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TRIMESTER 2, 2015

BUS700 MICROECONOMICS, TUTORIAL SEMINAR 1_Answer Guide


1. Scarcity causes economic problem. Which of the following statements is true about scarcity?
a)
b)
c)
d)

Scarcity is our inability to satisfy all of our wants.


Scarcity problem arises because our wants are greater than resources available.
The poor and the rich alike face scarcity.
All of the above.

2. What are the basic production factors of production and their corresponding factor incomes?
3. Briefly define opportunity cost. Illustrate with an example.
4. Sarah has an economics test tomorrow and plans to study all night. Her boyfriend, Charlie, wants her to
go with him to a movie. The opportunity cost for Sarah to go to the movie is:
a)
b)
c)
d)

zero, if Charlie pays for her ticket.


less study time which may result in a lower grade.
equal to her enjoyment of the movie.
only $7.50 if she buys her own ticket.

5. Briefly explain what positive statement and normative statement are. Illustrate with examples.
6.

Which of the following statements is incorrect?


a) The marginal cost of a good is the opportunity cost of producing one more unit of it.
b) As the opportunity cost of producing more goods increases, the marginal cost of producing the
good decreases.
c) The marginal cost of a good or service is the change in cost resulting from producing one more unit
of it.
d) The marginal benefit of a good or service is the change in benefit resulting from producing one
more unit of it.

7.

State and explain the law of demand. Explain the difference between "change in quantity demanded"
and change in demand Use the demand curve to illustrate your answer.

8.

Which of the following statements is incorrect?


a) If there is an increase in demand and no change in supply, there is an increase in the equilibrium
price.
b) If there is an increase in demand and no change in supply, there is an increase in the equilibrium
quantity.
c) If there is an increase in supply and no change in demand, there is a decrease in the equilibrium
price.
d) If there is an increase in supply and no change in demand, there is a decrease in the equilibrium
quantity.

BUS700 ECONOMICS

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9.

Which of the following statement is incorrect?


a) If the price of a substitute for good X rises, people tend to buy less .of the substitute
b) If the price of a substitute for good X rises, people tend to buy less of good X.
c) If the price of a complement for good Y rises, people tend to buy less of the complement
d) If the price of a complement for good Y rises, people tend to buy less of good Y.

10. Consider the following demand and supply functions for commodity X:
QD = 100 4P
QS = 6P
Where, P is the price of X in dollars.
If this market is in equilibrium, what is the price of X and how many units are produced?

11. Refer to the figure below. The graph shows an individuals demand curve for tea. At a price of two
dollars, the consumer is willing to buy five cups of tea per week. More precisely, what does this mean?

a.
b.
c.
d.

It means that marginal benefit equals marginal cost when five cups are consumed.
It means that the total cost of consuming five cups is $2.00.
It means that the marginal benefit of consuming the fifth cup is $2.00.
It means that the marginal cost of producing five cups is $2.00.

12. The worlds largest instant-noodle maker said soaring wheat prices have forced noodle prices up.
Despite the rising price, Asias middle class with their increasing incomes are eating more wheat
products as they try to diversify their diets from rice and save time with processed foods.
a) Explain the effect of soaring wheat prices on the market for noodles, other things remaining the
same.
b) Explain the effect of the middle class switching its diet from rice to noodles on the market for
noodles, other things remaining the same.
c) Explain the combined effect of soaring wheat prices and rising incomes on the equilibrium price
and quantity of noodles.

BUS700 ECONOMICS

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