Tutorial 1

1st Tutorial Introduction to Economics True or False 1. The opportunity cost is the benefit forgone from the next best alternative. True/False 2. The production possibility frontier illustrates the problem of infinite wants. True/False 3. The economic examination of a firm, or industry would be a microeconomic topic. True/False 4. A market economy only exists in rural towns and villages. True/False 5. Government provision of goods and services, such as education, would be characterised as planned. True/False Question 1 a) An individual has a job in which she earns £25,000 per year. This individual is contemplating leaving work and beginning a degree course at university. What would be the opportunity cost of going to university? b) You decide to start a degree course in economics at University after you have been offered a job, which will earn you a monthly salary of £2000. What is the opportunity cost of going to university at an annual basis? c) You have £10,000 in the bank earning 2.5% interest. You could use this money to buy a Treasury Bond, earning a return of 5%. Or you could use them to buy risky assets and generate a return of 20% with a probability of 0.5. What is the opportunity cost of using the 10,000 to buy these risky assets? Question 2 Which of the following statements are the concern of microeconomics and which are the concerns of macroeconomics? 1. A fall in the price of DVD’s Micro / Macro 2. A rise in the interest rate by the central bank Micro / Macro 3. The takeover of a company by a competitor Micro / Macro 4. The introduction of cheaper production technology Micro / Macro 5. An increase in the level of inflation Micro / Macro 6. The level of profits made in the airline industry Micro / Macro 7. Adoption of the Euro Micro / Macro 8. The use of performance bonuses to reward company directors Micro / Macro 9. The impact of new production methods on costs Micro / Macro 10. The setting of taxation rates by the government Micro / Macro 1