Exercises for Microeconomics
EXERCISES FOR MICROECONOMICS
TOPIC 1
Economics: An Introduction
(Chapters 1 & 2 in the Textbook)
EXPLAIN THE FOLLOWINGTERMS ◎ Average benefit ◎ Average cost ◎ Economic surplus ◎ Economics ◎ Microeconomics ◎ Macroeconomics ◎ Marginal benefit ◎ Marginal cost ◎ Normative economics ◎ Positive economics ◎ Rational person ◎ Sunk cost ◎ Opportunity cost ◎ Absolute advantage ◎ Comparative advantage ◎ Attainable point ◎ Unattainable point ◎ Efficient point ◎ Inefficient point ◎ Production possibilities curve
REVIEW QUESTIONS
1. The most you would be willing to pay for having a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else’s car is $3.50. You are going out this evening, and your car is dirty. How much economic surplus would you receive from washing it?
2. Residents of your city are charged a fixed weekly fee of $6 for garbage collection. They are allowed to put out as many cans as they wish. The average household disposes of three cans of garbage per week under this plan. Now suppose that your city changes to a “tag” system. Each can of refuse to be collected must have a tag affixed to it. The tags cost $2 each and are not reusable. What effect do you think the introduction of the tag system will have on the total quantity of garbage collected in your city? Explain briefly.
3. Tom is a mushroom farmer. He invests all his spare cash in additional mushrooms, which grow on otherwise useless land behind his barn. The mushrooms double in weight during their first year, after which time they are harvested and sold at a constant price per pound. Tom’s friend Dick asks Tom for a loan of $200, which he promises to repay after 1 year. How much interest will Dick have to pay Tom in order for Tom to recover his opportunity cost of making the loan? Explain briefly.
4. Consider a society consisting only of Helen, who allocates her time between sewing
TOPIC 1
Economics: An Introduction
(Chapters 1 & 2 in the Textbook)
EXPLAIN THE FOLLOWINGTERMS ◎ Average benefit ◎ Average cost ◎ Economic surplus ◎ Economics ◎ Microeconomics ◎ Macroeconomics ◎ Marginal benefit ◎ Marginal cost ◎ Normative economics ◎ Positive economics ◎ Rational person ◎ Sunk cost ◎ Opportunity cost ◎ Absolute advantage ◎ Comparative advantage ◎ Attainable point ◎ Unattainable point ◎ Efficient point ◎ Inefficient point ◎ Production possibilities curve
REVIEW QUESTIONS
1. The most you would be willing to pay for having a freshly washed car before going out on a date is $6. The smallest amount for which you would be willing to wash someone else’s car is $3.50. You are going out this evening, and your car is dirty. How much economic surplus would you receive from washing it?
2. Residents of your city are charged a fixed weekly fee of $6 for garbage collection. They are allowed to put out as many cans as they wish. The average household disposes of three cans of garbage per week under this plan. Now suppose that your city changes to a “tag” system. Each can of refuse to be collected must have a tag affixed to it. The tags cost $2 each and are not reusable. What effect do you think the introduction of the tag system will have on the total quantity of garbage collected in your city? Explain briefly.
3. Tom is a mushroom farmer. He invests all his spare cash in additional mushrooms, which grow on otherwise useless land behind his barn. The mushrooms double in weight during their first year, after which time they are harvested and sold at a constant price per pound. Tom’s friend Dick asks Tom for a loan of $200, which he promises to repay after 1 year. How much interest will Dick have to pay Tom in order for Tom to recover his opportunity cost of making the loan? Explain briefly.
4. Consider a society consisting only of Helen, who allocates her time between sewing