Supply and Demand and Marginal Cost
IA 710 CLASS 1
Scarcity, shortage and substitutability
1.
Answer all parts:
a) What do you think is meant by the concept of constrained choice? Why is economics often described as the science of constrained choice?
b) Explain how scarcity, choice and opportunity cost are relevant when choosing amongst alternatives? 2.
Define the concept of “opportunity cost” and discuss various examples.
3.
Explain how the concept of opportunity cost may be used to explain the following:
a) Why very few petrol stations are found in the centre of large cities.
b) Why it might be worthwhile for a company to contract out work even though contracting out may involve a higher monetary cost.
c) Why tourists pay higher prices for goods and services in a foreign city than local residents of that country.
4.
A company invests £10,000 in new machinery in the hope of boosting future profits. What is the opportunity cost of the investment?
1
5.
A university wishes to build a new sports centre and has to decide whether to build the centre on land it already owns, or whether to buy land next to the university at a cost of £1 million. It decides to use the land it already owns as this will lower costs.
Critically analyse this reasoning.
6.
List some ways in which consumers and firms might respond to a large increase in the price of oil. What effect would this have on the longer-term price of oil?
7.
Answer all parts.
a) Why do economists theorise rather than attempt to describe reality?
b) Do assumptions have to be realistic in order for a theory to work?
c) Suppose you wanted to construct a model to explain the number of cars consumers would purchase during a given year. List twenty factors which you feel might affect the demand for cars. Then reduce your list to just four. Why might a consideration of only four factors be an improvement on a consideration of twenty factors?
2
8.
Classify each of the following
Scarcity, shortage and substitutability
1.
Answer all parts:
a) What do you think is meant by the concept of constrained choice? Why is economics often described as the science of constrained choice?
b) Explain how scarcity, choice and opportunity cost are relevant when choosing amongst alternatives? 2.
Define the concept of “opportunity cost” and discuss various examples.
3.
Explain how the concept of opportunity cost may be used to explain the following:
a) Why very few petrol stations are found in the centre of large cities.
b) Why it might be worthwhile for a company to contract out work even though contracting out may involve a higher monetary cost.
c) Why tourists pay higher prices for goods and services in a foreign city than local residents of that country.
4.
A company invests £10,000 in new machinery in the hope of boosting future profits. What is the opportunity cost of the investment?
1
5.
A university wishes to build a new sports centre and has to decide whether to build the centre on land it already owns, or whether to buy land next to the university at a cost of £1 million. It decides to use the land it already owns as this will lower costs.
Critically analyse this reasoning.
6.
List some ways in which consumers and firms might respond to a large increase in the price of oil. What effect would this have on the longer-term price of oil?
7.
Answer all parts.
a) Why do economists theorise rather than attempt to describe reality?
b) Do assumptions have to be realistic in order for a theory to work?
c) Suppose you wanted to construct a model to explain the number of cars consumers would purchase during a given year. List twenty factors which you feel might affect the demand for cars. Then reduce your list to just four. Why might a consideration of only four factors be an improvement on a consideration of twenty factors?
2
8.
Classify each of the following