Naked Economics Chapter 4

The chapter starts by giving the example of how the head of Coca-Cola Europe decided to give away Coke to East Germans as the Berlin Wall was falling in 1989. This gamble, which began as a loss, eventually paid off for Coca-Cola. Six years later, the former East Germany had matched West Germany in the consumption of Coke, an excellent example of the power of markets. The author gives a simplistic explanation of the communist economy. There is no law of supply and demand. The price of an item is the same regardless of where one buys it. This is due to the fact that every business is paid the same by the government for selling a specific item regardless of the amount sold. Our economy is a market economy and economists make two important assumptions.

The term of substance in chapter nine was net taxes. On page 166, Case, Fair and Oster list the equation disposable income = total income – net taxes. Case, Fair, and Oster outlined the aggregate expenditure equation with the G variable as follows: “With taxes a part of the picture, it makes sense to assume that disposable income, instead of before-tax income, determines consumption behavior” (p. 168). After this statement on page 168, Case, Fair, and Oster stated the consumption equation as C = a + b(Y-T).

International trade affects the economy by increasing the Aggregate Demand (AD), and by becoming a source of inputs for production. International trade based on the theory of comparative advantage will improve efficiency in allocating resources, as well as allow businesses to reach economies of scale - "the situation in which costs per unit of output fall as output increases", consequently reaching competitive prices of international markets (Colander, 2004, p. 428). When an economy involves itself in trade, under the right circumstances, it is able to shift the Production Possibility Curve (PPC) curve outward, and achieve greater levels of output. This increase in production can be achieved through the use of more resources

The book begins by saying that economics has more incorrect arguments than any other study. The two critical reasons for this are: People don’t care about the long term health of the public, as much as the care about the short term gain in their private lives. Special interest groups create or reuse correct-sounding fallacies to promote their viewpoint. Economics consists in looking at more than the immediate policy; It includes seeing the problems of the policy for not just one group but for all groups. The misconception that government spending boosts the Economy, is a result of a system of misconceptions. The fact that, we don’t address deficit spending and inflation and assume that public spending will be covered in taxes, is a delusional dream.

Chapter 5 introduces the role and the effect of government policies on the market. While the free market is still the best entity in determining prices of goods, externalities such as government intervention often interfere. These interference represent the political aspect of economics where different parties, particularly buyers and sellers, have different interest and deem the current market as being unfair to them. The chapter also introduces taxes and its effect on supply and demand equilibrium. Calculation of the effect of taxes on market outcome is still a little confusing to me, but should be better with practice.

Answer the next question on the basis of the following production possibilities tables for countries Alpha and Beta:

If each country specializes in areas where its advantages are greatest or disadvantages are least, the gains from trade will make each country better off than it would be if it remained self-sufficient. [3]

1. The richer you are, the more you have benefited from economic changes over the past 30 years.

19. _______ is a situation in which one country is more efficient at producing a product than any other

When I, Marisa think about international trade one country comes to mind; Japan because Japan manufactures cars or electronics for example for America but it needs from us metals like iron and copper. Without us trading back and forth with Japan both sides would be hurting economy. In which I, Marisa will be going over more in detailed but first I, Marisa need to know the relation between international trade and world output, describe the broad pattern of international trade, if the nations of the world were to suddenly cut

Question 13 If the supply curve of a factor of production facing a competitive firm is perfectly elastic, then from the firm's point of view: (a) none of the factor's earnings is necessary transfer payment (b) all of the factor's earnings is producer surplus (c) none of the factor's earnings is rent (d) all of the factor's earnings is rent

Chapter 1Chapter 1 is about the principles of economics. In economics, there are 12 main principles, which the system uses to continue to function. The 12 principles are Choices are Necessary Because Resources are Scarce, The True Cost of Something is its Opportunity Cost, ”How Much” is a Decision at the Margin, People Usually Respond Incentives, Exploiting Opportunities to Make Themselves better off, There are Gains from Trade, Markets move Toward Equilibrium, Resources Should be Used Efficiently to Achieve Society's Goals, Markets Usually Lead to Efficiency, When Markets don't Achieve Efficiency Government Intervention can Improve Society's Welfare, One Person's Spending is Another Person's Income, Overall Spending Sometimes gets out of Line with the Economy's

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1.According to Smith what should the role of Government be in the economy? Smith believed the government should adopt a “Laissez-Faire” altitude, leaving the economic decisions in the hands of those it directly affects, the businessmen and the consumers.

If they exchange wine and bread one for one, Poorland can specialize in producing wine and trading some of it to Richland, and Richland can specialize in producing bread. Both Richland and Poorland will be better off than if they had not traded. By shifting, say, ten hours of labor out of producing bread, Poorland gives up the one loaf that this labor could have produced. But the reallocated labor produces two bottles of wine, which will trade for two loaves of bread. Result: trade nets Poorland one additional loaf of bread. Nor does Poorland’s gain come at Richland’s expense. Richland gains also, or else it would not trade. By shifting three hours out of producing wine, Richland cuts wine production by one bottle but increases bread production by three loaves. It trades two of these loaves for Poorland’s two bottles of wine. Richland has