Name:  _____________________________
Course: ____________________________
Instructor: __________________________
Date: _______
 

THE GLOBAL ECONOMICS GAME:  LESSON 1
Focus on Marginal Decisions, Conflicting Goals, and the PPC

NOTE:  It is highly recommended that you read over this entire lesson before you begin.

Preliminary Discussion:  Economics studies the allocation of scarce resources.  The most fundamental principle in economics is that you have to give up something to get something in a world of scarce resources.  There are no free lunches.  People and their governments must make difficult choices, and every decision entails an opportunity cost.  For example, resources allocated to the production of military equipment have the opportunity cost of not being used to produce something else such as luxury cars, home furnishings, or medical care.

Economic goals are often conflicting because of the scarcity of resources.  One goal is accomplished at the (opportunity) cost of another.  For example, most economists are convinced that there is a short-run trade-off between inflation and unemployment.  The closer the economy gets to full employment, the greater the probability of encountering accelerating inflation.  Economic growth can conflict with the environment.  Urban sprawl, congestion, garbage, and air pollution are all examples of the costs associated with growing economies and regions.

To resolve the conflicting nature of economic decision-making, economists are guided by the marginal benefit = marginal cost principle.  That is, something is worth doing in economics as long as the marginal benefit is greater than or equal to the marginal cost of doing it.  If the marginal cost exceeds the marginal benefit, then it's not worth doing.  For example, using economic policy to reduce unemployment is worth doing so long as the costs of inflation are minimal.  Economic growth is desirable when its benefits to society in the form of more production and jobs are greater than its associated costs.

The role of economic policy is to undertake steps to improve the country's overall economic performance and find that delicate, acceptable balance of conflicting goals.  Generally, the goals are to achieve full employment, price stability, and economic growth without excessive pollution.

In The Global Economics Game you are the chief economic adviser to the leaders of the country of your choice.  You are in charge of economic policy.  The objective is to implement timely and appropriate economic polices to improve the overall economic performance of your country.  Good luck and have fun!

Play The Global Economics Game to 100 points against one other country that is computer-managed (i.e., advised by Professor N. D. Cator).  Note:  If you do not know how to play the game, then select "Tutorial" from the main menu first.  If you already know how to play, then select "New Game."  Complete the game and print the final score.
 
 

Figure 1

Figure 1 shows the playing field of the game.  Point A represents an optimal balance among conflicting short-run macroeconomic goals.  At Point A the economy is fully employed with a natural rate of unemployment and without too much inflation or too much pollution.  It represents a point on a country’s Production Possibilites Curve (PPC); but it doesn’t indicate the composition of goods and services in terms of guns and butter, capital and consumer, or private and public.
 

Answer the questions below using Figure 1 (above) as a reference.   For each question, enter the best single answer on your scantron card.

1. You get the most points by landing in the center of the playing area (Point A in Figure 1), because:
(a) You have no garbage, no inflation, no unemployment, and lots of stuff.
(b) It is the highest possible level of production without any pollution.
(c) All of the economic goals are being satisfied to everyone's satisfaction.
(d) It represents an optimal balance between the production of guns and butter.
(e) It represents an optimal balance regarding marginal trade-offs among conflicting goals.

2. If your country were at Point B in Figure 1, it would be the equivalent to:
(a) a point on your country’s production possibilities curve (PPC).
(b) a point inside your country’s PPC.
(c) a point outside your country’s PPC.
(d) an inward shift in your country’s PPC.
(e) an outward shift in your country’s PPC.

3. If your economy were in the Depression corner of the playing field (Point B in Figure 1), then moving diagonally toward the center of the playing area (Point A in Figure 1) would be:
(a) undesirable, because the benefits of increased production and lower unemployment are minimal compared to the costs of excessive pollution and inflation.
(b) desirable, because the benefits of greater output and lower unemployment would exceed the costs of slightly higher prices and more garbage.
(c) undesirable, because lower pollution and reduced prices (deflation) are always good for society, even if production and incomes fall and workers lose their jobs.
(d) desirable, because it would indicate that lazy people would be forced to work and the increased output would cause prices to fall.
(e) desirable, because a higher real GDP and full employment are always better for society  even if inflation hurts families on fixed incomes and pollution diminishes the quality of life.

4. You get less points when your economy moves from Point A to Point G in Figure 1, because:
(a) the benefits of economic growth are less than the costs of inflation.
(b) the benefits of economic growth are more than offset by the costs of structural unemployment.
(c) the benefits of lower cyclical unemployment are less than the costs of structural unemployment.
(d) the benefits of lower cyclical unemployment are less than the costs of inflation.
(e) the benefits of economic growth are less than the costs of higher pollution.

5. If your economy were in the Stagflation corner (Point D in Figure 1), then moving diagonally toward the center of the playing area (Point A in Figure 1) would:
(a) result in lower cyclical unemployment, higher prices, a higher real GDP, and less garbage.
(b) result in higher cyclical unemployment, lower prices, a lower real GDP, and more garbage.
(c) result in lower cyclical unemployment, higher prices, a lower real GDP, and less garbage.
(d) result in lower cyclical unemployment, lower prices, a higher real GDP, and more garbage.
(e) result in higher cyclical unemployment, higher prices, a higher real GDP, and more garbage.

6. Moving toward Hyperinflation (Point F in Figure 1) is undesirable, primarily because:
(a) even though people may have jobs, their wages do not generally keep pace with inflation so that their living standards and the value of their savings are actually falling.
(b) most people can't count higher than one million.
(c) it causes urban sprawl, congestion, pollution, and too much garbage.
(d) nobody benefits from it.
(e) all of the above.

7. Cybernation (Point H in Figure 1) demonstrates that technological change and globalisation can increase productivity, lower prices, and increase the real GDP -- but at the expense of:
(a) using up scarce resources more rapidly.
(b) less production and lower family incomes.
(c) structurally displaced workers who lose their jobs and unintended adverse environmental effects.
(d) making other countries that don't have the new technology relatively worse off.
(e) All of the above.

8. The effects on unemployment are ambiguous when moving from Point A to Point H in Figure 1:
(a) because inflation is going up while unemployment is going down.
(b) because unemployment is going down but pollution and prices are both going up.
(c) because cyclical unemployment is going down but structural unemployment is going up.
(d) because the real GDP is going down and pollution is going up.
(e) because the real GDP is going down and cyclical unemployment is going up.

9. Moving from a point to the left of Point C to Point C in Figure 1 is the equivalent of:
(a) moving from a point inside the production possibilities curve (PPC) to another point inside the PPC , but closer to the curve itself.
(b) moving from a point inside the PPC to a point on the PPC.
(c) moving from a point inside the PPC to a point outside the PPC.
(d) shifting the PPC outward on both axes.
(e) shifting the PPC outward, but only on one axis.

10. If an economy moves from from Point A to Point E in Figure 1:
(a) the real GDP stays the same but inflation is higher.
(b) the real GDP goes up and inflation stays the same.
(c) the real GDP goes up and cyclical unemployment goes down.
(d) the real GDP goes down and structural unemployment goes up.
(e) the real GDP goes down but pollution goes up.

END OF LESSON 1

You will receive _____  possible points for this exercise.

Instructor’s Option:  You will receive _____  additional points if you win the game!

The Global Economics Game   (C) 2004  Ronald W. Schuelke   All Rights Reserved