1. Define economics and explain the basic reason for studying economics.2. Would thebelow activitiesbe considered microeconomics or macroeconomics?

a. The effects of an increase in the supply of lumber on the home-building industry b. Changes in the national unemployment rate c. The effect of interest rates on the machine-tool industry d. The effect of interest rates on the demand for investment goods e. The way a firm maximizes profits

3a. Define command economy. b. Define market economy. c. What are the three basic economic questions?

What is to be produce?

How are the goods and service to be produce?

Who will get the goods and service? d. Why are the three basic economic questions asked? d. How are decisions made differently in a market economy versus in a command economy?

4. Jose earns $85 an hour. Instead of working one night, he goes to a Blue Jays game in Toronto which costs him $55 and lasts two hours. What is the opportunity cost of watching the baseball game instead of working? Show how you came to this conclusion.

5.State and definethe four factors of production andprovide an example of each.

6.Avery small country in the Caribbean has a very simple economy and the country can only produce two goods:antique mirrorsand coconut milk. The following table gives several points on this economy's production possibility curve.

Cars (1000's/year)	Coconut Milk(1000's of gallons/ year)
0	60
1	50
2	30
3	0

a. Graph, and properly label this economy's production possibilities curve.

b. Why is the production possibilities curve downward sloping?

c. Why is the production possibilities curve concave?

d. Suppose the economy is currently producing 2000antique mirrorsand 30,000 gallons of coconut milk. What is the opportunity cost of producing additional 20,000 gallons of coconut milk? Show how you came to this conclusion.

e. The synthetic production of Coconut Modifierallowscoconutfarmers to genetically modify their coconuts to get twice as much milk from each coconut. In terms of this production possibility curve, this means that this economy can now produce twice as much coconut milk at each level ofantique mirroroutput. With the economy currently producing 2000 antique mirrors, the news claims that the development of CoconutModifier allows the economy to produce more coconut milk and more antique mirrors.Do you agree? Explain and include an appropriate diagram to illustrate your answer.

7. Given the following production possibilities curve, answer the following questions: