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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? One more rocket? Explain how the production possibilities curve reflects the law of increasing opportunity costs.

c. What must the economy do to operate at some point on the production possibilities curve?

What is the opportunity cost of attending college or university? In 1999 nearly 80 percent of Canadians with post-secondary education held jobs, whereas only about 40 percent of those who did not finish high school held jobs. How might this difference relate to opportunity costs?

Suppose you arrive at a store expecting to pay $100 for an item but learn that a store two kilometres away is charging $50 for it.

Part One • An Introduction to Economics and the Economy

Would you drive there and buy it? How does your decision benefit you? What is the opportunity cost of your decision? Now suppose you arrive at a store expecting to pay $6000 for an item but discover that it costs $5950 at the other store. Do you make the same decision as before? Perhaps surprisingly, you should! Explain why.

9. KEY QUESTION Specify and explain the shapes of the marginal-benefit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product? Explain.

10. KEY QUESTION Label point G inside the production possibilities curve you drew in question 6. What does it indicate? Label point H outside the curve. What does that point indicate? What must occur before the economy can attain the level of production shown by point H?

11. KEY QUESTION Referring again to question 6, suppose improvement occurs in the technology of producing rockets but not in the technology of producing automobiles. Draw the new production possibilities curve. Now assume that a technological advance occurs in producing automobiles but not in producing rockets. Draw the new production possibilities curve. Now draw a production possibilities curve that reflects technological improvement in the production of both products.

12. Explain how, if at all, each of the following events affects the location of the production possibilities curve:

a. Standardized examination scores of high school, university, and college students decline.

b. The unemployment rate falls from 9 to 6 percent of the labour force.

c. Defence spending is reduced to allow government to spend more on health care.

d. A new technique improves the efficiency of extracting copper from ore.

13. Explain: "Affluence tomorrow requires sacrifice today."

14. Suppose that, based on a nation's production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get the one additional industrial robot it desires, but that it can get the robot from another country in exchange for 9000 pizzas. Relate this information to the following statement: "Through international specialization and trade, a nation can reduce its opportunity cost of obtaining goods and thus 'move outside its production possibilities curve.' "

15. Contrast how a market system and a command economy respond to the economic problem.

16. Distinguish between the resource market and product market in the circular flow model. In what way are businesses and households both sellers and buyers in this model? What are the flows in the circular flow model?

17. (Last Word) Which two of the six reasons listed in the Last Word do you think are the most important in explaining the rise in participation of women in the workplace? Explain your reasoning.

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