Review
4. Explain the three economic concepts illustrated by the production
possibilities boundary.
5. Explain why a technological improvement in the production of
one good means that a country can now produce more of other
goods than it did previously. Hint: Draw a country’s production
possibilities boundary to help answer this question.
6. In this chapter we used a simple idea of a production possibilities
boundary to illustrate the concepts of scarcity, choice, and
opportunity cost. We assumed there were only two goods—call
them X and Y. But we all know that any economy produces many
more than just two goods. Explain why the insights illustrated in
Figure 1-2 are more general, and why the assumption of only
two goods is a useful one.
7. Imagine a hypothetical world in which all Canadian families had
$80 000 of after-tax income.
a. In such a world, would poverty exist in Canada?
b. In such a world, would scarcity exist in Canada?
c. Explain the difference between poverty and scarcity.
8. What is the difference between microeconomics and
macroeconomics?
9. For each of the following situations, explain how a change in the
stated “price” is likely to affect your incentives regarding the
stated decision.