Task 1:

Define the term 'economic problem' and explain what economists mean by 'scarcity of resources' and how does an understanding of this help to explain the basic economic problem.

Task 2:

Define elasticity and explain the concept of 'price elasticity of demand'.

Task 3:

Here is a production possibilities table for war goods and civilian goods:

Type of Production Production Alternatives

A B C D E

Automobiles 0 2 4 6 8

Missiles 30 27 21 12 0

a) Define 'Production Possibility Frontier (PPF)' and state four reasons why an economy's PPF may shift outwards.

b) Show the above data graphically. Upon what specific assumptions is this production possibilities curve based?

c) If the economy is at point C, what is the cost of one more automobile? Explain how this curve reflects increasing opportunity costs.

d) What must the economy do to operate at some point on the production possibilities curve?

e) Label point G inside the production possibilities curve you have drawn for 'a' above. What does it indicate? Label point H outside the curve. What does this point indicate? What must occur before the economy can attain the level of production indicated by point H?

f) Suppose improvement occurs in the technology of producing missiles but not in the production of automobiles. Draw the new PP curve. Now assume that a technological advance occurs in producing automobiles but not in producing missiles. Draw the new PP curve. Now draw a production possibilities curve that reflects technological improvement in the production of both products.

Task 4:

Do you think competitive markets are always beneficial for consumers? You are encouraged to illustrate your answer with the use of relevant diagrams and give appropriate examples.