The first principle of economics discussed in Chapter 1 is that people face trade-offs

How is economics a science?

Why do economists make assumptions?

Should an economic model describe reality exactly?

Name a way that your family interacts in the factor market and a way that it interacts in the product market.

Name one economic interaction that isnt covered by the simplified circular-flow diagram.

Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if disease kills half of the economys cows?

Use a production possibilities frontier to describe the idea of efficiency.

What are the two subfields into which economics is divided? Explain what each subfield studies.

What is the difference between a positive and a normative statement? Give an example of each.

Why do economists sometimes offer conflicting advice to policymakers?

Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities. a. Selena pays a storekeeper $1 for a quart of milk. b. Stuart earns $4.50 per hour working at a fastfood restaurant. c. Shanna spends $30 to get a haircut. d. Sally earns $10,000 from her 10 percent ownership of Acme Industrial.

Imagine a society that produces military goods and consumer goods, which well call guns and butter. a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out shape. b. Show a point that is impossible for the economy to achieve. Show a point that is feasible but inefficient. c. Imagine that the society has two political parties, called the Hawks (who want a strong military) and the Doves (who want a smaller military). Show a point on your production possibilities frontier that the Hawks might choose and a point the Doves might choose. d. Imagine that an aggressive neighboring country reduces the size of its military. As a result, both the Hawks and the Doves reduce their desired production of guns by the same amount. Which party would get the bigger peace dividend, measured by the increase in butter production? Explain

The first principle of economics discussed in Chapter 1 is that people face trade-offs. Use a production possibilities frontier to illustrate societys trade-off between two goodsa clean environment and the quantity of industrial output. What do you suppose determines the shape and position of the frontier? Show what happens to the frontier if engineers develop a new way of producing electricity that emits fewer pollutants.

An economy consists of three workers: Larry, Moe, and Curly. Each works ten hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; and Curly can either mow two lawns or wash one car. a. Calculate how much of each service is produced under the following circumstances, which we label A, B, C, and D: All three spend all their time mowing lawns. (A) All three spend all their time washing cars. (B) All three spend half their time on each activity. (C) Larry spends half his time on each activity, while Moe only washes cars and Curly only mows lawns. (D) b. Graph the production possibilities frontier for this economy. Using your answers to part (a), identify points A, B, C, and D on your graph. c. Explain why the production possibilities frontier has the shape it does. d. Are any of the allocations calculated in part (a) inefficient? Explain.

Classify the following topics as relating to microeconomics or macroeconomics. a. a familys decision about how much income to save b. the effect of government regulations on auto emissions c. the impact of higher national saving on economic growth d. a firms decision about how many workers to hire e. the relationship between the inflation rate and changes in the quantity of money

Classify each of the following statements as positive or normative. Explain. a. Society faces a short-run trade-off between inflation and unemployment. b. A reduction in the rate of money growth will reduce the rate of inflation. c. The Federal Reserve should reduce the rate of money growth. d. Society ought to require welfare recipients to look for jobs. e. Lower tax rates encourage more work and more saving.

If you were president, would you be more interested in your economic advisers positive views or their normative views? Why?