ECO10002/HBE110N Microeconomics

Semester 1/2016
Tutorial 1:
Please note:
You are expected to prepare the answers for the all questions prior to attending tutorials.
Please bring lecture materials, tutorial worksheets, calculator and writing materials to all tutorial
classes.
Review questions
1. What is scarcity? Explain how scarcity and choice are related.
2. What is the difference between normative analysis and positive analysis? Is economics concerned
mainly with normative analysis or mainly with positive analysis? Briefly explain.
3. What is the basis for trade? What advantages are there to specialization?
Problems & Applications
1. Using the same amount of resources, Australia and New Zealand can both produce apples and
oranges shown in the following table, measured in thousands of tonnes.
Table 1
Australia
Apples
Oranges
12
0
3
1
0
4

New Zealand
Apples
Oranges
6
0
3
3
0
6

a) Who has a comparative advantage in producing apples?

Who has a comparative advantage in producing oranges?
Explain your answers.
b) Does either country have an absolute advantage in producing both goods? Explain.
c) Suppose that both countries are currently producing 3000 tonnes of apples and 3000 tonnes of
oranges. Show that both can be better off if they specialize in producing one good and then
engage in trade.

ECO10002/HBE110N Microeconomics, Semester 1, 2016 (Tutorial 1)

2. The table above represents five points on the production possibility frontier for the small country
of Amos, which produces only rugs (measured in thousands) and wheat (measured in thousands
of bushels):
Table 2

a)

Rugs

50

45

35

20

Wheat

10

20

30

40

Show these data graphically. Upon what specific assumptions is this production possibilities
curve based?

b) If the economy is currently at point A, what is the opportunity cost of producing an additional
10,000 bushels of wheat? If the economy is currently at point B, what is the opportunity cost of
producing an additional 10,000 bushels of wheat?
c) Does the production possibility frontier demonstrate the law of increasing opportunity cost or the
constant opportunity cost? Explain.

ECO10002/HBE110N Microeconomics, Semester 1, 2016 (Tutorial 1)

Multiple Choice Questions

1. Economics is best defined as the study of:
a. financial decision-making.
b. how consumers make purchasing decisions.
c. choices made by people faced with scarcity.
d. inflation, unemployment, and economic growth.
2. Scarcity can best be defined as a situation in which:
a. there are no buyers willing to purchase what sellers have produced.
b. there are not enough goods to satisfy all of the buyers demands.
c. resources are limited in quantity and can be used in different ways.
d. there is more than enough money to satisfy consumers wants.
3. Economic choices are made by comparing:
a. total benefits and total costs.
b. marginal benefits and marginal costs.
c. average benefits and average costs.
d. the behavior of rational people with that of irrational people.
4. Mark quit his job as a salesman where he made $43,000 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 on 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 Mark's opportunity cost of running the
business?
a. $65,000
b. $57,000
c. $71,000
d. $43,000
5. The three fundamental questions that any economy must address are:
a. What will be the prices of goods and services; how will these goods and services be
produced; and who will receive them?
b. What goods and services to produce; how will these goods and services be produced; and
who receives them?
c. Who gets jobs; what wages do workers earn; and who owns what property?
d. How much will be saved; what will be produced; and how can these goods and services be
fairly distributed?
6. Which of the following will not shift a countrys production possibilities frontier outward?
a. An increase in the capital stock.
b. An advance in technology.
c. A reduction in unemployment.
d. An increase in the labour force.
7. Which of the following statements is normative?
a. Drinking too much causes health risks.
b. People work harder if the wage is higher.
c. GST should not be implemented in Malaysia.

ECO10002/HBE110N Microeconomics, Semester 1, 2016 (Tutorial 1)

d. Large

government

deficits

cause

an

economy

to

grow

more

slowly.

8. Which of the following is NOT an example of a question answered by positive analysis?

a. How will an increase in the price of gasoline affect taxi drivers?
b. What fraction of an income-tax cut will be spent on consumer goods?
c. How will an increase in interest rates affect investment in factories?
d. Should the government increase the minimum wage?
9. Economists assume that rational people do all of the following EXECEPT:
a. use all available information as they act to achieve their goals.
b. undertake activities that benefit others and hurt themselves.
c. weigh the benefits and costs of all possible alternative actions.
d. respond to economic incentives.
10. In economics, the term ________ means 'additional' or 'extra.'
a. allocative
b. marginal
c. equity
d. optimal
11. Consider the following statements:
i.
Consumers buy more MP3 players from an electronics store that sells MP3 players at a lower
price than other rival electronics stores in the area.
ii.
Schools take steps to increase security since they believe it is more costly to allow vandalism
than to hire additional security guards.
iii.
Citrus growers produce more oranges when the selling price of oranges falls.
iv.
Which of the above statements demonstrates that economic agents respond to incentives?
a.
b.
c.
d.

i only.
ii only.
i and ii.
i, ii, and iii.

12. When economists assume that people are rational and respond to incentives, they mean:
a. people act with kindness.
b. people are altruistic.
c. people act in their own self-interest.
d. none of the above.

ECO10002/HBE110N Microeconomics, Semester 1, 2016 (Tutorial 1)

Figure 13.1
13. In Figure 13.1, the move from production possibility curve XV to production possibility curve YZ
could be caused by:
a. decreased unemployment.
b. more land, labor or capital.
c. a decline in technology.
d. all of the above.
14. In Figure 13.1, point B:
a. implies unemployment of some resources.
b. is the optimum.
c. cannot be produced.
d. all of the above.
15. In Figure 13.1, point A:
a. implies unemployment of some resources.
b. is the optimum.
c. cannot be produced.
d. all of the above.

ECO10002/HBE110N Microeconomics, Semester 1, 2016 (Tutorial 1)