1.
What is scarcity? Can you think of two causes of scarcity?
Scarcity is the fundamental economic condition characterized by limited resources and
unlimited human wants and needs.
Two causes of scarcity are:
a)
Limited Resources
: There are finite resources such as land, labor, capital, and natural resources
available for production. These resources cannot produce an unlimited quantity of goods and services.
b)
Unlimited Wants
: Human wants and needs are insatiable. People continuously desire more goods and
services than can be produced with the available resources.
2.
A consultant works for $200 per hour. She likes to eat vegetables but is not very good at
growing them. Why does it make more economic sense for her to spend her time at the
consulting job and shop for her vegetables?
It makes more economic sense for the consultant to spend her time at the consulting job and shop for
vegetables because her hourly wage as a consultant is $200, which is significantly higher than the value
of the vegetables she could grow herself. By working as a consultant, she can earn more money in an hour
than she would save by growing her own vegetables.
3.
A computer systems engineer could paint her house, but it makes more sense for her to hire
a painter to do it. Explain why.
It makes more sense for the computer systems engineer to hire a painter to paint her house because of the
concept of opportunity cost. As a computer systems engineer, her expertise and time are better spent
working in her field where she can earn a higher income per hour. By hiring a painter, she can pay
someone else to perform a task she's not specialized in, allowing her to continue working in her own
profession and potentially earn more than she'd save by doing the painting herself.
Calculate and graph budget constraints:
A budget constraint represents the various combinations of goods and services that a consumer
can afford given their income and the prices of goods. To calculate a budget constraint, you
would need to determine the consumer's income and the prices of the goods. You can then use
this information to create a graph that shows the feasible combinations of goods based on the
consumer's budget.
Explain opportunity sets and opportunity costs:
Opportunity set refers to the range of choices available to a consumer or producer given their
resources and constraints. Opportunity cost is the cost of forgoing the next best alternative
when making a choice. In economic decision-making, understanding opportunity sets and
opportunity costs is crucial as it helps individuals and firms make rational choices.
Evaluate the law of diminishing marginal utility:
The law of diminishing marginal utility states that as a person consumes more of a good or
service, the additional satisfaction (utility) derived from each additional unit of that good or
