1. Imagine an economy that produces capital goods and consumption goods. What will happen to its production possibilities curve if some of its existing capital stock wears out and is not replaced? How will your answer differ if more than enough capital is produced to replace the capital that wears out?
2. Define opportunity cost and explain why, as more and more of a good is produced, the production of another unit of that good is likely to require a larger and larger opportunity cost.
3. What is the difference between a change in quantity demanded and a change in demand? Identify the factors that cause a change in quantity demanded, and distinguish them from the factors that cause a change in demand.
4. Explain what is meant by an equilibrium, and explain why the equilibrium price is at the point where the market demand and supply curves intersect. For example, why would an equilibrium not exist at a price below the intersection of the market demand and supply curves? (1 point)
5. Explain what will happen in the market for pagers as the technology used to produce them improves at the same time that the price of cellular phones decreases.
6. Use supply and demand curves to illustrate and explain why a black market may develop for certain products (i.e., SuperBowl tickets or theater tickets) which are available only in fixed quantities.
7. The 50,000-seat Duke Stadium in Durham, North Carolina, is the home of the Duke University Blue Devils. For Saturday afternoon football games, attendance is typically 40,000. By lowering the price of football tickets, the university could easily sell out Duke Stadium, but it chooses not to do so. Using the concepts of price elasticities of demand and supply, explain why Duke might decide not to lower the price of football tickets.
8. Explain why, if a consumer maximizes utility, his or her income must be allocated among commodities so that, for every commodity purchased, the marginal utility of the commodity is proportional to its price.
9. Many cities in the United States use rent controls designed to make housing affordable for their citizens.
a. Explain how rent controls can lead to the conversion of existing rental housing units to office space or parking lots.
b. Explain how rent controls can lead to the deterioration of existing rental housing units.
10. Why do minimum wage laws lead to increases in unemployment?
