PRINCIPLES OF MICROECONOMICS
1. Why does the fact that something is scarce require that we make choices?
2. Does the fact that something is abundant mean it is not scarce in the economic sense? Why or why not?
3. In some countries, such as Cuba and North Korea, the government makes most of the decisions about
what will be produced, how it will be produced, and for whom. Does the fact that these choices are made
by the government eliminate scarcity in these countries? Why or why not?
4. Explain what is meant by the opportunity cost of a choice.
5. What is the approximate dollar cost of the tuition and other fees associated with the economics course
you are taking? Does this dollar cost fully reflect the opportunity cost to you of taking the course?
6. In the Case in Point essay “The Rising Cost of Energy,” what would be some of the things that would be
included in an estimate of the opportunity cost of preserving part of northern Alberta Canada by
prohibiting heavy crude oil extraction? Do you think that the increased extraction represents the best use
of the land? Why or why not?
7. Indicate whether each of the following is a topic of microeconomics or macroeconomics:
a. The impact of higher oil prices on the production of steel
b. The increased demand in the last 15 years for exotic dietary supplements
c. The surge in aggregate economic activity that hit much of Asia late in the early 2000s
d. The sharp increases in U.S. employment and total output that occurred between 2003 and 2007
e. The impact of preservation of wilderness areas on the logging industry and on the price of
lumber
8. Determine whether each of the following raises a “what,” “how,” or “for whom” issue. Are the statements
normative or positive?
a. A requirement that aluminum used in cars be made from recycled materials will raise the price of
automobiles.
b. The federal government does not spend enough for children.
c. An increase in police resources provided to the inner city will lower the crime rate.
d. Automation destroys jobs.
e. Efforts to improve the environment tend to reduce production and employment.
f. Japanese firms should be more willing to hire additional workers when production rises and to
lay off workers when production falls.
g. Access to health care should not be limited by income.
9. Your time is a scarce resource. What if the quantity of time were increased, say to 48 hours per day, and
everyone still lived as many days as before. Would time still be scarce?
10. Most college students are under age 25. Give two explanations for this—one based on the benefits
people of different ages are likely to receive from higher education and one based on the opportunity
costs of a college education to students of different ages.
11. Some municipal water companies charge customers a flat fee each month, regardless of the amount of
water they consume. Others meter water use and charge according to the quantity of water customers
use. Compare the way the two systems affect the cost of water use at the margin.
12. How might you test each of the following hypotheses? Suggest some problems that might arise in each
test due to the ceteris paribus (all-other-things-unchanged) problem and the fallacy of false cause.
a. Reducing the quantity of heroin available will increase total spending on heroin and increase the
crime rate.
b. Higher incomes make people happier.
c. Higher incomes make people live longer.
13. Many models in physics and in chemistry assume the existence of a perfect vacuum (that is, a space
entirely empty of matter). Yet we know that a perfect vacuum cannot exist. Are such models valid? Why
are models based on assumptions that are essentially incorrect?
14. Suppose you were asked to test the proposition that publishing students’ teacher evaluations causes
grade inflation. What evidence might you want to consider? How would the inability to carry out
controlled experiments make your analysis more difficult?
15. Referring to the Case in Point “Baldness and Heart Disease,” explain the possible fallacy of false cause in
concluding that baldness makes a person more likely to have heart disease.
16. In 2005 the Food and Drug Administration ordered that Vioxx and other popular drugs for treating the
pain of arthritis be withdrawn from the market. The order resulted from a finding that people taking the
drugs had an increased risk of cardiovascular problems. Some researchers criticized the government’s
action, arguing that concluding that the drugs caused the cardiovascular problems represented an
example of the fallacy of false cause. Can you think of any reason why this might be the case
