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Assignment One.doc

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Department
Economics
Course
ECN 104
Professor
Tom Barbiero
Semester
Summer

Description
Assignment One 1. What are the key elements of the scientific method and how does this method relate to economic principles and laws? 2. Suppose you won $15 on a Lotto Canada ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $.75 and the price of peanuts is $1.50. a. Construct a table showing the alternative combinations of the two products that are available. b. Plot the data in your table as a budget line in a graph. What is the slope of the budget line? What is the opportunity cost of one more candy bar? Of one more bag of peanuts? Do these opportunity costs rise, fall, or remain constant as each additional unit of the product is purchased. c. How, in general, would you decide which of the available combinations of candy bars and bags of peanuts to buy? d. Suppose that you had won $30 on your ticket, not $15. Show the $30 budget line in your diagram. Why would this budget line be preferable to the old one? 3. Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): Type of Production Production Alternatives A B C D E Automobiles 0 2 4 6 8 Forklifts 30 27 21 12 0 a. Show these data graphically. Upon what specific assumptions is this production possibilities curve based? b. If the economy is at point C, what is the cost of one more automobile? Of one more forklift? Explain how the production possibilities curve reflects the law of increasing opportunity costs. c. If the economy characterized by this production possibilities table and curve were producing 3 automobiles and 20 fork lifts, what could you conclude about its use of available resources? d. What would production at a point outside the production possibilit
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