1. What is an opportunity cost? How does the idea relate to the definition of economics? Which of the following decisions would entail the greater opportunity cost: Allocating a square block in the heart of Toronto for a surface parking lot or allocating a square block at the edge of a typical suburb for such a lot? Explain.

2. Cite three examples of recent decisions that you made in which you (at least implicitly) weighed marginal cost and marginal benefit.

3. Indicate whether each of the following statements applies to microeconomics or macroeconomics:

a. The unemployment rate in Canada was 7.4 percent in November 2011.

b. A Canadian software firm discharged 15 workers last month and transferred the work to India.

c. An unexpected freeze in central Florida reduced the citrus crop and caused the price of oranges to rise.

d. Canadian output, adjusted for inflation, grew by 3.3 percent in 2010.

e. Last week, Scotiabank lowered its interest rate on business loans by one-half of 1 percentage point.

f. The consumer price index rose by 1.8 percent in 2010.

7. What are economic resources? What categories do economists use to classify them? Why are resources also called factors of production? Why are they called inputs?

8. Why is money not considered to be a capital resource in economics? Why is entrepreneurial ability considered a category of economic resource, distinct from labour? What are the major functions of the entrepreneur?

10. Explain if and how each of the following events affects the location of a country's production possibilities curve:

a. The quality of education increases.

b. The number of unemployed workers increases.

c. A new technique improves the efficiency of extracting iron from ore.

d. A devastating earthquake destroys numerous production facilities.

* 2. Pham can work as many or as few hours as she wants at the university bookstore for $9 per hour. But due to her hectic schedule, she has just 15 hours per week that she can spend working at either the bookstore or at other potential jobs. One potential job, at a caf, will pay her $12 per hour for up to 6 hours per week. She has another job offer at a garage that will pay her $10 an hour for up to 5 hours per week. And she has a potential job at a daycare center that will pay her $8.50 per hour for as many hours as she can work. If her goal is to maximize the amount of money she can make each week, how many hours will she work at the bookstore?

* Evaluate and explain the following statements:

* A. the market system is a profit-and-loss system

* B. competition provides discipline in the market economy

2. A common criticism of government departments and agencies is that their operations are inefficient.

(a) What might explain why government operations are of ten inefficient?

(b) What is the opportunity cost of any such inefficiency?

3. Suppose there were a shortage of apartments in a town.

(a) How would a market system correct this situation?

(b)If the government passed a law that made it illegal to increase rents, how would this law affect how the market for apartments worked?

Each year in Canada, many small businesses fail (go bankrupt), for various reasons.

(a) Provide at least one example of an industry that consists largely of small businesses and has a high failure rate.

(b) What would explain the high failure rate for smaller businesses in Canada?

(c) Does the lack of success of so many small businesses represent a failure of our "market"

economic system?

Suppose that, due to an interruption of international crude oil supplies, gasoline became so scarce that its price became too high for many people to afford. Suppose that the government decided that instead of letting the marketplace decide through very high prices who wouldand would notget gasoline, it would be fairer to low- income households to use a command approach, by rationing gasoline. For a low price, the government would sell each household a limited number of coupons that could only be redeemed for gasoline.

This sounds like a fair and simple idea, but may not prove as simple as it sounds.

(a) If you were administering such a rationing system, how would you decide who gets how many gas coupons, and at what price?

(b) Suppose that some people received more gas coupons than they really needed, while others received fewer than they needed. What would probably happen in these circumstances?

Write a paragraph that evaluates the accuracy of the statement:

Profits serve no useful purpose and contribute nothing to society economically. All that profits do is make prices

much higher and take vast amounts of money from consumers and give it to businesses and their wealthy shareholders.

Use the following information to work Problems 10 and 11.

Poor India makes millionaires at the fastest pace

India, with the world's largest population of poor people, also paradoxically created millionaires at the fastest pace in the world. Millionaires increased by 22.7 percent to 123,000. In contrast, the number of Indians living on less than a dollar a day is 350 million and those living on less than $2 a day is 700 million. In other words, there are 7,000 very poor Indians for every millionaire.

Source: The Times of India, June 25, 2008

10. How is the personal distribution of income in India changing?

11. Why might incomes of $1 a day and $2 a day underestimate the value of the goods and services that these households actually consume?