Problems

make a choice below it. 14 . What are diminishing marginal returns? 15 . What is productive efficiency? Allocative efficiency? 16 . What is the difference between a positive and a normative statement? 17 . Is the economic model of decision-making intended as a literal description of how individuals, firms, and the governments actually make decisions? 18 . What are four responses to the claim that people should not behave in the way described in this chapter?

Critical Thinking Questions

19 . Suppose Alphonso’s town raises the price of bus tickets from $0.50 to $1 and the price of burgers rises from $2 to $4. Why is the opportunity cost of bus tickets unchanged? Suppose Alphonso’s weekly spending money increases from $10 to $20. How is his budget constraint affected from all three changes? Explain. 20 . During the Second World War, Germany’s factories were decimated. It also suffered many human casualties, both soldiers and civilians. How did the war affect Germany’s production possibilities curve? 21 . It is clear that productive inefficiency is a waste since resources are used in a way that produces less goods and services than a nation is capable of. Why is allocative inefficiency also wasteful? 22 . What assumptions about the economy must be true for the invisible hand to work? To what extent are those assumptions valid in the real world? 23 . Do economists have any particular expertise at making normative arguments? In other words, they have expertise at making positive statements (i.e., what will happen) about some economic policy, for example, but do they have special expertise to judge whether or not the policy should be undertaken?

Problems

Use this information to answer the following 4 questions: Jade has a weekly budget of $24, which she likes to spend on magazines and pies. 24 . If the price of a magazine is $4 each, what is the maximum number of magazines she could buy in a week? 25 . If the price of a pie is $12, what is the maximum number of pies she could buy in a week? 26 . Draw Jade's budget constraint with pies on the horizontal axis and magazines on the vertical axis. What is the slope of the budget constraint? 27 . What is Jade's opportunity cost of purchasing a pie?

FIGURE 3.1Farmer’s Market Organic vegetables and fruits that are grown and sold within a specific geographical region should, in theory, cost less than conventional produce because the transportation costs are less. That is not, however, usually the case. (Credit: modification of "Old Farmers' Market" by NatalieMaynor/Flickr, CC BY 2.0)

In this chapter, you will learn about:

• Demand, Supply, and Equilibrium in Markets for Goods and Services
• Shifts in Demand and Supply for Goods and Services
• Changes in Equilibrium Price and Quantity: The Four-Step Process
• Price Ceilings and Price Floors

BRING IT HOME Why Can We Not Get Enough of Organic Foods? Organic food is increasingly popular, not just in the United States, but worldwide. At one time, consumers had to go to specialty stores or farmers' markets to find organic produce. Now it is available in most grocery stores. In short, organic has become part of the mainstream.