Self-Check Questions
Q1
What is scarcity? Can you think of two causes of scarcity?
Q2
Residents of the town of Smithfield like to consume hams, but each ham requires \(10\) people to produce it and takes a month. If the town has a total of \(100\) people, what is the maximum amount of ham the residents can consume in a month?
Q3
A consultant works for \(\$200\) per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables?
Q4
A computer systems engineer could paint his house, but it makes more sense for him to hire a painter to do it. Explain why.
Critical Thinking Questions
Q7
Suppose you have a team of two workers: one is a baker and one is a chef. Explain why the kitchen can produce more meals in a given period of time if each worker specializes in what they do best than if each worker tries to do everything from appetizer to dessert.
Q8
Why would division of labor without trade not work?
Q9
Can you think of any examples of free goods, that is, goods or services that are not scarce?
Solution
S1
Scarcity means human wants for goods and services exceed the available supply. Supply is limited because resources are limited. Demand, however, is virtually unlimited. Whatever the supply, it seems human nature to want more.
S2
\(100\) people / \(10\) people per ham = a maximum of \(10\) hams per month if all residents produce ham. Since consumption is limited by production, the maximum number of hams residents could consume per month is \(10\).
S3
She is very productive at her consulting job, but not very productive growing vegetables. Time spent consulting would produce far more income than it what she could save growing her vegetables using the same amount of time. So on purely economic grounds, it makes more sense for her to maximize her income by applying her labor to what she does best (i.e. specialization of labor).
S4
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 house. Of course, this assumes he does not paint his house for fun!