EC 101SEMESTER 1, 2010 TUTORIAL 1

EC 101 DFL SEMESTER 1, 2010 TUTORIAL 1 –Text Book Chapter 1 and 2 (Study Guide Unit 1& 2)

Multiple Choices
1. Economics is the study of A. how to minimize waste B. how to avoid opportunity cost C. how to maximize production D. how society utilizes its scarce resources
2. Macroeconomics focuses on: A. studies of how competition in an industry affects economic efficiency B. the workings of the whole economy or large sectors of it C. studies of how a business determines how to make the best use of the factors of production D. the pricing decisions of a large company.`
3. Opportunity Cost is measured by A. the cost of lost opportunities B. the benefit foregone of other alternatives C. the benefit less the cost of another alternative D. the foregone benefit from the next best alternative
4. Which of the following is true of a mixed economy A. most productive resources are owned by the state B. productive resources are owned by the tribe C. productive resources are privately owned D. productive resources are mainly privately owned but with some state ownership.
5. Which of the following is true of a pure market economic system? A. allocation of resources is determined by leaders or tribal groups B. allocation of resources is determined mainly by the state C. allocation of resources is determined automatically by the price system D. allocation of resources is determined mainly by the price system but with some government influence.
6. Which of the following is not part of the opportunity cost of going on holiday? A. the money you could have earned if you didn’t take time off work B. the goods that you could have purchased with the money spent on the online ticket C. the classes you missed through going on holiday D. the money you spent on food
7. A point lying inside a production possibility curve indicates that A. technology is limited B. opportunity costs are irrelevant C. the economy is capable of producing more goods and services D. the economy is investing in capital formation
8. A production possibility is bowed outwards (concave) because A. resources are not perfectly mobile B. assets are often specific to the production process of a given good or service C. opportunity costs increase as resources are transferred from the production of one good to another D. all of the above
9. A production possibility curve will shift outwards when A. taxation increases B. the productivity of the labour force improves C. the money supply increases D. exports increase
10. Economic models are evaluated by: A. testing the assumption upon which they are based upon B. comparing their predictions with actual outcomes C. the Commerce Commission D. how realistic they are
11. If a production possibility curve is linear (a straight line), then A. opportunity cost is constant B. resources are perfectly mobile C. the goods being produced have identical resource requirements D. all of the above
12. Normative economics A. provides unequivocal answers to economic problems B. emphasizes measurement and quantitative data C. reflects value judgments about ‘what should be’
13. In a market economy, the mix of goods and services produced will reflect A. government policies B. the cost of inputs available to the country C. the types of good demanded by consumers D. the types of production technique
14. The role of assumption un economic theory is to: A. add realism B. prove the accuracy of the theory C. cover special cases D. simplify the theory
15. The ceteris paribus assumption is employed in economic analysis to: A. derive national economic priorities C. approximate real world conditions C. simplify the complex world D. evaluate an economic system.
16. If an inverse relationship exists between two variables, then: A. as one variable increases, so does the other B. as one variable decreases, so does the other C. as one variable increases, the other decreases D. both variable increases over time.
17. If two sets of data are directly related they will always graph as: A. a straight line B. a downward sloping line C. an upward sloping line D. parallel lines
18. Which of the following is not an assumption under which the production possibility curve is drawn? A. the prices of all inputs are fixed B. there is no unemployment C. technology is held constant D. factors of production are fixed.
19. If the linear equation was y = 35 – 5x, then the slope of the line would be: A. 35 and intercept 5 B. -35 and intercept 5 C. -5 and intercept 35 D. 5 and intercept 35
20. There are two sets of x, y points on a straight line in a two-variable graph with y on the vertical axis and x on the horizontal axis. If one set of points was (0, 6) and the other set (6,18), the linear equation for the line would be: A. y = 6x B. y = 6 + 0.5x C. y = 6 + x D. y = 6 + 2x



Problems
Question 1
Bob lives alone on a small island, which has fertile soil and good fishing ground. Bob has kept a record of his production over the past year and has estimated his yearly production possibility schedule as follows.
Bob’s production possibility schedule
Combination possibilities Baskets of fish Baskets of vegetables
A 50 0
B 48 5
C 40 10
D 30 15
E 18 20
F 0 25

a. Draw a production possibility curve (PPC) using the data above
b. Label the points A to F along the PPC
c. Label the point ‘G’ on your graph, representing a combination of 20 fish and 15 vegetables. Comment on this point.
d. Label the point ‘H’ on your graph, representing a combination of 20 fish and 15 vegetables. Comment on this point.
e. Calculate the opportunity cost of moving from combinations C to D, D to E and E to F.
f. Describe your findings from question e.
g. If Bob were producing a combination C, what value do you think he would place on one basket of vegetables? Express your answer in terms of fish.
h. Which of the combinations shown (A to F) represent efficient resource utilization by Bob? Explain you answer
i. How would Bob determine the ‘allocative efficient’ combination of fish and vegetables?
j. Describe the advantages and disadvantages of Bob spending some time making fishing net.
k. How would the fishing net affect his production possibility curve in the long run? Sketch any change in his production possibility curve in your graph in a. above

Question 2
a. In deciding to attend a tertiary institution a student must weigh up the opportunity costs. What are some common opportunity costs associated with attending a tertiary institution?
b. How does the level of public support for tertiary education influence the overall level of opportunity costs of tertiary education to society?