No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter One: Introduction to Economics 32 CHAPTER ONE ANSWERS 1. Since the question only asks for thoughts, here are some of the thoughts you might want to consider. Communism implies social ownership of capital equipment (factories, machines, land, etc. used to produce things). Is there any biblical example of social ownership? Is there any biblical support for private property rights? Does God’s commands of how we individually exercise stewardship imply that governments ought to force behavior to achieve a social goal? 2. False. Our assumption of methodological individualism mandates that all decisions (choices) on resource allocation are made by individuals. 3. Karl Marx’s view of a “new man” is a utopian ideal that is not consistent with a Christian worldview. Man’s fundamental problem of separation from God due to our rebellion will not be cured simply by historical time flow but only by the return of Christ, when we will be transformed “in a moment, in the twinkling of an eye.” 4. Methodological individualism simply means that only individuals choose. If an entity such as a corporation or government agency acts, it is only through individuals. This does not preclude social considerations; indeed almost all of our decisions are made with concern of others in mind. 5. Objective value is an assessment of worth by some external standard. In classical economics, value was considered objective because it was based on the labor input— you could objectively measure the number of hours required to produce a good. Subjective value is an internal assessment; you or I consider in our own heart and mind whether something is valuable or not. When there is a question about objective value, we can go to the external standard and come to the correct answer. If there is a question regarding subjective value, there is no way to assess, since my idea is right for me, and your value is right for you. 6. If Wendy’s value meal falls in price, the benefits of a given dollar of cost rise, making this now a relatively more attractive option to purchase. Thus more people will choose to purchase the value menu than before the price decrease. 7. Our knowledge is necessarily limited since we are not omniscient, and thus some of our choices will come in conflict with others choices. My plans must “mesh” well with the plans of others if I am to be happy with the results. We inevitably suffer disappointment. 8. Capitalism features private ownership of both consumer goods and capital goods. Socialism allows private ownership of consumer goods, but has state ownership of the means of production (capital goods). Communism features state ownership of all goods, consumption goods, and capital goods.