Tutorial Questions

3444 Words May 23rd, 2013 14 Pages
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: a) $15. b) $20. c) $40. d) $55.

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
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b) More; fewer. c) Fewer; more. d) More; more.

??MC3. Consider an individual whose only endowment is time and who derives utility from leisure and consumption. For the individual, consumption and leisure are both normal goods. If the income effect dominates the substitution effect, then an increase in the wage rate will cause the individual’s supply of labour to: a) Increase. b) Decrease. c) Remain unchanged. d) None of the above (as it will depend on the circumstances).

Question 1. Consider two individuals who derive utility from leisure and food (and no other goods). Both individuals have 100 hours of time to divide between leisure and work (labour), and no other form of income. Further, both individuals receive the same money wage (and face the same money price for food). Using income and substitution effects, explain why we might see one individual respond to an increase in the wage rate by increasing their supply of labour, while the other individual might decrease their labour supply.

Question 2. Consider an individual who derives utility from leisure and food (and no other goods). Assume both goods always have positive marginal utilities. The individual has an endowment of time (100 hours), plus an endowment of food. What happens to the individual’s supply of labour as their endowment

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