PRINCIPLES OF MICROECONOMICS

TUTORIALS SET 1

1. The production possible model describes the limit of what a society can
produce. Consider the following possibilities, then plot, label and connect the
points to form a production possibilty (PPF) in figure.

Production Possibility Mangoes Passion Fruit

A 500 0
B 400 200
C 300 350
D 200 425
E 100 475
F 0 500

(a) Draw a production possibility curve that represent the data above.
(b) What shape does the production possibilty curve have?
(c) (i) Draw point (300, 300) on your graph. Label the point G.
(ii) What can you say about this level of output? (obtainable,
efficient or inefficient)
(d) What can you say about the use of resources? (unobtainable, efficient
or inefficient)
(e) What is the opportunity cost for passion fruit (in terms of mangoes per
passion fruit) for each of the following moves?
(i) 0 to 200;
(ii) 200 to 350;
(iii) 350 to 425?

2. Distinguish briefly between the following per of concepts:

(i) Microeconomics and macroeconomics:
(ii) Positive economics and normative economics:
(iii) Scarcity and shortage;
(iv) Opportunity cost and trade off.
3. Ghana produces two commodities: Cocoa(X) and Timber(Y) in various
quantities as shown in the table below.

Combination Quantity of Cocoa Quantity of Timber

(million of Kgs) (million of tonnes)
A 0 10
B 3 8
C 5 6
D 6 4
E 6.5 2
F 6.75 0

(a) What economic concept(s) does the table depict and why?
(b) Derive the concept identified in (a) above on a graph sheet
(Hint:Cocoa is on the X-axis and Timber is on the Y-axis).
(c) What would happen if Ghana produces 3 million Kgs of Cocoa and 4
million tonnes of timber and what does such point imply in economics?
(d) What is the opportunity cost of increasing the production of timber
from 6 million to 8 million tonnes?
(e) Explain why the production possibility curve bows outward?
(f) Suppose that there is a natural disaster that depletes the country’s land
resources, what will happen to the production possibility curve?