Principles of economic economic and the economy by Tim Taylo

Principles of economic: economic and the economy by Tim Taylor (3rd ed)

Chapter 1

1. What are the three basic questions that every economy must address?

Chapter 8

1. Who makes the decision about how much utility an individual will receive from consuming a good?

3. Would you expect marginal utility to rise or fall with additional consumption of a good? why?

5. If people do not have a complete mental picture of their total utility for every level of consumption, how can they find their utility-maximizing consumption choice?

7. As a general rule, is it safe to assume that a change in the price of a good will always have its most significant impact on the quantity demanded of that good, rather than on the quantity demanded of their goods? explain

9. As a general rule, is it safe to assume that a higher wage will encourage significantly more hours worked for all individuals? explain.

11. As a general rule, is it safe to assume that a lower interest rate will encourage significantly lower financial savings for all individuals? explain

Solution

CHAPTER 1

Q. 1) The three basic questions that every economy must address:-

a) What to produce ?:- Firstly, the economy has to decide what goods and services are to be produced. For instance, which of the consumer goods like sugar, cloth etc. are to be produced and which of the capital goods like machine, tractors etc. are to be produced.

  b) How to produce ?:- How to produce is the second offshoot of the problem of resource allocation. How to produce means how to organise production. This problem is concerned with the choice of technique of production i.e., whether Labour intensive or Capital intensive technique.

c) For whom to produce ?:- What goods should be consumed and by whom depends upon how national product is distributed among people/factor owners. In other words, problem for whom to produce is related to distribution of income among people/factor owners.

CHAPTER 8

Q. 1) An individual himself/herself makes the decision about how much utility he or she will receive from consuming a good.

Q. 3) Marginal utility would fall with the additional consumption of good.

Explanation:- This is due to Law of dimishing marginal utility. It states that as a consumer consumes more amd more of a commodity, the marginal utillity obtained from an additional unit of it goes on diminishing.