1

EC1301

Semester 1
Tutorial 1

Short Answer Questions

1. Explain three ways we can use microeconomic analysis.
2. Below are five statements. Identify whether each is a Positive or Normative statement.
a. The national economy grew at a 6.2 percentage rate in the last quarter as the economy
continues to recover from the past recession.
b. The unemployment rate fell to 5.7 percent this month, and is expected to fall to 5.5
percent next month.
c. The government should take action to reduce the prices of prescription drugs charged by
drug companies.
d. Interest rates for home mortgages are at their lowest rate in thirty years.
e. The government should increase income taxes on the wealthy to reduce the budget
deficit.
3. Consider the following statements about costs. Are they correct? If not, provide a correct
statement about the relevant costs.
a. One year ago, I loaned $100 to a friend, and she paid me back the whole $100. The loan
did not cost me anything.
b. Our new football stadium was built on land that wealthy alumni donated to our
university. The university did not have to buy the land, so the cost of the stadium equals
the $50 million construction costs.
4. Mark quit his job as a salesman where he made $35,000 per year to start his own T-shirt
making business. His business expenses are $6,000 per year on rent, $12,000 per year on
supplies, and $4,000 per year in part-time help. As for his personal expenses, his apartment
costs him $4,800 per year and his personal bills are an extra $1,200 per year. What is Marks
opportunity cost of running the business?
a. $63,000
b. $57,000
c. $41,000
d. $35,000
5. Suppose that a worker in Argentina can make 2 saddles or 10 bridles per month, and a worker
in Brazil can make 3 saddles or 20 bridles per month.
a.In what sense do saddles and bridles cost less in Brazil than in Argentina?
b.
In what sense do saddles cost less in Argentina than in Brazil?
c.
If Argentina and Brazil were to engage in trade, which country would export which good?
d. Would the answer to the above question change if a worker in Brazil could make 4
saddles per month?
Connie CHUNG

6. Explain the following statement: International trade can make some individuals worse off,
even as it makes the country as a whole better off.
7. Show how each of the following concepts can be illustrated using a production possibilities
frontier:
a. efficiency
b. opportunity cost
c. economic growth
8. Draw a production possibilities frontier representing the economys possible production of
milk and eggs. Now, show what will happen to the frontier or the production point under
each of the following circumstances. Use a separate graph to illustrate each situation.
a. The outcome for the economy is efficient, with society choosing approximately equal
amounts of milk and eggs.
b. A recession causes a significant percentage of the labor force to become unemployed.
c. Some cows are found to be infected with Mad Cow Disease, and many of the cows must
be destroyed.
d. Chickens are infected with a rare disease and egg-laying is reduced.
e. Improvements in animal nutrition raise the general productivity of cows and chickens.
f. The cow and chicken populations increase.
g. The Surgeon General announces that drinking milk prolongs life.
9. Explain how each event affects production possibilities.
a. The population becomes more educated over time as the number of high school dropouts
falls and the number of university graduates rises.
b. The unemployment rate declines from 7.3 to 4.5 percent of the labor force.
c. Businesses and government are unable to solve a major computer problem, thus reducing
economic efficiency and national output.
d. The government decides to allocate more resources to national defense.
e. A nation participates in international trade with other nations of the world.
10. When free international trade takes place, in accordance with a countrys comparative
advantage,
a. producers in export industries are likely to favour it because they sell a larger quantity at
identical prices.
b. producers in export industries are likely to oppose it because they sell a larger quantity,
which lowers prices in accordance with the laws of supply and demand.
c. producers in import industries are likely to favour it because they sell a larger quantity at
only depressed prices.
d. export industry workers are likely to favour it, import industry workers are likely to hate
it.
e. consumers are likely to be of two minds: they hate the more expensive import goods, but
they love the cheaper export goods.
Connie CHUNG