Jan 2018

UKMM1043 Basic Economics, Accounting and Management

(Economics)
Tutorial 8
1. For each of the following, list whether the topic is under microeconomics or
macroeconomics in nature:
(a.) The price of milk.
(b.)The national inflation rate.
(c.) The quantity of new cars sold each year.
(d.)The wage rate paid to manufacturing workers.
(e.) The amount of national output in an economy.

2. For each of the following, note whether the statement is an example of positive
economic analysis or an example of normative economic analysis:
(a.) An increase in the minimum wage will lead to a higher rate of teenage
unemployment.
(b.) If the government reduces the tax on tobacco, more individuals will start
smoking.
(c.) The government should lower taxes because tax rates are too high for the
average U.S. family.
(d.) Wealthy senior citizens can afford to buy their own health insurance and
therefore should not be given Medicare coverage.
(e.) If the price of tea increases, people will consume more coffee.

3. Draw a production possibility frontier. Find a point that represents a combination of

outputs that is not currently feasible. Label it point A. Find a point that represents
efficient production. Label it point B. Find a point that represents inefficient
production. Label it point C.

4. The table below represents five points on the production possibility frontier for the
country of Aruba, which produces only paper (measured in thousands) and wheat
(measured in thousands of bushels):
A B C D E
Paper 50 45 35 20 0
Wheat 0 10 20 30 40
If the economy is currently at point A, what is the opportunity cost of producing
an additional 10,000 bushels of wheat? If the economy is currently at point B,
what is the opportunity cost of producing an additional 10,000 bushels of wheat?
What if the economy is currently at point D?
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5. Using an appropriate diagram, show how economic growth affects the production
possibility frontier.

6. Suppose a country produces two goods: corn and cars. New technology is
developed that increases the amount of corn that can be produced. Use a diagram
to show the effect on the country’s production possibility frontier. Explain what
occurs in the diagram.

Tutorial 9
1. Using appropriate diagrams, explain the difference between a change in demand and
a change in quantity demanded.

2. The following are some changes that may take place in the market for textbooks.
For each of the following, explain what will happen to the DD and/or the SS of
textbooks.
a) An increase in student enrollment at universities across the country.
b) A decrease in the price of ink used to print textbooks.
c) A drop in income
d) An improvement in the technology used to print textbooks.
e) An increase in college tuition fees.

3. Explain how price adjusts to eliminate excess demand.

4. The table below shows the supply and demand for eraser:
Price (RM) 0.6 0.5 0.4 0.3 0.2
Qd 100 120 140 160 180
Qs 150 120 90 60 30
a) What is the equilibrium price and quantity?
b) Suppose the current price is RM0.30. Describe the present situation. Will the price
remain at RM0.30? Explain.

5. Answer the following questions based on the supply and demand equations as Qs =
-500 + 300P and Qd = 2000 - 100P.
a) In a free market, what would be the equilibrium price and quantity?
b) At the price of $3, what would happen? (Discuss in terms of adjustment to
equilibrium).
c) At the price of $7, what would happen? (Discuss in terms of adjustment to
equilibrium).
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6. The figure below shows the market for cotton fabric.

Will there be market equilibrium at the price of $8, $5 and $3 respectively?

Tutorial 10

1. Suppose the market for sugar is at equilibrium with price of $3 per kg and quantity of
2 million per month. Illustrate using an appropriate diagram of what will happen in
the market when the government imposes a price floor of $4.50.

2. Explain with graph how each of the following events would affect the price and
quantity of bread bought and sold.
a) An increase in the price of flour
b) An increase in consumer income
c) Medical report showing that bread is rich in fiber

3. Using demand and supply analysis to illustrate how each of the following events would
affect the price and quantity of butter bought and sold.
a) An increase in the price of margarine
b) An increase in the price of milk
c) A decrease in the average income level

4. The quantities demanded (per year) at various prices for T-shirt are given as follows:
 Jan 2018

Price(RM) Quantity
Demanded(Millions)
75 37
97 35
118 33
133 31

(a) Calculate the price elasticity of demand when the price increases from $118 to
$133. (Use formula method)

(b) What will be the effect on total revenue if the seller raises the price for T-shirt?

5. Name three determinants of elasticity. Explain how each one affects the
responsiveness of demand.

6. Based on the table, answer the questions.

Types of fruits Price elasticity of Income elasticity of Cross-price elasticity
DD DD with apple
Strawberry -0.6 1.5 1.8
Papaya -3.0 -2.1 -1.5
Kiwi -1.0 3.5 2.5
i) Is papaya an inferior product or normal product for Peter? Explain your answer.
ii) What is the relationship between papaya and apple for Peter? Explain your answer.
iii) If Peter’s income increased by 20%, how much is the changes of her demand for kiwi?

7. The cross-price elasticity between X and Y is positive. Illustrate on two graphs, one
for good X and one for good Y, what will happen if the supply of X decreases.

8. Suppose the equilibrium rent for a two-room apartment in Kampar is RM350 per
month. The city council decides to place a price ceiling on apartments’ rental and
will not allow landlords to charge more than RM200 per month for each room. Draw
this situation using a graph. What will happen in this market? Is it a good policy?
Explain.