Question 1

Suppose you live locally and travel to this university to study for your degree. Your expenses during the term are as follows: tuition: $5 000; books and other educational supplies: $300, traveling to university $200, food and personal care $1000. Further, during the term, you can only work part-time and earn $8 000 instead of your full-time salary of $20 000. What is the opportunity cost of going to university this term?

Question 2 In The Wealth of Nations Adam Smith wrote the following (Book I, Chapter II): It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. i. Briefly discuss what he meant by this. (1 mark) ii. Explain what Adam Smith meant when he referred to the 'invisible hand' of the market.

Question 3 TRUE/FALSE? Briefly explain.

i. On a diagram of a production possibility frontier, economic growth is represented by the slope of the production possibility frontier.

ii. Any output combination outside a production possibility frontier is associated with unused or underutilised resources.

iii. If a country is producing efficiently and is on the production possibility frontier, the only way to produce more of one good is to produce less of the other.

iv. On a diagram of a production possibility frontier, opportunity cost is represented by the production possibility frontier shifting outward.

v. If additional units of a good could be produced at a constant opportunity cost, the production possibility frontier would be bowed outward (concave).