just the formulation of quantitative economic targets. It is often described as a "process." What is meant by the planning process and what are some of its basic
2. Explain and comment on some of the major arguments or rationales, both economic and noneconomic, for planning in Third World economies.
1. Why do you think so many Third World countries were persuaded of the necessity of development planning? Were the reasons strictly economic? Comment.
5. Under what conditions and terms do you think LDCs should seek and accept foreign aid in the future? If aid cannot be obtained on such terms, do you think LDCs should accept whatever they can get?
4. What is meant by "tied aid"? Both capitalist and socialist nations have increasingly shifted from grants to loans and from united to tied loans and grants during the past decade. What are the
3. How important is foreign aid for the economies of the Third World in relation to their other sources of foreign exchange receipts? Explain the various forms development assistance can take and
2. Summarize the arguments for and against the role and impact of private foreign investment in less developed countries. What strategies might LDCs adopt to make private foreign investment fit their
1. The emergence of giant multinational corporations over the past two decades is said to have altered the very nature of international economic activity. In what ways do these MNCs affect the
8. How do the trade policies of developed countries affect the ability of less developed countries to benefit from greater participation in the world economy? How do "nontrade" domestic economic
7. What are the basic static and dynamic arguments for economic integration in less developed countries? Briefly describe the various forms economic integration can take (e.g., customs union, free
6. What issues form the basis of the debate between trade optimists and trade pessimists? Is either side more correct? Explain.
5. Explain some of the arguments in support of the use of tariffs, quotas, and other trade barriers in developing countries.
4. Most less developed countries in Latin America, Africa, and Asia have pursued policies of import substitution as major components of their development strategies. Explain the theoretical and
3. What are the possibilities, advantages, and disadvantages of "export pro-motion" in Third World nations with reference to specific types of commodities (e.g., primary food products, raw materials,
2. Briefly summarize the range of commercial policies available to Third World countries and explain why some of these policies might be adopted.
1. Explain the distinction between primary and secondary inward- and outward-looking development policies.
9. Describe the various proposals for dealing with the debt crisis. Which, if any, do you think might work? Explain.
8. Describe the typical IMF stabilization package for HICs. What are the objectives of these policies and why are international banks so eager for IMF negotiations to precede their discussions with
7. What is the significance of the debt-service ratio? Can indebted countries do anything to lower this ratio? Explain.
6. What is "petrodollar recycling" and how did it contribute to the debt crisis? Why were LDCs so eager to borrow money from international banks? Explain.
5. Who should bear most of the burden of responsibility for the debt crisis, LDCs or DCs?
4. Why is the problem of "capital flight" so serious in some highly indebted countries? What causes capital flight and what do you think can be done about it?
3. Trace the evolution of the Third World debt problem during the 1970s and 1980s. What were the key ingredients? Explain.
2. Describe the "basic transfer" mechanism. Using the list of credits and debits from Table 13.2, identify which ones would fit into the basic- transfer equation. How does the basic transfer help us
1. Draw up a balance of payments table similar in format to Table 13.3 using the most recent data from any Third World country (look at the IMF's monthly publication International Financial
9. Third World critics of international trade sometimes claim that present trading relationships between developed and underdeveloped countries can be a source of "antidevelopment" for the latter and
8. Traditional free trade theory is basically a static theory of international exchange leading to certain conclusions about the benefits likely to accrue to all participants. What dynamic elements
7. Traditional free-trade theories are based on six crucial assumptions, which may or may not be valid for Third World nations (or for developed nations for that matter). What are these crucial
6. Explain some of the reasons why the non-oil-producing countries of the Third World seem to have benefited relatively less than the developed nations over the past 25 years from their participation
5. What factors—economic, political, and/or historical—do you think will determine whether or not a particular Third World nation is more or less dependent on international exchange? Explain your
4. Proponents of free trade, primarily developed country economists, argue that the liberalization of trading relationships between rich and poor countries (i.e., the removal of tariff and nontariff
3. Briefly summarize the major conclusions of the traditional theory of free trade with regard to its theoretical effects on world and domestic efficiency, world and domestic economic growth, world
conclusions.
2. Compare and contrast the classical labor-cost theory of comparative advantage with the neoclassical factor-endowment theory of international trade. Be sure to include an analysis of both
1. The effects of international trade on a country's development are often related to four basic economic concepts: efficiency, growth, equity, and stability. Briefly explain what is meant by each of
12. Governments can influence the character, quality, and content of their educational systems by manipulating important economic and noneconomic factors or variables both outside of and within
11. Describe and comment on each of the following education- development relationships:a. Education and economic growth: Does education promote growth? How?b. Education, inequality, and poverty: Do
10. Distinguish carefully between private and social benefits and costs of education. What economic factors give rise to the wide divergence between private and social benefit/cost valuations in most
9. What are the linkages between educational systems, labor markets, and employment determination in many Third World countries? Describe the process of educational job displacement.
8. What is meant by the statement "the demand for education is a 'derived demand' for high-paying modern sector job opportunities"? Many educational specialists claim that families and children in
7. What do we mean by "the economics of education"? To what extent do you think educational planning and policy decisions ought to be guided by economic considerations? Explain, giving hypothetical
6. Early childhood environmental factors are said to be important determinants of school performance. What are some of these factors, how important do you think they are, and what might be done to
5. What is the supposed rationale for subsidizing higher education in many Third World countries? Do you think that it is a legitimate rationale from an economic viewpoint? Explain.
4. How would you explain the fact that relative "costs of" and "returns to" higher education are so much higher in LDCs than in developed countries?
3. It is often asserted that Third World educational systems especially in rural areas are "dysfunctional"—that is, they are not suited to the real social and economic needs of development. Do you
2. What are the differences between formal and nonformal education? Give some examples of each.
1. What reasons would you give for the rather sizable school dropout rates in Third World countries? What might be done to lower these rates?
9. What is meant by comprehensive or "integrated" rural development? What criteria would you use to decide whether or not such integrated rural development was or was not taking place?
8. There appears to be widespread agreement that in those regions where the distribution of land ownership is highly unequal (mainly Latin America but also parts of Asia), land reform is a necessary
7. In the chapter we described three stages in the transition from subsistence to specialized agriculture. What are the principal characteristics of these stages?
6. It is sometimes asserted that small peasant farmers are backward and ignorant because they seem to resist agricultural innovations that could raise farm yields substantially. Does this resistance
5. Explain the meaning of Professor MyrdaTs quote at the beginning of this chapter: "It is in the agricultural sector that the battle for long-term economic development will be won or lost."
4. Compare and contrast the nature of peasant or small-scale agriculture in Asia, Africa, and Latin America. How do overall agricultural systems differ among these regions? What are the common
3. It is sometimes said that the world consists of two kinds of agriculture. Explain what is meant by this statement and indicate how it might be illustrated both between and within countries.
2. What were the principal reasons for the relative stagnation of Third World agriculture during the so-called development decades of the 1960s and 1970s? How can this disappointing performance be
1. Why should any analysis of Third World development problems place heavy emphasis on the study of agricultural systems, especially peasant agriculture, and the rural sector?
6. The informal sector is becoming an even larger part of the urban economy. Distinguish between the urban formal and informal sectors and discuss both the positive and negative aspects of the

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