1. In the Wealth of Nations, Adam Smith said, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” What do you think he meant?

2. Pay in the United States

Answer the question: If there were no sanitation workers to remove and dispose of our garbage, the incidence of disease and death would increase. By contrast, if professional sports were abolished, there would be little or no effect upon public health or longevity. How then can you explain why professional athletes earn so much more than sanitation workers?

3. Identify whether each of the following government activities is motivated by a concern about equity or a concern about efficiency.

a. regulating cable TV prices b. providing some poor people with vouchers that can be used to buy food c. the government repairing I465 and several bridges in the Indianapolis area d. imposing higher personal income tax rates on people with higher incomes e. instituting laws against driving while intoxicated

4. Suppose that when everyone wakes up tomorrow, they will discover that the federal government has given them an additional amount of money equal to the amount they already had. Explain what effect this doubling of the money supply will likely have on the following:

a. the total amount spent on goods and services b. the quantity of goods and services purchased if prices stay the same c. the prices of goods and services if prices can adjust

5. People respond to incentives. Governments can alter