Basics of Economics

Topics: Economics, Economic growth, Gross domestic product Pages: 7 (2786 words) Published: January 20, 2011
Naked Economics:
Undressing the Dismal Science
( AP economics summer assignment )

Sora Kim
Mr. Kotzky

1a. “Individuals seek to maximize their own utility.” Explain this basic economic principle. b. Discuss several of the conflicts / choices, as discussed by Wheelan, that individuals may face in trying to maximize their utility.

Economists would basically do whatever it takes to gain privileges or derive utility. For example, they would pay taxes or get a doctor’s shot. Doing those things isn’t exactly pleasant, but you would do it for escaping future consequences if it’s not done. If you don’t pay your taxes, you go to prison; if you don’t get a doctor’s shot in time, you get ill. All economists have different tastes and preferences to obtain these utilities. Just because yours seem more interesting than the other guy next to you, doesn’t mean to go enforcing it to someone else. Their lives may be completely the opposite than yours and might not fit their levels of preference.

This act of enforcing preferences leads to behaving selfishly. Even though every economist in the world wants to maximize their utilities, it does not mean to act greedily. In fact, Oseola McCarty worked as a laundress her whole life, but 4 years before her death, she gave a hundred and fifty grand to the University of Southern Mississippi to help poor students in need of a scholarship.

So basically, trying to maximize your utility means spending more risks, so in the end or future, it’s better for us. However, life is always a roller coaster; it has ups and downs, just like the future of your utility. There’s always a trade-off. You either risk it now or gain utilities after, or you use your utility now, and face the consequence later. If you harass your boss out of anger, you may feel relieved for a while but a couple of months later; you may see yourself in jail. If you save up money to buy the latest technology instead of purchasing the golf clubs you wanted, you’re the new leader in your social group of friends a while later. You should also balance your social and work life in the same way. Spending too much time on working won’t let you have time to relax; relaxing too much won’t let you have that great of an income to relax on. The point here is saying that time is scarce, so decide your trade-offs well because economics is all about it. 2. Discuss the features of ‘markets’ that Wheelan cites, to support his comparison of market economics to democratic political systems.

Firms and markets desire to make profits so they always have something up their sleeve to deal with their competition. They have to be alert and try to beat the deal that their competition would think of so they stay on top. For example, the OPEC nations tried to limit oil productions and soon prices went up and politicians came up with horrible ideas trying to solve this problem. However, there was a good side to all this; people started driving less to help save their planet. Democracy is also the same. They try to come up with reasonable ways and some not so good alternatives - just in case – to satisfy each individual. Markets would try their best to get the consumer’s best interest with decent ideas. 3a. “People respond to incentives.” Explain this economic concept. 3b. Explain why our approach to paying teachers illustrates ‘adverse selection’, providing an incentive to leave the profession.

First of all, incentive basically means drive, stirrup. So if people respond to incentives, it means that people are interested in what’s causing the stirrup these days. Let’s say the black rhino’s horn is getting popular for its many uses. If it grows more popular, it grows more cash value. Unfortunately, the black rhino is an endangered species just for that reason, its horn. Right now, it’s after lookout from communal property, where the public services look out for it.

However, that’s even worse than letting a poacher have them for sale. Since...
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