1. A headline5 in the New York Times read: “Study Finds Enrollment Is Up at Colleges Despite Recession.” How would you rewrite this headline now that you understand the idea of opportunity cost?
2. When bad weather in India destroys the crop, does this sound like a fall in the total “supply” of crops or a fall in people’s “demand” for crops? Keep your answer in mind as you learn about economic booms and busts later on.
3. How much did national output fall during the Great Depression? According to the chapter, which government agency might have helped to avoid much of the Great Depression had it acted more quickly and appropriately?
4. The chapter lists four things that entrepreneurs save and invest in. Which of the four are actual objects, and which are more intangible, like concepts or ideas or plans? Feel free to use Wikipedia or some other reference source to get definitions of unfamiliar terms.
5. Who has a better incentive to work long hours in a laboratory researching new cures for diseases: a scientist who earns a percentage of the profits from any new medicine she might invent, or a scientist who will get a handshake and a thank you note from her boss if she invents a new medicine?
6. In the discussion of Big Idea Five, the chapter says that “self-sufficiency is death” because most of us would not be able to produce for ourselves the food and shelter that we need to survive. In addition to death, however, one could also say that self-sufficiency is boredom or ignorance. How does specialization and trade help you to avoid boredom and ignorance?
1. In recent years, Zimbabwe has had hyperinflation, with prices tripling (or more!) every month. According to what you learned in this chapter, what do you think the government can do to end this hyperinflation?
2. Some people worry that machines will take jobs away from people, making people permanently unemployed. Only 150 years ago in the United States, most people were farmers. Now, machines do almost all of the farm work and fewer than 2% of Americans are farmers, yet that 2% produces enough food to feed the entire country while still exporting food overseas.
What happened to all of those people who used to work on farms? Do you think most adult males in the United States are unemployed nowadays, now that farm work is gone?
Some people say that it’s okay for machines to take jobs because we’ll get jobs fixing the machines. Just from looking around, do you think that most working Americans are earning a living by fixing farm equipment? If not, what do you think most working people are doing instead? (We’ll give a full answer later in this book.)
3. Let’s connect Big Ideas Six and Nine: Do you think that people in poor countries are poor because they don’t have enough money? In other words, could a country get richer by printing more pieces of paper called “money” and handing those out to its citizens?
4. Nobel Prize winner Milton Friedman said that a bad central banker is like a “fool in the shower.” In a shower, of course, when you turn the faucet, water won’t show up in the showerhead for a few seconds. So if a “fool in the shower” is always making big changes in the temperature based on how the water feels right now, the water is likely to swing back and forth between too hot and too cold. How does this apply to central banking?
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5. According to the United Nations, there were roughly 300 million humans on the planet a thousand years ago. Essentially all of them were poor by modern standards: They lacked antibiotics, almost all lacked indoor plumbing, and none traveled faster than a horse or a river could carry them. Today, between 1 and 3 billion humans are poor out of about 7 billion total humans. So, over the last thousand years, what has happened to the fraction of humans who are poor: Did it rise, fall, or stay about the same? What happened to the total number of people living in deep poverty: Rise, fall, or no change?
1. We claim that part of the reason the Great Depression was so destructive is because economists didn’t understand how to use government policy very well in the 1930s. In your opinion, do you think that economists during the Great Depression would have agreed? In other words, if you had asked them why the Depression was so bad, would they have said, “Because the government ignored our wise advice,” or would they have said, “Because we don’t have any good ideas about how to fix this”? What does your answer tell you about the confidence of economists and other experts?
2. Some problems that economists try to solve are easy as economic problems but hard as political problems. Medical doctors face similar kinds of situations: Preventing most deaths from obesity or lung cancer is easy as a medical problem (eat less, exercise more, don’t smoke) but hard as a self-control problem. With this in mind, how is ending hyperinflation like losing 100 pounds?
3. As Nobel Prize winner and New York Times columnist Paul Krugman has noted, the field of economics is a lot like the field of medicine: They are fields where knowledge is limited (both are new as real scientific disciplines) and where many cures are quite painful (opportunity cost), but where regular people care deeply about the issues. What are some other ways that economics and medicine are alike?
4. Economics is sometimes called “the dismal science.” Of the big ideas in this chapter, which sound dismal—like bad news?