Reference no: EM13293321

QUESTION 1

a) Write a brief definition of economics.  Elaborate the conditions that give rise to this definition.

b) Analyse the THREE interrelated features of the economics perspective ?

c) Some stores give “free” products to consumer.  An economist would say the products are not free.  Is there any difference? Explain ?

QUESTION 2

a. Use maginal analysis to explain why it is possible to “have too much of a good thing”.

Use education as an example.

b. Explain the importance of the ceteris paribus or “other-things-being-equal” assumption.

c. Comment on the statement from an opportunity cost perspective: “The major cost of going to college is the $15,000 per year in tuition”.  Assume that a person could have earned $30,000 a year if the person did not go to college.

QUESTION 3

a. Why might it be a good economic decision for a person such as Bill Gates or Steve Jobs to drop out of college ?  Give an economic justification for such a decision.

b. How are tradeoffs illustrated by the production possibilities curve?  Consider the case of Federal government spending on national defense and spending on social programs.

QUESTION 4

a. Rafidah was earning $100,000 a year working as a scientist for a drug company.  She decided to start her own business that conducted drug trials.  She estimated this entrepreneurial talent or forgone entrepreneurial income to be $10,000 a year.  She used $500,000 in savings that earned 5 percent interest annually to finance the new business.  In the first year, the firm earned revenue of $1,500,000.  The costs for rent, supplies, and employees salaries were $1,100,000.  What was the accounting profit for the new business?  What was the economic profit (or loss)?  Explain your calculations for both questions.

QUESTION 5

Suppose Tom, Dick and Harry live in a barter economy.  Tom produces wine, Dick bakes bread and Harry makes cheese.  Tom wants some bread to go with his wine and is willing to trade 1 gallon of wine for two loaves of bread.  Dick wants some cheese to go with his bread and is willing to trade one loaf of bread for one-half pound of cheese.  Harry doesn’t want bread, but wants some winde to go with his cheese and is willing to trade cheese for one gallon of wine.  It is not possible for all three of them to meet together at one time.

a. Explain how this situation illustrates the difficulty with a barter economy.

b. Devise a money system using precious stones where four stones are equivalent in value to one gallon of wine.  In other words tell how much bread and cheese would be worth in terms of stones in this economy.  In this sytem, how much cheese mus Harry sell in order to buy one gallon of wine?

QUESTION 6

What effect should each of the following have upon the demand for portable music players in the competitive market?  Explain your reasoning in each case.

a. The development of improved, low-priced devices that compete with music players.

b. An increase in population and incomes.

c. A substantial increase in the number and quality of music for players.

d. Consumer expectations of substantial price inreases in music players..

QUESTION 7

a. Newspaper item : “Due to lower grain prices, consummers can expect retail prices of choice beef to begin dropping slightly this spring with pork becoming cheaper after midsummer,”the Agriculture Departmenet predicted. “This reflects increasing supply,” the department said.  Does the statement use the term “supply” correctly? What effects might this announcement have on consumer demand? Explain.

b. Suppose the Malaysian Government is considering passing an excise tax that would increse the price of a pack of cigarettes by $1.00.  What would be the likely effect of this change on the demand and supply of cigarettes? What is likely to happen to cigarette prices and the quantity consumed if the tax bill is enacted?     

c. What is the difference between a change in supply and a change in quantity supplied?

QUESTION 8

a. The president of a toy company asks you for advice about whether the company should cut the price of its best-selling doll this year based on the following information: last year the company cut the price of its best-selling doll by 10% and the total revenues from doll sales increased by 10%.

b. The owner of a health club asks you for advice about whether the company should raise or lower the price of its membership this year based on the following information : last year the club raised the price of its membership by 5% and the number of members paying the same fee fell by 7%.

c. The owner of a restaurant is considering lowering menu prices to draw in more customers.  He is debating between lowering the price for the steak entree or the salmon entree.  When he lowered prices last year, a $2.00 decrease in price for the $15 steak resulted in a growth in steak sales from 75 per week to 100 per week.  A $2.50 decrease in the price of the $17 salmon entree increased sales from 40 to 75 meals per week.  Which entree should he choose to put on sale?

d. A gasoline station very near a profesional football stadium parks cars on its lot to make money on game days.  Last year it charged $4.00 per car and parked 1000 cars.  This year it raised the parking price to $5.00 and parked 850 cars.  Did the station owner make a good economic decision in raising theh parking prices from one year to the next? Explain.