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business
principles of economics

Questions and Answers of Principles Of Economics

2 How does marginal cost change as output increases (a) initially, and (b) eventually?
1 Describe the relationship between a firm’s short-run cost curves.
2 Obtain information about the steel industry. a What are the main economic problems faced by steel producers? b Is the number of steel producers likely to increase or decrease during the next few
1 Obtain information about the car industry. a What are the main economic problems faced by car producers? b Why are car producers merging?
2 By 2004, three of the 100 UK companies with the fastest growth had created share-option schemes to make employees part-owners of the business. These companies were Vivid Imaginations, LGC and RFIB
1 Study the Business Case Study about the European software company, SAP, on pp. 196–197 and then: a Describe the economic problem that SAP faced in the late 1990s. b Use the links on Parkin
8 Sales of the firms in the pet food industry are: Sales Firm (thousands of euros) Small Collar Co. 50 Big Collar Co. 50 Shiny Coat Co. 75 Friendly Pet Co. 60 Nature’s Way Co. 65 Other 7 firms 350
*7 Sales of the firms in the tattoo industry are: Sales Firm (euros) Bright Spots 450 Freckles 325 Love Galore 250 Native Birds 200 Tiny Tattoo 200 Other 15 firms 800 a Calculate the five-firm
6 Alternative ways of making 100 shirts a day are: Labour Capital Method (hours) (machines) A 10 50 B 20 40 C 50 20 D 100 10 a Which methods are technologically efficient? b Which method is
*5 Alternative ways of laundering 100 shirts are: Labour Capital Method (hours) (machines) A 1 10 B 5 8 C 20 4 D 50 1 a Which methods are technologically efficient? b Which method is economically
4 Sue can do her accounting assignment using a personal computer (PC); a pocket calculator; a pocket calculator and a pencil and paper; or a pencil and paper. With a PC, Sue completes the job in
*3 Four methods of completing a tax return are: a personal computer (PC), a pocket calculator, a pocket calculator with pencil and paper, a pencil and paper. With a PC, the job takes an hour; with a
2 One year ago, Ms Moffat and Mr Spieder opened a cheese firm (called MSCF). Use the following information to calculate MSCF’s explicit costs and implicit costs during its first year of operation:
*1 One year ago, Jack and Jill set up a vinegar bottling firm (called JJVB). Use the following information to calculate JJVB’s explicit costs and implicit costs during its first year of operation:
4 Why do some firms use lots of capital and not much labour, while others use not much capital and lots of labour?
3 Explain the key distinction between technological efficiency and economic efficiency.
2 Define economic efficiency. Is a firm economically inefficient if it can cut costs by producing less? Why?
1 Define technological efficiency. Is a firm technologically efficient if it uses the latest technology? Why?
5 What are the constraints that each firm faces? Explain how each constraint limits the profit that a firm can make.
4 Why is normal profit an opportunity cost?
3 What are the items that make opportunity cost different from the accountants’ measure of cost?
2 Why do accountants and economists calculate a firm’s cost and profit in different ways?
1 Why is profit maximisation the ultimate goal of all firms?
1 Read the Economics in History feature called Understanding Human Behaviour, then answer the following questions: a What is the role of technology in explaining women’s increased participation
2 VAT is a tax on most goods and services in Europe. Until recently, there was no VAT on newspapers and magazines in the United Kingdom. The European Union has made the United Kingdom impose VAT on
1 Read the article in Reading Between the Lines on pp. 172–173 and then answer the following questions: a Suppose that the price of a gourmet sandwich halved while Lisa is still a student. i What
10 If when Yangjie’s wage rate increases to a25 an hour. she chooses to work for fewer than 40 hours a week, describe her indifference curves and explain her choice in terms of the income effect
*9 Yangjie can earn a15 an hour and she chooses to work for 40 hours a week. Then Yangjie’s wage rate increases to a25 an hour. If Yangjie now chooses to work for more than 40 hours a week,
8 Yangjie buys smoothies and sushi. The price of a smoothie is a5, and the price of sushi is a1 a piece. Each month, Yangjie spends all of her income and buys 10 smoothies and 20 pieces of sushi.
*7 Pam buys slices of cake and books. The price of cake is a1 a slice and the price of a book is a2. Each month, Pam spends all of her income and buys 30 slices of cake and 5 books. Next month, the
6 Now suppose that in problem 4, the price of a CD falls to a5 and the price of beer and Marc’s income remain constant. a Find the new quantities of beer and CDs that Marc buys. b Find two points
*5 Now suppose that in the situation described in problem 3, the price of cola falls to a1.50 per can but the price of popcorn and Sara’s income remain constant. a Find the new quantities of cola
4 Marc’s income and the prices he faces are the same as in problem 2. The figure illustrates his preferences.a What are the quantities of beer and CDs that Marc buys? b What is Marc’s marginal
*3 Sara’s income and the prices she faces are the same as in problem 1. The figure illustrates Sara’s preferencesa What are the quantities of popcorn and cola that Sara buys? b What is Sara’s
2 Marc has an income of a20 per week. CDs cost a10 each and beer costs a5 a can. a What is Marc’s real income in terms of beer? b What is his real income in terms of CDs? c What is the relative
*1 Sara has an income of a12 a week. Popcorn costs a3 a bag, and cola costs a3 a can. a What is Sara’s real income in terms of cola? b What is her real income in terms of popcorn? c What is the
2 Why might a rise in the wage rate lead to an increase in leisure and a decrease in work hours?
1 What is the opportunity cost of leisure?
4 What is the key assumption about a consumer’s marginal rate of substitution?
3 What do we call the magnitude of the slope of an indifference curve?
2 Why does an indifference curve slope downward, and why is it bowed towards the origin?
1 What is an indifference curve and how does an indifference map show preferences?
5 If a household’s money income changes, but prices don’t change, what happens to the household’s real income and its budget line?
4 If the price of one good changes, what happens to the relative price and to the slope of the household’s budget line?
3 If a European household has an income of A40 and consumes only bus rides at A4 each and magazines at A2 each, what is the equation that describes the household’s budget line?
2 What is (a) Lisa’s real income in terms of cinema films and (b) Lisa’s opportunity cost of cola?
1 What does Lisa’s budget line show?
1 Read what Henry Schimberg, CEO of Coca-Cola Enterprises, says about the market for bottled water. Use the marginal utility theory to explain and interpret his remarks.
4 Smoking is banned on all airline flights. Use marginal utility theory to explain how the ban: a Effects the utility of smokers. b Influences the decisions of smokers. c Effects the utility of
3 Why do you think the percentage of income spent on food has decreased while the percentage of income spent on cars has increased during the past 50 years? Use the marginal utility theory to explain
2 In recent years, bottled water, fruit drinks and sports drinks have become very popular. Use the marginal utility theory to explain the rise in popularity of these “new age” drinks.
1 Read the article in Reading Between the Lines on pp. 154–155 and then: a Draw a graph of Lisa’s budget line given that her income rinks is £17.00, and a cappuccino costs £1.70 and soup costs
12 Pete, in problem 6, wins a lottery and has more than enough money to satisfy his desires for rock concerts and opera. He decides that he would like to attend a total of 7 concerts each month. How
*11Max takes a Club Med vacation, the cost of which includes unlimited sports activities. There is no extra charge for equipment. If Max windsurfs and snorkels for 6 hours a day, how many hours does
10 In problem 6, if the price of a opera ticket decreases to a20, how many rock concerts and operas will Pete attend?
*9 In problem 7, if the rent on windsurfing equipment decreases to a5 an hour, how many hours does Max now windsurf and how many hours does he snorkel?
8 In problem 6, Pete’s uncle gives him a60 to spend on concert tickets, so he now has a260. a Draw a graph that shows Pete’s consumption possibilities. b How many rock concerts and how many
*7 In problem 5, Max’s sister gives him a20 to spend on his leisure pursuits, so he now has a55. a Draw a graph that shows Max’s consumption possibilities. b How many hours does Max choose to
6 Pete enjoys rock concerts and the opera. The table shows the utility he gets from each activity: Concerts Utility from Utility from per month rock concerts operas 1 120 200 2 100 160 3 80 120 4 60
*5 Max enjoys windsurfing and snorkelling. He obtains the following utility from each of these sports:Hours Utility from Utility from per day windsurfing snorkelling 1 120 40 2 220 76 3 300 106 4 360
4 Mary enjoys classical CDs and travel books and spends a75 a month on them. The following table shows the utility she gets from each good: Quantity Utility from Utility from per month classical CDs
*3 Jason enjoys rock CDs and spy novels and spends a60 a month on them. The following table shows the utility he gets from each good: Quantity Utility from Utility from per month rock CDs spy novels
2 Lee’s and Lou’s demand schedules for CDs are: Quantity demanded by Price Lee Lou (euros per CD) (CDs per year) 6 12 10 8 98 10 6 6 12 3 4 14 0 2 If Lee and Lou are the only two individuals,
*1 Judy’s and Dan’s demand schedules for cola are: Quantity demanded by Price Judy Dan (cents per carton) (cartons per week) 10 12 6 30 9 5 50 6 4 70 3 3 90 1 2 If Judy and Dan are the only two
3 Is the marginal utility from water or from diamonds greater? Is the total utility from water or from diamonds greater? Is the consumer surplus from water or from diamonds greater?
2 Can you explain the paradox of value?
1 Can you explain why, along a demand curve, consumer choices are efficient?
3 If all goods are normal goods, how does an increase in a consumer’s income change the quantity of each good bought?
2 Elaborate your answer to question 1. For which good does demand change and for which good does the quantity demanded change?
1 When the price of a good falls and the prices of other goods remain the same, what happens to the consumption of the good whose price has fallen and to the consumption of other goods?
4 What is the key assumption about marginal utility?
3 What is the distinction between total utility and marginal utility?
2 What is utility and how do we use the concept of utility to describe a consumer’s preferences?
1 Explain how a consumer’s income and the prices of goods limit consumption possibilities.
3 Obtain information about cigarette smuggling in the European Union. a Why are cigarettes smuggled in the European Union? b Who are the gainers and the losers? c What are the measures being used to
2 Read the Web page on the CAP and the beef market. a Explain how CAP uses a target price for beef to maintain farm incomes. b Explain why a EU import tariff on beef is needed. c Show on a graph the
1 Read the Web page on the Irish tax on carrier bags: a Why does the Irish government tax carrier bags? b Carrier bags appeared to be a free good to supermarket shoppers before the tax. Do you think
1 Read the article in Reading Between the Lines on pp. 136–137 about the proposed reforms to the EU Common Agricultural Policy: a Explain how CAP uses a target price for beef to maintain EU farm
8 In problem 7, if instead of a subsidy, the government sets a quota of 2,000 packets a week, what now are your answers?
*7 The demand and supply schedules for rice are Price Quantity Quantity (pounds demanded supplied per box) (packets per week) 1.00 3,500 500 1.10 3,250 1,000 1.20 3,000 1,500 1.30 2,750 2,000 1.40
6 The table gives the demand and supply schedules for coffee in a UK town. Price Quantity Quantity (pounds demanded supplied per cup) (cups per hour) 1.50 90 30 1.75 70 40 2.00 50 50 2.25 30 60 2.75
*5 The table gives the demand and supply schedules for chocolate brownies in the United Kingdom. Price Quantity Quantity (pence demanded supplied per brownie) (millions per day) 50 5 3 60 4 4 70 3 5
4 The table gives the demand for and supply of secondary school leavers in a UK town. Wage rate Quantity Quantity (pounds demanded supplied per hour) (hours per month) 6 9,000 4,000 7 8,000 5,000 8
*3 The table gives the demand for and supply of teenage labour in a UK town. Wage rate Quantity Quantity (pounds demanded supplied per hour) (hours per month) 2 3,000 1,000 3 2,500 1,500 4 2,000
2 The figure below shows the demand for and supply of rental housing in Township:a What is the equilibrium rent and equilibrium quantity of rented housing? If a rent ceiling is set at a300 a month,
*1 The figure below shows the demand for and supply of rental housing in Village: a What is the equilibrium rent and equilibrium quantity of rented housing? If a rent ceiling is set at a150 a month,
4 Is there any case for legalizing drugs?
3 Is there an economic case for legalizing drugs?
2 How does imposing the penalty on selling a drug influence supply and the quantity consumed?
1 How does imposing a penalty on buying a drug influence demand and the quantity consumed?
3 Explain how a production quota influences farm prices and output. How does a production quota affect farm revenues? 4 Explain how a price support influences farm prices and output. How does a price
2 Explain how a subsidy influences farm prices and output. How does a subsidy affect farm revenues?
1 How do poor harvests and bumper harvests influence farm prices and farm revenues?
1 In 2001, the European Commission investigated why the prices of DVDs in the European Union were higher than those in the United States. The price differential was maintained because regional
3 Write a short description of how you would determine whether the allocation of your time between studying different subjects is efficient. In what units would you measure marginal benefit and
2 Explain how you would calculate your consumer surplus on an item that you buy regularly.
1 Study Reading Between the Lines on pp. 112–113 and then answer the following questions: a Suppose British Airways charges a higher price for a trip from London to Paris to someone who buys the
6 The table gives the demand and supply schedules for airline travel for Ann, Arthur and Abby. Quantity demanded Price (passenger miles) (pounds per passenger mile) Ann Arthur Abby 3.75 550 700 350
*5 The table gives the demand and supply schedules for train travel for Ben, Beth and Bill.Quantity demanded Price (passenger miles) (pence per passenger mile) Ben Beth Bill 5 550 350 70 10 500 300
4 The table gives the demand and supply schedules for sunscreen. Quantity Quantity demanded supplied Price (pounds per bottle) (bottles per day) 0 900 0 1 800 100 2 700 200 3 600 300 4 500 400 5 400

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