2) Why do economists say that even very rich people face scarcity?
3) What do economists mean when they discuss “scarcity”?
4) Define economics and describe its branches of study.
5) Why does scarcity lead to the what, how, and for whom questions?
6) List and explain the three fundamental economic questions that must be answered by all
economic systems.
7) Pumpkins are grown in New Mexico with the aid of fertilizer. Hence, fertilizer is a partial
answer to which of the three economic question?
8) Different nations answer the what, how, and for whom questions differently. China, for
instance, builds dams using many workers and only a little capital equipment. The United States
builds dams using a few workers and a lot of capital equipment. Which economic question are
these two nations answering and why do the answers differ?
9) The question “Will doctors or lawyers have higher annual incomes?” represents which of the
three basic economic questions?
1.7 Essay: The Economic Way of Thinking
1) What is an opportunity cost? Give an example.
2) Your friend is preparing for this exam and in your practice session makes the following
statement: “Instead of attending microeconomics class for two hours, Kiki could have played
tennis or watched a movie. Therefore, the opportunity cost of attending class is the tennis and the
movie she had to give up.” Is your friend’s analysis correct or not? Explain your answer.
3) Rather than go out to eat by yourself, you decide to stay at home and fix dinner for yourself
and your two roommates. Your roommates applaud your decision.
a. Your first roommate tells you that your decision to eat at home has no opportunity cost
because you already have all the dinner ingredients in your pantry. Is this roommate’s comment
correct?
b. When preparing dinner, you use some milk that has a pull-date of tomorrow, so that the milk
would not be good tomorrow. Your second roommate notices the date on the carton, and
comments that the cost of the milk you are using is a sunk cost. Is this roommate’s comment
correct?
4) Shaniq can spend the next hour studying for a finance test, hiking along the Oregon coast,
watching reruns of Lost on television, or napping. If she decides to study, what is the opportunity
cost of her choice: hiking, watching television, or napping?
5) Why is the benefit of something measured by what you are willing to give up?
6) Define marginal cost and marginal benefit.
7) In New State, the bottling law requires that people get a refund of five cents when they return
an empty bottle or can. Why does the state pay people to return bottles? In your answer, be sure
to mention the role played by rational choice.
8) Must a rational choice always work out well? In other words, is it possible for someone to
regret a rational decision?
9) Discuss what is necessary to make rational decisions. Be sure to mention opportunity cost,
marginal cost, and marginal benefit.
10) What is the difference between microeconomics and macroeconomics?
11) What is a positive statement? Give an example.
12) What is the difference between positive and normative statements?
13) Two economists can agree that raising the minimum wage creates unemployment yet one
might argue that raising the minimum wage is a good policy and the other that it is a bad policy.
Why can this difference exist? Be sure to use the terms positive and normative in your answer.
14) Explain whether the statement, “There is life on Mars,” is a normative or positive statement.
15) Explain whether the statement, “Hillary Clinton was elected President of the United States in
2008,” is a normative or positive statement.
16) What is a normative statement? Give an example.
17) Explain whether the statement “The government should increase tariffs on Japanese cars to
protect the American car industry from competition,” is a normative or positive statement.
18) What does ceteris paribus mean and why do economists use it?
19) For spring break, Melanie will either stay home or go to Daytona Beach. At home, Melanie
pays $10 per day for food and earns $90 a day at her job. At Daytona Beach, Melanie will stay
with friends and so has no lodging cost. She will pay $20 per day for food. In terms of dollars,
Melanie’s opportunity cost per day of going to Daytona Beach is how much?
1.8 Essay: Appendix
1) Why do economists use graphs?
2) What kind of information is conveyed in a time-series graph?
3) In the diagram below, label the x-axis, the y-axis, and the origin.
4) The table above shows how many blouses Katie and Kim will purchase at different prices for
a blouse. In the figure, label the axes and put the price on the y-axis and the quantity of blouses
on the x-axis. Plot the data for Katie in the figure. Then, plot the data for Kim in the figure.
5) The figure above shows the price of a DVD player from 1996 to 2000.
a. What type of graph is illustrated above?
b. What is the trend in the price of a DVD player?
6) What are the two different types of relationships that variables can have? Explain each. What
do these relationships look like when they are graphed?