UNIVERSITY COLLEGE OF THE CAYMAN ISLANDS

ECO 221: PRINCIPLES OF MICROECONOMICS

TUTORIAL SHEET 1

1.Which of the following is the best definition of economics?

a)The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.

b)The study of how consumers spend their income.

c)The study of how business firms decide what inputs to hire and what outputs to produce.

d)The study of how the Jamaican government allocates tax dollars.

2.Competitive behaviour

a)occurs as a reaction to scarcity.

b)occurs only in a market system.

c)occurs only when the government allocates goods and services.

d)always generates waste.

3.Which of the following can be classified asmicroeconomicsormacroeconomics? Why?

a)Research into why the growth rate of total production (in Barbados) increased during the1990s.

b)A theory of how consumers decide what to buy.

c)An analysis ofIBM's share of the personal computer market in Cayman.

d)Research on why interest rates were unusually high in the late 1970s and early 1980s.

4.Discuss whethereach statementis an example ofpositive economicsornormative economicsor if itcontains elements of both positive and normative economics:

a)An increase in interest rates will lowerthe growth rate of the Jamaican economy.

b)The 1990s was a dismal decade for the Guyanese economy.Exports fell to its lowest level since 1960.

c)The goal of any economic policy should be to lower unemployment rates.

d)The national minimum wage should be increased to by 15% as a method of reducing poverty.

e)Protectionism is the only proper way to improve the living standards of workers whose jobs are threatened by cheap imports.

5.What are the three questions that any resource allocation mechanism must answer?

6.Briefly describe the three primary methods of resource allocation that have evolved to answer these questions.

7.Discuss three reasons why specialization could lead to a higher standard of living.

8.Differentiate between comparative advantage and absolute advantage. Which is more important from an economic viewpoint?

The table below shows the number of computers and aero planes produced by two firms using the same quantities of resources.

Computers

Aero planes

Firm A

220

100

Firm B

130

80

9.Determine which firm has:

a)comparative advantage in the production of computers.

b)comparative advantage in the production of aeroplanes.

c)absolute advantage in production of aeroplanes.

d)absolute advantage in the production of computers.

Usethe following information to answer Questions 10.

Labour Required

1 Window Washed

1 Rug Cleaned

Mary

2 hours

10 hours

Peter

3 hours

12 hours

10.Determine which firm has:

a)comparative advantage in washing windows.

b)comparative advantage in cleaning rugs.

c)absolute advantage in washing windows.

d)absolute advantage in cleaning rugs.

11.Complete the following table below by calculating the respective opportunity costs

Cashew

(bags)

Corn (Bushels)

Opportunity cost of 1bag of cashew (expressed in bushels of corn)

Opportunity cost of 1 bushel of corn(expressed in bags of cashew)

0

55

-

-

1

50

2

42

3

28

4

0

12.Based on question 12,

(a)illustrate the PPF on a well labeled graph.

(b)use the PPF to identify a point where resources are unemployed or underemployed.

(c)use the PPF to identify a point that is unattainable.

(d)under what circumstances would the PPF shift outward/inward