Economics is the social science that analyzes the production, distribution, and consumption of goods and services.

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Wednesday 29 February 2012

Price Determination

In this topic, we will focus on how market price and market quantity are determined. So, we will determine the market equilibrium. 


Definition of Market equilibrium

Market equilibrium is a situation when quantity demanded and quantity supplied are equal and there is no tendency for price or quantity to change.

Quantity Demanded (Qd) = Quantity Supply (Qs)

Market equilibrium is determined by the intersection of both the demand and supply curves. By plotting demand and supply curve on the same set of exist as in figure 2.8, it possible to graphically see how the equilibrium price and quantity are determined.


Table 2.7: Determinant of equilibrium Price and Quantity
Price (RM)
Quantity Demanded (units)
Quantity Supplied (units)
Market Condition
1
10
2
Shortage
2
8
4
Shortage
3
6
6
Equilibrium
4
4
8
Surplus
5
2
10
Surplus

Shortage


Shortage is the situation where the price was set up below than equilibrium price. In others words, the quantity demanded is greater than the quantity supplied. In figure 2.8, at the price RM10, buyers are willing to buy 15 units but sellers only sell 5 units. There is occurring the excess demand. The amount of excess demand (shortage) is 10 units (Qd – Qs). If the shortage happened, the rational customer or producer will accept that price and sell back at the market price.



Surplus

Surplus is the situation where the price was set up above than equilibrium price. In others words, the quantity supplied is greater than the quantity demanded. In figure 2.9, at the price RM15, sellers are produce 15 units but buyers only buy 5 units. There is occurring the excess supply. The amount of excess supply (surplus) is 10 units (Qs – Qd).

Change in quantity supply (movement) and change in supply (shift).

Change in quantity supply (movement) and change in supply (shift).


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Sunday 12 February 2012

Example final exam: Chapter 1

Example of final exam questions
"Chapter 1"


Section A; Multiple choice questions.


1. Scarcity is a problem: 

A. measured by the amount of goods available.
B. of the poor, but not the rich.
C. because human wants are unlimited while resources are limited.
D. only in industrialized economies

           
2.  Which of the following is a characteristics of capitalism 

A.  an economic system characterized by private ownership of resources and market.
B. an economic system that include a mixture of command and market system.
C. a system that answers the what, How, and For Whom question by central authority.
D. an economic system that follows the syariah.           

3. Which of the following is not a resource? 

A. Land.
B. Labor.
C. Money.
D. Capital.
            

4. The analysis of the behaviour decision-making units is the definition of : 

A. macroeconomics.
B. microeconomics.
C. positive economics
D. normative economics.


5.  Which of the following is a normative statement? 

A.  The government must lower the prize of essential goods to decrease the inflation.
B.  the price of this shoes is RM50.
C.  I get grade A in macroeconomics exam.
D.  An increase in the collage tuition fees will cause a few of students to apply for collage.


6.   Which of the following might be considered to be a characteristic of a planned economy? 

A.    There is no incentive for people to work hard.
B.     Goods and services produced reflect consumer sovereignty.
C.     Price is relatively unimportant as a means of allocating resources.
D.    All income is completely evenly distributed.



Section B;

1.

(a) Differentiate between microeconomics and macroeconomics. (4 marks) 
(b)  Define the Production Possibilities Curve (PPC). State fours (4) assumptions to illustrate the PPC.       (6 marks)                    
     (c)        State five characteristics of free market economic system.    (5 marks) 

                                                                                                                         (Total: 15 marks)


Section C; Quantitative Question


Combination
motorcycles
(thousands)
laptop
(thousands)
A
30
0
B
26
1
C
21
2
D
15
3
E
8
4
F
0
5













1. The following table shows the production possibilities for motorcycle and laptop.
(a)     Fill in the opportunity cost(motorcycles forgone) of producing the first through the fifth laptops.   (2 marks)
(b)   Referring to above table, draw the production possibility curve. (4 marks)
(c)    Based on the diagram (b), explain the concept of scarcity, choice and opportunity cost.    (6 marks)
(d)    Between which points (combinations) is the opportunity cost per thousands unit of laptops the highest?  (2 marks)        
(e)    Label point Y inside the curve. Explain why this is inefficient point. (3 marks)
(f)    Label point Z outside the curve. Explain why this is an unattainable point. (3 marks)
(g)    Based on the diagram, identify all efficient points and explain why these points are efficient.   (5 marks)
(h)   Does this production possibilities curve reflect the law of increasing opportunity costs?  (3 marks)
(i)    What is the shape of the production possibilities curve?  (2 marks)
                                                         (Total: 30 marks)



Microeconomics : Tutor 1

Please answer all questions.

1. Define economics?

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2.  Explain each of the economy's problems below.


i.            Scarcity

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ii.        Choice

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iii.            Opportunity cost
 
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3.  Xplain the factors of production.
 

                        i.            ---------------------------

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                        ii.            ---------------------------

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                        iii.            ---------------------------

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4. The following table shows the production possibilities combination of country A that produces two products: CDs and TVs.

Production
combinations
A
B
C
D
E
CD (million)
0
5
10
15
20
TV (million)
20
18
15
6
0



a.       Based on the table above draw the production possibilities curve for country A.

b.        Calculate the opportunity cost


            i.         Of producing 5 million of CDs

            ii.       Of producing 15 million of CDs

            iii.    When the production of CDs increases from 10 million to 20 million.



c.        Country A wishes to produce 25 million CDs and 30 million units of TVs. 

           i.            What is the implication? Suggest two (2) ways in which this production combination can be achieved.


--- Goods Luck ---