Tutorial econ exercise 1.0

Economics Exercise – Topic 1.0

1. What is the definition of Economics?

2. What is the meaning of scarce resource? Provide TWO (2) examples of scarce resource (other than time & money).

3. Why is the management of scarce resource important (or what would happen if we do not manage them properly)?

4. Identify and explain the 2 types of economics. Can you give ONE (1) example for each type of economics?

5. What are the 2 methods of studying economics? What does each method involve?

6. What is an opportunity cost? Explain.

7. For each of the following situations, describe the potential opportunity costs (i.e. what benefits do you lose): Studying for your economics test Driving to Sunway Pyramid to buy a Wii Console and games A company spending an extra $10 million dollar for research Asking girl/guy A out for a date.

8. Draw a Production Possibility Frontier (PPF) graph with the Y-axis for product A, and X-axis for Product B. Designate 2 points (C & D) on the curve.

a. What are the different quantities of product A and B produced at point C and D? What principle does point C and D illustrate?

b. Designate a point (E) to show resources being used inefficiently. Provide two (2) examples on how this inefficiency can occur.

c. Designate one more point (F) outside of the curve. What does this mean? How can a firm’s PPF grow to that point? Provide two (2) examples.

d. Draw a new PPF graph for a growing firm (over the years).

9. One of the economic principles states that “People respond to incentives.” Explain this principle and provide a relevant example.


1. What is demand? Also, explain the law of demand.

2. The demand equation for strawberries in Eden Village is expressed as Qd (in Kg per week) = 50000 – 5000 (p). Prepare a table to show how Qd changes as prices rise from $7 to $8.50 (use $0.50 intervals). Then draw the demand curve for this product.

3. What is the difference between an individual demand curve and a market demand curve?

4. When you draw a simple downward-sloping demand curve, what assumptions are you making about the other factors (e.g. income of buyers, product popularity, etc.) that can affect demand?

5. A higher price for the product induces a lower demand. Why is this so? Provide 2 reasons.

6. For each of the situation below, identify the factors at play and draw the graph showing their effects on the demand curve of microwave meals:a) Microwave meals become less fashionable.b) The price of its substitute (say, fast food) increases.c) Income falls and microwave meals is an inferior goodd) Consumer believe that the price of microwave meals are going to increase in the near futuree) The price of its complementary products (e.g. ketchup, salt, pepper) decreases.

7. What do you call goods whose quantity demanded rises when income increase and vice versa? Can you give 2 examples?

8. What are complementary goods? What happens to the demand for a product when its complementary good experience a price hike? Why? Can you give an example of a complementary good?

9. What are substitute goods? What happens to the demand for a product when the price of its substitute increases? Why? Provide an example of a substitute good.


1. What is Supply? Also, explain the law of supply.

2. The supply equation for soy sauce of business A is expressed as Qs (in bottles per week) = 13000 + 7000 (p). For business B, the equation is Qs = 12000 + 7500 (p) and business C, Qs = 15000 + 9000 (p). Prepare a table to show how Qs changes (for individual business and in total) as prices rise from $2 to $5 (use $1 intervals). Then sketch the market supply curve for this product.

3. Explain the difference between an individual and a market supply curve.

4. Why are firms motivated to produce/supply more of the product when prices are higher?

5. What effect will each of the following factors have on the supply of hamburgers (show it on a graph):a) The cost of ingredients has increased.b) Due to better technology, the machines can now produced more burgers per hour.c) Due to a recent recession, many hamburger joints have gone belly up.d) The government has levied an extra sales tax of 15% on every burger sold.

6. What causes the movement along the supply curve? What causes a shift in the supply curve?

7. What happens to the supply curve of Proton cars if the manufacturer is given a government subsidy of $10000 for every car produced? Why?

8. If fruit sellers expect the price of apples to increase in the following week, what would happen to the supply curve of apples now? Why?

9. Business A, a toy manufacturer, currently produces 2 different toys i.e. Transformers action figures and Sesame Street soft toys. What would happen to the supply curve of Transformers action figures if there is a decrease in the selling price in Sesame Street soft toys? Why?


1. What is “market equilibrium”? Explain.

2. The supply equation for bath towels is Qs = 10000 + 6000P where as the demand equation is Qd = 50000 – 4000p (note: “p” is price). Determine the quantity supplied and demanded if the product is sold at $6. Is the market in equilibrium at this point? Show your answer with a graph.

3. Referring to question no. 2, how would the market forces (i.e. buyers and sellers) correct this situation? Explain in detail.

4. Again, referring to question no. 2, determine the quantity demanded and supplied if the product is sold at $2 each. Is the market in equilibrium at this point? Show your answer with a graph.

5. And how would the market forces correct the situation (from question 4)?

6. What should be the equilibrium price and quantity for the bath towels? (Hint: put the demand and supply equation together to solve the problem.)

7. What effect will each of the following have on the equilibrium quantity and price of Fried Noodle (show it on a graph):a) The cost (not selling) price of noodles has increasedb) The noodle has become more popular among its buyersc) Noodle soup is selling for a higher price, and sellers are switching to selling Noodle soup.d) Due to a recession, many people are preparing their own lunch and dinner.e) The buyers expect Fried Noodles to go up in price in next week.

8. What will happen to the equilibrium quantity and price of Dell laptops (show it on a graph) if:a) Both demand and supply increaseb) Demand increases but supply fallsc) Supply increases but demand fallsd) Both demand and supply falls


1. What is a price ceiling? Why do governments set price ceilings on certain products?

2. Draw a graph where the price ceiling is set below the equilibrium price. What problem may arise from this situation? Elaborate.

3. A price ceiling may lead to buyers and sellers to create black markets. Why?

4. What is a price floor? What is the reason behind a government’s decision to set up a price floor?

Draw a graph where the price floor is set above the equilibrium price. What problem may arise from this situation? Elaborate


1. Define the price elasticity of demand.

2. What does it mean that a product has elastic demand? Inelastic demand? Explain with graphs.

3. The price of Mac laptops have decreased from $5000 to $4500. This has resulted in demand surging from 50000 per month to 70000 per month. Calculate the Ed. What does the Ed indicate?

4. What is the effect of substitutability on price elasticity of demand i.e. if the number of substitute for a product decreases/increases, what would happen to its elasticity? Why? Also, provide an example of a product with few or zero substitutes.

5. What is a necessity? If the price of a necessity (say water) were to double, what would happen to its demand and its price elasticity? Why?


1. In 2015, Banana Nation has 15.6m people employed, 2.5m unemployed and 6.8m not actively seeking work (assuming they are all 16 years old and above). Based on the information above, find the total labor force, unemployment rate and labor force participation rate. Comment on your findings.

2. Provide THREE (3) reasons why some people do not actively look for work.

3. John was fired from his job as a software designer in 2009 during an economic recession. During the 3 years when he was unemployed, John attended a MBA program to bolster his skills and knowledge. The software industry also went through major changes during this time. Comment on the type of unemployment that John experienced and justify your answer.

4. Can an economy experience full (i.e. 100%) employment? Justify your answer.

5. Discuss TWO (2) positive and TWO (2) negative effects of unemployment on our society.

6. Explain how can governments use fiscal policy to solve the unemployment issue?

7. Sketch well-labeled diagrams to show the workings of fiscal policy. (Note: draw ONE (1) diagram to show the economy in a recession and draw ONE (1) diagram to show fiscal policy improving the economy and unemployment.)

8. Explain the mechanism (i.e. step-by-step process) through which monetary policy affects the economy and unemployment.

Sketch well-labeled diagrams to show the workings of monetary policy.


1. Discuss why rarely do households provide capital directly to a firm? And what role does a financial intermediary play between them?

2. Explain how a financial intermediary (say, a bank) can reduce the risks faced by households when they want to invest their savings.

3. How does a bank earn profit? Illustrate your answer with an example.

4. Why do employees need to put away money in a retirement fund? In addition, discuss how does a retirement fund serve the employees’?

5. What is a wholesale bank? How does it differ from a retail bank? Also, provide THREE (3) examples of wholesale banks (local or international).

6. What is a share? What is a bond? What is the difference between a person who holds sharesin a firm versus one who is holding its bonds? (Note: additional research is required to answer this question).

7. How does an insurance company works? Draw a diagram to show your answer. (Note: your diagram must include the insurance company, its clients and a firm that wants to raise funds via selling bonds)

8. What does it mean when we say a bond (issued by a firm in Malaysia) has a 10-year maturity, 5% annual coupon rate and AAA rating? (Note: additional research is required to answer this question).

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Tutorial econ exercise 1.0