Problem Set #1
“The Choice” 8/22/12
1.
Explain what Ricardo means by “The Roundabout Way to Wealth”.
2.
Explain the weakness of the following statement by Ed, “So America makes
televisions in a roundabout way. But Americans are sending money to Japan. Lots
of money, I bet. Wouldn’t it be better for the U.S. if that money stayed in America?
That way, Americans have money instead of the Japanese. With more money, we’re
richer. Isn’t that better than sharing the money with foreigners?”
3.
“Who makes the decision not to specialize in televisions and to specialize in drugs
instead? How do you know it is the right decision?” How would you answer Ed’s
question?
4.
What is Ricardo’s evidence that America is better off due to trade?
5.
Ed asks, “What about unemployment? When we closed down our plant and Zenith
and Motorola closed down theirs, America must have lost lots of jobs.” How would
you answer Ed’s question?
6.
Why is it useful to think of “days of work it takes to make enough money to buy a
color TV” rather than salary, as a measure of the standard of living?
7.
How does Dave explain that small business closings can actually improve the futures
of affected families?
8.
Has real hourly compensation increased significantly in the U.S. since the 1960s?
9.
Why haven’t all U.S. jobs moved to Mississippi if low wages attract jobs?
10.
If we continue “outsourcing our good jobs,” will we all eventually be working at the
laundromat or picking up trash at carwashes?
To debate as a class
11.
The U.S. needs to use quotas and tariffs to protect some industries due to national
defense concerns.
12.
Infant industries should be protected so the U.S. can develop a comparative
advantage