ABBE1013 MICROECONOMICS Tutorial 1 Suggested Answer

Section A: Multiple Choice Questions

1. B 7. C
2. C 8. C
3. C
4. C
5. D
6. C

Section B: Essay Questions

Question 1 (a)
The resources consist of:
Land

⁻ All natural resources, such as minerals, forests, water, and unimproved land.

⁻ e.g. oil, wood.

Labour

⁻ The physical and mental talents people contribute to the production process.

⁻ e.g. a person building a house – physical strength, lawyer, accountant, lecturer – mental
talents
Capital

⁻ Produced goods that can be used as inputs for further production.

⁻ e.g. factories, machinery, tools, computers and buildings.

Entrepreneurship/founder or owner of business enterprise

⁻ The particular talent that some people have for:

i. organizing the resources of land, labour and capital to produce goods.
ii. seeking new business opportunities/expand business – make more profits

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ABBE1013 MICROECONOMICS Tutorial 1 Suggested Answer

iii. developing new ways of doing things. – increase quality of products; decrease costs of
production (more efficient production methods)
- e.g. Tony Fernandez of AirAsia, Bill Gates, Steve Jobs, Jack Ma…….
(Describe any 2 resources with examples: 2 marks for each description and 1 mark for each
example = 3 marks each x 2 = 6 marks)
Question 1 (b)
● Scarcity refers to the situation where wants are unlimited but resources available to fulfill
those wants are limited. Scarcity = wants > resources. (2 marks)
Effects:
1) Make choice - People must make choices because of scarcity. People must choose
which wants he/she will satisfy and which he/she will not. – Choose the most
important one first/ give you the highest utility.
2) Rationing device - Is a tool that decide who get the available resources. E.g. price –
who can pay the price, he can get the good.
3) Competition - Because goods are limited, individuals compete to obtain the goods
that are available.
(Any 2 points with explanations x 2 marks = 4 marks)
Question 2 (a)(i) &(a)(ii)

Microeconomics
Deals with human behaviour and choices as
they relate to relatively small units, such as an
individual, a business firm, an industry, a
single market.
(2 marks)
Macroeconomics
Deals with human behaviour and choices as
they relate to highly aggregate markets (e.g.,
the goods and services market) or the entire
economy.
(2 marks)

Positive Economics Normative Economics

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ABBE1013 MICROECONOMICS Tutorial 1 Suggested Answer

The study of “what is” in economic matters.
It deals with cause-effect relationships that can
be tested.
An economist practicing positive economics
would be interested in knowing - what is the
effect of a cut in income taxes on
unemployment rate.
The study of “what should be” in economic
matters.
It deals with value judgments and opinions that
cannot be tested.
Example: the income taxes should be cut as the
income tax burden on many taxpayers is
currently high.

(2 marks) (2 marks)

Question 2 (b)
(i) Positive statement (1 mark)
(ii) Normative statement (1 mark)
(iii) Positive statement (1 mark)
(iv) Normative statement (1 mark)
(v) Normative statement (1 mark)

Question 3 (a)
The PPF is a curve that shows the maximum combination of two goods that an economy can
produce, given its available resources and technology.
Question 3 (b)

The bowed outward PPF The straight line PPF

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ABBE1013 MICROECONOMICS Tutorial 1 Suggested Answer

● Increasing opportunity costs.

● As more of one good is produced, the
● Constant opportunity costs.
opportunity costs between computers and TV
● Opportunity costs of 1 TV = 1 computer.
sets changes.
● Opportunity Costs between TV and
● As the economy produces more TV sets, the
Computer is constant.
opportunity costs of producing TV sets increases.

(Diagram = 2 marks, Explanation = 3 marks) (Diagram = 2 marks, Explanation = 3 marks)

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