Tutorial Questions

Topics: Consumer theory, Supply and demand, Economics Pages: 13 (3434 words) Published: May 13, 2013
ECON 130 tutorial questions

Tutorial 1 (week 3): Thinking like an economist.
MC1.Suppose Frieda is offered a free voucher that entitles her to one of the following: a movie, dinner at a restaurant, or a concert. Frieda values the movie at $15, dinner at $20 and the concert at $40. Frieda’s opportunity cost of going to dinner is:


Question 1. What are the essential elements of the basic competitive model?

Question 2. Consider a lake in a national park where everyone is allowed to fish as much as they want. What outcome would you predict? Might this problem be averted if the lake were privately owned and fishing licenses were sold?

Question 3. What is a model? Why do economists use models?

Tutorial 2 (week 4): Consumer choice.
MC1.Suppose consumption bundle A maximises Ben’s utility, subject to his budget constraint. Further, consumption bundle B gives Ben less utility than A. From this, we can infer that:

a)The cost of B is greater than Ben’s income.
b)The cost of B is less than Ben’s income.
c)The cost of B is equal to Ben’s income.
d)None of the above.
* Utility doesn’t necessarily correlate with cost

MC2.Suppose consumption bundle A maximises Dylan’s utility, subject to his budget constraint. Further, suppose that the cost of A is equal to Dylan’s income. An increase in income will:

a)Lower Dylan’s utility.
b)Raise Dylan’s utility.
c)Leave Dylan’s utility unchanged.
d)Not lower Dylan’s utility.

MC3.Suppose Ellen spends all her income on books and food. Following an increase in the price of books (with income fixed), Ellen consumes fewer books and less food. From this, we can infer that:

a)Books are normal goods, to Ellen.
b)Books are inferior goods, to Ellen.
c)Food is a normal good, to Ellen. Because the substitution effect saya it would rise d)Food is an inferior good, to Ellen.

MC4.Suppose Gail is indifferent between consumption bundles A and B. Further, the only difference between the two bundles is that B has one more slice of pizza but two fewer glasses of beer. From this, we can infer that:

a)Gail prefers one extra slice of pizza to one extra glass of beer. She sees two glasses of beer to one slice of pizza. b)Gail prefers one extra glass of beer to one extra slice of pizza. c)Gail is indifferent between one extra slice of pizza and one extra glass of beer. d)None of the above.

Question. Consider an individual who derives utility from leisure and food (with positive marginal utility for both goods). The individual has 100 hours of time to divide between leisure and work (labour). The individual has no endowment of food. The wage rate is $20/hour, while the price of food is $10/kilo. (i) Graph the individual’s budget constraint, with leisure on the horizontal axis and food on the vertical axis. (ii) Suppose the wage rate now rises to $40/hour, while the price of food remains unchanged. Graph the new budget constraint and compare it with the previous one. (iii) Will the increase in the wage rate cause the individual to work more or less? The income effect would cause both leisure and food to rise and the substitution effect would cause food to rise and leisure to fall. As we don’t know which good dominates as they are both normal goods we don’t know what the definitive answer will be.

Tutorial 3 (week 5): Consumer choice (continued).
MC1.Consider an individual who spends all their income on beer and food. Following an increase in the price of beer (with income fixed), the individual consumes more beer. From this, we can infer that:

a)Both beer and food are normal goods to the individual.
b)Beer is normal and food is inferior to the individual.
c)Beer is inferior and food is normal to the individual.
d)Both beer and food are inferior goods to the individual.

??MC2.Consider an individual whose only endowment is time and who derives utility from leisure and...
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