Part A-

Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. The price of candy bars is $.75 and the price of peanuts is $1.50.

What is the opportunity cost of one more candy bar? One more bag of peanut? Do these opportunity cost remain the same when you purchase more of the products? Why?

Part B-

Scarcity forces society to come up with a mechanism to determine how output is to be distributed. If price is not to be used as an allocative mechanism, what will you suggest?

Part C-

1. A Dell computer is a substitute for a Hewlett-Packard computer. What happens to the demand for Hewlett-Packard computers and the quantity demanded of Hewlett-Packard computers as the price of a Dell falls?

2. Describe how each of the following will affect the supply of personal computers: (a) A rise in wage rates; (b) An increase in the number of sellers of computers; (c) A tax placed on production of computers; (d) A subsidy placed on the production of computers.

3. Camille's Creations and Julia's Jewels both sell beads in a competitive market. If at the market price of $5, both are running out of beads to sell (they can't keep up with the quantity demanded at that price), what will Camille's and Julia's do?

4. Suppose a producer sells 1000 units of a product at $5 per unit one year, 2000 units at $8 the next year, and 3000 units at $10 the third year. Is this evidence that the law of demand is violated? Explain.