Written Assignment 1 - Microeconomics

1. Scarcity is the limited nature of society’s resources. Examples of goods that are not scarce are:

Air & Seawater

2. The invisible hand guides buyers and sellers to adjust prices so that both the buyer and seller reach outcomes that benefit each other. Market participants do not need to “know” about the invisible hand because to forces of the market will guide naturally so that goods and services will be traded to benefit each other.

3. a: 20, 24 (Quantity, Price)

b: When income increases, the demand curve moves to the right. As the income increases, so

does the quantity purchased.

c: Negative

d: Slope is -2/5 (16-24)/(40-20) = -2/5

e: it would be the same as part d since we have already solved for that slope.

f: Increase in Demand

g: the 2 lines are parallel. They will not intersect at any point. B-D: 16-24 / 60-40 = -2/5

4. a: A & C = 1.5; C & E = .67; B & D = 1

b: Yes, because the price elasticity of demand is calculated to be 1, which is neither elastic or

inelastic.

5. A positive statement shows what is, a normative statement states what ought to be (what

should be)

a: positive

b: normative

c: positive

d: normative

e: positive

f: positive

g: normative

h: normative

i: positive

j: normative

6. a: 26 hours. Gary is 5+5, and Diane 6+10

b: If they specialize, it would take a total of 22 hours. Since Gary is more specialized at prearing

slides, he would do that, and Diane would do the calculations. It takes Gary 5 hours to do the

slides, and Diane 6 hours to do the calculations. 5 + 6 = 11 * 2 = 22

c: Gary’s opportunity cost for calculating is $50. Diane’s opportunity cost is $60. If Gary did the

calculations, the amount of time spent on the project would be 20 hours since his opportunity

cost is lower than Diane’s.

7. a: perfect competition: 2 characteristics:

1. The goods offered for sale are identical

2. the buyers and sellers are so numerous...