Assignment:
1. Define scarcity. Provide examples of goods that are not scarce.
2. Public policies often alter the costs and benefits of private actions. Why is it important for policymakers to consider both the direct and indirect effects of public policies?
Select a particular public policy with which you are familiar and discuss two positive and two negative aspects of that policy.
What goal do you think the policy makers were trying to achieve in effecting that policy?
Do you believe it was successful? Why or why not?
3. How does Adam Smith's concept of the invisible hand explain why markets move toward equilibrium? Do market participants need to know about the invisible hand for it to function? Explain your answer.
4. What is the difference between a positive statement and a normative statement? Determine whether each of the following statements is positive or normative.
a. The minimum wage creates unemployment among young and unskilled workers.
b. The minimum wage ought to be abolished.
c. If the price of a product in a market decreases, other things equal, quantity demanded will increase.
d. A little bit of inflation is worse for society than a little bit of unemployment.
e. There is a tradeoff between inflation and unemployment in the short run.
f. If consumer income increases, other things equal, the demand for automobiles will increase.
g. The U.S. income distribution is not equitable.
h. U.S. workers deserve more liberal unemployment benefits.
i. If interest rates increase, investment will decrease.
j. If welfare benefits were reduced, the country would be better off.
5. Use the following demand curve to answer the questions that follow.
a. How would point A be represented as an ordered (x,y) pair?
b. What does this curve show?
c. Does this curve show a positive or negative correlation between price and quantity?
d. Compute the slope of D1 between points A and C.
e. What is the slope of D1 between points C and E? Why would you not have to calculate this answer?
f. What is it called if we move from curve D1 to curve D2?
g. How do you know that the slope of D2 is the same as the slope of D1?