Problem Set #1


  • This Problem set is DUE on in class.If the work is three days late the student will lose 15 points out of 100 points. Failure to turn in work after seven days will result in a zero grade for the work.
  • Please type your answers, except the graph. Failure to do so will cost you 10 pints.
  • NO electronic transmission, please
  • All work must be clean, and numbered according the questions numbers.And you must put STAPLE your papers before submitting them. I will not accept unstapled papers.

1. (10 points)Why does scarcity imply a choice among alternatives?

2. (35 points) Suppose the country of Mexico produces only two goods: pizzas and chicken wings, which is shown by the production possibilities table below.

Production Possibilities for Pizzas and Chicken wings in Mexico

Production Alternatives

Pizzas (P)

Chicken Wings (W)



















  1. Sketch the production possibilities frontier curve (PPF-C). Place pizzas on the Y-axis, and chicken wings on the X-axis. Label the curve. Mark any point inside the curve as U, and any point outside the curve as F.
  1. Consider the points labeled on the diagram.Describe each point in terms of its attainability (is it possible?), its desirability (is it efficient?), and its undesirability (inefficient).
  1. Using either the table or the curve, illustrate the concept of choice and tradeoff/or opportunity cost.
  1. Using the table or curve illustrate the principle of “increasing opportunity cost.”
  1. On the graph above, show how economic growth will affect production possibilities.

3. (10 points) Identify types of economic resources and types of income associated with each of the resources

  • (5 points). Explain how an individual attains an optimal decision. For example, suppose you decide to spend some hours studying for an important examination. How would decide how many hours to study so as to maximize the net benefits from your study?
  • (5 points). Products provided for “free” to an individual are NOT free for society. Please explain.
  • (10 points) Debra has decided to purchase her textbooks for the semester. Her options are to purchase the books via the Internet with next day delivery to her home at a cost of $175, or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $170. Last week she drove to campus to buy a concert ticket because they offered 25 percent off the regular price of $16. If Debra is rational what will she do? Explain briefly
  • (10 points). a. Sketch a graph illustrating the relationship between two variables: absences from class (AB) band grades (G). Place grades on the Y-axis and grades on the X-axis.
  • (15 points) a. What does the Circular flow Model illustrates?

b. Indicate whether the relationship is positive (direct) or negative (indirect). Explain why?

c. Which variable is the dependent variable, and which is the independent variable?

b. Who are the two groups of decision makers in the private economy (when government is not involved)?

c. What are the two markets in the model and what happens in each of the market?

d. What are the limitations of the model?

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