"Chapter-1:1. What determines whether or not a resource is scarce? Why is the concept of scarcityimportant to the definition of economics?Solution: Economics refers to the social science that deals with economic activity to obtain anidea of the processes that regulate the consumption, distribution, and production of services andgoods in an economy. A resource is referred to be scarce when it is not available freely. It happens when theprice is greater than zero.Economics refers to choice or option under scarcity. The way in whichshortage of resources, differences in the administration of the resources influence decisions arestudied by the Economist. This concept is applicable to a family, a single person or a country.For example, oil is needed by a large number of people. But oil has a limited amount. Therefore,a market develop is visible for oil. In economics, scarcity is important because without scarcity(limited resources), the economy would not have been there. Scarcity is limited resources againstwants that are unlimited (McEachern, 2012). 2. Discuss the impact of rational self-interest on each of the following decisions.a. Whether to attend college full time or enter the workforce full timeb. Whether to buy a new textbook or a used onec. Whether to attend a local college or an out-of-town college Solution: (a) Benefits expected out of attending full time college will be compared by theindividuals with the costs that are expected. One of the benefits can be knowledge stock,productivity of the individual will grow and this will cause his/her wage to grow. Tuition fees areincluded in the cost. Wage earned from working in place of attending full time college are alsoincluded in the costs. A rational person will want to attend college full time if the benefitsexpected are greater than the costs. (b) The benefits expected from a new textbook will be compared by the individuals with thehigher cost of buying a new textbook. A higher value for resale, not getting confused by themarkings of other students in the book is the benefits that are included. However, the cost ofpurchasing a new book will be greater than a used book’s cost. A person who is rational will buythe new textbook if the benefits expected are greater than the costs. (c) The benefits that are expected and the cost related with both the colleges that are beingconsidered will be compared by the individuals. Greater cost of travelling, phone bills areincluded in the costs of going to a college that is out-of-town. Benefit of attending out-of-towncollege includes acquiring knowledge of a different region. 3. If behavior is governed by rational self-interest, why do people make charitablecontributions of time and money?Solution: Rational self-interest does not refer to greed, blind materialism or pure selfishness. Itmeans choosing an option that results in maximum expected benefits at a cost that is given.Contributions will be more towards charities if the donation is tax deductible. We want to contribute and help more when the personal cost of serving others is lower(WOICESHYN,2016). 4. The owner of a small pizzeria is deciding whether to increase the radius of delivery areaby one mile. What considerations must be taken into account if such a decision is toincrease profitability?Solution: An increase in delivery radius will lead to greater sales for the store. It is important tobalance these marginal revenues against the costs that are additionally incurred like gasoline inmore quantity for the delivery truck, increase advertising, the need to employ additional labor,consumption of ingredients of pizza in a greater amount("Marginal Analysis in Economics |Economics Help", 2016). 5. It is often costly to obtain the information necessary to make good decisions. Yet, yourown interests can best be served by rationally weighing all options available to you. Thisrequires informed decision making. Does this mean that making uninformed decisions isirrational? How do you determine how much information is the right amount?Solution: Decision makers who are rational will continue to obtain information till the time thebenefit associated with additional information is greater than the additional costs. It is often seenthat we have willingness to pay others to acquire and grasp the information for us.6. Suppose I observe that communities with lots of doctors tend to have relatively high ratesof illness. I conclude that doctors cause illness. What’s wrong with this reasoning?Solution: The causality exists in the other direction undoubtedly. Doctors will have a tendencyto locate in places where diseases are more. Therefore, a greater medical care is needed ("TheEnvironment and Disease: Association or Causation?", 2016). Chapter-2:1. You can either spend spring break either working at home for $80 per day for five daysor go to Florida for the week. If you stay home, your expenses will total about $100. If yougo to Florida, the airfare, hotel, food and miscellaneous expenses will total about $700.What’s your opportunity cost of going to Florida?Solution: $400 would be my earningif I stay at home during spring break. $300 will only be leftafter the bills are paid. If I go to Florida, it would cost me $700. Therefore, opportunity cost is$300. This is because I could have made a profit of $300 after paying expense of $100 if I stayedand worked from home. 2.You have the following information concerning the production of wheat and cloth in theUnited States and the United Kingdom: Labor Hours Required to Produce One UnitUnited Kingdom United StatesWheat21Cloth 65a. What is the opportunity cost of producing a unit of wheat in the United Kingdom? Inthe United States?b.Which country has an absolute advantage in producing wheat? In producing cloth?c.Which country has a comparative advantage in producing wheat? In producingcloth?d.Which country should specialize in producing wheat? In producing cloth?Solution: (a) The opportunity cost is the amount that is foregone from alternative use. Theopportunity cost of producing a unit of wheat in the United Kingdom is one third portion to thecloth’s production. The opportunity cost of producing a unit of wheat in the United States is onefifth portion of the cloth’s production. One unit of wheat can be produced faster than productionof one unit of cloth and five wheat units are provided for one unit of cloth by the same level.(b) Absoluteadvantage refers to the ability to produce something by employing fewer resourcesas compared to other producers. The absolute advantage lies with United States as one unit isproduced in one hour in United States. It can make twice the production that occurs in UnitedKingdom. One unit of cloth is produced in 5 hours in United States while an extra hour is required to create the same outcome in United Kingdom which gives United States an absoluteadvantage.(c)Comparative advantagerefers to the ability to produce something at a reduced opportunitycost as compared to others producer. Comparative advantage lies with United States as theopportunity cost equals to one fifth of a unit of cloth which is lower than one third of clothproduced in United Kingdom. United Kingdom possesses comparative advantage in clothproduction with three wheat units to the cost of United States of producing five wheat units andprovides a low opportunity cost for United Kingdom. (d) Individual having reduced opportunity cost for production of a specific output shouldexpertise in that output is stated by the law of comparative advantage. Specialization should bemade by United States in wheat production because twicethe amount of wheat is produced herein the same time. Specialization in cloth production should be made in United Kingdom.However, they are not as fast as United States; still they will produce near about the samequantity as United States. 3. Provide some examples of specialized markets or retail outlets. What makes the Web soconducive to specialization?Solution:There is a specialized market or retail outlets for almost everything. The biggest sellerfor Levi Strauss’s is always jeans. But other clothes forms are also branched. Oakley deals withsunglasses and it has retail outlets all over the country. Home Depot deals with retails sales ofimproving home, products of construction, services and is an American retailer. Specialization isdone by these companies in the products that work for them. The most useful way to specializein true sense is to tour the internet. Since specialization’s degree is restricted to the market’s extent, sellers who are online use World Wide Web to capture the world’s wide customer base toreach a market niche. Specialties that range from physicians to sales of real estates are a few hitsof the keyboard away. It gives us more information than that is possibly needed by us. Forexample, I am searching a cricket bat. Around 2,510,000 results would be displayed on thesearch engine Google by typing the subject in it. I can easily buy one. Specialized care can befound for senior citizens, children, pets in the country customized to meet our needs after quicklysearching the internet. The entire world can be searched with the help of internet to find anythingthat is desired. Internet enables us to reach the widest market making it the most useful means tospecialize.4. Determine whether each of the following would cause the economy’s PPF to shift inward,outward, or not at all:a. An increase in average length of annual vacationsb. An increase in immigrationc. A decrease in the average retirement aged. The migration of skilled workers to other countriesSolution: (a) An increase in average length of annual vacationswould cause the economy’s PPFto shift inward because own resources will be used up. Production will lack because of longvacation. "