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UNIVERSITI TUNKU ABDUL RAHMAN

CENTRE FOR FOUNDATION STUDIES PERAK CAMPUS
FOUNDATION IN ARTS
Academic Year 2013/2014

FHBM 1014
PRINCIPLES OF ECONOMICS

"MICROECONOMICS TUTORIAL MODULE
(Tutorial 1 Tutorial 5)




Name : _________________________________________________
ID : _________________________________________________
Tutorial Group : _____________________________________________


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Tutorial 1
(Topic 1: Introduction to Economics)

1) In broad terms the difference between microeconomics and macroeconomics is that
A) microeconomics studies the effects of government taxes on the national
unemployment rate.
B) macroeconomics studies the effects of government regulation and taxes on the
price of individual goods and services whereas microeconomics does not.
C) they use different sets of tools and ideas.
D) microeconomics studies decisions of individual people and firms and
macroeconomics studies the entire national economy.

2) The "how" tradeoff occurs when
A) a firm decides to produce refrigerators instead of dishwashers.
B) we answer the macroeconomic question.
C) the government increases income taxes paid by the rich.
D) a farm uses machinery to pick oranges instead of employing migrant workers.

3) When the government chooses to spend the tax dollars that it collects on homeland
security, its choice ________.
A) illustrates that scarcity does not always exist.
B) involves no tradeoff because the defense is necessary.
C) involves a tradeoff of other goods and services such as education for more
homeland security.
D) primarily affects who gets the goods and services produced.

4) Which of the following is NOT a factor of production?
A) the water used to cool a nuclear power plant.
B) the wages paid to workers.
C) the effort of farmers raising cattle.
D) the management skill of a small business owner.

5) Positive and normative statements differ in that
A) normative statements depict "what is" and positive statements depict "what
ought to be."
B) positive statements can be graphed, whereas normative statements cannot.
C) normative statements can be tested, whereas positive statements cannot.
D) positive statements can be tested, whereas normative statements cannot.


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6) Classify the following topics as relating to Microeconomics and Macroeconomics
a) An increase in the price of coffee affect the quantity of tea sold.
________________________________________________________
b) A fall in exchange rate will lead to an increase in exports overseas.
________________________________________________________
c) During festive seasons, it will increase the demand for chicken.
________________________________________________________
d) A rise in consumer incomes will lead to a rise in the demand for new cars.
________________________________________________________
e) A reduction in income tax will improve the consumer purchasing power.
_________________________________________________________

7) Below are six statements. Identify whether each is a positive or normative statement.
a) The national economy grew at a 6.2 percentage rate in the last quarter as the
economy continues to recovers from the past recession.
________________________________________________________
b) The unemployment rate fell to 5.7 percent this month, and is expected to fall
to 5.5 percent next month.
________________________________________________________
c) The rate of inflation should be reduced to zero to maintain the value of the
U.S. dollar.
________________________________________________________
d) The government should take action to reduce the prices of prescription
drugs charged by drug companies.
________________________________________________________
e) Interest rates for home mortgages are at their lowest rate in thirty years.
________________________________________________________
f) The Federal government should increase income taxes on the wealthy to
reduce the budget deficit.
________________________________________________________
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Tutorial 2
(Topic 2: Understand the Two Simple Economics Model)

1) Which of the following concepts is NOT illustrated by the production possibilities
frontier?
A) efficiency
B) opportunity cost
C) equity
D) tradeoffs

2) Which of the following is NOT an example of an opportunity cost?
A) Because David used all of his vacation time to paint his house, he was unable
to visit the Caribbean last year.
B) By choosing to attend college, Jean was not able to continue working as an
electrician; as a result, she gave up more than $85,000 in earnings while she
was in college.
C) Because Mary is now being paid a higher wage, she can afford to buy a new
car even though she is moving into a bigger apartment.
D) By spending Thursday night studying for an economics exam, a student was
unable to complete a homework assignment for calculus class.

3) On Saturday morning, you rank your choices for activities in the following order: go
to the library, work out at the gym, have breakfast with friends, and sleep late.
Suppose you decide to go to the library. Your opportunity cost is
A) working out at the gym, having breakfast with friends, and sleeping late.
B) zero because you do not have to pay money to use the library.
C) working out at the gym.
D) not clear because not enough information is given.

4) Which of the following statements regarding the circular-flow diagram is true?
A) If Susan works for BAe Systems and receives a salary payment, the
transaction takes place in the market for goods and services.
B) If BAe Systems sells a military aircraft, the transaction takes place in the
market for factors of production.
C) None of these answers.
D) The factors of production are owned by households.



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5) Which of the following statements regarding the production possibilities frontier is
true?
A) Points on the frontier are less efficient than points inside the frontier.
B) Points inside the frontier are attainable.
C) Points outside the frontier are attainable.
D) None of the above because all of the above statements are false.

6) Based on the graft below to answer question (a) to (f)

a) If this economy devotes all of its resources to the production of toothbrushes,
how many toasters and toothbrushes will it produce?
___________________________________________________________

b) It is possible for this economy to produce at which point(s)?
___________________________________________________________

c) It is not possible for this economy to produce at which point(s)?
___________________________________________________________

d) What is the opportunity cost of this economy moving from point A to point B?
___________________________________________________________

e) What is the opportunity cost per unit of this economy moving from point A to
point B?
___________________________________________________________
f) What is the opportunity cost of obtaining 10 additional toasters by moving
from point D to point A?
___________________________________________________________
brushes
A
B
C
D
10 20 30 40 50 60 70 80 tooth-
5
10
15
20
25
30
35
40
45
50
toasters
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7) Below is a production possibilities table for consumer goods (automobiles) and
capital goods (forklifts): Sketch these data graphically. Upon what specific
assumptions is this production possibilities curve based?


























___________________________________________________________

___________________________________________________________

___________________________________________________________






Type of Production Production Alternatives

A B C D E

Automobiles
Forklifts
0
30
2
27
4
21
6
12
8
0

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Tutorial 3 & 4
(Topic 3: Demand, Supply and Market Equilibrium)

1) Each point on the demand curve reflects
A) the highest price consumers are willing and able to pay for that particular unit
of a good.
B) the highest price sellers will accept for all units they are producing.
C) the lowest-cost technology available to produce a good.
D) all the wants of a given household.

2) Each point on a supply curve represents
A) the highest price sellers can get for each unit over time.
B) the lowest price buyers will accept per unit of the good.
C) the lowest price for which a supplier can profitably sell another unit.
D) the highest price buyers will pay for the good.

3) The expression increase in quantity supplied is illustrated graphically as a
A) leftward shift in the supply curve.
B) rightward shift in the supply curve.
C) movement up along the supply curve.
D) movement down along the supply curve.

4) All of the following shift the supply of watches to the right except
A) an advance in the technology used to manufacture watches.
B) an increase in the price of watches.
C) All of these answers cause an increase in the supply of watches.
D) a decrease in the wage of workers employed to manufacture watches.

5) A change in which of the following alters buying plans for cars but does NOT shift
the demand curve for cars?
A) a 10 percent decrease in the price of car insurance
B) a 20 percent increase in the price of a car
C) a 5 percent increase in people's income
D) an increased preference for walking rather than driving






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6) You notice that the price and quantity of wheat both decrease. This observation can
be the result of the
A) demand curve for wheat shifting leftward.
B) supply curve of wheat shifting rightward.
C) demand curve for wheat shifting rightward.
D) supply curve of wheat shifting leftward.

7) Let Qd stand for the quantity demanded, Qs stand for the quantity supplied, and P
stand for price. If Qd = 20 - 2P and Qs = 5 + 3P, then the equilibrium price is
A) $2 B) $3 C) $4 D) $1

8) When the price is below the equilibrium price, the quantity demanded
A) is less than the equilibrium quantity. The quantity supplied exceeds the
equilibrium quantity.
B) exceeds the equilibrium quantity. The quantity supplied is less than the
equilibrium quantity.
C) exceeds the equilibrium quantity. So does the quantity supplied.
D) is less than the equilibrium quantity. So is the quantity supplied.

9) Which of the following correctly describes how price adjustments eliminate a
shortage?
A) As the price falls, the quantity demanded increases while the quantity supplied
decreases.
B) As the price rises, the quantity demanded decreases while the quantity
supplied increases.
C) As the price falls, the quantity demanded decreases while the quantity
supplied increases.
D) As the price rises, the quantity demanded increases while the quantity
supplied decreases.

10) Suppose there is an increase in both the supply and demand for personal computers.
Further, suppose the supply of personal computers increases more than demand for
personal computers. In the market for personal computers, we would expect
A) the change in the equilibrium quantity to be ambiguous and the equilibrium
price to fall.
B) the equilibrium quantity to rise and the equilibrium price to rise.
C) the equilibrium quantity to rise and the change in the equilibrium price to be
ambiguous.
D) the equilibrium quantity to rise and the equilibrium price to fall.

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11) Suppose we are analyzing the market for hot chocolate. State the impact each of the
following would have on demand and how it affects the demand curve.
a) Winter starts and the weather turns sharply colder.
____________________________________________________________
____________________________________________________________
b) The price of tea, a substitute for hot chocolate, falls.
____________________________________________________________
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c) The Surgeon General of the U.S. announces that hot chocolate reduces stress.
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d) Consumer income falls because of a recession, and hot chocolate is considered
a normal good.
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e) The price of hot chocolate increases.
____________________________________________________________
____________________________________________________________

12) Suppose we are analyzing the markets for the following goods. Identify the factor that
affects each of the following and the impact each of the following would have on the
demand curve.
Market for white sugar:
a) The price of brown sugar decreased.
____________________________________________________________
____________________________________________________________
____________________________________________________________
b) Rumours spread that the price of white sugar will increase sharply in the
following month.
____________________________________________________________
____________________________________________________________
____________________________________________________________
c) The price of white sugar decreased.
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____________________________________________________________
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Market for Myvi:
d) The price of RON95 increased from RM1.90/litre to RM2.40/litre.
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____________________________________________________________
____________________________________________________________
e) The price of Myvi increased from RM50,000 to RM58,000.
____________________________________________________________
____________________________________________________________
____________________________________________________________
f) The new design of Myvi is favoured by most Malaysians.
____________________________________________________________
____________________________________________________________
____________________________________________________________

13) Draw graphs to illustrate the difference between an increase in quantity demanded
and an increase in demand for Nestl Yogurt Drink.

Increase in quantity demanded Increase in demand

































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14) Use the table below to answer the following questions:


a) What are the equilibrium price and equilibrium quantity?
____________________________________________________________

b) Suppose the price is at RM20, what problem would exist in the economy?
What is the size of the problem that occurs? What would you expect to happen
to the price? Justify your answer.
____________________________________________________________
____________________________________________________________
____________________________________________________________

c) Suppose the price is at RM40, what problem would exist in the economy?
What is the size of the problem that occurs? What would you expect to happen
to the price? Justify your answer.
____________________________________________________________
____________________________________________________________
____________________________________________________________












Price
(RM)
Quantity Demanded
(Units)
Quantity Supplied
(Units)
50 4000 8000
40 5000 7000
30 6000 6000
20 7000 5000
10 8000 4000
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Tutorial 5
(Topic 5: Price Elasticity of Demand and Supply)

1) On most days the price of a rose is $1 and 80 roses are purchased. On Valentine's Day
the demand increases so that the price of a rose rises to $2 and 320 roses are
purchased. Therefore, the price elasticity of
A) demand for roses is about 1.8. B) supply of roses is about 1.8.
C) demand for roses is about 0.55. D) supply of roses is about 0.55.

2) The price elasticity of demand can range between
A) negative one and one. B) zero and infinity.
C) zero and one. D) negative infinity and infinity.

3) A shift of the supply curve of oil raises the price from $10 a barrel to $30 a barrel and
reduces the quantity demanded from 40 million to 23 million barrels a day. You can
conclude that the
A) supply of oil is elastic. B) supply of oil is inelastic.
C) demand for oil is inelastic. D) demand for oil is elastic

4) The bus fare charged by the local bus company is 2.00 during the morning rush hour,
but only 1.50 during the early afternoon. This can be explained by the fact that the
demand for bus rides during the morning rush hour is _____; but during the early
afternoon the demand for bus rides is _____:
A) unit elastic; inelastic
B) less elastic; more elastic
C) perfectly elastic; perfectly inelastic
D) perfectly inelastic; relatively inelastic

5) Nita is a devoted Coca-Cola consumer, whereas Becky can drink either Coca-Cola or
Pepsi products. Nitas demand for Coca-Cola will be relatively more ___________,
while Beckys demand will be relatively more ___________.
A) elastic; inelastic
B) unrelated to price; elastic
C) perfectly elastic; elastic
D) inelastic; elastic



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6) Among the following pairs, which is likely to have a greater Price Elasticity of
Demand? Why?

a) Lamborghini sport car or Myvi
____________________________________________________________
____________________________________________________________

b) Water usage during a month or during a year
____________________________________________________________
____________________________________________________________

c) Eraser or a house rental
____________________________________________________________
____________________________________________________________

d) Medicine or jewelry
____________________________________________________________
____________________________________________________________

7) Lucys Hair Salon increased its total monthly revenue from RM2200 to RM2500
when it raised the price of a haircut from RM5 to RM10.
(a) What is the Price Elasticity of Demand for Lucys Hair Salon by using the
midpoint formula?
















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(b) If Lucys Hair Salon want to increase their total revenue, should they increase
or reduce the price of tomatoes? Explain.

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

8) A local pizzeria charges RM10 for a medium pizza. The owner of the Pizzeria wants
to increase the companys total revenue. A recent market research shows that the
Price Elasticity of Demand for his pizza is about 0.89. Should the pizzeria lower or
raise the price? Explain your answer.

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________