Problem
Part A
I. Can a society produce everything its citizens want? If not, what kind of questions can economics help us answer about production and allocation?
II. Define "goods" and "services". Name the five things necessary to produce them.
III. Are the following statements positive or normative?
i. Consumers will increase spending by 5% if income taxes decrease by 10%
ii. Taxes should be increase on the wealth to allow funding for public healthcare.
iii. If the top marginal tax rate is increased to 40%, public colleges and universities could be tuition free
iv. The unemployment rate will fall to 5% if a government jobs package is passed by Congress.
IV. How do economists measure progress or growth in a country? Is this a good measurement of quality of life? What might some of these traditional measurements be missing?
Part B
I. Let's say you are deciding whether or not to start a new business. You are currently earning $50,000/year at your existing job. You plan to spend $10,000 of your savings to buy new equipment for the business. This $10,000 was previously in your savings account earning 2% interest per year. You expect the new business to earn $100,000/year, you will have $40,000 worth of employees' salaries to pay and the COGS will be $10,000. Given what you know about opportunity costs, would this be a profitable endeavor?
II. If I run a business and the cost of hiring a new employee is $2,000/month, and that employee will create $3,000 worth of profit for the business should I hire them? What about if they add $1,500 in profit to the business?
III. Explain how the Gini coefficient explains inequality. Given the Gini coefficient for two countries, how would you explain which country has greater inequality.3. Draw a production possibilities curve for two hypothetical products and explain whether the following are achievable and efficient:
i. A point on the curve
ii. A point to the right of the curve
iii. A point to the left of the curve.