CHAPTER 25

EX1:
Trade makes everyone better off. Specializing in production of a good in
which a country have absolute and/or comparative advantage makes a country
move towards its optimum output level and efficiency. Thus, it can export the good
it specializes in producing and import a good it is not specialized to produce. This
makes both the countries gain. Thus, though the US imports a substantial amount
of goods, it is important to consider net exports as the criterion to judge the
standard of living.
EX2:
If a certain society decides to increase investment and reduce consumption,
that could lead to economic growth and higher productivity. Especially if this
country is poor, this will be visible and higher productivity could be achieved.
General increasment of investment creates a larger stock of capital and higher
economic growth for a certain period of time. Almost all groups will somehow
benefit from this in the long term. Greater productivity will create lower costs,
bigger profit, greater employment. But firstly, because of savings and lower
consumption, the general sale will be at a lower point which could cause smaller
profit and lower as first consequences.
EX3:
a. Education can be viewed as an investment and consumption.
b. Health programs for the young are more like investments than for the
elderly.
EX4:
The opportunity cost of investing in the capital is potential amount of money
which is lost because different forms of investing are being made with equal risk.
Of course, a government could overinvest in the capital since there are maybe
more important activities which should be taken in order to achieve a better
economic situation. The opportunity cost of investing in human capital may be
calculated if the certain investment was made for getting better technology or
achieving the more progressive process. There are many ways in overinvesting in
human capital. If a country develops a great structure of well-educated people in
fields that are not important for future activities, we may consider this as an
overinvestment
EX5:
a. It was better for the United States to receive these foreign investments
because they brought more capital, created new companies and business
opportunities and employed an important quantity of labor force. This increased
economic growth and made good competition between companies.
b.It was certainly better for Americans if they could do it on their own
because now foreigners possess a lot of capital in America, but sometimes that's
not doable.
EX6:
Greater educational opportunities for young women could create a better
society in general. The economy could have higher growth if people in that country
are better educated, young women could give their own creativity in many fields. It
is also known that children from well-educated parents have better chances to also
become successful. Whole society would be more developed and improved,
families could earn higher wages and live better lives.
EX8:
a. People with higher incomes could spend greater amounts of money on
their health insurance, they are in a position to visit a doctor more often no matter
how big expenses are and they could choose the best hospitals.
b. People with better health outcomes have a possibility to work harder, they
have better energy and could achieve excellent results. They are more satisfied
which bring higher income for them.
c. Public policy could be slightly changed in order to foster the government
to create a better position for all people regarding their health care. The benefits
would be mutual.
EX9:
Adam Smith states that administration of justice is at a tolerable level, so it
will be easy to enforce justice and make the citizens co-operative. A smooth
administration process is important to create a healthy environment for the
economic growth.