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Chapter 1

Question 1

Explain why both nations with high living standards and nations with low living standards face the problem of scarcity. If you won $1 million in the lottery, would you escape the scarcity problem?

Both nations with high and low standard of living face the problem of scarcity because the human wants and needs are unlimited while the resources are limited. Scarcity refers to an opportunity cost, in which it doesn’t matter how high the standard of living every person cannot have everything that they desire as long as resources are limited. If you want something more, you have to let something go. It's nothing to do with the level of living standard. A million dollar in lottery will not be the best way to escape this issue as scarcity focus on the giving up one thing to get something else.

Question 5

Which of the following are microeconomic issues? Which are macroeconomic issues?

a. How will an increase in the price of Coco-cola affect the quantity of Pepsi-Cola sold? – Microeconomic

b. What will cause the nation’s inflation – Macroeconomic

c. How does a quota on textile imports affect the textile industry?- Macroeconomic

d. Does a large federal budget deficit reduce the rate of unemployment in the economy?- Macroeconomic

Question 8

Explain the importance of ceteris paribus assumption for an economic model.

Ceteris Paribus means “other things the same”. Economic models attempt to explain simple relationships focus on the effects of only a few forces at a time, other variables are assumed to be unchanged during the period of study.

Question 11

“The government should collect higher taxes from the rich and use the additional revenue to provide greater benefits to the poor”. This statement is an illustration of a

a. Testable statement

b. Basic principle of economics

c. Statement of positive economics

d. Statement of normative economics

Chapter 2

Question 3

Explain verbally the statement...