ECO80001 Economics Module 01 (Intro & D-S)

TUTORIAL QUESTIONS FOR MODULE 01

INTRODUCTION TO ECONOMICS:
DEMAND & SUPPLY
ELASTICITY
Note: Questions marked with a [B] are mainly for reviewing “background” and relatively
straightforward material. [E] indicates “extras” questions for deeper learning. The
remaining (unmarked) questions are regarded as “standard”. For assessment, all three types
of questions will be included, but a majority of them will be at the "standard" level.

Multiple-Choice Questions

1. In economics, if a resource is described as “scarce”, this means:

a) the resource is very expensive to buy.

b) there is very little of the resource.
c) there is not enough of the resource for every person to have as much of it as (s)he wants
d) all of the above

2. Helen leaves her $50,000-a-year job to run a small fitness centre near her home. She has to
borrow $120,000 to pay initial set-up costs, and she pays 10% per year interest on this loan.
She has to pay an additional $100,000 per year to operate the centre. Her opportunity cost
per year in operating this business is:

a) $100,000 because that is what she has to pay every year.

b) $50,000 because she has to give up the opportunity to earn that amount each year
c) $162,000
d) $270,000

3. [B] Which of the following is NOT a positive statement?

a) Federal taxes should not be more than 25% of income

b) A recent survey found that after 10 years in employment, economics graduates are in the
top 10 earning occupations out of 340 occupations classified
c) Unemployment benefits today are higher than they have ever been
d) Women are not as highly paid as men

4. Which of the following statements is least appropriate (or defensible)?

a) economic models are often expressed in the form of diagrams or equations.

b) economic models abstract from reality, that is, they leave out some details to simplify the
real situation.
c) to be useful, economic models must be realistic: if they are unrealistic, they are of no use
in practice.
d) useful economic models help us to understand complex situations (or issues) and to
predict outcomes.

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ECO80001 Economics Module 01 (Intro & D-S)

5. Suppose scientists find new evidence that the consumption of oysters tends to result in an
increase of hair growth among men who are balding. We would expect to see the following
in the market for oysters:

a) no shift in either the demand or the supply curve

b) a leftward shift in the demand curve
c) a rightward shift in the demand curve
d) a leftward shift in the supply curve

6. An increase in the price of a good would:

a) increase supply, thus shifting the supply curve to the right

b) increase the amount purchased by buyers, thus shifting the demand curve to the right
c) shift the supply curve to the left
d) give producers incentive to produce more
e) there is more than one correct answer here

7. Suppose that there is an increase in input prices and, at the same time, there is technological
advancement. We would expect:

a) the supply curve to shift to the right

b) the supply curve to shift to the left
c) the supply curve must shift to the right or the left
d) the supply curve could shift to the right or the left, or remain unchanged

8. In a given market, if there are both fewer sellers and fewer buyers than before:

a) equilibrium price will rise

b) equilibrium price will fall
c) equilibrium quantity will rise
d) equilibrium quantity will fall

9. If consumers buy more of a complement of good X than before:

a) the demand curve for good X will shift to the right

b) the demand curve for good X will shift to the left
c) the supply curve of good X will shift to the left
d) consumers will tend to buy less of good X

10. Assume that the local pizza vendor makes very good gourmet pizzas. Consumers do not
respond very much to a change in the price of these pizzas. If the owner is only interested in
increasing revenue, what would you suggest?

a) lower the price

b) raise the price
c) leave the price alone
d) reduce costs

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11. Why do government efforts to ban addictive drugs often result in an increase in drug-related
crime?

a) the ban makes it much more expensive to buy these drugs

b) demand for such drugs tends to be very inelastic
c) drug addicts would have a greater need for quick cash
d) all of the above

Short-Answer Questions

1. Draw and carefully label a D-S diagram representing the market in Japan for Australian beef.

2. Suppose the US and Japan reach an agreement about how to reduce their trade imbalances,
and part of this agreement calls for Japan to buy more beef from the US. How will this affect
Australia’s beef exports to Japan? Use the above D-S diagram, with appropriate amendments, to
illustrate these effects.

3. [E] Assuming that there are no other export destinations that can absorb the impact of the
event described in SAQ 2 above, what are the likely effects on the market in Australia for
Australian beef? Use a D-S diagram, with appropriate labels, to illustrate these effects.

4. Suppose you are the producer of a small but very useful computer application for business.
Market research tells you that if you charge $10 per customer, you will have 60,000
customers. If you raise the price to $11, this number will fall to 57,000 customers.

a) Will increasing price raise or lower total revenue?

b) What is the value of the price elasticity in this case?
c) Is the demand for your product elastic or inelastic?

Discussion Question

1.

Suppose that the local government in your city has just announced a proposal to assist low-
income families by imposing rent controls (i.e., rent ceilings).

Will all low-income families be better off if rent controls are implemented? Are there any
potential problems with rent controls?

Use relevant concepts and diagrams that have been introduced in the course so far to explain your
reasoning.

2.

Imagine that you are the Managing Director of a manufacturing company which produces novelty
toys. Your company is considering a price rise of about 10%. You are worried that this may
result in a loss of many customers and perhaps a fall in revenues.

What economic concept(s) can you use to assist your analysis of the situation? How would you
actually use it/them in this case?

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