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Unformatted text preview: Technology, R&D, and Efficiency Micro Answers to Review Questions B. Answers to Short-Answer, Essays, and Problems, chapter 1 3. What do economists mean when they say that there is no free lunch? Give another example to which this statement applies. Anything of any value that is offered for free still has a cost. Economists refer to this sacrifice as an opportunity cost. In this case, the resources that were used to provide the free lunch could have been put to an alternative use. The opportunity cost is the next best alternative use for those resources. As another example, consider the case of a bank that offers you a free sports bag to open an account at the bank. The bag may be free to you as a new bank customer, but there is still a cost paid by the bank in the form of resources that could have been put to alternative uses. [text: E pp. 3-4; MA pp. 3-4; MI pp. 3-4] 9. Explain the importance of the ceteris paribus or other-things-equal assumption. Because economics is concerned with real-world behavior, it is impossible to develop theories about economic relationships in a laboratory setting where the variables of interest could be isolated. Economists try to analyze changes in the variables of interest by finding ways to hold other things constant or equal. Thus, the ceteris paribus assumption is made to indicate that these other variables are not changing or affecting the variables of interest. For example, the theory of consumer demand states that price and quantity demanded are inversely related; people will buy less at higher prices than they will at lower prices. But this theory assumes that other variables that might affect quantity demanded are not changing. This assumption is the ceteris paribus assumption. [text: E pp. 7-8; MA pp. 7-8; MI pp. 7-8] New 13. What is policy economics? What are the three basic steps on policymaking? Policy economics applies economic facts and principles to help resolve specific problems and to achieve certain economic goals. The three basic steps on formulating economic policy are: (1) state the goals; (2) determine the policy options to be used to achieve the stated goals; and (3) implement and evaluate the options on the basis of specific criteria important to decision makers. [text: E p. 8; MA p. 8; MI p. 8] 14. List eight widely accepted economic goals of the United States. Eight goals are given in the text: economic growth, full employment, economic efficiency, price stability, economic freedom, equitable distribution of income, economic security, and balance of international trade. [text: E p. 9; MA p. 9; MI p. 9] 17. Below are six statements. Indicate whether each one pertains to microeconomics (MIC) or macroeconomics (MAC)....
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- Spring '10