AP Microeconomics chapter 1 CRITICAL THINKING QUESTIONS

The baker and the chef have specialized skills that allow them to be more productive in certain areas than in others. The baker will be able to make a pie faster than the chef, and the chef will be better at cooking the main course. By each worker doing what he does best, productivity and efficiency are maximized and total output is greater.

With no trade, each individual must produce all the goods and services he wants to consume. Therefore, by definition, he cannot specialize and so he can obtain the benefits of specialization. With trade, on the other hand, by specializing on what the individual does best, he can maximize product and income and trade for whatever else he wants to consume. In short, specialization results in a net gain rather than a loss.

Air for breathing is, in most cases, not scarce. Of course, for the scuba diver or the astronaut, this is far from the case. Even goods that are not scarce for most practical purposes can become scarce under certain circumstances.

A Balanced federal budget and the balance of trade do not have direct effects on the well-being of individuals. While we can argue about what their long term effects are, the standard of living (as measured by economic growth, for example) is directly responsible for how well off people are within an economy, so that is what economists care about.

Macroeconomics can differ greatly because it encompasses all of the microeconomics, and using the crowd analogy, people act differently in a crowd. Some companies may not be defined by what macroeconomics supposedly dictates.

The economy is extremely complex; it is impossible to understand without some degree of abstraction. Theories are deliberate simplifications. Done correctly, a good theory allows us to see important relationships by shielding us from the virtually infinite "noise" of reality.

You should build and test a model to help you understand the problem.

Market economies have proven very good at raising standards of living. Yet markets also have some failings that can only be solved by central direction; an example of such a failing is pollution, which markets generally do not handle very well. Another reason for command elements in economies is that political elites are always reluctant to give up their authority.

The answer to this question will vary from individual to individual. For the average American, globalization has reduced the prices paid for many goods, but it has also made it harder to find an unskilled job.