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

Chapter Two: Fundamentals of Economic Behavior 59 CHAPTER TWO ANSWERS 1. As people (or nations) find that they have a better aptitude for a given task than others, they will be able to produce more at that task than others can. If they specialize in the production of that good, they can get very good at producing a good, such that they can have more than enough for their own consumption. They can trade the excess production to others, in exchange for something that they don’t do well. If their trading partners likewise specialize, the aggregate total of production will be much larger—there is a larger “pie” for everyone to have a slice of. While there is no guarantee that everyone’s slice will be equal, everyone will have more than if they tried to produce everything they needed to consume. 2. When men act according to their fallen nature, they may “serve” their customers in ways that do not edify them; they can produce products that are harmful to their customers (such as pornography). Further, each part of the production process is to be esteemed highly; while different remuneration based on contribution is acceptable, if we exalt some in markets but put down others, we are guilty of partiality. In markets, as in all life, we should seek to “give preference to one another in honor. ” 3. A. True (not enough for everyone to have freely from nature) B. False (you can freely breathe all you want without taking from others’ ability to do the same) C. False (no one will want this, so the fact that there is only one is irrelevant) 4. Scarcity requires rationing since there is less of a good or service available than people would want if it were free. Since there is less than wanted, we have to have some way to allocate between the competing interests; we have to ration. 5. C. Opportunity cost is always the next best alternative—what you gave up by your choice. 6. Not necessarily. You need to think about the margin; the fact that she likes previous iPods doesn’t really tell us anything about how much she would value an additional iPod. The only thing we can say is that if she got another one, she would get less satisfaction from the 9th iPod than from the earlier iPods, because of the concept of diminishing marginal utility. 7. Christianity helps promote good morals, and ethical behavior helps reduce uncertainty over how people will behave, enabling plan coordination. If people know they can trust a person, it is easier to engage in business transactions with them. 8. No. Most institutions are seldom thought of or understood. While we don’t need to understand them for institutions to work, if we enact policies that inhibit