ACTIVITY 2

Let’s test your comprehension

1. If people faces trade-offs what will you choose Guns vs. Butter. Explain.

Both Guns and Butter are important in a nation’s economy as both of it plays a vital role
and citizens benefit from it. But for me I will choose Butter as what I see now people
needs Butter. Many are struggling with food, medicine, and welfare, specially at this
time of pandemic. Guns cannot fill an empty stomach of a kid, it cannot heal a wound of
a father from sacrificing himself to make his family survive, and it cannot give happiness
to a mother crying for she cannot provide the needs of her children.

2. You are trying to decide whether to take a vacation. Most of the costs of the vacation
are measured in pesos, like airfare, hotel, and forgone wages, but the benefits of the
vacation are psychological. How can you compare the benefits to the costs?

The benefits should not always be physically but also psychologically. Most of the
people take a vacation because they want to relax, have a peace of mind, have some
fresh air, and spend time with their family or self alone which all of it are psychological.
If the vacation can give these kinds of psychological benefits, then the costs is worth it.

3. Explain the incentive we get from the seat belt laws.

Wearing a seat belt is one of the good things a person does. First, it is because it can
save his life from an accident, lessen accident injuries, defense to being an aggressive
driver, and others. Second is a person wearing a seat belt can become a good model for
others and can help to lessen accidents in its community or country.

4. If markets are usually a good way to organize economic activity, how about in
communist countries? How they organize economic activity?

Since the government in communist countries is the one who owned all the production
and its factors, decides where to locate all its resources and what products and services
to be produced. All the citizens work for the common good and not for the profit. The
wealth being produced is shared equally to the citizens based on their needs, rather
than their contribution to the work.
5. Market failure may be caused by an externality. Give one example of externality and
what government can do about it?

One of the examples of externality is a passive using of cigarettes or passive smoking.

We know that it can greatly affect the health of a user and a non-user of cigarettes. It
can cause cancer, lungs diseases, heart diseases, bad breath, and other diseases which
are not good for the citizen of the country. The government cannot simply close or stop
the production of it but one thing the government can do is to tax it higher. Therefore,
when it happens the cost of cigarettes becomes high and there is a possibility that it can
lower the number of users since people prefer low cost.