1: Review Questions

1. Give the three reasons that explain why the division of labor increases an economy’s level
of production.
- The three reasons that explain why the division of labor increase an economy’s level of
production is that it allows the agents to focus on areas of advantage due to natural
factors and skill levels. Also, specialization allows workers to focus on production where
they have an advantage and workers that specialize learn to produce more quickly.
Workers can gain gain loyalty. It allows agents to learn or encourage them to learn and
invent because no time is wasted with a worker dropping a tool and then picking up
another. People have different skills, talents, and interests, so they will be better at
some job than at others.

2. What are three reasons to study economics? Explain.

- Economics is the study of how humans make decision in the face of scarcity.
Economics is not just primarily a collection of facts to be memorized, though there are
plenty of important concepts to be learned. First, when you study economics, it makes
you a well-rounded thinker like when you read articles about economics, you will
understand every situation and able to evaluate the writer’s argument. Second, you will
find new ways of thinking about current events including the personal and business
decisions as well as the current events and politics. Third, not only you learn about
economics but also you will learn about how the world functions like you understand the
world we live in and you will be a better decision-maker someday and you will expand
your vocabulary or enhance your knowledge about economics. Learning about
economics helps you understand the major problems facing the world today.

3. What is scarcity? Can you think of two causes of scarcity? *

- Scarcity means that human wants for goods, services and resources exceed what is
available such as labor tools, land, and raw materials are necessary to produce the
goods and services we want but they exist in limited supply. Families must decide
whether to spend their money on new car or a fancy vacation. Towns must choose
whether to put more of the budget into police and fire protection or into the school and
many more because every society, at every level, must make choices about how to use
its resources. The causes of scarcity are poor distribution of resources and when
demand increases rapidly, and supply cannot keep up with the demand like for
example, this commonly see when some locations prepare for hurricane, and there is a
run on supplies such as plywood and generators. While this scarcity doesn’t typically
last a long period of time, it does demonstrate how a rapid increase in demand can
cause a situation to develop.