Problem 1. Why is economics regarded as a science? Why do economists often disagree about policy issues? Why do we need policymaking (government interventions) at all? Please substantiate your answer with real-life examples.
Problem 2. Suppose a production possibilities frontier (or curve) for an economy that produces beef and potatoes. Using terms like “on the curve,” “within the curve,” and “beyond the curve,” indicate the position of an impossible point, an efficient point, and an inefficient point. What would happen to the curve following a severe hurricane?
Problem 3. What is a market? When is a market labeled as competitive? As monopolistic? As oligopolistic? As monopolistically competitive? Please provide real-life examples for each.
Problem 4. What is “demand”? What’s the difference between demand and quantity demanded? Please substantiate with examples. Does it make sense for a manager to monitor the determinants of demand in his/her market? Why?
Problem 5. Define the price elasticity of demand. Would you expect the price elasticity of demand to be larger in the market for all ice cream flavors or the market for vanilla ice cream?
Problem 6. Suppose the income elasticity of the demand for Coca-Cola is 1.75. What would happen to the quantity demanded of Coke if there were an increase in income of 3 percent?
Problem 7. The most prevalent market form in our free capitalist democratic economy is the competitive market (perfect or otherwise). Do you see any need for a different market arrangement? Substantiate your point.
Problem 8. Suppose you are the CEO of a big firm. How might information like elasticity be useful to you? What could be the cost of ignoring such information? Do you see any real-life application of the concept of elasticity?