On the tiny South Pacific island of Yap, life is easy, but the currency is hard as a rock. For nearly 2,000 years, the Yapese has used large stone wheels to pay for major purchases, such as land, canoes, and permission to marry. The people of Yap have been using stone money ever since a Yapese warrior named Anagumang used canoes to bring the huge stones over the sea in ancient times from limestone caverns on neighboring Palau. Inspired by the moon, he fashioned the stones into large circles, and the rest is history. The stone’s value remained high because of the difficulty and hazards involved in obtaining them over the rough seas. Yap is a U.S. trust territory, and the dollar is used in grocery stores and gas stations, but reliance on stone money continues. Buying property with stones is “much easier than buying it with U.S. dollars,” says John Chodad, who purchased a building lot with a 30-inch stone wheel. “We don’t know the value of the U.S. dollar.” However, stone wheels don’t make good pocket money, so Yapese use other forms of currency, such as beer for small transactions. Besides stone wheels and beer, the Yapese sometimes spends gaw, consisting of necklaces of stone beads strung together around a whale’s tooth. They also buy things with yar, a currency made from large seashells, but these are small change. Stone disks may change ownership during marriage, transfer of land title, or other exchanges. Yapese lean the stone wheels against their houses or prop up rows of them in village “banks.” Most of the stones are smaller in diameter, but some are as much as 12 feet in diameter. Each has a hole in the center so that it can be slipped onto the trunk of a fallen betel nut tree and carried. It takes 20 men to lift some wheels. Rather than risk a broken stone—or their backs—Yapese leave the larger stones where they are and make a mental accounting that the ownership has been transferred. There are some decided advantages to using massive stones for money. They are in short supply, difficult to steal, pose formidable obstacles to counterfeiting, and serve as a tourist attraction. Required: 1. Explain how Yap’s large stones pass the three tests in the definition of money. 2. Briefly discuss Yap’s large stones in terms of other desirable properties of money.
> Why money isn’t considered capital in economics?
> If the government banned the sale and purchase of a good or service (for example, cigarettes, or abortion services), then what impact would this have on the market for this item.
> What are the necessary ingredients for a nation to experience greater rates of economic growth, higher average standards of living, and a greater ability to compete in the global economy? That is, what could the U.S. do to achieve all this?
> Under what conditions would a nation be able to currently produce more of both consumer and capital products?
> What is the profit-maximizing quantity of output for a firm to produce?
> What is the cost of a new car?
> What is the opportunity cost of attending college?
> How does government affect the answer to the "For Whom" fundamental economic question?
> How does government affect the answer to the "How" fundamental economic question?
> How does government affect the answer to the "What" fundamental economic question?
> What are some problems associated with economic growth?
> Opponents of increasing the tax on gasoline argue that the big oil companies just pass the tax along to the consumers. Do you agree or disagree? Explain your answer.
> What is the relationship between tuition and student enrollment at a university. How would this relationship be graphed?
> What is the relationship between a student's grade point average and the number of hours spent studying per week. How would this relationship be graphed?
> What is the relationship between the annual sale of umbrellas and the annual amount of rainfall received in inches? How would this relationship be graphed?
> Why do leaders of less developed countries often run very large deficits and print entirely too much money creating excessive inflation, even though they are aware of the consequences of their policies? How might these inflationary policies damage these
> What are two major institutions which are taken for granted in developed countries but are lacking in the less developed countries of the world?
> It is often said the less developed countries are characterized by a "dual economy." What do these people mean by a "dual economy?"
> What is the difference between growth and development?
> To what extent do you think the study of developing nations and the economic recommendations for these countries is analogous to regional economic development within depressed areas of developed nations? What about poor individuals?
> The "Four Tigers of the Pacific Rim" offer an example of developmental success. What seems to be the key elements necessary for developing countries to offer their citizens higher standards of living?
> Why is economic growth and development a goal of virtually all nations?
> The Energizer Bunny that “keeps going and going” has been a very successful ad campaign for batteries. Explain the relationship between this slogan and the firm’s price elasticity of demand and total revenue.
> All modern industrial states in the world have a socialized medical system, except South Africa and the United States. Why do you think that is? Should the United States adopt a socialized medical system? Why, or why not?
> It has been suggested that different nation's conception of what constitutes an equitable, fair or just distribution of income is what primarily differentiates the degree to which government is involved in their economies. Do you agree or disagree? Why?
> We know that all real-world economies are mixed. However, is it always true that capitalist-dominated nations, as opposed to socialist-dominated nations, enjoy a higher average standard of living?
> What are some examples of "socialism" in the United States economy?
> How did Karl Marx argue that capitalism would "sow the seeds of its own destruction"? What has helped keep Marx's predictions from coming true?
> What are some of the problems associated with capitalism which the American people have called upon government to address? What are some examples of ways in which government has attempted to alleviate each of these problems?
> What are the benefits and the costs to a nation of higher trade barriers? Which are greater: the benefits or the costs?
> Suppose the U.S. government increases trade barriers on Japanese cars coming into the United States. a. What impact would this have on the American car market? What about the impact on American automotive workers? (Hint: think in terms of demand and sup
> Which type of trade barrier is most advantageous from the government's perspective?
> What impact will an appreciation of the dollar have on the relative price of foreign goods to Americans, and the relative price of American-made products to foreigners? What will likely happen to America's trade deficit?
> Explain the impact of external costs and external benefits on resource allocation.
> What will likely happen to a nation's balance of payments if its GDP and income levels increase?
> How could an increase in a nation's fiscal deficit increase its trade deficit?
> What is the Keynesian approach to inflation?
> The discussion of low-investment country Alpha versus high investment country Beta explained that sacrificing production of consumer goods for an increase in capital goods output can result in economic growth and a higher standard of living. Stated diffe
> Frederick W. Smith is a classic entrepreneurial success story. Young Fred went to Yale University, had a good new idea, secured venture capital, worked like crazy, and made a fortune, and the Smithsonian Institution rendered its ultimate accolade. It sna
> Minimum wages exist in more than 100 countries. In 1938, Congress enacted the federal Fair Labor Standards Act, commonly known as the “minimum-wage law.” Today, a minimum wage worker who works full-time still earns a d
> The most famous footrace ever held occurred in the pages of a book and is a fictional tale involving two animals. As the story unfolds, a rabbit gets off to a fast start, but he does not keep up this pace, and instead takes a nap, halting his progress. A
> Gold is always a fascinating story. The Wonderful Wizard of Oz was first published in 1900, and this children’s tale has been interpreted as an allegory for political and economic events of the 1890s. For example, the Yellow Brick Road represents the gol
> Growing bananas for European markets was a multibillion dollar bright spot for Latin America’s struggling economies. In fact, about half of this region’s banana exports traditionally were sold to Europe. Then, in 1993,
> Monetarists and Keynesians still debate the causes of the Great Depression. Monetarists Milton Friedman and Anna Schwartz, in their book A Monetary History of the United States, argued that the Great Depression was caused by the decline in the money supp
> Consider this statement: “Government involvement in markets is inherently inefficient.” Do you agree or disagree? Explain.
> The story of the worst collapse of the housing market and the most serious financial crisis since the Great Depression is filled with villains and no action hero to sweep down from the sky and save the day. It is an Alice in Wonderland story with plent
> The Federal Open Market Committee (FOMC), which is the Fed’s most powerful monetary policy-making group, and meets eight times a year at the Federal Reserve in Washington, D.C. Often it seems that the whole world is watching for the res
> The case of Lincoln Savings and Loan is a classic example of what went wrong during one of the worst financial crises in U.S. history prior to the banking crisis and Great Recession of 2007–2009. In 1984, the Securities and Exchange Com
> The Federal Reserve is perhaps the most independent government agency in the United States. Periodically, there is a resurgence of interest in curtailing its independence. Should the Fed be independent of partisan politics, or would we be better off with
> Perhaps the national debt and federal budget deficits are really not so large and threatening. For example, it can be argued that we should use real rather than nominal values to report the national debt—similar to using real GDP to report economic growt
> As unprecedented deficit figures flowed during the Great Recession, it is hard to believe that for four years the federal budget was in surplus. After a one-year small budget surplus in 1969, it took 29 contentious years to eliminate federal budget defic
> Two controversial fundamental tax reform ideas are often hot news topics. One proposal is the flat tax discussed earlier in this chapter, and the other is a national sales tax. The flat tax would grant a personal exemption of say, $36,000, for a typical
> Supply-side economics became popular during the presidential campaign of 1980. This fiscal policy prescription gained prominence after supply-side economist Arthur Laffer, using his pen to draw on a paper napkin, explained what has come to be known as th
> In The General Theory of E mployment, Interest, and Money, Keynes wrote: The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by li
> What are the advantages and disadvantages of the price system?
> The inflation rate for health care in the United States has consistently exceeded the overall rate of inflation over the last half century. According to the Bureau of Labor Statistics, in 2016, the costs of health care increased by 4 percent, while the o
> The following articles are two historical examples of hyperinflation: The first is a Wall Street Journal article from 1985 that describes hyperinflation in La Paz, Bolivia; the second article is from the San Francisco Chronicle article that reported on
> In the late 1980s, many farmers who were tired of milking cows, roping steers, and slopping hogs decided to try their hand at a new animal. Anyone feeding this animal, however, could require a gun for protection. Prior to the late 1970s, alligators were
> There is a global market in human organs in spite of attempts to prevent these transactions. For example, China banned organ sales in 2006, and India did the same in 1994. Conversely, in Iran regulated kidney sales for profit are legal and currently ther
> Radio was in existence for 38 years before 50 million people tuned in. Television took 13 years to reach that benchmark. Sixteen years after the first PC kit was introduced, 50 million people were using one. When available to the public, the Internet cro
> The unemployment rate does not measure the full impact of unemployment on individuals. Prolonged unemployment not only means lost wages, but it also impairs health and social relationships. The United States fought its most monstrous battle against unemp
> Technological advances continue to enhance our productivity, enabling us to enjoy a greater quantity, quality, and variety of products that significantly elevate our standard of living as a nation. Every day we witness incredible new technologies in comp
> Women working full-time earn on average about 20 percent less than men. Discrimination in wages and employment on the basis of sex was made illegal in 1963 by the Equal Pay Act (EPA), which outlawed pay discrimination between men and women doing substant
> Suppose March Madness included your basketball team making it all the way to the Final Four and you were going to be there. Before leaving, you checked the official website and noticed a Coke ad giving a prize to the person who submitted the best video c
> Cartels flourished in Germany and other European countries in the first half of the twentieth century. Many had international memberships. After World War II, European countries passed laws against such restrictive trade practices. The following are some
> Use a graph to show the impact on the price of Japanese cars sold in the United States if the United States imposes import quotas and other trade restrictions that decrease the supply of Japanese cars. Now draw another graph to show how the change in the
> A key characteristic of the market structures discussed in this chapter is that they use advertising to promote product differentiation, which is a form of non-price competition. The television commercial is considered the most effective method of mass-m
> Yellow taxicabs in New York City, which are today one of the most famous icons of the city, engender a love and hate relationship. The upside is that you can stick your arm in the air to hail a cab that will take you to your destination. The downside is
> Oil was discovered in western Pennsylvania by Colonel Edwin L. Drake in 1859, and after the Civil War, oil wells sprang up across the landscape. Because oil was plentiful, there was cutthroat competition, and the result was low prices and profits. At thi
> Interesting examples of monopolies can be found in other countries. Let’s begin with a historical example. In the sixteenth through eighteenth centuries, monarchs granted monopoly rights to a variety of businesses. For example, in 1600,
> Pick the best price that you want to pay for a product. Is zero reserved only for those who believe in Santa Claus? Recall the famous saying by economist Milton Friedman that “there’s no such thing as a free lunch.” Well, today more a
> Tobacco use is one of the chief preventable causes of death in the world. Since 1964, health warnings have been mandated in the United States on tobacco advertising, including billboards and printed advertising. In 1971, television advertising was prohib
> In their book Free to Choose, published in 1980, economists Milton Friedman and his wife Rose Friedman proposed a voucher plan for schools. The objective of their proposal was to retain government financing, but give parents greater freedom to choose the
> For many years the milk industry faced an important question: What does the federal government plan to do about its dairy price support program, which has helped boost farmers’ income since 1949? Under the price support program, the fed
> Use the following demand schedule for a monopolist. Calculate total revenue and marginal revenue. For each price, indicate whether demand is elastic, unit elastic, or inelastic. Using the data from the demand schedule, graph the demand curve, the margina
> Explain why you agree or disagree with the following statements: a. “All monopolies are created by the government.” b.“The monopolist charges the highest possible price.” c. “The monopolist never takes a loss.”
> Which of the following are public goods? a. Air bags b. Pencils c. Cycle helmets d. City streetlights e. Contact lenses
> Why is the demand curve facing a monopolist downward sloping while the demand curve facing a perfectly competitive firm is horizontal?
> Suppose the candy bar industry approximates a perfectly competitive industry. Suppose also that a single firm buys all the assets of the candy bar firms and establishes a monopoly. Contrast these two market structures with respect to price, output, and a
> Suppose the demand and cost curves for a monopolist are as shown in Exhibit 10. Explain what price the monopolist should charge and how much output it should produce.
> Explain why a monopolist would never produce in the inelastic range of the demand curve.
> Indicate whether each of the following is associated with a high or low level of economic growth and development: High Low a. Overpopulation b. Highly skilled labor c. High savings rate d. Political stability e. Low capital accumulation f. Advanced
> Explain why it is so difficult for poor LDCs to generate investment in capital in order to increase productivity and growth and, therefore, improve their standard of living.
> What is the difference between economic development and economic growth? Give examples of how each of these concepts can be measured.
> Explain why GDP per capita comparisons among nations are not a perfect measure of differences in economic well-being.
> Explain the differences among the Agency for International Development (AID), the World Bank, and the International Monetary Fund (IMF).
> What are some of the problems for LDCs of accepting foreign aid?
> The present choice between investing in capital goods and producing consumer goods now affects the ability of an economy to produce in the future. Explain.
> Suppose you are a factory manager. Describe how you might reach production goals under a system of pure capitalism and under a system of pure socialism.
> Karl Marx believed the market system was doomed. Why do you think he was right or wrong?
> “The schools are not in the business of pleasing parents and students, and they cannot be allowed to set their own agendas. Their agendas are set by politicians, administrators, and various constituencies that hold the keys to political
> Explain the advantages and disadvantages of any two of the three basic types of economic systems.
> Do you support a constitutional amendment to prohibit the federal government from imposing any trade barriers, such as tariffs and quotas, except in case of war or national emergency? Why or why not?
> Now consider Question 5 in terms of the law’s impact on domestic producers that export goods. Does this policy adversely affect domestic producers that export goods? Details from Question 5: Suppose the United States passed a law stating that we would n
> Would the U.S. government gain any advantage from using tariffs or quotas to restrict imports?
> Bill can paint either two walls or one window frame in 1 hour. In the same time, Frank can paint either three walls or two window frames. To minimize the time spent painting, who should specialize in painting walls, and who should specialize in painting
> For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change, and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign c
> Consider an economy in equilibrium with an inflationary gap. Draw a graph where the equilibrium real GDP is $16 trillion and the price level of 150. Label this equilibrium E1 where the aggregate demand, AD1, intersects the short-run aggregate supply curv
> Why does a production possibilities curve have a bowed-out shape?
> Consider an economy in equilibrium with a recessionary gap. Draw a graph where the equilibrium real GDP is $8 trillion and the price level of 150. Label this equilibrium E1 where the aggregate demand, AD1, intersects the short-run aggregate supply curve
