1.1 What do economists mean by scarcity ?

Can you think of anything that is not scarce

according to the economic definition ?
1.2 What is a production possibilities frontier ? How can we show efficiency on a
production possibilities frontier ? How can we show inefficiency ? What causes a
production possibilities frontier to shift outward ?
1.3 Think about two different PPFs. One is a straight line, and the other one is curved.
Why does this difference occur ?
1.4 Draw a production possibilities frontier that shows the trade-off between the
production of cotton and the production of soybeans.
a. Show the effect that a prolonged drought would have on the initial production
possibilities frontier.
b. Suppose genetic modification makes soybeans resistant to insects, allowing
yields to double. Show the effect of this technological change on the initial
production possibilities frontier.
1.9 Use the following production possibilities fortier for a country to answer the
questions.
Capital
goods

a.
b.
c.
d.

Consumption
goods

Which point or points are unattainable? Briefly explain why.

Which point or points are efficient? Briefly explain why.
Which point or points are inefficient? Briefly explain why.
At which point is the countrys future growth rate likely to be the highest? Briefly
explain why.

1.10 [Related to Solved Problem 2.1 on page 88] You have exams in economics and
chemistry coming up, and you have 5 hours available for studying. The following table
shows the trade-offs you face in allocating the time you will spend in studying each
subject:
Hours Spent Studying
Choice Economics Chemistry
A
5
0
B
4
1
C
3
2
D
2
3
E
1
4
F
0
5

Midterm Score
Economics Chemistry
95
70
93
78
90
84
86
88
81
90
75
91

a. Use the data in the to draw a production possibilities Fortier graph. Label the
vertical axis Score on economics exam, and label the horizontal axis Score on
chemistry exam. Make sure to label the values where your production
possibilities frontier intersects the vertical and horizontal axes.
b. Label the points representing choice C and choice D. If you are at choice C, what
is your opportunity cost of increasing your chemistry score by 4 points?
c. Under what circumstances would choice A be a sensible choice?
2.1 What is absolute advantage? What is comparative advantage? Is it possible for a
country to have a comparative advantage in producing a good without also having
an absolute advantage? Briefly explain.
2.4 By putting in one hour of labor, Britain can produce either 10 kg of cheese or 10 kg
of grain. With the same amount of labor, Ireland can produce either 6 kg of cheese
or 2 kg of grain. Supposing that 10 hours of labor are available in each country,
draw the production possibility frontries for Ireland and Britain.
a. Which country would have an absolute advantage in producing cheese, and in
prodicing grain? Explain.
b. Which country would have a comparative advantage in producing cheese, and in
producing grain? Briefly explain your reasons.
c. Will trade between Britain and Ireland be beneficial for both countries? Why or
why not?
3.7 Identify whether each of the following transactions will take place in the factor
market or in the product market and whether households or firms are supplying the
good or service or demanding the good or service:

a.
b.
c.
d.

George buys a Tesla Model S.

Tesla increase employment at its Fremont plant.
Goerge works 24 hours per week at McDonalds
George sells the land he owns to McDonalds so that it can build a new
restaurant.

3.10 In many parts of Europe during the mid-1770s, governments gave guilds, or
organizations of producers, the authority to control who was allowed to produce a
good, the amount of the good produced, and the price charged for the good. Would
you expect more competition among producers in a guilds system or ina market
system? Was the consumer or the producer at the center of the guild system, and
which is at the center of the market system? How would the two system compare
over time in terms of innovation of new products and technologies?