Problem 1
What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: allocating a square block in the heart of New York City for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain.
Problem 2
Cite three examples of recent decisions that you made in which you, at least implicitly, weighed marginal cost and marginal benefit.
Problem 3
What is meant by the term "utility" and how does the idea relate to purposeful behavior?
Problem 4
What are the key elements of the scientific method and how does this method relate to economic principles and laws?
Problem 5
State (a) a positive economic statement of your choice, and then (b) a normative economic statement relating to your first statement.
Problem 6
How does the slope of a budget line illustrate opportunity costs and trade- offs? How does a budget line illustrate scarcity and the effect of limited incomes?
Problem 7
What are economic resources? What categories do economists use to classify them? Why are resources also called factors of production? Why are they called inputs?
Problem 8
Why is money not considered to be a capital resource in economics? Why is entrepreneurial ability considered a category of economic resource, distinct from labor? What are the major functions of the entrepreneur?
Problem 9
Specify and explain the typical shapes of marginal-benefit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product? Explain.
Problem 10
Suppose that, on the basis of a nation's production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the 1 additional industrial robot it desires but that it can get the robot from another country in exchange for 9,000 pizzas. Relate this information to the following statement: "Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus 'move outside its production possibilities curve."
