3. Explain why a government policy maker cannot afford to ignore economic theory.
Economic theory cannot be ignored by policy makers because without theory they can only assemble facts, but they will not understand the relationship between the facts. If the policy maker wants to change something they should have a theory to show the change would be beneficial for the country.

Chapter 2 Discussion
2. What is meant by “factor of production”? Have you ever sold any on the market?
A factor of production is something used to produce a finished good. I worked for a printing company and the labor involved produced books to be sold in book stores around the world.

6. What is the role of government in a mixed economy?
The government was established to enforce laws and establishes order. It also imposes restrictions on businesses on society’s behalf. The government provides security through national defense, and levies taxes to finance its spending. Finally, the government redistributes income from high income households to lower-income ones.

Chapter 3

Test Yourself
2. Graphically show the production possibilities frontier for the nation of Stromboli, using the data given in the following table. Does the principle of increasing cost hold in Stromboli?

The figure shows as they continue to produce more pizzas, they must give up increasing quantities of pizza ovens. There are diminishing returns as resources are shifted from pizzas to pizza ovens, or vice versa.

Discussion
5. The United States is one of the world’s wealthiest countries. Think of a recent case in which the decisions of the U.S. government were severely constrained by scarcity. Describe the trade-offs that were involved. What were the opportunity costs of the decisions that were actually made?
The recent government shutdown was caused by a lack of agreement on the federal budget. In