Gallaway

Homework # 1

Type or write your answers neatly on a separate piece of paper. Do not use paper from a spiral notebook!

1. Correctly label each of the following statements as normative or positive.

· The price of chicken is too high.

· The inflation rate is 2%.

· Unemployment ought to be lower.

· Capitalism exploits workers.

· Capitalism is more desirable than socialism.

2. List the Three Economic questions and describe their corresponding efficiency criteria.

3. The rock group Asteroid Lust believes allocation is an old-fashioned concept that doesn’t belong in the post-industrial world. Consequently, they refuse to sell, or allocate in any way, tickets for their next concert. Instead, the band plans to have a show where, according to the band’s leader, "everyone just shows up."

· Can Asteroid Lust avoid the allocation of their concert tickets?

· What do you expect will happen at the concert?

4. Imagine a PPF where the two goods being produced are Karl Marx’s Das Kapital (x axis) and Adam Smith’s The Wealth of Nations (y axis). Assume that the opportunity cost of one more Das Kapital is always two The Wealth of Nations. Also assume the economy can produce a maximum of 100 copies of Das Kapital.

· Draw this PPF

· What is the slope of the PPF?

· What is the opportunity cost of a copy of The Wealth of Nations?

· How many copies of The Wealth of Nations can the economy produce?

· Can the economy produce 100 copies of both books in the same time period?

· Are resources specialized in this example? How do you know?

5. If macaroni and cheese is an inferior good, what would you expect to happen to the price and quantity of this product as people’s salaries rose?

6. Assume corn chips are complementary to macaroni and cheese. Given your previous answer, how will this affect the market for corn chips?

7. Give an example of something that causes an increase in supply. Give an example of something that causes an increase quantity in supplied.