UNIVERSITY OF TECHNOLOGY, JAMAICA
SCHOOL OF BUSINESS ADMINISTRATION
MICROECONOMICS (ECO1001)
Group A - UNIT 1 THE NATURE OF ECONOMICS
1. Why is the concept of scarcity important to the definition of economics?
2. Determine whether each of the following is primarily a microeconomic or a macroeconomic issue: a. Determining the price to charge for cement
b. Measuring the impact of tax policies on total consumption spending in the economy c. A household’s decisions about how to allocate its disposable income among various goods
and services
d. A worker’s decision regarding how many hours to work each week e. Designing a government policy to affect the level of employment
3. Which of the following statements is normative or positive?
a. Jamaica’s unemployment rate was above 11 percent in 1998. b. The inflation rate in the Guyana is too high.
c. The Jamaican government should increase the minimum wage. d. U.S. trade restrictions cost consumers $19 billion annually.
4. Explain how the specialization of labor can lead to increased productivity.
5. Under what conditions an economy would be operating inside its production possibility frontier ( PPF)? Outside its PPF?
6. If Jamaica decides to use its resources fully (that is, to produce on its production possibilities frontier), then future generations will be worse off because they will not be able to use these
resources.” If this assertion is true, full employment of resources may not be a good thing. Comment on the validity of this assertion.
7. The time Ted and Tom takes to perform painting and roofing tasks for one house is given in the table below.
Painting Roofing
Ted 300 hours 400 hours
Tom 200 hours 100 hours
a) Who has absolute advantage in the following task? Painting Roofing
a) Ted Tom b) Tom Ted c) Ted Ted d) Tom Tom
b) Which of the following is correct?
a) Ted has comparative advantage in both tasks b) Tom has comparative advantage in both tasks
c) Ted has comparative advantage in painting and Tom has comparative advantage roofing d) Tom has comparative advantage in painting and Ted has comparative advantage roofing
c) If each person specializes in his comparative advantage, how many hours could be saved on the painting and roofing of a house?
d) 0
8. 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. Which statement below is true?
a) Arthur has no comparative advantage.
b) Ben should do both tasks because he has an absolute advantage in both.
c) Arthur has a comparative advantage in shearing sheep and Ben has a comparative advantage in milking goats.
d) Arthur has a comparative advantage in milking goats and Ben has a comparative advantage in shearing sheep.
9. 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. Which statement below is true?
a) Arthur has no comparative advantage.
b) Ben should do both tasks because he has an absolute advantage in both.
c) Arthur has a comparative advantage in shearing sheep and Ben has a comparative advantage in milking goats.
d) Arthur has a comparative advantage in milking goats and Ben has a comparative advantage in shearing sheep.
Group A - UNIT 2 DEMAND AND SUPPLY
With the aid of carefully labelled diagrams, illustrate and describe what happens to equilibrium price and quantity of all goods where applicable for all the following scenarios.
1a. As a local cable company offers cheaper pay-per-view films, local movie theaters have more unfilled seats
b. As the price of gasoline fell in the United States during the 1990’s, more people bought large cars.
c. The daily Gleaner is a national newspaper. A rival (substitute) newspaper (The daily Observer) raises their price and the price of newsprint (an input into production of the Observer) goes up.
d. Intel a computer chip maker introduces a new chip that is faster than the previous chip produced. In response, demand for computers using the earlier chip decreases as customers put off purchases in anticipation of machines containing the new chip. Simultaneously, computer makers increase their production of computers containing the earlier chip in order to clear out their stocks of those chips. Illustrate and describe what happens to equilibrium price and quantity of the earlier computer chips and computers with the earlier chips
2. Suppose demand and supply conditions in a market are given by:
D = 450 – 4p S = 30 + 6p where p = price
a. Compute:
the equilibrium price
the equilibrium quantity demanded and supplied.
the total revenue of sellers in equilibrium
the excess demand when p= 25
the price at which excess supply is 10.
UNIVERSITY OF TECHNOLOGY, JAMAICA
SCHOOL OF BUSINESS ADMINISTRATION
MICROECONOMICS (ECO1001)
Questions for Group presentation Group B- Elasticity
1. Suppose the taxi fare from UTECH campus to Half –Way-Tree rose 60%. Taxi men find that their riders fell by 80%. What is the price elasticity of demand for taxi rides from UTECH to Half –Way-Tree? Give an explanation for the observed consumer behaviour.
2. Suppose the manager of Club Inferno finds that customers fell from 300 to 100 on Friday and Saturday nights when the price of admission was increased from $150 t0 $200. Calculate the price elasticity of demand. Give an explanation for the observed consumer behaviour.
3. Monisha’s has just started a new job and her monthly income increased from $22,000 to $28,000 a month, her purchases of shoes increased from 30 to 50 pairs of shoes a month. Calculate Monisha’s income elasticity of demand using the midpoint method
4. Refer to the following table to answer the questions which follow
Quantity demanded for
cherries
Price of
cherries
Quantity demanded of
apples
Total
revenue for
cherries
Cross Price elasticity of Demand for
APPLES
1 10 3
2 8 6
3 6 9
4 4 12
5 2 15
a. Complete the table above
b. What can you say about the relationship between Cherries and Apples? Why?
5. Note: using well labelled graphs and computations show how the following changes in price will affect total revenue (expenditure). That is will total revenue increase, decrease or remain unchanged.
a) price falls and demand is inelastic b) price rises and supply is elastic c) price falls and demand is elastic
UNIVERSITY OF TECHNOLOGY, JAMAICA
SCHOOL OF BUSINESS ADMINISTRATION
MICROECONOMICS (ECO1001)
Questions for Group presentation
Group C: Utility
1. Use the following information and table 1 to answer the following questions. You go to the local campus fete and there are 3 types of goods you can consume there: Beer, Cheetos and Brownies. You have the following schedule of marginal utility (MU) for each of the products
Refer to table 1 for the following questions
a. What would be your total utility if you drank 4 beers? Explain why
b. Suppose you had already drank 2 beers, but ate no cheetos or brownies yet.
Given the table of marginal utility schedules, what would you want to consume next? Explain
c. Suppose each quantity of Beer, each quantity of Cheetos, and each quantity of
Brownies always costs $1, how many of each will you purchase if you have $10 and want to maximize your utility? Explain
d. Now suppose the price of beer is $2 instead of $1.Assume you still have $10 to spend
and the prices of both Cheetos and Brownies are still $1. How much would you purchase of
2. For the problems below, assume that an individual has $80 to spend on books and movies each month, and that both goods must be purchased whole (no fractional units). Movies cost $8 each while, books cost $20 each. The individual preferences for movies and books are summarized by the information below:
a) Fill in the figures for marginal utility and marginal utility per dollar for both movie and books.
MOVIES BOOKS
b) Are these preferences consistent with the “law of diminishing marginal utility? Explain briefly.
c) Given the budget of $80, what quantity of books and what quantity of movies will maximize this person’s level of satisfaction? Explain briefly
d) Draw the budget constraint with books on the horizontal axis and identify the optimal combination of books and movies as point A.
e) Now suppose the price of books fall to $10. Which of the column in the table must be recalculated? Do the required recalculations.
f) After the price change, how many movies and how many books will be purchased?
g) Draw in the new budget constraint and identify the new optimal combination of books and movies as point B.
h) If you have calculated correctly, you have found that a decrease in the price of books has caused this person to buy more movies as well as more books. How can this be?
# PER # PER
MONTH TU MU MU/$ MONTH TU MU MU/$ Q Q
1 2 3 4 5 6 7
50 80 100 110 116 121 123
1 2 3 4 5 6 7
UNIVERSITY OF TECHNOLOGY, JAMAICA
SCHOOL OF BUSINESS ADMINISTRATION
MICROECONOMICS (ECO1001)
Questions for Group presentation
Group D- Firm
Question 1
a. Draw and explain the shape of the AVC and AFC curves
b. Draw the MC curve and explain the relationship between the MC, AVC and the ATC
Question 2
The table below shows three combinations of fixed and average variables cost of producing 12,000 units, 22,000 units and 30,000 units for each of the 3 choices of fixed costs. Use it to answer the following questions
a) Fill out the following table and state which choice leads to the lowest average total cost of producing 12,000 units, 22,000 units and 30,000 units? Hint: find average total cost for all 3 choices for all 3 amounts of possible outputs.
Average total cost
Choice/ units 12000 22000 30000 Choice 1
Choice 2 Choice 3
Suppose that a firm has the choices 1, 2, and 3 above. Historically they have produced 12,000 units. Suddenly, demand increases sharply leading to a permanent change in production for the firm from 12,000 units to 22,000 units.
b) In the short run we expect that the firm will produce using ______ when fixed cost is ____. c) In the long run we expect that the firm will produce using ______ when fixed cost is_____.
Question 3
Complete the table
labour input total product MP AP
0 0 1 6 2 15 3 27 4 37 5 45 6 50 7 50 8 48
a. Draw the TP curve and the MP and AP curve b. Explain what happens to TP when MP is negative c. What happens to AP when MP is greater than AP d. What happens to AP when MP is less than AP
COMPLETE THE TABLE
output TVC TFC AVC AFC TC ATC MC
UNIVERSITY OF TECHNOLOGY, JAMAICA
SCHOOL OF BUSINESS ADMINISTRATION
MICROECONOMICS (ECO1001)
Questions for Group presentation
Group E
1. What are the characteristics economists assume of a perfectly competitive market?
2. Explain why perfectly competitive markets are considered efficient?
3. Katherine operates her own food stand in the Surreal Mall where she sells nothing but grilled cheese sandwiches in a perfectly competitive market. She pays a $5 fee per day to Indowa City for allowing her to conduct business uptown. Table 1shows her total cost for selling various quantities of sandwiches.
(a) If the market equilibrium price for grilled cheese sandwiches is $6, fill in the missing columns in Table 1.
(b) How many sandwiches should Katie sell given her goal is to maximize profits?
UNIVERSITY OF TECHNOLOGY, JAMAICA
SCHOOL OF BUSINESS ADMINISTRATION
MICROECONOMICS (ECO1001)
Questions for Group presentation
Group F
1. Differentiate the assumptions made of a monopoly versus a perfectly competitive firm and explain the main types of barriers to entry associated with a monopoly
2. Explain why a firm producing where price is greater than marginal cost is considered inefficient.
3. Explain what is meant by price discrimination and provide some real world examples
4a. Suppose a monopoly firm has a constant marginal cost equal to $10. Its demand and marginal revenue curves are given respectively as P=86-2Q and MR= 86-4Q. For this firm, find the profit maximizing price and output level and total revenue.
b. Suppose a monopoly firm has a constant marginal cost equal to $8. Its demand and marginal revenue curves are given respectively as P=40-2Q and MR= 40-4Q. For this firm, find the profit maximizing price and output level and total revenue.
5.
OUTPUT PRICE TR MR TC MC ATC PROFIT
0 15 10
1 13 13
2 11 17
3 9 22
4 7 28
5 5 35
6 3 42
a. Fill in the blanks in the table and graph the above information b. What is the profit maximising output, price and profit?
UNIVERSITY OF TECHNOLOGY, JAMAICA
SCHOOL OF BUSINESS ADMINISTRATION
MICROECONOMICS (ECO1001)
Questions for Group presentation
Group G
1. What are the characteristics economists assume of a monopolistic competitive market?
2. How do these characteristics in question 2, compare or contrast to that of a perfect competition versus a monopoly?
3. What are the arguments made in favour of and against product differentiation and advertising and provide some real world examples of Product differentiation- you are required to bring proof of such examples like bring the actually container or printed information etc.
4.
Figure 1 refers to a monopolistic firm in short run equilibrium.
a. The firm’s profit maximizing or loss minimizing price will be ____________ b. The firm’s total revenue will be ____________________
c. The firm’s total costs will be ____________________ d. The firm’s total profits/ loss will be ____________________ e. Show at what output level and price will the monopolist operate.
f. If this were a perfectly competitive firm what would be the profit maximising price._____________ and profit maximising output ___________
g. Show this point on the graph and state why you have chosen this point?
