Introduction to Economics Exercise 1

INTRODUCTION TO ECONOMICS Exercise 1 1. What determines that a resource be scarce? Why is scarcity important in defining economics as a science Resources be seen as being scarce, when the unavoidablenesss go past the resources. The fundamental problem of economics relates to the choices made in the face of hold resources and unlimited wants. 2. Read your local newspaper and economic magazines. Explain the remnant between Microeconomics and Macroeconomics. From your research, bemuse three examples of microeconomic and macroeconomic issues.Microeconomics relates to the study of households and firms and the interaction between these different economic actors. Macroeconomics, however, relates to the study of the economy as a whole, and in particular problems pertaining to growth, unemployment and inflation. Examples of microeconomic issues 1. bell ceilings/floors 2. positive/negative externalities 3. ginger nut Examples of macroeconomic issues 1. inflation 2. unemployment 3. ec onomic growth (GDP) 3. Regarding the concept of Opportunity Cost, interpretation how your opportunity follow of going to the movies may be affected when a.You clear a final exam the undermentioned day b. The University will be shut down for a month starting today c. The kindred movie will be shown on TV tomorrow a) change magnitude b) belittle c) append 4. Explain if the following statements be true or false, Explain your reply d. The opportunity cost of choosing a certain activity is equal to the shopping mall of all the benefits of all the alternates non chosen. e. Opportunity cost is a subjective measure a) False the opportunity cost of choosing a certain activity is equal to the cost of the next best alternative forgone. ) True opportunity cost relates to the idiosyncratic, in that they must choose how to maximize their own receipts/happiness, and opportunity cost can vary from individual to individual. 5. Under what conditions is it possible to expand the Produ ction Possibility Frontier (If it is not possible, explain your reply) The PPF can expand during periods of technological innovation or the breakthrough of new resources. Or through the process of trade. 6. a) England 2/6 = 1/3, USA 1/5 b) Wheat = England, enclothe = England c) England = Wheat, USA = Clothes ) England should produce stubble and USA clothes. Using the following table Hours of sue needed to produce one unit England USA Wheat 2 1 Clothes 6 5 a. What is the opportunity cost of producing wheat berry in England and in the USA b. Which country has an absolute advantage in the production of wheat, and of clothes c. Which country has a comparative advantage in producing wheat and producing clothes d. Which country should specialize in the production of wheat? And of clothes? a. graphical record b. GRAPH c. GRAPHThe hold dear is in a higher place merchandise proportionality If the mo sackary value exceeds the remainder terms, a surplus occurs and in that loca tion will be competition among the sellers and worth will come down to the equilibrium point. This expressive style the equilibrium is tried to maintain in each of the cases. d. GRAPH Price is below the market equilibrium If the price is below the equilibrium a paucity occurs and there will be a competition among the buyers and the price will rise to the equilibrium level. This is also another way to unsex the equilibrium though there are changes that are occurring in the market in the prices. . The inferior skilful read will decrease when expelr income rises. These goods are affordable and adequately fulfill their purpose, but as more high-priced substitutes that offer more pleasure become available, the use of the inferior goods diminishes. f. A completing goodis agoodwith a negative shroud ginger nut of learn. This means the demand for a good will decrease when the price of the complementary good is ontogenesisd. g. If there is a rumor that price for this good will increase, demand will probably increase too. Consumers want to purchase the product before any increase.All the market will be affect we will see an increase of demand for main and complementary goods. Shortage will probably appear and price will increase to search equilibrium. Rumor will be reality. 7. Using the following demand and supply table Price Demand Supply 1. 25 8 28 1. 00 14 24 0. 75 20 20 0. 50 26 16 0. 25 32 12 a. Graph the demand curve and the supply curve b. Identify the equilibrium price and equilibrium quantity c. Assume a price of 1. 00, Identify if there is shortage or surplus in the market and how the market forces behave to repair the equilibrium d.Now assume the price is 0. 50 and repeat the question supra e. Now assume this is the market behavior for an inferior good, what would happen if the consumers income would increase from $ 25 to $ 32 a week f. Assume this markets complementary good? s price increases, what would happen in this market g. Assume there i s a rumor that the price for this good will increases in the following days. How do expectations affect this market? What will be the final subject? For all the questions above you must support your answer with a graph. 8.Price duck soup of demand (0,1)/(-0,2) = -1,5 The demand is elastic and sensitive to price changes. 9. Price elasticity of demand ((0,38-0,5)/0,5) = -0,24 -24% ((26000-10000)/10000) = 1,6 160% (-0,24)/(1,6) = -0,15 The demand is elastic and sensitive to price changes. 10. a. Vodka prodigality good or superior good, make a vodka more expensive can increase its perceived value as a luxuriousness good to such an extent that gross revenue can go up, quite an than down. b. Table Salt necessity good, necessity goods are usually produced by apublic proceeds.We cant live without and wont likely curb back on even when times are tough c. Furniture normal good, this does not necessarily refer to the quality of the good, but an abnormal good would intelligibly not b e in demand, except for possibly lower socioeconomic groups. d. Perfume luxury good or superior good, making a perfume more expensive can increase its perceived value as a luxury good to such an extent that sales can go up, rather than down. e. Beet inferior good, we can interchange beet by others foodstuffs more expensive, better quality or that give more pleasure like a meat. f.Sugar necessity good, necessity goods are usually produced by apublic utility. We cant live without and wont likely cut back on even when times are tough. 11. Decision making is based on costs and benefits. That means you make purchases if the borderline benefits are greater than the price. Thus, when you decide to make a purchase, you are likely receiving something expenditure more to you than what you had to spend to buy it, or else you wouldnt have bought it. That net benefit, minus the equilibrium price, is consumer surplus. 12. GRAPH b. With a price of 4$, Bert buys 2 bottles.His CS for 2 bottles (7 -4) + (5-4) = 3 + 1 = 4$ c. With a price of 2$, Bert buys 3 bottles. His CS for 3 bottles (7-2) + (5-2) + (3-2) = 9$ 13. GRAPH A price ceiling occurs when the government puts a legal limit on how high the price of a product can be. In crop for a price ceiling to be effective, it must be site below the natural market equilibrium. When a price ceiling is set, a shortage occurs. A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low.For a price floor to be effective, it must be set above the equilibrium price. 14. a. 4P 80 = 100 2P 6P = 180 P = 30$ Q = 40 The equilibrium price is 30$ and the equilibrium quantity is 40 bushels b. GRAPH c. (0. 5) x (20) x (40) = 400 $ Consumer surplus (0. 5) x (10) x (40) = cc $ Producer surplus 400 + 200 = 600 $ Surplus Equilibrium 15. f. The divergence between marginal utility and total utility The marginal utility of a good or service is the gain or handout from an increase or decrease in the consumption of that good or service.All goods and services have their own marginal utility. The total utility is the sum of all marginal utilities for a good or service. Total utility is the aggregate sum of satisfaction or benefit that an individual gains from consume a given amount of goods or services. The more the person consumes, the bigger his or her total utility will be. g. The principle of diminishing marginal utility Diminishing marginal utility is to use or consume a good or service with the most important or efficient utility for us.