A First Look at Economics:
Exercises & problems

EXERCISES AND PROBLEMS

1. Take a survey among at least four friends outside of this course and ask them the following questions:
   — What is economics?
   — If you ever considered or are still considering studying economics, can you give me your reasons for doing so?

   On the basis of the answers you receive, discuss the (mis)conceptions they have of economics as a discipline.

2. Reread the 3-minute history of economic thinking and reconstruct the arguments of Adam Smith, Karl Marx, and John Maynard Keynes. Write down their major claims, and articulate at least two warrants for their claims.

3. Set up position groups in class on the role of government in the economy. Have one group argue the pro-market perspective (the new classical view), that the government should not meddle in the economy. Another group will make the Keynesian case, arguing the need for some government intervention. A third group might make the radical argument that even government intervention cannot prevent the market system from being unstable and unjust.

   Write up the arguments that each group presents, using the Toulmin Model as your guide. At the end evaluate together the strong and weak arguments. Recognize what you know and what you still need to learn about.

4. Determine whether the following statements are positive or normative:
   A. The government should do everything it can to keep inflation under control.
   B. Trade is war.
   C. Economics is good for you.
   D. If the government increases its spending, it can prevent an economic downturn.
   E. People will anticipate government actions and thus render them ineffective.

5. Which bias do the following statements reveal? Try to label them as new classical (that is, pro-market); as Keynesian (the market works but not always, and it when doesn't work, the government should intervene), radical (the market does not work and a radical change is needed.)
   A. The government should do everything it can to keep inflation under control.
   B. Trade is war.
   C. Economics is good for you.
   D. If the government increases its spending, it can prevent an economic downturn.
   E. People will anticipate government actions and thus render them ineffective.

   ESSAY AND DISCUSSION QUESTIONS

6. John, a friend, cannot believe it when he hears that you are taking economics. "I didn't know you were the business type," he says. "Why would you study the science of money?" Set him straight, using what you have learned about economics in this chapter.
7. Angela, another friend, responds with a yawn. "Economics is so boring," she says. Convince her otherwise. (If you are not convinced yourself yet, try to imagine how someone like Maria, who is clearly interested in the subject, would respond.)
8. Paul is bothered by the fact that economists often disagree. "If they cannot settle things, economics cannot be a science," says he. Paul is wrong. Why? [First correct Paul on his conception of what a science is. Explain to him the complexity of the economy. Finally ask him, as well as yourself, whether the lack of definite answers sufficient reason is to abandon all systematic economic inquiry.]
9. In a discussion on trade, Paul says at one point: "Trade is like war: it is us against them. You have to play tough or you lose." Try to elaborate. Why would he believe that? What are some of his warrants? (Give "theoretical" reasons, or refer to actual occurrences.)
10. Bayla disagrees with Paul - as do most economists. Try to make her case. (Ask yourself: Is trading in a market like war? If it were, why would people participate so eagerly? Is it possible that both parties gain?)

ANSWERS TO CONCEPT CHECKS

2. Paul claims that protection is better than free trade. Bayla asks him to support his claim. Lacking evidence, Paul appeals to a warrant: he reasons using economic logic about a supposed loss of jobs that would result if trade were free. Rodney agrees, and sees workers losing the most. Bayla counters with the claim that free trade is better. Her warrants are two: out the costs of protection for Americans who buy imports and the likelihood that fired workers will find other jobs. She widens the ethical grounds of the argument by noting that you have to take into account the impact of protection on people abroad.