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Economics and Scarce C. Incomes

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Tutorial 1: Ten Principles of Economics Please try to answer all the questions. 1. The overriding reason why households and societies face many decisions is that a. resources are scarce b. goods and services are not scarce c. incomes fluctuate with business cycles d. people, by nature, tend to disagree 2. Which of the following examples does not illustrate the principle represented by the adage, “There is no such thing as a free lunch”? a. Joe needs to pay his rent and his electric bill b.

Pete must choose between buying a new flat screen television and buying his textbooks for this semester

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c. Kevin must decide between studying for his economics exam and working at his parttime job d. Lisa can spend her money on a new sweater or a pair of jeans 3. Which of the following is not an example of the opportunity cost of going to school? a. The money a student could have earned by working if he had not gone to college b.

The nap a student could have enjoyed if he had not attended class c. The party a student could have enjoyed if he had not stayed in to study for his exam d. The money a student spends on rent for his apartment while attending school 4.

Shane receives RM100 as a birthday gift. In deciding how to spend the money, he narrows his options down to four choices: Option A, Option B, Option C, and Option D. Each option costs RM100. Finally he decides on Option B. The opportunity cost of this decision is a. the value to Shane of the option he would have chosen had Option B not been available b. the value to Shane of Options A, C and D combined c. RM50 d. RM100 5. Efficiency a. and equality both refer to how much a society can produce with its resources b. nd equality both refer to how fairly the benefits from using resources are distributed between members of a society c. refers to how much a society can produce with its resources. Equality refers to how evenly the benefits from using resources are distributed among members of society d. refers to how evenly the benefits from using resources are distributed between members of society. Equality refers to how much a society can produce with its resources Page 1 BEC1034:

Tutorial 1 Tri3 2012/13 6. Making rational decisions “at the margin” means that people a. ake those decisions that do not impose a marginal cost b. evaluate how easily a decision can be reversed if problems arise c. compare the marginal costs and marginal benefits of each decision d. always calculate the dollar costs for each decision 7. Suppose the cost of operating a 100 room hotel for a night is RM10,000 and there are 5 empty rooms for tonight. If the marginal cost of operating one room for one night is RM30 and a customer is willing to pay RM60 for the night, the hotel manager should a. rent the room because the marginal benefit exceeds the marginal cost b. ent the room because the marginal benefit exceeds the average cost c. not rent the room because the marginal benefit is less than the marginal cost d. not rent the room because the marginal benefit is less than the average cost 8. Which of the following is not an example of a group responding to an incentive? a. Students attend class because of an attendance policy that reduces their grade for absences b. Consumers buy more of a product when it is on sale at a reduced price c. Universities offer fewer online classes when they generate more revenue than traditional classes d.

Employees work harder to earn higher commissions 9. Kevin is the CEO of a large firm and a homeowner who pays a landscaper to maintain his lawn rather than do it himself. Kevin has determined that he can earn more in the hour it would take him to work on his lawn than he must pay his landscaper. This scenario is an example of which principle of economics? a. Trade can make everyone better off b. Markets are usually a good way to organize economic activity c. Governments can sometimes improve market outcomes d. Prices rise when the government prints too much money 10.

In a market economy, economic activity is guided by a. the government b. corporations c. central planners d. self-interest and prices 11. A friend of yours asks you why market prices are better than government-determined prices. Because you understand economic principles, you say that market-determined prices are better because they generally reflect a. the value of a good to society, but not the cost of making it b. the cost of making a good to society, but not its value c. both the value of a good to society and the cost of making it d. either the value of a good to society nor the cost of making it Page 2 BEC1034:

Tutorial 1 Tri3 2012/13 12. A rationale for government involvement in a market economy is a. markets sometimes fail to produce a fair distribution of economic well-being b. markets sometimes fail to produce an efficient allocation of resources c. property rights have to be enforced d. All of the above are correct 13. Thousands of people develop lung cancer from second-hand exposure to cigarette smoke. This is an example of a. a market failure caused by an externality b. market failure caused by market power c. a market failure caused by equality d. There is no market failure in this case 14. Suppose a typical worker in India can produce 32 units of product in an eight-hour day, while a typical worker in Bangladesh can produce 30 units of product in a 10-hour day. We can conclude that a. worker productivity in Bangladesh is higher than in India b. the standard of living will likely be higher in India than in Bangladesh c. productivity is 4 units per hour for the worker in Bangladesh and 3 units per hour for the worker in India d. here will be no difference between the standard of living in India and Bangladesh

15. Most economists believe that an increase in the quantity of money results in a. an increase in the demand for goods and services b. lower unemployment in the short run c. higher inflation in the long run d. All of the above are correct Problems and Applications (*from week 3 onwards, please refer to your text book for the questions) Problem #7 The welfare department changes its anti-poverty programs which limit many welfare recipients to only 2 years of benefits. ) How does this change affect the incentives for working? b) How might this change represent a trade-off between equity and efficiency? Problem #14 Suppose Malaysians decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from the higher productivity? Is society getting a free lunch?

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Economics and Scarce C. Incomes. (2016, Oct 29). Retrieved from https://graduateway.com/economics-and-scarce-c-incomes/

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