1.       Explain why both nations with high living standards and nations with low living standards face the problem of scarcity. If you won $1 million in a lottery, would you escape the scarcity problem?

2.       Explain the difference between macroeconomics and microeconomics. Give examples of the areas of concern to each branch of economics.

3.       Explain verbally the statement “There is no such thing as a free lunch” in relation to scarce resources.

4.        Attending college is expensive, time consuming, and it requires effort. So why do people decide to attend college?

5.     Suppose, unfortunately, your mathematics and economics professors have decided to give tests 2 days from now and you can spend only a total of 12 hours studying for both exams. After some thought, you conclude that dividing your study time equally between each subject will give you an expected grade of C in each course. For each additional 3 hours study time for each one of the subjects, your grade will increase one letter for that subject, and your grade will fall one letter for the other subject.

a.       Construct a table for the production possibilities and corresponding number of hours of study in this case

b.      Plot these production possibilities data in a graph.

c.       Does this production possibilities curve reflect the law of increasing opportunity cost? Explain.

6.         Use supply and demand analysis to explain why the quantity of word processing software exchanged increases from one year to the next.

7.         Explain why the market price may not be the same as the equilibrium price.

8.         Using market supply and demand analysis, explain why labor union leaders are strong advocates of raising the minimum wage above the equilibrium wage.

9.       Suppose you own a video game store. List some of the fixed inputs and variable inputs you would use in operating the store.

10.       Explain why a perfectly competitive firm would or would not advertise

11.       Consider this statement: “A firm should increase output when it makes a profit.” Do you agree or disagree? Explain

12.       Consider this statement: “When marginal revenue equals marginal cost, total cost equals total revenue, and the firm makes zero profit.” Do you agree or disagree? Explain.

13.         What is the relationship between the marginal revenue product (MRP) and the demand curve for labor?

14.         How has the official unemployment rate been criticized for overestimating and underestimating unemployment?

15.         Why is frictional unemployment inevitable in an economy characterized by imperfect job information?

16.    Suppose in the base year, a typical market basket purchased by an urban family cost $250. In year 1, the same market basket cost $950. What is the consumer price index (CPI) for Year 1? If the same market basket cost $1,000 in Year 2, what is the CPI for Year 2? What was the annual rate of inflation for Year 2?

17.         What are three criticisms of the CPI?

18..         Explain why federal, state, and local expenditures account for about 40 percent of GDP, but total government spending (G in GDP) is only about 20 percent of GDP.

19.       Could each of the following items potentially serve as money? Consider each as (1) a medium of exchange, (2) a unit of account, and (3) a store of value.

a.       Visa, credit card

b.      Federal Reserve not

c.       Dog

d.      Beer mug

20.         What backs the U.S. dollar? Include the distinction between commodity money and fiat money in your answer.

21.       Should the Fed be independent of a government agency subordinate to Congress and the president?