ASSIGNMEN 1. Define economics and explain the basic reason for studying economics. 2. Would the below activities be considered microeconomics or macroeconomics? a) The effects of an increase in the supply of lumber on the home-building industry Changes in the national unemployment rate c) The effect of interest rates on the machine-tool industry The effect of interest rates on the demand for investment goods e) The way a firm maximizes profits 3. Answer the following questions. a) Define command economy. b) Define market economy. What are the three basic economic questions? d) Why are the three basic economic questions asked? 2) How are decisions made differently in a market economy versus in a command economy? 4. Jose earns $85 an hour. One night, instead of working, he chooses to go to a Blue Jays game in Toronto which costs him $55 and lasts two hours. a) What is the opportunity cost of watching the baseball game instead of working? Show how you came to this conclusion. 5. State and define the four factors of production and provide an example of each. 6. A very small country in the Caribbean has a very simple economy and the country can only produce two goods: antique mirrors and 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) 60 1 50 30 3 0 Wa) 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? Suppose the economy is currently producing 2000 antique mirrors and 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 Modifier allows coconut farmers 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 of antique mirror output. With the economy currently producing 2000 antique mirrors, the news claims that the development of Coconut Modifier 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: A 10 B . 7 Shelter (units) INWACOTOO E 10 20 30 40 Food (units) a) Explain the type of opportunity cost shown on this production possibilities curve. b) What is the opportunity cost of moving from point I to point C? Explain. C) What is the opportunity cost of moving from point A to point D? Explain. d) Which of points between A-E is the most efficient? Explain. e) Which point is currently impossible for this economy to achieve? Explain, and describe what must happen in order for this alternative to become possible? f) Which point is attainable but inefficient? What must happen in order for this production alternative to become efficient? 23 ( DELL O W