Microeconomics Tutorials #4 continue

1. Microeconomics #3
Q1 MCQ:
1. Microeconomics deals with:
a) the working of the entire economy or large sectors of it.
b) economic growth.
c) individual decision makers in the economy.
d) gross domestic product.
2. Scarcity in economics means:
a) We do not have sufficient resources to produce all of the goods and services we want.
b) The wants of people are limited.
c) There must be poor people in rich countries.
d) Economists are clearly not doing their jobs.
3. If the cost of computer components falls, then
a) The demand curve for computers shifts to the right.
b) The demand curve for computers shifts to the left.
c) The supply curve for computers shifts to the right.
d) the supply curve for computers shifts to the left
4. When we know the quantity of a product that buyers wish to purchase at each possible price,
we know:
a) Demand c) Excess demand
b) Supply d) Excess supply
5. When market is in equilibrium:
a) Quantity demanded equal quantity supplied.
b) Excess demand and excess supply are zero
c) The market is cleared by equilibrium prices
d) All the above.
6. ------- and ------ don’t directly affect the demand curve.
a) The price or related goods, consumer income.
b) Consumers income, tastes
c) The cost of production, bank opening hours.
d) The price of related goods, preferences.
7. A supply curve is directly affected by
a) Technology
b) Input costs
c) Government regulations
d) All of the above

2. 8. If a price increase of good A increases the quantity demanded of good B , then B is a :
a) Substitute good.
b) Complementary good
c) Unrelated good
d) Inferior good.
9. As the population of your city grows, this will cause a(n) _____ in the demand for pizza, and
the demand for pizza will shift to the _____ .
a) increase; left
b) decrease; left
c) increase; right
d) decrease; right
10. A movement along the supply curve is caused by
a) a change in input prices.
b) a change in the number of producers.
c) a change in technology.
d) a change in the price of the good or service.
11. A rightward shift of the demand curve shows that
A. the price of the product has decreased.
B. something has happened to cause a lower quantity demanded at every given price.
C. something has happened to cause a higher quantity demanded at every given price.
D. the price of the product has increased.
12. When demand and supply decrease simultaneously,
A. the equilibrium price rises but the change in equilibrium quantity is ambiguous.
B. the equilibrium quantity rises but the change in equilibrium price is ambiguous.
C. the equilibrium price falls but the change in equilibrium quantity is ambiguous.
D. the equilibrium quantity falls but the change in equilibrium price is ambiguous.
13. Higher wages paid to construction workers would
A. increase the supply of newly constructed homes.
B. increase the demand for newly constructed homes.
C. decrease the supply of newly constructed homes.
D. decrease the demand for newly constructed homes.

3. 14. If the price of a good is held below the equilibrium price,
A. quantity demanded will exceed quantity supplied.
B. quantity supplied will exceed quantity demanded.
C. demand will increase.
D. supply will decrease.
15. You can spend $100 on either a new economics textbook or a new CD player. If you choose
to buy the new economics textbook, the opportunity cost is:
A) $100.
B) your enjoyment of the new CD player.
C) both the $100 and the your enjoyment of the new CD player.
D) impossible to determine.
16. The production possibilities frontier is a depiction of....
A. the amount of inputs needed to produce a given amount of output.
B. the maximum quantities of two goods an economy may produce.
C. the amount of money it takes to keep an economy functioning.
D. the prices and quantities of goods available for trade.
17. If the price of oil, a close substitute for coal, increases then the
a. Supply curve for coal will shift to the right.
b. Demand curve for coal will shift to the right.
c. Equilibrium price and quantity of coal will not change.
d. Demand curve for coal will shift to the left.
e. Supply curve of coal will shift to the left.
18. A shift in the supply curve of bicycles resulting from higher steel prices will lead to
a. higher prices of bicycles.
b. lower prices of bicycles.
c. a shift in the demand curve for bicycles.

4. d. larger output of bicycles.
e. no change in the price of bicycles.
1) C 2) A 3) C 4) A 5) D 6) C 7) D 8) A 9) C
10) D 11) C 12) D 13) C 14) A 15)B 16) B 17) B 18) A
Question (2): State whether the following statements is true or false:
1. "A decrease in supply will lead to an increase in the price which decreases demand, thus lowering
price. Therefore, a decrease in supply has no effect on the price of a good."
The statement is false because it confuses a decrease in quantity demanded with a decrease in
demand. When supply decreases, the price increases and quantity demanded falls (shown by a
movement along the demand curve). Demand does not change.
2. When the price of good X rises, the demand for good Y rises. This implies that the two goods are
substitutes. (true)
3. The position of a supply curve is unaffected by changes in the price of the good. (false)
Question (3) Draw the following:
1. Motels along Myrtle Beach, Florida, charge $100 a night in the summer but sometimes
as little as $25 a night in the winter. Use supply and demand analysis, including graphical
and verbal explanation, for these winter "sales."
ANS:
A sample graph is shown. The demand falls in the winter, so that equilibrium price decreases with
the supply unchanged-a shift of demand to the left and a lower price and quantity in winter months.

5. 2. the effect of technological advance on the price of compact discs. In a separate graph
show what happens to the price of cassette tapes as a secondary effect of the new CD
technology.
ANS:
The first graph shows a rightward shift of the supply of CDs as a result of cheaper production
methods, so that the price of CDs falls while equilibrium quantity increases. This causes a decrease
in the demand for cassettes, reducing price (and quantity at equilibrium).
Q4 Discuss whetheryou agree or disagree with the following using graphs
when necessary.
1) Efficient production can be carried out anywhere on or below the production possibilities
frontier.
2) A supply schedule shows the time over which different quantities will be supplied.
3) Changes in consumer preference toward favoring small, imported automobiles have
shifted their demand curves downward and to the left.
4) If the price of hamburger rises, we would expect the demand for steak to shift to the right
5) Both demand and supply curves usually have positive slopes
6) The more firms that are attracted to an industry, the greater will be the quantity of
product supplied at any given price.
7) Technological advances that allow a good to be produced at a lower cost will shift the
demand curve rightward.

6. Q5: Use the table below to answer the questions below:
"Guns" 0 100 200 300 400 500
"Bread" 1000 900 750 550 300 0
a. Draw the PPF and explain the reasons for drawing it as you did.
b. What is the opportunity cost of producing the first 100 guns?
c. What is the implication of producing 200 guns and 700 bread? What is the
opportunity cost of producing more guns?
d. What is the implication of producing 300 guns and 900 bread? How it is
possible to achieve this point?
Q6: Examine the following figure the answer questions:
a. What is the opportunity cost of moving from A to B or C
b. which is more efficient : B or C?
c. if you are point A, is it possible to increase production of both war goods and
consumption good? Where the production point should be then?
d. show the effect of economic recession (slowdown) on the PPF.