Chapter 02 – Understanding Economics and How It Affects Business
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critical
thinking exercises
Name: ___________________________
Date: ___________________________
critical thinking exercise 2-1
KNOW YOUR HISTORY OF ECONOMICS
1. Describe the personality of your chosen economist.
2. What major contributions did this chosen economist contribute to the field of economics regard-
ing:
a. Micro economics
b. Macro economics
3. How does the works of your chosen economist have any relevance to our economy today?
4. How did your chosen economist further the field of economic study?
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critical thinking exercise 2-2
APPLYING ECONOMIC PRINCIPLES TO EDUCATION
1. Do you believe that such economic principles apply in both private and public organizations? Be
prepared to defend your answer.
2. Are there other public functions that might benefit from more competition, including competition
from private firms?
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critical thinking exercise 2-3
FINDING THE EQUILIBRIUM POINT
In 2011, Knight Electronics sold 350,000 digital video recorders (DVRs.) Based on the compa-
ny’s analysis of the DVR market, the company believed that $160 was the equilibrium price based on the
1. Describe what has happened to the supply and demand curves for Knight DVRs in 2011.
2. What is the new equilibrium price?
3. How many DVRs will be produced at the new equilibrium price?
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4. Knight revised its estimate of the amount of product demanded for 2012 as described above. In
2013 a new technology become available enabling DVRs to communicate over cell phones and
the Internet. Knight’s competitors are selling this new DVR, called SuperDVR, for $150. What
will happen to the supply and demand curves for Knight DVRs now?
notes on critical thinking exercise 2-3
1. Describe what has happened to the supply and demand curves for Knight DVRs in 2011.
2. What is the new equilibrium price?
3. How many DVRs will be produced at the new equilibrium price?
4. Knight revised its estimate of the amount of product demanded for 2012 as described above. In
2013 a new technology become available enabling DVRs to communicate over cell phones and
the Internet. Knight’s competition are selling this new DVR, called SuperDVR, for $150. What
will happen to the supply and demand curves for Knight DVRs now?
Chapter 02 – Understanding Economics and How It Affects Business
Name: ___________________________
Date: ___________________________
critical thinking exercise 2-4
STANDARD OF LIVING COMPARISON
Is the standard of living different in capitalist, socialist, and communist economies? Which eco-
nomic system provides the highest standard of living? One way of answering these questions is by com-
paring economic data you might find in the library or on the Internet. (Hint: try the CIA Web site.)
Choose one capitalist country, one socialist country, and one communist country. Use the following chart
to record your findings.
SOCIALIST
COUNTRY
COMMUNIST
COUNTRY
Country Chosen
Gross Domestic
Product
Consumer Prices
Unemployment Rate
Average Income
Average Education
critical thinking exercise 2-5
BALANCING THE FEDERAL BUDGET
The Federal government’s historical budget deficit is discussed and debated endlessly. Everyone
has an opinion on how to balance the budget. Figures are presented on the next page. Rearrange the fig-
ures to eliminate the $2,079,500,000,000 ($2.079 trillion) deficit and balance the budget. You can either
Chapter 02 – Understanding Economics and How It Affects Business
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Foreign Aid and Development
10,500
Justice and State
53,800
Science and Energy
44,200
Housing, Interior, and Commerce
87,900
All other outlays
198,500
Interest on National Debt (CANNOT BE
CHANGED)
214,800
214,800
TOTAL, FEDERAL OUTLAYS
4,296,000
SURPLUS (DEFICIT)
(2,079,500)
0.0
notes on critical thinking exercise 2-5
There is no “right” or “wrong” answer to this exercise. Each student will modify the budget fig-
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bonus case 2-1
FOUNDATIONS OF THE CAPITALIST SYSTEM
Throughout history of capitalism, there has been one persistent criticism. The whole system
seems to be based on selfishness⎯the more one works, the more one prospers. If one is unable to work,
the system seems to have no answer to his or her problems. Furthermore, there does not seem to be any
moral or spiritual foundation to the system. Where do businesses get their values? What about concepts
such as sharing, helping neighbors, and protecting the environment?
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discussion questions for bonus case 2-1
1. Do you see any evidence that the moral, ethical, and spiritual foundation of the American demo-
cratic capitalist system is eroding? How does that affect the ability of capitalist proponents to
promote capitalism in other countries such as China and India?
2. Why is it so necessary to have a freely elected government for democratic capitalism to create a
prosperous and fair economy?
3. Go through the three components of democratic capitalism and picture an economy without each
one. What happens to freedom, fairness, and moral and ethical behavior? Which part of the sys-
tem seems weakest today? What can be done about it?
1. Do you see any evidence that the moral, ethical, and spiritual foundation of the American demo-
cratic capitalist system is eroding? How does that affect the ability of capitalist proponents to
promote capitalism in other countries such as China and India?
2. Why is it so necessary to have a freely elected government for democratic capitalism to create a
prosperous and fair economy?
3. Go through the three components of democratic capitalism and picture an economy without each
one. What happens to freedom, fairness, and moral and ethical behavior? Which part of the sys-
tem seems weakest today? What can be done about it?
Chapter 02 – Understanding Economics and How It Affects Business
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endnotes
i Sources: Peter Coy, “If Demography is Destiny, Then India has the Edge,” Bloomberg BusinessWeek, January 13,