1. What determines price in a free market?

2. Determine the conditions of perfect competition. Name each and explain with an example how the real markets can violate one of more of these conditions. Finally, and this is important, why would a firm want to violate them.

3. What is the relationship between inflation and unemployment. Be sure to state, in numerical, percentage value, the natural rate of unemployment. Explain as well the danger we face if the unemployment rate drops below that natural rate.

Natural Rate of Unemployment: _____ %

4. At what point does a profit maximizing firm produce?
5. At what point does a profit maximizing firm shut down?
6. Why would a profit maximizing firm continue producing when it is not making a profit (but is meeting its variable costs?
7. Define Gross Domestic Product (GDP) its components. What was the approximate size of the US GDP last year.

Size of US GDP: $______________________

8. What are opportunity costs, and how do they help a firm decide which of its many products to produce to maximize profit.?

9. Define inflation and explain why is it harmful?

10. How do the laws of supply and demand determine that a basketball player can earn $2.2 million, but a teacher earns only $52,000.00? Is this outcome fair?

11 & 12
When explaining the solutions to the following two questions, be sure to use the economic terminology below: (substitute details from the question into the parenthetical and bracketed verbiage.
The (change, i.e., whatever has happened in the hypothetical) has caused the [Demand or Supply] curve to shift [left or right] causing movement along the [supply or demand, i.e., the other curve] curve to a new, [higher or lower] equilibrium point.

11. As a result of a hurricanes Katrina and Rita, thousands of Cajun evacuees immigrate to Little Rock. What will happen to the price of the average dinner at a Cajun restaurant ceteris paribus?

12. A series of hurricanes destroys the tomato harvest throughout the South. What will happen in the tomato market as a result of the bad tomato harvest ceteris paribus?