B220 Microeconomics

PBL PROBLEM WORKSHEET

Title of Problem: Empty Vessel

Module:

B220 Microeconomics

1. Planet Zeus is a planet off Earth and life is very similar to that on Earth. There were 15
Zeuslings in the planet. Out of the 15 people, Buzz and Woody were skilled in hunting
and building star-homes respectively while Thunder was skilled in making armour.
(a) If Buzz decides to specialize in hunting only, what do you think he could do to obtain
star-homes?
He can ask woody to build the star homes and in return buzz can give him the
resources to build the star homes.
Since buzz is specialise in hunting, he can find for resources.
(b) Suppose Buzz and Woody dislike each other and prefer to produce both items on
their own. What are the advantages and disadvantages if each one specializes in
what they do best and trade with each other versus producing both items on their
own?
Specialisation
advantage
disadvantag
e

More efficient in goods as they are

specialised in something that they do
best which they can trade for goods
they can only produce one thing and if
they dont want to trade off, one of them
will not get something that they want

Producing both items on

their own
He can produce 2 things
which is useful
Since he is producing 2
items, then less items will
be produced

2. In the simple economy in question 1, each party directly exchanges for the goods and
services that he wants with the other party i.e. barter trade. This is illustrated in Figure 1
below.
Figure 1

2013 RP/CEC/DSEM/Sem2/JL

Page 1

B220 Microeconomics

Animals

Villager X

Villager Y

Star-homes

The modern economy is different from the village economy as in the Zeus economy.
Exchanges in the modern economy do not take place in the form of barter trade.
Figure 2 depicts the circular flow of economic activities in a modern economy.

Figure 2

2013 RP/CEC/DSEM/Sem2/JL

Page 2

B220 Microeconomics

D Income

D Income

A
C Expenditure

C expenditure ex

A Factors of production

B good and services

2013 RP/CEC/DSEM/Sem2/JL

Page 3

B220 Microeconomics

(a) Fill in the letters A, B, C, D and X and Y with the list of words below:
Factors of Production, Goods and Services, Expenditure, Income, Goods Market, Factors
Market
Household will have land labour, firms receive input form FOP, firms will produce
goods and service, goods market provide goods and services
(b) Using Figure 2, explain how money in the economy flows in a circular manner. Which
arrow represents this flow?
The black arrow represents the goods that can be produced
The red arrow represents income and expenditure
(c) From Figure 2, what can consumers offer to producers and what can producers offer
to consumers in a circular manner? Which arrows represent this process of
consuming and producing goods and services in Figure 2?
Consumer offers factor of product and expenditures to producers
Consumer can provide factors of production
3. In the pre-class reading materials, the concepts of market and command economies
were introduced.
(a) Based on your pre-readings, compare the key characteristics of both market and
command economies in Table 1 below.
Table 1
Similarities
1) The similarities is that both have
producers, consumers, retailers, goods, services,
prices, incomes, distribution, money, labor, capital,
technology,

Differences
1) A system where the government,
rather than the free market, determines
what goods should be produced, how
much should be produced and the
price at which the goods will be offered
for sale. Market economy Individual
must make choices because resources
are limited
2) Private individuals own resources
(market economy), Government owns
resources (command economy)

(b) In which of the above 2 economic systems will the invisible hand operate? Explain.
Market economy because there is o government control, maximise self-control, and
the interaction of market participants, leading to mutually beneficial
exchange of goods and services

Challenge Yourself (Optional)

2013 RP/CEC/DSEM/Sem2/JL

Page 4

B220 Microeconomics

4. China has sought to achieve market economy status since the government made a
decision to reform its economic system in 1984. Identify two significant challenges of
economic reform from a planned economy to that of a market economy.

------End of Worksheet------

2013 RP/CEC/DSEM/Sem2/JL

Page 5