ATGB2343 INTRODUCTION TO ECONOMICS

Tutorial 1

Topic 1

1. A production possibilities table for two products, grain and airplanes, is found below. Usual assumptions regarding production possibilities are implied. Grain is measured in metric tons and airplanes are measured in units of 1,000.

(a) Construct a production possibilities curve from the information provided placing grain on the vertical axis and airplanes on the horizontal axis.

(b) What is the opportunity cost of producing the first unit of airplane? The marginal opportunity cost of producing the fourth unit of airplane?

CombinationGrain

(metric tons)

Airplane

(1,000s)

A 0 7

B 14 6

C 26 5

D 36 4

E 44 3

F 50 2

G 54 1

H 56 0

Answers:

T u t o r i a l 1 P a g e | 1 of 4

ATGB2343 INTRODUCTION TO ECONOMICS

2. Sketch a production possibilities curve illustrating the possibilities in Town X for producing bats and/or peanuts with the existing level of resources and technology.

(a) Show a point U that would indicate unemployed resources in Town X.

(b) Draw a new curve B that illustrates the results of improved technology in the production of bats, but no change in the production efficiency of peanuts.

(c) Show a point G that would indicate a point that is currently unattainable in the production of peanuts and bats in Town X.

Answers:

Topic 2

3. What effect will each of the following have upon the supply of television sets? Explain your reasoning in each case.

(a) An increase in the price of electronic equipment used in producing television sets.

(b) A decline in the number of firms producing television sets.

(c) A large new tariff on imported Japanese TV sets.

(d) A new inexpensive satellite dishes which make televisions more popular among consumers.

Answers:

T u t o r i a l 1 P a g e | 2 of 4

ATGB2343 INTRODUCTION TO ECONOMICS

4. Using the schedules given, plot the demand curve and the supply curve on the below graph. Label the axes and indicate for each axis the units being used to measure price and quantity. Then answer the questions.

(a) Give the equilibrium price and quantity for oats.

(b) Indicate the equilibrium price and quantity on the graph by drawing lines from the intersection of the supply and demand curves to the price and quantity axes.

(c) If the Federal government decided to support the price of oats at $1.40 per bushel, tell whether there would be a surplus or shortage and how much it would be.

(d) Demonstrate your answer to part (c) on your graph being sure to label the quantity you designated as the shortage or surplus.

Answer:

T u t o r i a l 1 P a g e | 3 of 4

Price ($)

Quantities demanded

Price

Quantities supplied

(bushels of oats (bushels of oats1.50 10,000 1.50 40,0001.40 15,000 1.40 35,0001.30 20,000 1.30 30,0001.20 25,000 1.20 25,0001.10 30,000 1.10 20,0001.00 35,000 1.00 15,000

ATGB2343 INTRODUCTION TO ECONOMICS

5. In the space below each of the following, indicate the effect [increase (+), decrease (-)] on equilibrium price (P) and equilibrium quantity (Q) of each of these changes in demand and / or supply.

P Q

(a) Increase in demand, supply constant _________ _________

(b) Increase in supply , demand constant _________ _________

(c) Decrease in demand , supply constant _________ _________

(d) Decrease in supply , demand constant _________ _________

Answer:

P Q

(e) Increase in demand, supply constant _____+____ _____+____

(f) Increase in supply , demand constant _____-____ _____+____

(g) Decrease in demand , supply constant _____-____ _____-____

(h) Decrease in supply , demand constant _____+____ _____-____

T u t o r i a l 1 P a g e | 4 of 4