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Introduction to Economics
Tutorial 1
1. What is scarcity? Can you think of two causes of scarcity?
Scarcity means human wants for goods and services exceed available supply.
Supply is limited because resources are limited. Demand, however, is virtually
unlimited. Whatever the supply, it seems human nature to want more.
2. Residents of a town of Smithfield like to consume hams, but each ham requires 10
people to produce it and takes a month. If the town has a total of 100 people, what is
the maximum amount of ham the residents can consume in a month?
100 people / 10 people per ham = a maximum of 10 hams per month if all residents
produce ham. Since consumption is limited by production, the maximum number of
hams residents could consume per month is 10.
3. What is the difference between microeconomics and macroeconomics?
Microeconomics - The branch of economics that studies the behavior of an individual
consumer, firm, and industries.
Macroeconomics - The branch of economics that studies the behavior of the whole
economy, (both national and international) such as the national income,
unemployment rate, inflation etc.
4. Can you think of any example of free goods, that is, goods or services that are not
Air? Sand? Water? Basically free goods are goods that have no opportunity cost.
Economic goods
Demand is higher than supply and availability
Requires human efforts for production
Has a money value or price
Can be regarded as wealth in economics
They are not gifts of nature e.g. table,chair, stationery
Free goods
Are available and abundant in nature
Does not require human efforts to produce
Has no money value or price
Cannot be regarded as wealth in economics
They are gifts of nature e.g sunlight,air ,water
5. Raising (i.e. increasing) public transportation fares ________.
a) reduces the opportunity cost of driving one’s car.
b) increases the opportunity cost of taking public transportation.
c) increases the opportunity cost of driving one’s car.
6. Explain the basic economic concepts using production possibilities curve (PPC).
Scarcity – any point outside the PPC – unattainable
Choice – any point along the PPC
Opportunity cost – moving from one point to another
7. Explain why individuals make choices that are directly on the budget constraint
(PPC), rather than inside the budget constraint (PPC) or outside it?
Because that’s the maximum amount that the individual can get. If it’s choice inside
the budget constraint area, that mean, this individual can get more without having to
forgo anything.
8. During the Second World War, Germany’s factory were decimated (destroyed). It
also suffered many human casualties, both soldiers and civilians. How did the war
affect Germany’s production possibilities curve (PPC)?
Move the PPC inward. Due to reduction in population. Many resources got
destructed – including land and capital.
Use this information to answer the following 4 questions: Marie has a weekly budget of
$24, which she likes to spend on magazines or pies.
9. If the price of a magazine is $4 each, what is the maximum number of magazines
she could buy in a week?
6 magazines
10. If the price of a pie is $12, what is the maximum number of pies she could buy in a
2 pies
11. Draw Marie’s budget constraint with pies on the horizontal axis and magazines on
the vertical axis. What is the slope of the budget constraint?
See pdf annotator
12. What is Marie’s opportunity cost of purchasing a pie?
3 magazines
Additional questions
What is the opportunity cost associated with increased airport security measures as a
result of the 9/11 incident?
Group work
Economic decisions in capitalism, socialism and mixed-econoy
Production depends on
the demand of the
Planning authority
decide what to produce
Mixed economy
Decided by both public
and private sectors –
based on consideration
for social welfare and
economic growth
How to
Depends on the relative
prices of the resources
involved. Only the
cheapest and most
efficient technique will
be adopted
Choice between
traditional and modern
techniques of
Decided by the public
and private sectors.
For whom to
Based on pricemechanism – based on
Distribution is decided
by Central Planning
Authority. Distribution
done through a set of
administered fixed
process. Necessity
goods fixed at lower
price and luxury goods
at higher price.
Distribution decided by
public and private
sectors. Price
mechanism doesn’t fully
function in mixed
economies. In many
mixed economies, the
government imposes
price controls and
intervene indirectly
through the imposition of
indirect taxes and
What to