An economy consists of three workers: Larry, Moe, and

Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and ser-vices 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 fast-food restaurant. c. Shanna spends $30 to get a haircut. d. Salma earns $10,000 from her 10percent 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 that 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 produc-tion 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 possi-bilities frontier to illustrate societys trade-off between two goodsa clean environment and the quantity of industrial output. What do you suppose deter-mines 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 10 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 microeco-nomics 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.