Tutorial 1 : Topic 1 (Introduction of Microeconomics) Name: _______________________________________ Matric No: ________________ Group:_____ Date: _____________ Part A 1. 2. 3. 4. 5. 6. Part B. 1.

It is often said that a good theory is one that can be refuted by an empirical, data oriented study. Explain why a theory that cannot be evaluated empirically is not a good theory. 2. Which of the following two statements involves positive economic analysis and which 3. normative? How do the two kinds of analysis differ? a) Gasoline rationing (allocating to each individual a maximum amount of gasoline that can be purchased each year) is a poor social policy because it interferes with the workings of the competitive market system. b) Gasoline rationing is a policy under which more people are made worse off than are made better off. 4. Suppose that the Japanese yen rises against the U.S. dollar that is, it will take more dollars to buy any given amount of Japanese yen. Explain why this increase simultaneously increases the real price of Japanese cars for U.S. consumers and lowers the real price of U.S. automobiles for Japanese consumers. 5. 5. The following table shows the average retail price of butter and the Consumer Price Index from 1980 to 2000, scaled so that the CPI = 100 in 1980. 1980 CPI 100 Retail price of butter ($) 1.88 1985 130.58 2.12 1990 158.56 1.99 1995 184.95 1.61 2000 208.98 2.52 What is the difference between microeconomics and macroeconomics? What is the concept of trade-off in microeconomics theme? What is the role of prices in economy? What is the difference between theories and models? What is the difference between positive and normative analysis. Explain how the value of real price is different to nominal price.

a) Calculate the real price of butter in 1980 dollars. Has the real price increased/decreased/stayed the same since 1980? b) What is the percentage change in the real price (1980 dollars) from 1980 to 2000? c) Convert the CPI into 1990 = 100 and determine the real price of butter in 1990 dollars.

Part C 1) Microeconomics is the branch of economics that deals with which of the following topics? A) The behavior of individual consumers B) Unemployment and interest rates C) The behavior of individual firms and investors D) B and C E) A and C 2) Economics is about the allocation of scarce resources. Which of the following is NOT an example of economic scarcity? A) If Steve goes to see the movie Master and Commander on Saturday, he will not be able to afford buying ice cream. B) If Jenny studies for her economics quiz this evening, she will not have time to walk her dog. C) If General Motors increases its production of SUVs this year, it will have to spend more on advertising. D) If Borders Books increases the number of titles it carries, it will have to reallocate shelf space to accommodate the new titles. 3) Use the following two statements to answer this question: I. Economic theories are developed to explain observed phenomena by deducing from a set of basic rules and assumptions. II. Economic theories use value judgments to determine which people ought to pay more taxes. A) Both I and II are true. B) I is true, and II is false. 4) Which of the following is a normative statement? A) The taxes paid by the poor should be reduced in order to improve the income distribution in the U.S. B) State governments should not subsidize corporations by training welfare recipients. C) Presidential candidates should not be given funds from the federal government to run campaigns. D) The sea otter should not be allowed to spread into Southern California coastal waters, because it will reduce the value of fisheries. E) all of the above 5) Which of the following is a positive statement? A) When the price of a good goes up, consumers buy less of it. B) When the price of a good goes up, firms produce more of it. C) When the Federal government sells bonds, interest rates rise and private investment is reduced. D) all of the above 6) Which of the following statements is NOT true? A) The trade-offs facing consumers and producers are based on prices. B) All prices are determined by market interactions between buyers and sellers. C) Prices serve an important role in microeconomics. 7) If the real price of college education has risen during the a period inflation: A) its nominal price has not changed. B) its nominal price has risen slower than a general index of prices. C) its nominal price has risen faster than a general index of prices. D) its current Ringgit Malaysia price has not changed.