Principles of microeconomics questions and solutions on tutorial set 1

 CEMS QUESTIONS

Simply distinguish between the following pairs of economic terms.a) Macroeconomics and microeconomics.b) economic theory and economic models;

c) scarcity and scarcity

d) Normative and affirmative statements

Question 2.sort each of the statements as positive or normative with explanations.

a) There is a short run trade off that ran in between inflation and unemployment.faced by the society.

b) A decrease in the money growth rate reduces the inflation rate.

c) The Fed should slow down money growth.

d) Society should require beneficiaries to find work.

e) Lower tax rates influeence a larger or extra work and extra amount of savings.

f) Gasoline rationing is not a good social policy because it affects functionality.competitive market system.

g) Gasoline rationing is a policy that makes more people worse off than it makes them.

Better. Question 3.The table below shows possible results for different combinations of elapsed times.

Mr.Luke's Geographical and Economic Studies.

                                                   @   @ SOLUTION 

Q1. 

a) Macroeconomics is the study of the performance, structure, and behavior of the entire economy, including issues such as inflation, unemployment, and economic growth. Microeconomics, on the other hand, studies the behavior of individual consumers, firms, and industries and how they interact in markets for goods and services.

b) Economic theory is a set of principles or ideas that helps to explain and understand economic behavior and phenomena. Economic models are simplified, mathematical representations of these theories, primarily used to analyze specific economic situations and make predictions about the possible outcomes.

c) Scarcity refers to the limited availability of resources to satisfy unlimited human wants and needs. Shortage, on the other hand, is a temporary situation where the demand for a particular good or service exceeds its supply in the market.

d) Normative statements involve opinions, value judgments, and recommendations on what should be or ought to be. They are subjective and cannot be tested or proven true/false. Positive statements are objective and are based on facts or observations, which can be tested and proven true/false.

Q2.

a) Positive—This statement is based on a factual observation about the relationship between inflation and unemployment.

b) Positive—It is a statement that establishes a cause-and-effect relationship between money growth and inflation.

c) Normative—This statement is prescriptive, suggesting what the Federal Reserve should do.

d) Normative—This statement is based on a value judgment about what society should require.

e) Positive—This statement identifies a relationship between tax rates and work/saving behavior.

f) Normative—This statement is based on an opinion about social policy and market systems.

g) Positive—This statement is based on an assumption that the policy's impact can be measured in terms of people being worse or better off.

Q3. 

a) If Mr. Luke spends all the time available studying Geography, he will make 85 marks (assuming 4 hours spent on Geography).

b) If he decides to apportion his time equally to studying both subjects (2 hours each), he will make 55 marks in Geography and 45 marks in Economics.

c) The opportunity cost of spending successive hours studying economics: OPPORTUNITY COST= (CHANGE IN CALCULUS /CHANGE IN ECONOMICS MARKS)

   (75-85)/(30-0) =-0.33 Opportunity cost for increasing economics hours from 0 to 1

  Opprtunity cost  for increasing economics studying hours from 1 to 2

(55-75)/(45-30)= -1.33

Opportunty cost for increasing economics  studying hours from 2to 3

(30-55)/(55-45)= -2.5

opportunity cost for increasing economics studying hours from 3 to 4

(0-30)/(60-55)= -6

d) In spending more studying time in Economics and gaining 45 marks in Economics, the opportunity cost will be 20( 55-75) marks