Chapter 20 Section 1 Summary Reading: a Booming Economy Review Questions

Chapter ane. Welcome to Economics!

i.ane What Is Economic science, and Why Is It Of import?

Learning Objectives

By the stop of this department, y'all will be able to:

• Discuss the importance of studying economics
• Explain the human relationship between production and division of labor
• Evaluate the significance of scarcity

Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions or societal decisions. If you lot look around carefully, you volition see that scarcity is a fact of life. Scarcity ways that human wants for appurtenances, services and resources exceed what is bachelor. Resources, such as labor, tools, land, and raw materials are necessary to produce the appurtenances and services nosotros desire but they exist in express supply. Of grade, the ultimate scarce resource is fourth dimension- anybody, rich or poor, has just 24 hours in the solar day to try to learn the goods they want. At any point in time, in that location is only a finite amount of resources available.

Call back about it this way: In 2015 the labor force in the United States independent over 158.six million workers, according to the U.S. Agency of Labor Statistics. Similarly, the total surface area of the United States is 3,794,101 square miles. These are large numbers for such crucial resource, however, they are express. Considering these resource are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that man wants seem to be virtually space, and you lot can see why scarcity is a problem.

Figure 1. Scarcity of Resources. Homeless people are a stark reminder that scarcity of resources is real. (Credit: "daveynin"/Flickr Creative Commons)

If you still do not believe that scarcity is a trouble, consider the following: Does everyone demand nutrient to consume? Does everyone need a decent place to live? Does anybody accept access to healthcare? In every country in the world, at that place are people who are hungry, homeless (for example, those who phone call park benches their beds, as shown in Effigy 1), and in need of healthcare, merely to focus on a few disquisitional appurtenances and services. Why is this the case? It is because of scarcity. Let'southward delve into the concept of scarcity a fiddling deeper, because it is crucial to agreement economic science.

The Problem of Scarcity

Remember nearly all the things you consume: nutrient, shelter, clothing, transportation, healthcare, and entertainment. How do you learn those items? You lot exercise not produce them yourself. Y'all buy them. How do you lot beget the things you buy? Yous piece of work for pay. Or if you lot exercise non, someone else does on your behalf. Notwithstanding nigh of usa never take enough to purchase all the things nosotros want. This is because of scarcity. So how do we solve it?

Visit this website to read about how the Usa is dealing with scarcity in resources.

Every guild, at every level, must brand choices about how to utilise its resources. Families must make up one's mind whether to spend their money on a new car or a fancy holiday. Towns must cull whether to put more than of the budget into police and burn protection or into the school organization. Nations must decide whether to devote more than funds to national defense or to protecting the environs. In most cases, there simply isn't enough money in the upkeep to do everything. So why do nosotros non each just produce all of the things we consume? The simple answer is most of us do not know how, only that is non the primary reason. (When you lot written report economics, you volition observe that the obvious choice is not ever the right answer—or at least the complete answer. Studying economics teaches you to think in a different of way.) Retrieve back to pioneer days, when individuals knew how to do so much more than nosotros exercise today, from building their homes, to growing their crops, to hunting for food, to repairing their equipment. Most of u.s. do not know how to do all—or whatsoever—of those things. It is non because we could not learn. Rather, we do not have to. The reason why is something chosen the division and specialization of labor, a production innovation beginning put forth past Adam Smith, Figure 2, in his book, The Wealth of Nations.

Figure 2. Adam Smith. Adam Smith introduced the thought of dividing labor into detached tasks. (Credit: Wikimedia Commons)

The Division of and Specialization of Labor

The formal written report of economic science began when Adam Smith (1723–1790) published his famous volume The Wealth of Nations in 1776. Many authors had written on economic science in the centuries before Smith, simply he was the kickoff to address the subject in a comprehensive way. In the offset affiliate, Smith introduces the segmentation of labor, which means that the mode a good or service is produced is divided into a number of tasks that are performed by unlike workers, instead of all the tasks beingness done by the same person.

To illustrate the division of labor, Smith counted how many tasks went into making a pin: cartoon out a piece of wire, cut it to the correct length, straightening it, putting a head on 1 end and a point on the other, and packaging pins for sale, to name just a few. Smith counted 18 distinct tasks that were often done by different people—all for a pivot, believe it or non!

Modern businesses divide tasks as well. Fifty-fifty a relatively simple business organisation similar a restaurant divides up the task of serving meals into a range of jobs similar meridian chef, sous chefs, less-skilled kitchen help, servers to await on the tables, a greeter at the door, janitors to make clean up, and a business concern manager to handle paychecks and bills—non to mention the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where it is located. A complex business organization similar a large manufacturing factory, such as the shoe factory shown in Effigy 3, or a infirmary can take hundreds of task classifications.

Figure 3. Division of Labor. Workers on an associates line are an instance of the divisions of labor. (Credit: Nina Hale/Flickr Creative Commons)

Why the Sectionalization of Labor Increases Production

When the tasks involved with producing a adept or service are divided and subdivided, workers and businesses can produce a greater quantity of output. In his observations of pin factories, Smith observed that i worker alone might brand 20 pins in a day, just that a pocket-sized business of 10 workers (some of whom would need to do two or three of the 18 tasks involved with pivot-making), could make 48,000 pins in a solar day. How can a group of workers, each specializing in sure tasks, produce so much more than than the same number of workers who attempt to produce the entire good or service by themselves? Smith offered three reasons.

First, specialization in a detail small job allows workers to focus on the parts of the production procedure where they accept an reward. (In later on capacity, nosotros will develop this idea by discussing comparative advantage.) People take dissimilar skills, talents, and interests, so they will exist better at some jobs than at others. The particular advantages may be based on educational choices, which are in turn shaped by interests and talents. But those with medical degrees qualify to get doctors, for instance. For some goods, specialization will be affected past geography—information technology is easier to be a wheat farmer in Due north Dakota than in Florida, but easier to run a tourist hotel in Florida than in North Dakota. If yous live in or nearly a big city, it is easier to attract plenty customers to operate a successful dry out cleaning concern or picture palace than if you alive in a sparsely populated rural expanse. Any the reason, if people specialize in the production of what they do best, they volition be more productive than if they produce a combination of things, some of which they are practiced at and some of which they are non.

Second, workers who specialize in certain tasks often acquire to produce more quickly and with higher quality. This pattern holds truthful for many workers, including assembly line laborers who build cars, stylists who cut hair, and doctors who perform heart surgery. In fact, specialized workers often know their jobs well enough to suggest innovative ways to exercise their piece of work faster and better.

A similar pattern often operates within businesses. In many cases, a concern that focuses on one or a few products (sometimes chosen its "cadre competency") is more successful than firms that try to make a wide range of products.

Third, specialization allows businesses to take reward of economies of scale, which means that for many appurtenances, equally the level of production increases, the average cost of producing each individual unit of measurement declines. For example, if a factory produces only 100 cars per year, each motorcar will be quite expensive to make on average. Nonetheless, if a factory produces l,000 cars each year, and then it can ready upwards an assembly line with huge machines and workers performing specialized tasks, and the average cost of production per auto volition be lower. The ultimate result of workers who can focus on their preferences and talents, learn to exercise their specialized jobs better, and work in larger organizations is that society every bit a whole can produce and eat far more than than if each person tried to produce all of their own appurtenances and services. The division and specialization of labor has been a force confronting the problem of scarcity.

Merchandise and Markets

Specialization only makes sense, though, if workers can employ the pay they receive for doing their jobs to purchase the other appurtenances and services that they need. In short, specialization requires trade.

You do not have to know anything almost electronics or sound systems to play music—you just buy an iPod or MP3 histrion, download the music and listen. You lot practise not have to know anything about bogus fibers or the construction of sewing machines if you need a jacket—you just buy the jacket and wearable it. Y'all do not need to know anything about internal combustion engines to operate a automobile—y'all but make it and drive. Instead of trying to acquire all the knowledge and skills involved in producing all of the appurtenances and services that you lot wish to consume, the market allows you lot to learn a specialized set of skills and so use the pay you receive to purchase the goods and services you demand or want. This is how our modernistic club has evolved into a strong economy.

Why Study Economics?

Now that we have gotten an overview on what economics studies, let's speedily discuss why y'all are correct to study it. Economics is non primarily a drove of facts to exist memorized, though there are plenty of important concepts to exist learned. Instead, economics is better thought of as a collection of questions to exist answered or puzzles to exist worked out. Most important, economics provides the tools to work out those puzzles. If you accept still to be been bitten by the economics "bug," at that place are other reasons why you lot should study economics.

• Almost every major problem facing the world today, from global warming, to world poverty, to the conflicts in Syria, Afghanistan, and Somalia, has an economic dimension. If y'all are going to exist part of solving those problems, you need to be able to understand them. Economics is crucial.
• Information technology is hard to enlarge the importance of economics to good citizenship. Y'all demand to exist able to vote intelligently on budgets, regulations, and laws in general. When the U.S. government came close to a standstill at the end of 2012 due to the "fiscal cliff," what were the issues involved? Did you know?
• A bones agreement of economics makes you a well-rounded thinker. When you read articles near economic issues, you lot will empathise and be able to evaluate the writer's argument. When yous hear classmates, co-workers, or political candidates talking about economics, you will be able to distinguish betwixt common sense and nonsense. You will find new ways of thinking about electric current events and about personal and business organization decisions, too as current events and politics.

The study of economics does not dictate the answers, but it can illuminate the unlike choices.

Key Concepts and Summary

Economics seeks to solve the problem of scarcity, which is when human wants for goods and services exceed the available supply. A modern economy displays a division of labor, in which people earn income past specializing in what they produce then employ that income to purchase the products they need or desire. The division of labor allows individuals and firms to specialize and to produce more for several reasons: a) Information technology allows the agents to focus on areas of advantage due to natural factors and skill levels; b) Information technology encourages the agents to learn and invent; c) It allows agents to take advantage of economies of scale. Division and specialization of labor only work when individuals tin can purchase what they do not produce in markets. Learning almost economics helps you empathise the major problems facing the earth today, prepares you to be a good citizen, and helps you become a well-rounded thinker.

Self-Check Questions

1. What is scarcity? Tin y'all think of two causes of scarcity?
2. Residents of the town of Smithfield like to eat hams, simply each ham requires 10 people to produce it and takes a month. If the town has a full of 100 people, what is the maximum amount of ham the residents tin swallow in a month?
3. A consultant works for $200 per hour. She likes to eat vegetables, just is not very good at growing them. Why does it brand more economic sense for her to spend her fourth dimension at the consulting job and shop for her vegetables?
4. A estimator systems engineer could paint his house, only it makes more sense for him to rent a painter to do it. Explain why.

Review Questions

1. Give the three reasons that explain why the division of labor increases an economy'southward level of production.
2. What are iii reasons to report economics?

Disquisitional Thinking Questions

1. Suppose you have a team of two workers: ane is a baker and ane is a chef. Explain why the kitchen can produce more meals in a given menstruation of time if each worker specializes in what they exercise all-time than if each worker tries to practise everything from appetizer to dessert.
2. Why would partitioning of labor without trade not work?
3. Can you think of any examples of free appurtenances, that is, goods or services that are not scarce?

References

Bureau of Labor Statistics, U.S. Section of Labor. 2015. "The Employment Situation—February 2015." Accessed March 27, 2015. http://www.bls.gov/news.release/pdf/empsit.pdf.

Williamson, Lisa. "The states Labor Market place in 2012." Agency of Labor Statistics. Accessed Dec i, 2013. http://world wide web.bls.gov/opub/mlr/2013/03/art1full.pdf.

Glossary

sectionalization of labor

the style in which the work required to produce a practiced or service is divided into tasks performed by different workers

economic science

the written report of how humans make choices nether conditions of scarcity

economies of scale

when the average cost of producing each individual unit declines as full output increases

scarcity

when human wants for goods and services exceed the available supply

specialization

when workers or firms focus on particular tasks for which they are well-suited within the overall product procedure

Solutions

Answers for Self-Cheque Questions

1. Scarcity means human wants for goods and services exceed the available supply. Supply is limited considering resources are limited. Demand, all the same, is virtually unlimited. Whatever the supply, it seems homo nature to want more.
2. 100 people / 10 people per ham = a maximum of 10 hams per month if all residents produce ham. Since consumption is express past production, the maximum number of hams residents could eat per month is ten.
3. She is very productive at her consulting chore, but non very productive growing vegetables. Fourth dimension spent consulting would produce far more income than it what she could save growing her vegetables using the aforementioned amount of time. So on purely economic grounds, it makes more than sense for her to maximize her income past applying her labor to what she does best (i.e. specialization of labor).
4. The engineer is better at computer science than at painting. Thus, his time is better spent working for pay at his job and paying a painter to paint his business firm. Of course, this assumes he does non paint his house for fun!

murphymuresind.blogspot.com

Source: https://opentextbc.ca/principlesofeconomics/chapter/1-1-what-is-economics-and-why-is-it-important/

Share this post