Chapter 1

1. List the Ten Principles of Economics, please. Be ready to explain all of them, because I might ask you to explain a couple of them on examination.

2. What are the four Principles we have to know in order to understand the question “How people make decisions”. Explain all of them in detail, please.

OR

What are the three Principles we have to know in order to understand the question “How People Interact”. Explain all of them in detail, please.

OR

What are the three Principles we have to know in order to understand the question “How the Economy as a whole works”. Explain all of them in detail, please.

3. One tradeoff that society faces is between efficiency and equity. Define each term and explain this tradeoff. What do they have to do with government policy?

4. Under what conditions might a government intervention in an economy improve the market outcome? Hint: Market Power and Externalities.

5. Why is productivity so important in an economy and what steps can the government take to increase productivity?

6. What does the “invisible hand” of the marketplace do? Explain your observation in details, please.

7. Explain how an attempt by the government to lower inflation could cause unemployment to increase in the short-run.

8. Aslan buys a 1966 Mustang with the intention of repairing, restoring and selling it. He anticipates that it will cost him $10,000 to purchase, repair and restore the car, and that he can sell the finished car for $13,000. When he has spent a total of $10,000 on the project, he discovers that he needs to replace the engine. It will cost Aslan $4,000 to replace the engine. He can sell the car without the new engine for $9,000.

What should he do? Explain your answer taking into consideration marginal cost and marginal benefit analysis.

9. Be ready to define any economics terms on “Key Concepts”. Page 14, chapter 1.

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