UNIVERSITY OF TECHNOLOGY, JAMAICA

SCHOOL OF BUSINESS ADMINSTRATION

ECO 1001: INTRODUCTION TO MICROECONOMICS
TUTORIAL #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. MICRO
c) The study of how business firms decide what inputs to hire and what outputs to produce.
MICRO
d) The study of how the Jamaican government allocates tax dollars. MACRO

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 as microeconomics or macroeconomics? Why?

a) Research into why the growth rate of total production (in Barbados) increased during
the1990s.MACRO- BECAUSE IT HAS TO DO WITH THE POPULATION ON A
WHOLE AND NOT INDIVIDUALS
b) A theory of how consumers decide what to buy. MICRO
c) An analysis of IBM’s share of the personal computer market in Jamaica.MICRO-
INDIVIDUAL
d) Research on why interest rates were unusually high in the late 1970s and early
1980s.MACRO

4. Discuss whether each statement is an example of positive economics or normative economics or

if it contains elements of both positive and normative economics:

a) An increase in interest rates will lower the growth rate of the Jamaican economy. POSITIVE
ECONOMICS
b) The 1990s was a dismal decade for the Guyanese economy. Exports fell to its lowest level
since 1960. BOTH
c) The goal of any economic policy should be to lower unemployment rates. NORMATIVE
ECONOMICS
d) The national minimum wage should be increased to by 15% as a method of reducing
poverty. NORMATIVE ECONOMICS
e) Protectionism is the only proper way to improve the living standards of workers
whose jobs are threatened by cheap imports. NORMATIVE ECONOMICS

5. What are the three questions that any resource allocation mechanism must answer?
 WHAT WILL BE PRODUCED?
 HOW WILL IT BE PRODUCED?
 WHO WILL GET WHAT IS PRODUCED?

6. Briefly describe the three primary methods of resource allocation that have evolved to answer
these questions.
FREE MARKET/ LAISSEZ FAIRE ECONOMY- EG. NEW ZEALAND, HONG KONG,
USA
COMMAND ECONOMY- CUBA, NORTH KOREA
MIXED- JAMAICA

7. Discuss three reasons why specialization could lead to a higher standard of living.
SPECIALIZATION CAN LEAD TO A HIGHER STANDARD OF LIVING BECAUSE
EVERYONE WOULD BE FOCUSED ON THE TASK GIVEN TO THEM TO CARRY
OUT AND IN DOING SO IT WILL INCRAESE PRODUCTION LEVELS WHICH
WOULD HIGHER THE STANDARD OF LIVING.

8. Differentiate between comparative advantage and absolute advantage. Which is more important
from an economic viewpoint?
 ABSOLUTE ADVANTAGE IS WHEN A COMPANY OR COUNTRY PRODUCES
MORE THAN ANOTHER WITH USING LESS OR THE SAME AMOUNT OF
RESOURCES WHILE COMPARTIVE ADVANTAGE IS WHEN A COUNTRY OR
COMPANY PRODUCE GOODS AT A LOWER OPPORTUNITY COST

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. Firm A has a(an)

a) comparative advantage in the production of computers.

b) comparative advantage in the production of aeroplanes.
c) absolute advantage in production of aeroplanes only.
d) absolute advantage in the production of computers only.

Use the following information to answer Questions 10 and 11.

Labour Required
1 Window 1 Rug
Washed Cleaned
Mary 2 hours 10 hours
Peter 3 hours 12 hours

10. Which of the following statement is true?

a) Mary has an absolute advantage in both washing windows and cleaning rugs.
b) Peter has an absolute advantage in both washing windows and cleaning rugs.
c) Mary has an absolute advantage in washing windows and Peter has an absolute advantage in
cleaning rugs.
d) Peter has an absolute advantage in washing windows and Mary has an absolute advantage in
cleaning rugs.

11. Which of the following statement is true?

a) Peter has a comparative advantage in both washing windows and cleaning rugs.
b) Mary has a comparative advantage in both washing windows and cleaning rugs.
c) Peter has a comparative advantage in washing windows and Mary has a comparative
advantage in cleaning rugs.
d) Mary has a comparative advantage in washing windows and Peter has a comparative
advantage in cleaning rugs.

12. Which has absolute and comparative advantage in each of the following scenarios

a) Zoe can produce good X twice as fast as Moe. Zoe can produce good Y three times as fast as
Moe. ZOE HAS ABSOLUTE ADVANTAGE IN GOOD X AND GOOD Y…. MOE
HAS COMPARATIVE ADVANTAGE IN PRODUCING GOOD X WHILE ZOE HAS
COMPARATIVE ADVANTAGE IN GOOD Y
OPPORTUNITY COST GOOD X GOOD Y
ZOE 1 1
MOE 2 3

OPPORTUNITY COST GOOD X GOOD Y

ZOE 1/1 1/1
MOE 2/3(0.66) 2/3 (1.5)

ABSOLUTE ADVANTAGE IN X: ZOE COMPARATIVE ADVANTAGE IN X: MOE

ABSOLUTE ADVANTAGE IN Y : ZOE COMPARATIVE ADVANTAGE IN Y: ZOE
 b) You can type a paper in two hours or mow the lawn in four hours. It takes your friend Ann
eight hours to type a paper of the same length and five hours to mow the same size of lawn.
OPPORTUNITY COST PAPER MOW THE LAWN
ME 2 HOURS 4 HOURS
ANN 8 HOURS 5 HOURS

OPPORTUNITY COST PAPER MOW THE LAWN

ME
ANN
ABSOLUTE ADVANTAGE IN PAPER: ZOE COMPARATIVE ADVANTAGE IN X:
MOE
ABSOLUTE ADVANTAGE IN Y : ZOE COMPARATIVE ADVANTAGE IN Y: ZOE

c) Arthur can milk a goat in 10 minutes and shear a sheep in 4 minutes. Ben can milk a goat in 6
minutes and shear a sheep in 3 minutes
d) Arthur can milk 10 goats per hour or shear 4 sheep per hour. Ben can milk 6 goats per hour or
shear 3 sheep per hour.

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

Cashew Corn Opportunity cost of 1 Opportunity cost of 1 bushel

(bags) (Bushels) bag of cashew (expressed of corn (expressed in bags
in bushels of corn) of cashew)
0 55 - -
1 50    
2 42    
3 28    
4 0    

14. Based on question 13,

(a) why do we have rising opportunity costs associated with the increased production of cashew?
(b) illustrate the PPF on a well labeled graph.
(c) use the PPF graph to explain the concept of scarcity, choice and efficiency.
(d) under what circumstances would the PPF shift outward/inward