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
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
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
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
d. What would production at a point outside the production possibilit