All the questions are attached in the photos

12:26 7 A moodle.mnu.edu.mv C ECO 109 BUSINESS ECONOMICS | Tutorial One - Introduction to Economics and Key Concepts Page 2 of 3 CASE STUDY SCARCITY AND ABUNDANCE IS LUNCH EVER FREE? The central economic problem is scarcity. But are all it will cost money to clean it up. The citizen may not goods and services scarce? Is anything we desire pay directly - the cleaned-up air may be free to the truly abundant? 'consumer' - but the taxpayer or industry (and hence its customers) will have to pay. First, what do we mean by abundance? In the economic sense we mean something where supply Another example is when extractor fans have to be exceeds demand at a zero price. In other words, even installed to freshen up air in buildings. if it is free, there is no shortage. What is more, there must be no opportunity cost in supplying it. For Even if you live in a non-polluted part of the country, example, if the government supplies health care free you may well have spent money moving there to to the sick, it is still scarce in the economic sense escape the pollution. Again there is an opportunity because there is a cost to the government (and hence cost to obtain the clean air. the taxpayer). Water: Two things that might seem to be abundant are air and water. Whether water is abundant depends again on where you live. It also depends on what the water is used Air: for. In one sense air is abundant. There is no shortage of Water for growing crops in a country with plentiful air to breathe for most people for most of the time. rain is abundant. In drier countries, resources have to be spent on irrigation. But if we define air as clean, unpolluted air, then in some parts of the world it is scarce. In these cases, Water for drinking is not abundant. Reservoirs have resources have to be used to make clean air available. to be built. The water has to be piped, purified and If there is pollution in cities or near industrial plants, pumped. Questions There is a saying in economics, 'There's no such thing as a free lunch' (hence the sub-title for this case study). What does this mean? (5 marks) 2. Are any other (desirable) goods or services truly abundant? (5 marks) 3. Define Production possibility curve, and explain the concept of scarcity and choice in relation to PPC? (10 marks) ECO 109 BUSINESS ECONOMICS | Tutorial One - Introduction to Economics and Key Concepts Page 3 of 312:27 4 a moodle.mnu.edu.mv the odd bunch." Council president, Patrick Leahy. G 6 of 6 pplies will be back to normal Source: Cosima Marriner October 30, 2006 by of availability and of quality. ECO 109 BUSINESS ECONOMICS | Tutorial Two - Demand & Supply Page 5 of 6 Read the above case study carefully and answer all the questions. Questions 1. Draw a demand-supply diagram to show Australia's banana market before Cyclone Larry. Then indicate on your diagram the effects of Cyclone Larry (10 marks) 2. Is the demand for bananas elastic or inelastic? (5 marks) 3. What happened to total banana revenue as a result of the rise in the price of bananas after the cyclone? (10 marks) 4. Give an example of a good that has a negative cross elasticity of demand with respect to the price of bananas. Give an example of a good that has a positive cross elasticity of demand with respect to the price of bananas? (5 marks) 5. Did the market for bananas become inefficient as a result of Cyclone Larry? Why or why not? (10 marks) ECO 109 BUSINESS ECONOMICS | Tutorial Two - Demand & Supply Page 6 of 6Structured Questions 1. How do you define utility? What are the approaches in analyzing utility? (4 marks) 2. Differentiate between choice and priority? (5 marks) 3. Are there any goods or services where consumers do not experience diminishing marginal utility? Explain. (4 marks) 4. Which gamble would you be more likely to accept, a 60:40 chance of gaining or losing $10 000, or a 40:60 chance of gaining or losing fl? Explain why. (4 marks) Distinguish between marginal consumer surplus and consumer surplus? (4marks) 6. The table below shows the quantity and total utility obtained from Consumption of good X. a) Calculate the marginal utility at each quantity level. Quantity Total Utility Marginal (4 marks) Utility 40 b) If price per unit of X is RM25, calculate the quantity of 75 JAWN- X that will maximize the utility of this consumer? 105 (4 marks) 130 150 Some Past Year Questions 1. The table below gives demand and supply of cakes. a) What is the efficient quantity and price? (2 marks) Price Quantity Quantity (MVR) Demanded Supplied b) Explain using a graph, the concept of consumer surplus and 0 0 producers surplus. (4 marks) 700 100 600 200 c) At efficient quantity what is the consumer surplus and producer 500 300 LAWN surplus? (4 marks) 400 400 300 500 d) Revise the demand and supply schedules due to a price increase as a 6 200 600 result of a change in supply by 400 units at each and every price. 7 100 700 8 0 800 Using a diagram, explain briefly the effects of this on the consumer and producer surpluses. (10 marks) ECO 109 BUSINESS ECONOMICS | Tutorial Three - Marginal Utility Analysis Page 2 of 3 2. Aisha consumes both bagels and toy cars. The table shows Aisha's marginal utility from bagels and toy cars. a) What is her total utility from purchasing three toy cars? Marginal Marginal (2 mark) Utility Utility from Quantity from Toy b) Aisha's weekly income is $1 1, the price of a bagel is $2, Quantity Bagels of Toy Cars and the price of a toy car is $1. What quantity of bagels of Bagels (utils) Cars (utils) and toy cars will maximize Aisha's utility if she spends 10 her entire weekly income on bagels and toy cars? Explain 2 8 w 3 6 your answer using marginal analysis. (3 marks) 4 c) Assume that wheat is an input used in the production of bagels. If the price of wheat rise, will Aisha's demand for bagels increase, decrease, or not change? Explain briefly. (3 marks) d) Suppose that Aisha's income elasticity for bagels is -0.2. Does the value of Aisha's income elasticity indicate that bagels are normal goods, inferior goods, substitutes, or complements? (2 marks) Please read the following before the tutorial! 102 4 BACKGROUND TO DEMAND BOX 4.2 THE MARGINAL UTILITY REVOLUTION: JEVONS, MENGER, WALRAS EXPLORING ECONOMICS Solving the diamonds-12:27 4 a moodle.mnu.edu.mv ECC MICS | Tutorial Three - Marginal Utility Analysis Page 2 of 6 3 of 6 CALCULATION QUESTIONS 1) The table gives the demand and supply schedules of sandwiches. a. What is the maximum price consumers are willing to pay for Price the 250th sandwich? (1 marks) ($ per QD QS sandwich) What is the minimum price that producers are willing to accept 0 400 0 350 50 for the 250th sandwich? (1 marks) 2 300 100 3 250 150 Are 250 sandwiches less or greater than the efficient quantity? 4 200 200 What are the implications of this? (2 mark) 5 150 250 6 100 300 d. What is the consumer surplus if the efficient quantity of 7 50 350 sandwich is produced? (2 marks) 8 0 400 e. What is the producer surplus in efficient quantity of production? (2 marks) f. Calculate the deadweight loss if 250 sandwiches are produced? (2 marks) 2) The table shows the demand and supply schedules for chocolate ice- Price QD QS creams. (cents per (millions) (millions ice-cream) a. If there is no tax on ice-creams, what is the equilibrium price, 90 7 and equilibrium quantity? (2 marks) 80 2 6 70 3 5 b. If the government decides to impose a tax of 20 cents per ice- 60 4 4 cream, what happens to price, the output produced and the 50 5 3 40 6 2 consumption? (6 marks) c. How much tax would the government be able to collect and who would pay for it? (2 marks) STRUCTURED QUESTIONS 1) With the help of a diagram, explain the effect of a price ceiling in a competitive market. (10 marks) 2) Distinguish between marginal benefit and marginal cost? (5 marks) 3) In a market which is not intervened by the government, under what circumstances would this market achieve efficiency? Use diagrams to form economic arguments? (10 marks) 4) Economists argue that sometimes establishing property rights are not enough to correct negative externality, and hence they feel Pigouvian Tax would be more effective. Analyze whether a Pigouvian Tax could correct negative externality? (10 marks) ECO 109 BUSINESS ECONOMICS | Tutorial Three - Marginal Utility Analysis Page 3 of 6 CASE STUDY CAN THE MINIMUM WAGE CREATE JOBS? If one cannot produce enough of value to justify dismissed Card and Krueger, commentators on the being paid a living wage, nothing we do to the left also seized uncritically on the results. Both12:28 7 A moodle.mnu.edu.mv published by economists David Card and Alan which trained him and the society in which he lives, Krueger. They performed a statistical analysis and have far bigger problems. concluded that not only did the minimum wage not cost jobs - it might even create them. Amazing. Also published at fi.com. Extraordinary claims demand extraordinary 14th of January, 2012 . Undercover Economist evidence, and while many economists casually ECO 109 BUSINESS ECONOMICS | Tutorial Three - Marginal Utility Analysis Page 4 of 6 Read the above case study carefully and answer all the questions. Questions 1) Using a diagram, carefully analyze the case study and explain the concept of minimum wage and its effects on labour markets. (10 marks) 2) Does minimum wage help the labour market to become more efficient? Justify your answer? (10 marks) 3) Based on what evidence did Kruger and Card conclude that a minimum wage could create jobs? (5 marks) 4) Based on the text and based on your own reasoning argue why Kruger and Card could be right to form a conclusion that a minimum wage would create jobs? (10 marks) 5) With reference to question 4 above, give reasons to why Kruger and Card may be wrong in making such assumptions? (5 marks)12:27 4 a moodle.mnu.edu.mv a) What is the efficient quantity and price? (2 marks) Price Quantity Quantity (MVR) Demanded Supplied a graph, the concept of consumer surplus and 800 0 3 of 3 lus. (4 marks) 700 100 N 600 200 "J Al eunicIent quantity what is the consumer surplus and producer 500 300 surplus? (4 marks) 400 400 300 500 d) Revise the demand and supply schedules due to a price increase as a 200 600 result of a change in supply by 400 units at each and every price. 100 700 0 800 Using a diagram, explain briefly the effects of this on the consumer and producer surpluses. (10 marks) ECO 109 BUSINESS ECONOMICS | Tutorial Three - Marginal Utility Analysis Page 2 of 3 2. Aisha consumes both bagels and toy cars. The table shows Aisha's marginal utility from bagels and toy cars. a) What is her total utility from purchasing three toy cars? Marginal Marginal (2 mark) Utility Utility from Quantity from Toy b) Aisha's weekly income is $1 1, the price of a bagel is $2, Quantity Bagels of Toy Cars and the price of a toy car is $1. What quantity of bagels of Bagels (utils) Cars (utils and toy cars will maximize Aisha's utility if she spends 10 her entire weekly income on bagels and toy cars? Explain 2 8 your answer using marginal analysis. (3 marks) c) Assume that wheat is an input used in the production of bagels. If the price of wheat rise, will Aisha's demand for bagels increase, decrease, or not change? Explain briefly. (3 marks) d) Suppose that Aisha's income elasticity for bagels is -0.2. Does the value of Aisha's income elasticity indicate that bagels are normal goods, inferior goods, substitutes, or complements? (2 marks) Please read the following before the tutorial! 102 4 BACKGROUND TO DEMAND BOX 4.2 THE MARGINAL UTILITY REVOLUTION: JEVONS, MENGER, WALRAS EXPLORING ECONOMICS Solving the diamonds-water paradox What determines the market value of a good? We already margin. Diamonds, on the other hand, although they have know the answer: demand and supply. So if we find out a much lower total utility, have a much higher marginal what determines the position of the demand and supply utility. There are so few diamonds in the world, and thus curves, we will at the same time be finding out what people have so few of them, that they are very valuable determines a good's market value. at the margin. If, however, a new technique were to be This might seem obvious. Yet for years economists discovered of producing diamonds cheaply from coal, puzzled over just what determines a good's value. their market value would fall rapidly. As people had more Some economists like Karl Marx and David Ricardo of them, so their marginal utility would rapidly diminish. concentrated on the supply side. For them, value Marginal utility still only gives the demand side of the depended on the amount of resources used in producing story. The reason why the marginal utility of water is so low a good. This could be further reduced to the amount of is that supply is so plentiful. Water is very expensive in labour time embodied in the good, Thus, according to the Saudi Arabia! In other words, the full explanation of value labour theory of value, the more labour that was directly must take into account both demand and supply. involved in producing the good, or indirectly in producing the capital equipment used to make the good, the more valuable would the good be. Other economists looked at the demand side. But here they came across a paradox. Adam Smith in the 1760s gave the example of water and diamonds. 'How is it', he asked, 'that water which is so essential to human life, and thus has such a high "value-in-use", has such a low market value (or "value- in.exchange")? And how is it that diamonds which are relatively so trivial have such a high market value?' The answer to this paradox had to wait over a hundred years until the marginal utility revolution of the 187 0s. William Stanley Jevons (1835-82) in England, Carl Menger (1840-1921) in Austria, and Leon Walras (1834-1910) in Switzerland all independently claimed that the source of the market value of a good was its marginal utility, not its total utility. This was the solution to the diamonds-water paradox Water, being so essential, has a high total utility: a high 'value in use'. But for most of us, given that we consume so much already, it has a very low marginal utility. Do you leave the cold tap running when you clean your teeth? if you do, it shows just how trivial water is to you at the Source: Sloman, J. & Wride, A., 2009. Economics. 07th ed. Harlow, Essex, England: Pearson Education Limited. ECO 109 BUSINESS ECONOMICS | Tutorial Three - Marginal Utility Analysis Page 3 of 3Questions 1. Define economics, and explain the main problem in economics? (5 marks) 2. Explain the following terms: opportunity cost, scarcity, choice, wants, and resources? (10 marks) 3 . Explain with a relevant example on how PPC curve depicts production efficiency? (5 marks) 4. What is economic growth? And explain how economic growth could be achieved? (5 marks) 5 . The following figure shows a production possibility frontier: 87 85 82 Mark in maths (per cent Mia's PPF 77 57 2 Skiing (days per month) Use the graph to calculate Mia's opportunity cost of a day of skiing when she increases her time spent skiing from (4 marks): a. 2 to 4 days a month b. 4 to 6 days a month ECO 109 BUSINESS ECONOMICS | Tutorial One - Introduction to Economics and Key Concepts Page 2 of 3 CASE STUDY SCARCITY AND ABUNDANCE IS LUNCH EVER FREE? The central economic problem is scarcity. But are all it will cost money to clean it up. The citizen may not goods and services scarce? Is anything we desire pay directly - the cleaned-up air may be free to the truly abundant? consumer' - but the taxpayer or industry (and hence its customers) will have to pay. First, what do we mean by abundance? In the economic sense we mean something where supply Another example is when extractor fans have to be exceeds demand at a zero price p air in buildings. if it is free WhaStructured Questions 1. Define demand, and explain the factors affecting the shift of demand (8 marks) 2. Explain what is meant by movement along the demand curve with the help of a diagram (10 marks) 3. Define what is meant by supply in economics (2 marks) 4. What are the factors affecting changes in supply? (6 marks) 5. Analyze how the price of cars is likely to be affected by increase in the price of crude oil (5 marks) A rise in consumers' income will increase the demand for cars. Is this statement correct? (5 marks) 7. With the help of a diagram, show the effect on market equilibrium of cars due to a decrease in the price of capital equipment used in the manufacture of cars (5 marks) 8. Consider the following information on the demand for coffee, and calculate price elasticity of demand for coffee 1996 1997 Price ($) per lb 1.21 2.1 Quantity (Ibs) per person per year 16.8 13.6 ECO 109 BUSINESS ECONOMICS | Tutorial Two - Demand & Supply Page 4 of 6 CASE STUDY BANANAS COME TO FRUITION, BUT PRICES DON'T SLIP MUCH Rebounding.. Tony Camuglia of Fresh Yellow The bananas in the shops at the moment are smaller, Bananas in Innisfail says the industry is on the road to sweeter than and not as well-formed as those buyers recovery. are used to. IT WAS a "bloody gratifying day" for Tony Camuglia when the Queensland banana grower picked his first This is because they grew from the suckers, or reshot bunch since Cyclone Larry devastated his farm.Mr plants, at the base of trees snapped in half by the force Camuglia was one of 320 growers whose livelihood of the wind. "The proper genuine bunches will be in was wiped out when the cyclone ripped through the fruition at the start of December," Mr Camuglia said. north Queensland towns of Innisfail and Tully in However, customers who paid $15 a kilogram at the March. In less than an hour, 90 per cent of the country's height of the shortage should not expect prices to banana crop was destroyed by 300kmh winds. return to less than $2 a kilo. Labour, freight, building and accommodation costs have all risen in north Seven months later, growers are smpping the cyclone, and this will be12:28 7 a moodle.mnu.edu.mv ECO 109 BUSINESS ECONOMICS | Tutorial Three - Marginal Utility Analysis Page 5 of 6 Please read the following extract from Sloman & Wride (2009, page 53) before the tutorial! BOX 2.4 UNDERGROUND MARKETS CASE STUDIES AND APPLICATIONS A consequence of low fixed prices When the government sets maximum prices, an Take the case of price controls used in the Second underground market is likely to result. An underground World War. The government set maximum prices for market is one where sellers ignore the government's many essential items that were in short supply. This is price restrictions. But why is it in their interest to do so, illustrated in the diagram. given that they probably run the risk of fines or even The unacceptable high equilibrium price is P.. The imprisonment? price fixed by the government is P. But at P, there is a shortage of Q - Q,. To deal with the shortage, either the government will have to accept queues, or shops selling Effect of price control on underground-market only to "regular' customers; or alternatively a system of prices rationing will have to be introduced. But whichever system is adopted, one thing is clear: many consumers would be prepared to pay a price considerably above P, in order to get hold of the good. The demand curve shows this: the less the supply, the No underground higher up the demand curve will the equilibrium price be. market This is where people dealing in the underground market come in. Provided they can get supplies (maybe P. by some shady dealing), provided they can have access to consumers, provided consumers are willing to break Price ceiling the law, and provided they can escape detection, dealers can charge a price considerably above P. But what price can they charge? Take the extreme case. Assume that the dealers buy up all the supply (Q) from the producers at the official price and then sell it at a price that clears the market. The underground-market price will be P.: at that price, demand is equal to Q,. The dealers gain the extra revenue