EC101 Tutorial 1 (A review of basic economics)

Note: Students are expected to solve all questions before attending tutorials. You will be asked to
discuss or illustrate on the board. Your tutorial solutions may be taken as that week’s weekly activity
task.

TRUE/FALSE

1. Scarcity means that society has less to offer than people wish to have.

2. Economics is the study of the circulation of money between banks, taxpayers and the government.

3. Economists study how individuals make decisions, how they interact with each other and the factors
that affect the economy as a whole.

4. The opportunity cost of something refers to the price you pay to get it.

5. The opportunity cost of consuming a unit of good X is the amount of resources that must be devoted to
its production.

6. The law of demand states that, other things being equal, when the price of a good rises, the quantity
demanded of the good falls.

7. Demand curves are often upward sloping when prices are very high.

8. The quantity demanded of a product is the amount that buyers are willing and able to purchase at a
particular price.

9. If the price of a good changes, its demand curve shifts.

10. An increase in the number of buyers in the market will cause a rightward shift in the demand curve if
the good is a normal good.

11. If mad cow disease causes a beef-scare in Europe, demand for wild meat like deer or kangaroo is likely
to shift to the right in that market.

12. Jack usually eats a lot of noodles. He reads an article saying that rice has twice the health benefits of
noodles. His demand curve for noodles is likely to shift right.

13. A reduction in the price of a product and an increase in the number of buyers in the market affect the
demand curve in the same general way.

14. A demand schedule shows how much will be demanded of a good in the future.

15. If crocodile leather handbags are a normal good, then consumers will buy less of them as their incomes
rise.

16. The Latin phrase ceteris paribus means ‘other things changing’.

17. The quantity supplied of a good or service is the amount that sellers are willing and able to sell at a
 particular price.

18. In addition to price, the determinants of individual supply include input prices, technology and
expectations.

19. The supply curve has a negative slope.

MULTIPLE CHOICE
1. The study of economics is concerned with:
A. keeping private businesses from losing money
B. demonstrating that capitalist economies are superior to socialist economies
C. how society manages its scarce resources
D. determining the most equitable distribution of society's output

2. For society, a good is not scarce if:

A. all members of society can have all they want of it
B. at least one individual in society can obtain all he or she wants of the good
C. firms are producing at full capacity
D. those who have enough income can buy all they want of the good

3. Daniel decides to spend an hour playing cricket rather than working at $16 per hour. His trade-off is:
A. nothing, because he enjoys playing cricket more than working
B. the increase in skill he obtains from playing cricket for that hour
C. the $16 he could have earned
D. nothing, because he spent $16 for admission into the sports complex to play cricket

Short Answers
1. For each of the following situations in the wheat market, determine whether the quantity demanded
changes, or the demand curve shifts and determine the direction of the change.

a. consumer income increases

b. the price of wheat increases
c. scientists determine that eating wheat causes high blood pressure
d. the price of oats increases
e. in June, insects destroy part of the country’s wheat crop

2. The following table shows the demand and supply of backpacks made by a Melbourne designer whose
products sell exclusively to a youth market. Graph both the demand and supply curves and label the
equilibrium price and quantity. Now assume that a famous celebrity starts wearing the backpack
everywhere, making it very popular with young people. Young people are now willing to purchase 300
more backpacks per year at every price. Show this change on your graph and explain what has happened
to equilibrium price and quantity as a result.

Price of Backpack ($) Quantity demanded per year Quantity supplied per year
210 800 5100
180 2000 4300
130 3000 3000
100 5000 1200
70 6000 800
50 8000 500

3. Other things being equal, explain the effect each of the following situations will have on either the
demand or supply of corn. Explain also what the effect will be on equilibrium price and quantity.
a. corn is now considered by doctors to be the most healthy vegetable
b. there is a decline in the amount of land used to grow corn
c. producers expect the price of corn to fall in the future
d. the price of peas, a substitute for corn, goes up
e. corn is a normal good and incomes fall
f. the price of fertiliser rises

THE END