1. Three fundamental economic questions
A manager asks an employee, "Should we use our research budget to improve the quality of the products we already make, or to develop new products?"
The manager's question is best classified as which one of the following fundamental economic questions?
a)For whom to produce
b)What to produce
c)How to produce
2. Scarcity, opportunity cost, and marginal analysis
Crystal is training for a triathlon, a timed race that combines swimming, biking, and running.
Consider the following sentence: Because her pool sessions are helping her swim more quickly, Crystal plans to reduce by 1 hour per week the time she spends training on the bike and increase by 1 hour the time she spends in the swimming pool; however, her husband says that she should stop doing any biking and running and spend all 20 hours per week in the pool.
Which basic principle of individual choice does Crystal's plan illustrate that her husband's advice does not?
a)People usually exploit opportunities to make themselves better off.
b)Many decisions are made on the margin.
c)Resources are scarce.
d)All costs are opportunity costs.
Juanita is a hard-working college freshman. One Tuesday, she decides to work nonstop until she has answered 250 practice problems for her physics course. She starts work at 8:00 AM and uses a table to keep track of her progress throughout the day. She notices that as she gets tired, it takes her longer to solve each problem.
Use the table to answer the following questions.
1) The marginal, or additional, gain from Juanita’s second hour of work, from 9:00 AM to 10:00 AM, is---------problems.
2) The marginal gain from Juanita’s fourth hour of work, from 11:00 AM to noon, is------------problems.
Later, the teaching assistant in Juanita’s physics course gives her some advice. “Based on past experience,” the teaching assistant says, “working on 62.5 problems raises a student’s exam score by about the same amount as reading the textbook for 1 hour.” For simplicity, assume students always cover the same number of pages during each hour they spend reading.
Given this information, in order to use her 4 hours of study time to get the best exam score possible, how many hours should she have spent working on problems and how many should she have spent reading?
