If she chooses not to diet she still gets more of one

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Unformatted text preview: Mary Ann decides, Mary Ann gets something she likes and something she doesn’t like. She gets more of one thing (comfort and health) and less of something else (enjoyment from eating what she wants) if she chooses to diet. If she chooses not to diet, she still gets more of one thing (enjoyment from eating what she wants) and less of something else (less comfort and health). Societies Face Trade-Offs Just as individuals face trade-offs, so do societies. At any one point in time, the federal government has only so much money from tax revenues. If more tax dollars go for, say, education, it means fewer tax dollars to spend on roads and highways. If more tax dollars go for national defense, then fewer dollars can be spent on health and welfare. Trade-offs sometimes lead to conflicts in society. One group may think it better to spend more money on national defense and less on health and welfare. Another group might prefer the opposite. A conflict arises. In a household, some members of the family might prefer to spend more of the family budget on boats, plasma TV sets, and computers. Other members might prefer to spend more of the family budget on education, vacations, and furniture. A conflict arises. 16 Chapter 1 What Is Economics? Thinking in Terms of What Would Have Been Economists often think in terms of “what would have been.” It is important to be able to think in terms of what would have been, because only then do we know the opportunity costs for “what is.” The Story of the Broken Window A famous economist-journalist once wrote a book in which he told the story of a boy who threw a rock through a baker’s shop window. In the story the townspeople gather around the baker’s shop and complain about the actions of today’s youth. Then one person has a quite different perspective. He says that because the boy broke the window, the baker now has to buy a window, which means the window maker will now have more business. And because the window maker has more business, he will earn more money. And because he has more money, he will spend more money. And because he spends more money, someone else in the town will sell more goods, and on and on. So, says the person with the different perspective, what the boy has done is a good thing: he has generated economic activity for the town. After listening to this different view of the situation, the townspeople are happy. What had at first seemed like a tragedy (a boy breaking a window), now clearly appears to be the beginning of an economic boom for the town. What do you think? Did the boy set off a chain reaction that will create work, income, and profits for many people in the town? And if so, should the townspeople hope that more boys throw more rocks through windows? Before you begin encouraging people to throw rocks in your town, stop and ask, as the economist did, this simple question: If the baker didn’t have to buy a new window, what would he have purchased with the money he would have spent on the window? Suppose that he would have spent the money for a new suit. But, now that the window is broken, the baker will have no 01 (002-029) EMC Chap 01 11/17/05 4:03 PM Page 17 money for the suit, so the suit maker will earn less money (than otherwise). Without that money, the suit maker will be able to make fewer purchases, which will translate into fewer sales for others, and so on and so on. Simply put, the economist urges us to see “what would have been” if the boy had not broken the window. The economist urges us to see more than “what will be” because the boy broke the window. It is easy for all of us to see “what will be”: we will actually see with our eyes the window maker selling a window and getting paid for it. It is not so easy, though, to see “what would have been.” We can’t see with our eyes the suit maker not selling the suit. Seeing with Your Mind It takes a certain kind of vision to see “what would have been.” It takes your mind (and not your eyes) to see what would have been. You have to think your way to understanding that one new window means one fewer suit. Building and improving highways is expensive. What sorts of things might not exist as a result of this highway being built? Suppose the federal government sets aside funds for a new interstate highway system. Thousands of people are hired to work on the project. Local newspapers in the towns along the highway write lots of stories on all the increased job activity, and soon there are more and better highways in the area. It is easy to see the “what will be” benefits of more jobs and better roads. Economists often look for the “unintended effects” of actions that people take. Has anything ever turned out differently from what you intended? We need to remind ourselves, however, that someone—namely, the taxpayers—had to pay for the new highway system. What did these taxpayers give up by paying the taxes to fund the new highway? They gave up the opportunity to buy goods for themselves, such as clothes, computers, and books. We now begin to th...
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This document was uploaded on 01/16/2014.

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