The origin of economics as a science dates back to the publication

GU Economics Origin of Economics Questions

1.

The origin of economics as a science dates back to the publication of An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith in 1776. Smith believed a market economy would generally bring individual self-interest and the public interest into harmony.

Based upon those notions of self-interest and public interest and the bringing of both into harmony, according to Adam Smith, how would a market economy accomplish that harmony about which he describes? What is government's place in that market economy?

Think about society's need to choose amongst competing resources and goals. How does personal gain affect choices by individuals and government? Opportunity costs. While we want to do one thing, we can't do others based upon scarcity and opportunity costs. Resources are finite. What about incentives as opposed to free offerings? What about trade?

2.

Markets seek equilibrium, and the demand for goods and services will come to an equilibrium with supply of goods and services. When markets are not in equilibrium, surpluses and shortages, as well as underground markets, can exist. Sometimes, the government may want to intervene in markets to try to help reduce economic hardships.

What is the difference between a price floor and price ceiling? According to the laws of demand and supply and how market equilibrium, efficiency, and equity are reached, do attempts to repeal those laws and market results with price floors and price ceilings justify legislative bodies to implement price controls?

Review the mechanics of supply and demand. Disequilibrium between supply and demand will occur if price is above (surpluses) or below (shortages). Why does a price floor lead to surpluses? Why does a price ceiling lead to shortages? Review consumer and producer surplus. A price floor will lead to a transfer of consumer surplus to producer surplus; a price ceiling will lead to a transfer of producer surplus to consumer surplus; both price regulations lead to deadweight losses, which is a loss of surplus to society. Why?

3.

Politicians have a strong incentive to follow a strategy that will enhance their chances of getting elected and re-elected. Political competition more or less forces them to focus on how their actions influence their support among voters and political contributors.

Are voters likely to be well informed on issues and the positions of candidates? Why or why not?

Review concepts like shortsightedness and rent seeking. What are the effects of government intervention in markets with some of the price regulations like price floors and price ceilings we discussed in chapter 4?

4.

Gross domestic product (GDP) is a measure of the market value of final goods and services produced within the borders of a country during a specific time period, usually a year.

What is the GDP deflator? How does the GDP deflator relate to real GDP?

Review GDP and nominal versus real. Real adjusts for inflation, so how do we arrive at the real GDP number from nominal GDP? Review the GDP deflator formula, where GDP deflator = (Nominal GDP/Real GDP) X 100.