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Instructions
This assignment will give you an opportunity to apply the concepts taught in this unit. You will complete this assignment in two parts.
Part 1
requires a short written response.
Part 2
involves working problems based on provided background information. Examples of how to complete these problems can be found in the Unit I Introduction and associated videos presented in the unit.
Both parts of the assignment will be completed using a worksheet on which you will show your work and provide your answers to the questions listed. A link to the worksheet is provided below the instructions.
Part 1
Tyson and Ella work at the Ruby Red Movie Theater in town. After work, they decide to watch a movie. After purchasing their tickets, they stop by the concession stand and purchase popcorn, drinks, and candy. Use the circular flow diagram to describe the purchases that Tyson and Ella made and the services and goods that were provided to them.
Your response must be at least 75 words in length.
Part 2
Background information:
As mentioned in Part 1 of this assignment, Tyson and Ella work at the Ruby Red Movie Theater. Tyson can produce 100 bags of popcorn or 50 hot dogs in one hour. His coworker, Ella, can produce 100 bags of popcorn or 30 hot dogs in an hour. Answer the following questions based on this information. Use the worksheet to show your work and provide your answers.
Part A:If Tyson and Ella attempted to produce both popcorn and hot dogs, how many bags of popcorn and hot dogs could each produce individually per hour? What would be the total number of bags of popcorn and hot dogs produced by the two workers combined? (Show your work.)Part B:Calculate the opportunity cost of producing bags of popcorn for each worker. (Show your work.)Part C:Calculate the opportunity cost of producing hot dogs for each person. (Show your work.)Part D:Determine how many bags of popcorn should be produced by each worker per hour. (Show your work).If each worker should specialize in producing popcorn or hot dogs, explain why; use economic terminology that you have learned in this unit in your explanation.Finally, how many total bags of popcorn and hot dogs will be produced per hour by the two workers combined after specialization? Part E:What potential ethical issues could arise from making the decision to have both employees specialize in producing popcorn or hot dogs? Name and explain at least two issues Unit I Assignment Worksheet
You will complete this assignment in two parts:
• Part 1 requires a short written response.
• Part 2 involves completing a worksheet on which you will show your work and provide your
answers to the questions listed below. Examples of how to complete these questions can be
found in the Unit I Introduction and associated videos.
All components of Parts 1 and 2 of the assignment will be completed using this worksheet, on
which you will show your work and provide your answers to the questions listed. Once you have
completed all components of the assignment, save and upload this worksheet to your
instructor. Name your file “Unit I Assignment Worksheet–YourName” (replace “YourName” with
your own name). Make sure you include your name and class section at the top of this
worksheet.
Part 1.
Tyson and Ella work at the Ruby Red Movie Theater in town. After work, they decide to watch a
movie. After purchasing their tickets, they stop by the concession stand and purchase popcorn,
drinks, and candy. Use the circular flow diagram to describe the purchases that Tyson and Ella
made and the services and goods that were provided to them.
Your response must be a minimum of 75 words, which you can provide in the space below. Once
you have completed Part 1, please complete Parts a.-e. of Part 2, which begins on the next page.
Part 2.
Note: An example of how to make these calculations is provided in the Unit I videos
“Opportunity Cost” and “Law of Comparative Advantage”
Background Information:
As mentioned in Part 1 of this assignment, Tyson and Ella work at Ruby Red Movie Theater.
Tyson can produce 100 bags of popcorn or 50 hot dogs in one hour. His coworker, Ella, can
produce 100 bags of popcorn or 30 hot dogs in an hour. Answer the following five questions
based on this information. Remember to show your work.
Production By
Hourly Production
Bags of Popcorn
Or
Hot Dogs
Tyson
100
Ella
100
50
30
Part 2A:
If Tyson and Ella attempted to produce both popcorn and hot dogs, how many bags of popcorn
and hot dogs could each produce individually per hour? What would be the total amount of
bags of popcorn and hot dogs produced per hour by the two workers combined? (Show your
work below.)
Each Trying to Produce Both
Production of
Popcorn
Production of Hot Dogs
Tyson
Ella
Total
+
+
Part 2B:
Calculate the opportunity cost of producing bags of popcorn for each worker. (Show your
work.)
Opportunity Cost of Popcorn
Tyson:
Hot Dogs Made
Bags of Popcorn Made
÷
=
For every 1 bag of popcorn Tyson makes, he sacrifices
hot dogs
Ella:
Hot Dogs Made
Bags of Popcorn Made
÷
=
For every 1 bag of popcorn Ella makes, she sacrifices
hot dogs
Opportunity Cost of
Producing Popcorn
Tyson
Ella
Question
Who has lowest opportunity cost of producing popcorn?
Answer
(Tyson or Ella)
Part 2C:
Calculate the opportunity cost of producing hot dogs for each worker. (Show your work.)
Opportunity Cost of Hot Dogs
Tyson:
÷
=
Bags of Popcorn Made
Hot Dogs Made
For every 1 hot dog Tyson makes, he sacrifices
bags of popcorn.
Ella:
÷
=
Bags of Popcorn Made
Hot Dogs Made
For every 1 hot dog Ella makes, she sacrifices
bags of popcorn.
Opportunity Cost of
Producing Hot Dogs
Tyson
Ella
Question
Who has lowest opportunity cost of producing hot dogs?
Answer
(Ella or Tyson)
Part 2D:
Determine how many bags of popcorn should be produced per hour by each worker. (Show
your work).
Who should specialize in producing popcorn?
Who should specialize in producing hot dogs?
Specialization
Production of Bags
Production of
of Popcorn
Hot Dogs
Tyson
Ella
Total Production With Specialization
Total Without Specialization
Difference
Part 2E:
What potential ethical issues could arise from making the decision to have both employees
specialize in producing popcorn or hot dogs? Name and explain at least two issues.
UNIT I STUDY GUIDE
Economics and Economics Decisions
Course Learning Outcomes for Unit I
Upon completion of this unit, students should be able to:
1. Discuss the central economic problem.
1.1 Identify the economic problem of resource scarcity and opportunity costs.
1.2 Discuss the circular flow diagram.
1.3 Interpret the economic concepts of opportunity cost, the law of comparative advantage,
production possibilities frontier, and ethics.
Course/Unit
Learning Outcomes
1.1
1.2
1.3
Learning Activity
Unit Lesson
Chapter 1, pp. 3–13, 18–23
Chapter 2, pp. 25–35
Chapter 3, pp. 41–54
Video: The Economic Problem
Video: Circular Flow Model
Video: Opportunity Cost
Unit I Assignment
Unit Lesson
Chapter 1, pp. 3–13, 18–23
Chapter 2, pp. 25–35
Video: The Economic Problem
Video: Circular Flow Model
Video: Opportunity Cost
Unit I Assignment
Unit Lesson
Chapter 1, pp. 3–13, 18–23
Chapter 2, pp. 25–35
Article: “Opportunity Cost Overestimation”
Article: “Opportunity Cost Consideration”
Video: Law of Comparative Advantage
Video: Production Possibilities Frontier
Unit I Assignment
Required Unit Resources
Chapter 1: The Art and Science of Economic Analysis, pp. 3–13, 18–23
•
•
•
•
•
Section 1-1, pp. 3–7
Section 1-2c, pp. 8–9
Section 1-2d, pp. 9–10
Section 1-3, pp. 10–13
Appendix A1, pp. 18–23
Chapter 2: Economic Tools and Economic Systems, pp. 25–35
•
Sections 2-1 through 2-4a
Chapter 3: Economic Decision Makers, pp. 41–54
ECO 2301, Principles of Microeconomics
1
In order to access the following resources, click the links below.
UNIT x STUDY GUIDE
Title
Spiller, S. A. (2011, December). Opportunity cost consideration. Journal of Consumer Research, 38(4), 595–
610.
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bsu&AN=67510074&site=ehost-live&scope=site
Weiss, L., & Kivetz, R. (2019, June). Opportunity cost overestimation. Journal of Marketing Research, 56(3),
518–533.
https://libraryresources.columbiasouthern.edu/login?url=http://search.ebscohost.com/login.aspx?direc
t=true&db=bsu&AN=136893033&site=ehost-live&scope=site
Unit Lesson
As you start your journey into microeconomics, you might start to look at everyday mundane tasks in a new
way. Microeconomics is at work all around us each and every day of our lives. From a teenager, standing in
front of the refrigerator, trying to decide what to eat next, to your deciding to hit the snooze button on the
alarm clock one more time in the morning, economics is at work. Take time to enjoy the topics that we will
address in this course, and see if you notice them in how you and others live this thing called life.
As we begin learning about economics, we have to first learn why economics is important. This importance is
found in just one word—scarcity. Scarcity can mean different things to different people. However, McEachern
(2019) states that scarcity exists when a resource is not freely available. For example, while drinking water is
inexpensive to get out of the tap, it is not free—you pay the utility company for it. That means drinking water is
a scarce resource. Flowers to plant in your yard that you purchase at a garden center are not free. That
means these flowers are a scarce resource. Some people even pay money to hear investing advice from
Warren Buffett. That would mean Warren Buffett’s advice is not free, making it a scarce resource.
The problem with scarce resources is that people always prefer more to less. I would like to have $1 million,
but I would prefer to have $2 million. I would like to have a new car, but a new luxury car would be nicer. The
list goes on and on. In order to have one resource, we usually have to give up another. That is the basis of
economics, which “examines how people use their scarce resources to satisfy their unlimited wants”
(McEachern, 2019, p. 3). To learn more about scarcity and the economic problem, watch the short video The
Economic Problem.
As you start to think about resources, consider
how these resources flow through an economy:
•
•
•
•
Households have the resource of labor to
provide to firms.
These firms pay workers for their labor in
the form of wages and use labor
resources along with capital, natural, and
entrepreneurial abilities to create goods
and services.
These goods and services are sold to
households.
The households pay firms for these goods
and services with their earned wages.
The flow of resources continues round and round
and is depicted by McEachern (2019) as the
Circular-Flow Model for Households and Firms
that is presented at right. Each of the resources
that are provided to the firms as well as to
households are scarce because their price is
greater than zero. That means economics can be
used to explain how individual households,
ECO 2301, Principles of Microeconomics
(McEachern, 2019, p. 6)
2
individual firms, or a collection of households or firms allocate these scarce resources.
To learn
more about
UNIT x STUDY
GUIDE
circular flow, watch the short video Circular Flow Model.
Title
As you move further into the study of economics, you will see that economists like to make assumptions.
Think about it—without assumptions, economists would never be able to draw any conclusions. In fact,
everyone makes assumptions anytime they are asked a question. For instance, someone could ask you what
you will be doing next week at this exact time. There are many assumptions you will make when answering
this question. You may assume that you will not be traveling for work or that someone in your family or a
close friend will not be sick and need your attention. Only by making assumptions can you answer most
questions. The same holds true for economics, the difference being that economists just get laughed at for
the number of assumptions they make.
One key assumption that economists make is that consumers look out for their own self-interest (McEachern,
2019). More formally, it is explained that consumers try to maximize the expected benefit from an action at a
given cost or minimize the expected cost of the benefit. In other words, it is assumed that consumers exhibit
rational self-interest. We do not have to go far back in time to see this assumption at work in society. A prime
example occurred when consumers rushed out to purchase as much toilet paper as they could during the
COVID-19 (coronavirus) outbreak. Now, calling this decision rational is up for debate. However, consumers
were definitely acting in their own self-interest by hoarding toilet paper, thus trying to maximize the expected
benefit at a given cost.
Now that we have the foundation of economics, we need to address two studies of economics. These studies
are microeconomics (which is the class you are taking) and macroeconomics. McEachern (2019)
distinguishes between these two fields of study by first suggesting that macroeconomics refers to the study of
the economy as a whole. Microeconomics, on the other hand, refers to the study of an individual’s behavior.
This individual may be a single person, a household, a community, and so on. However, one way to
remember the difference would be when you hear the term microeconomics, think small. When you hear
macroeconomics, think large.
As we exit Chapter 1, make sure you go over the information about graphs in the Chapter 1 Appendix,
between pages 18 and 23. This course will rely heavily on reading and drawing graphs, calculating slope, and
performing other minor math functions. Do not worry—you will not be asked to perform any high-level
calculus. However, simple addition, subtraction, multiplication, and division will be used. Refresh yourself so
you will be ready to dive head-first into this material.
Chapter 2 starts off with a concept that is unique to economics. This concept is opportunity cost. An
opportunity cost represents the value of the next best alternative when we make a decision (McEachern,
2019). For example, you are sitting here, reading this material. You could be out working and earning
additional income instead. Therefore, the income you are giving up right now is the opportunity cost
associated with reading this unit lesson. For someone who is taking vacation time off work to read this
material and work on this first unit of class, the opportunity cost may be extremely high. For someone who is
reading this material at 2:00 a.m. because they could not sleep, the opportunity cost may be extremely low.
This is why McEachern (2019) suggests that opportunity costs are subjective.
Starting off the discussion of opportunity costs, it was explained that this was a concept unique to economics.
Accounting does not recognize opportunity costs because no actual money is changing hands. However,
economics places a high level of importance on opportunity costs because consumers make decisions based
on opportunity costs all the time. For example, you could be working more hours instead of going to school.
The money you are giving up by taking classes is an opportunity cost to you. However, you have weighed the
options and believe obtaining a degree will lead to higher pay in the future. That means the prospect of higher
pay in the future outweighs the current opportunity cost associated with going to school. For more information
regarding opportunity cost, review the short video Opportunity Cost.
Opportunity costs are the basis for the law of comparative advantage, which is why we trade goods and
services. The economic theory of the law of comparative advantage suggests that an individual, firm, region,
or country with the lowest opportunity cost of producing a good should focus on producing that good and
trade with other nations (McEachern, 2019).
ECO 2301, Principles of Microeconomics
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As an example, rice needs a warm and relatively wet climate to grow. The average
temperature
UNIT yearly
x STUDY
GUIDE in
Louisiana is warm, and rice can be grown outside. However, the average temperature
Title in the state of South
Dakota is relatively cold. If rice were grown in South Dakota, it would need to be grown in greenhouses. That
means Louisiana has a comparative advantage over South Dakota for growing rice. Louisiana should focus
(specialize) on growing rice. Louisiana could then trade rice to South Dakota for a good that South Dakota
produces. To learn more about comparative advantage, view the video Law of Comparative Advantage.
These two graphics are examples of production possibilities frontier graphs, one for guns and butter, the other
for food and computers. (Left: Adapted from Endless Melee, 2006; right, adapted from
Thomasmeeks~commonswiki, 2008)
Now, we can begin to examine how firms make decisions regarding which goods they can produce and how
much they should produce. A graph of the production possibilities frontier shows how resources can be used
efficiently to produce two types of goods (McEachern, 2019). The shape of the production possibilities frontier
is very important, as it can indicate if the goods are imperfect substitutes, perfect substitutes, or perfect
complements. To learn more about production possibilities, watch the short video Production Possibilities
Frontier. Be sure to take the time to learn more about the father of our own economic system, Adam Smith,
and his notion of the invisible hand, an idea he expressed in his book An Inquiry Into the Nature and Causes
of the Wealth of Nations. In his book, Smith (1776) suggests that individuals in society, acting on their own
best interests, actually benefit society’s well-being. Smith suggests that there is an invisible hand at work
here. Thus, by acting in their own best interests, individuals are directed by the invisible hand to work in the
best interests of society as a whole. In his own words:
Adam Smith
(Tassie, 1787)
As every individual, therefore, endeavours as much as he can both to
employ his capital in the support of domestic industry, and so to direct that
industry that its produce may be of the greatest value; every individual
necessarily labours to render the annual revenue of the society as great as
he can. He generally, indeed, neither intends to promote the public interest,
nor knows how much he is promoting it. By preferring the support of
domestic to that of foreign industry, he intends only his own security; and by
directing that industry in such a manner as its produce may be of the
greatest value, he intends only his own gain, and he is in this, as in many
other cases, led by an invisible hand to promote an end which was no part of
his intention. Nor is it always the worse for the society that it was no part of it.
By pursuing his own interest he frequently promotes that of the society more
effectually than when he really intends to promote it. I have never known
much good done by those who affected to trade for the public good. (Smith,
1776, Ch. 2, para. 9)
One can see that the invisible hand occurs naturally and essentially guides free markets and capitalism
through competition for scarce resources.
ECO 2301, Principles of Microeconomics
4
As you complete this first unit of our course, look at the world around you. SeeUNIT
if youx can
identify
at your work
STUDY
GUIDE
the concepts that are covered in this course. Look at your own day-to-day decisions.
Title Whether you hit the
snooze button just one more time in the morning, turn off the television an hour early and study, or take a
different route home from work or school, you are incurring opportunity costs. Can you identify them?
Also, as you fix something to eat, pick out clothes to wear, or use your cell phone, look at where the products
you use were made. Think about why the opportunity costs are lower in some locations than others for these
goods. Finally, as you encounter businesses you may pass when traveling or online, think about the scarce
resources being used to produce the goods or services that are sold. What resources are being used? What
makes the resources used scarce? What do the firms’ production possibilities frontiers look like?
References
Endless Melee. (2006). Production possibilities frontier diagram [Graphic]. Wikimedia Commons.
https://commons.wikimedia.org/wiki/File:Production_Possibilities_Frontier_diagram.jpg
McEachern, W. A. (2019). Micro ECON6: Principles of microeconomics. Cengage Learning.
https://online.vitalsource.com/#/books/9781337671828
Smith, A. (1776). Chapter II: On restraints upon the importation from foreign countries of such goods as can
be produced at home. Marxists Internet Archive. https://www.marxists.org/reference/archive/smithadam/works/wealth-of-nations/book04/ch02.htm
Tassie, J. (1787). Profile of Adam Smith [Enamel medallion carving]. Wikimedia Commons.
https://commons.wikimedia.org/wiki/File:AdamSmith.jpg
Thomasmeeks~commonswiki. (2008). NewPpf small [Graphic]. Wikimedia Commons.
https://commons.wikimedia.org/wiki/File:NewPpf_small.png
ECO 2301, Principles of Microeconomics
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