ECO104 ‘Economy Principles for Business and Marketing’ Solutions
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ECO104 ‘Economy Principles for Business and Marketing’
Tutorial 1
Question 1.
For a competitive market, which of the following statements is correct?
a. A seller can always increase her profit by raising the price of her product.
b. If a seller charges more than the going price, buyers will go elsewhere to make their purchases.
c. A seller often charges less than the going price to increase sales and profit.
d. A single buyer can influence the price of the product, but only when purchasing large amount of the products from several sellers in a short period of time.
Answer: B
In a competitive market, each seller has little ability to change the price of goods; if a single seller charges higher price, consumers will go elsewhere.
Question 2:
Singapore’s Production Possibilities Frontier
nails
100
90
80
70
60
50
40
30
20
10
5 10 15 20 25 30 35 40 45 50 bolts
Malaysia’s Production Possibilities
nails
100
90
80
70
60
50
40
30
20
10
5 10 15 20 25 30 35 40 45 50 bolts
Frontier
(1). If Singapore and Malaysia each divides its time equally between making bolts and making nails, then total production is
a. 15 bolts and 40 nails.
b. 25 bolts and 70 nails.
c. 30 bolts and 80 nails.
d. 50 bolts and 140 nails.
(2). If the production possibilities frontiers shown are each for two days of production, then which of the following combinations of bolts and nails could Singapore and Malaysia together make in a given 2-day production period?
a. 12 bolts and 120 nails
b. 24 bolts and 96 nails
c. 38 bolts and 50 nails
d. 44 bolts and 24 nails
(3). If the production possibilities frontiers shown are each for two days of production, then which of the following combinations of bolts and nails could Singapore and Malaysia together not make in a given 2-day production period?
a. 9 bolts and 122 nails
b. 21 bolts and 98 nails
c. 36 bolts and 56 nails
d. 46 bolts and 18 nails
(4). Malaysia’s opportunity cost of one nail is
a. 1/4 bolt and Singapore’s opportunity cost of one nail is 1/2 bolt.
b. 1/4 bolt and Singapore’s opportunity cost of one nail is 2 bolts.
c. 4 bolts and Singapore’s opportunity cost of one nail is 1/2 bolt.
d. 4 bolts and Singapore’s opportunity cost of one nail is 2 bolts.
(5). Suppose Singapore decides to increase its production of bolts by 10. What is the
opportunity cost of this decision?
a. 1/2 nail
b. 2 nails
c. 5 nails
d. 20 nails
(6). Suppose Malaysia is willing to trade 3 nails to Singapore for every bolt that Singapore makes and sends to Malaysia. Which of the following combinations of bolts and nails could Malaysia then consume, assuming Singapore specializes in making bolts and Malaysia specializes in making nails?
a. 8 bolts and 56 nails
b. 14 bolts and 44 nails
c. 18 bolts and 32 nails
d. 20 bolts and 26 nails
(7). Singapore has an absolute advantage in the production of
a. bolts and a comparative advantage in the production of bolts.
b. bolts and a comparative advantage in the production of nails.
c. nails and a comparative advantage in the production of bolts.
d. nails and a comparative advantage in the production of nails.
(8). Malaysia has an absolute advantage in the production of
a. bolts and a comparative advantage in the production of bolts.
b. bolts and a comparative advantage in the production of nails.
c. nails and a comparative advantage in the production of bolts.
d. nails and a comparative advantage in the production of nails.
(9). If Singapore and Malaysia switch from each country dividing its time equally between the production of bolts and nails to each country spending all of its time producing the good in which it has a comparative advantage, then total production will increase by
a. 5 bolts and 10 nails.
b. 15 bolts and 40 nails.
c. 20 bolts and 50 nails.
d. 30 bolts and 80 nails.
(10).If Singapore and Malaysia each spends all its time producing the good in which it has a comparative advantage and trade takes place at a price of 12 bolts for 36 nails, then
a. neither Singapore nor Malaysia will gain from this trade.
b. Singapore will gain from this trade, but Malaysia will not.
c. Malaysia will gain from this trade, but Singapore will not.
d. both Singapore and Malaysia will gain from this trade.
1. B if we divide the time equally, then SG produces 15 bolts and 30 nails, MLS produces
10 bolts and 40 nails.
2. D 2-days periods is the given time, which could be any time period. SG is better at producing bolts and MLS is better at producing nails.
(a) 12 bolts is not a problem. But 120 nails require the collation of the two countries. In
order to achieve the maximum output, we should let MLS to produce 80 bolts since MLS is better at producing nails. Then Singapore needs to produce the remaining 40 nails. After producing 40 nails, SG can only produce 10 bolts which is less than 12.
(b) Similar to a.
(c) No single country can produce 36 bolts alone. So we let SG to produce only bolts since it is better at producing blots than Malaysia. Then Malaysia need to produce 8 more bolts after which it can only produce 80*(20-8)/20=48 nails.
(d) Similar to c. But this time the output level can be met.
3. D Compared with previous question, we just need to find which option is impossible.
4. A MLS’s opportunity cost of one bolt is 4 nails, it’s opportunity cost of one nail is ¼ bolts. Same calculation for SG.
5. D Opportunity cost of bolts with respect to nails in SG is 2. Answer is 10×2=20.
6. A Malaysia may prefer to have more nails. The question is asking about the possibility of consumption in each country if they trade with each other as question suggests.
SG specializes in making bolts and MLS specializes in making nails. Productions of two countries are 30 bolts and 80 nails.
(a) MLS keeps 56 nails, the remaining (80-56)=24 will be used to exchange for bolts.
How many bolts can MLS get? 24/3=8 bolts.
We can exclude other options clearly.
7. A We can find the answer from graph.
8. D We can find the answer from graph.
9. A When both countries specialize in making one product, SG produces 30 bolts and MLS produces 80 nails. Compared with (1), we can get answer.
10. D Trade makes two parts better off. We compare the product quantity of bolts and nails when both two countries specialize in one good (80 nails and 30 bolts)with the quantity of good when both countries divide its time equally between making them, then we find both two countries will get benefits (70 nails and 25 bolts).
if we divide the time equally, then SG produces 15 bolts and 30 nails, MLS produces 10 bolts and 40 nails. If they produce the good with comparative advantages, then SG produces 30 bolts and exports 15 bolts, then remains 15 bolts but gets 45 nails which is over 30. Same as MLS, 80 nails, 40 for trade, 40 remains, gets over 10 bolts.
Question 3:
A. Given the table below, graph the demand and supply curves for flashlight.
B. What is the equilibrium price and the equilibrium quantity?
C. Suppose the price is currently $5. What problem would exist in the market? What would you expect to happen to price? Show this on your graph.
D. Suppose the price is currently $2. What problem would exist in the market? What would you expect to happen to price? Show this on your graph.
Answers:
A.
B. The equilibrium price is $4 and the equilibrium quantity is 8,000.
C. A surplus of 4,000 flashlight would be the problem in the market, and we would expect the price to fall.
D. A shortage of 8,000 flashlight would be the problem in the market, and we would expect the price to increase.
2022-05-31