Week 2_Tutorial Questions-7.docx

1\) The market for smart phones has grown rapidly over the past few years, due in part to the overwhelming success of the Apple iPhone. Following the successful launch of the iPhone in 2007, companies such as Samsung, HTC and LG have all introduced products to compete with the iPhone. The smart phon...

1\) The market for smart phones has grown rapidly over the past few years, due in part to the overwhelming success of the Apple iPhone. Following the successful launch of the iPhone in 2007, companies such as Samsung, HTC and LG have all introduced products to compete with the iPhone. The smart phones introduced to compete with the iPhone would be considered A\) complements to the iPhone. B\) inferior goods compared to the iPhone. C\) substitutes for the iPhone. D\) normal goods compared to the iPhone. 2\) If the Apple iPhone and the Samsung Galaxy are considered substitutes, then, other things being equal, an increase in the price of the iPhone will A\) decrease the demand for the iPhone. B\) increase the demand for the Galaxy. C\) increase the quantity demanded of the Galaxy. D\) increase the quantity demanded of the iPhone. 3\) What is the difference between an \'increase in demand\' and an \'increase in quantity demanded\'? a. There is no difference between the two terms; they both refer to a shift of the demand curve. b. An \'increase in demand\' is represented by a rightward shift of the demand curve while an \'increase in quantity demanded\' is represented by a movement along a given demand curve. c. There is no difference between the two terms; they both refer to a movement downward along a given demand curve. d. An \'increase in demand\' is represented by a movement along a given demand curve, while an \'increase in quantity demanded\' is represented by a rightward shift of the demand curve. 4\) Technological advances have resulted in lower prices for digital cameras. What is the impact of this on the market for traditional (non-digital) cameras? A\) The demand curve for traditional cameras shifts to the right. B\) The supply curve for traditional cameras shifts to the right. C\) The demand curve for traditional cameras shifts to the left. D\) The supply curve for traditional cameras shifts to the left. **Short-answer Questions** ========================== 1. Draw a production possibility frontier showing the trade-off between the production of wheat and the production of barley. 2. You have exams in economics and statistics coming up and five hours available for studying. The table shows the trade-offs you face in allocating the time you will spend in studying each subject. **HOURS SPENT STUDYING** **EXAM SCORE** -------------------------- ---------------- --- ---- ---- **A** 5 0 95 70 **B** 4 93 78 **C** 90 84 **D** 2 3 86 88 **E** 1 4 81 **F** 0 5 3. Suppose that France and Germany both produce schnitzel and wine. The following table shows combinations of the goods that each country can produce in a day. **FRANCE** **GERMANY** -------------------- ------------- -------------------- ---- **WINE (BOTTLES)** **WINE (BOTTLES)** 0 8 0 15 1 6 1 12 2 4 2 3 2 3 4 0 **Question 4** Suppose that Australia can only produce two products: cars and wheat. The following table shows the different amounts of outputs Australia can produce. (All numbers below are simplified to make calculations easier). --------------------- Cars Wheat\ (in tonnes) ------- ------------- 1,000 0 500 200 400 240 0 400 --------------------- [Required: ] a. Draw the Production Possibility Frontier (PPF) for the economy of Australia a. Based on data from the above table, what is the opportunity cost of producing one car in Australia? What is the opportunity cost of producing one tonne of wheat? b. Suppose that there has been a technological breakthrough in the car industry in Australia. A maximum of 1,500 cars can be now produced. Meanwhile, things remain the same for wheat production. Draw the new PPF (after the advancement in technology). Compare between the new PPF and the original PPF. **Question 5** Using the same amount of resources, Australia and New Zealand can both produce apples and oranges as shown in the following table, measured in thousands of tonnes. AUSTRALIA NEW ZEALAND ----------- ------------- -------- --------- Apples Oranges Apples Oranges 12 0 6 0 0 8 0 6 [Required:] a. Which country has the absolute advantage in producing apples? Which country has the absolute advantage in producing oranges? b. Which country has the comparative advantage in producing apples? Support your answer with appropriate calculations. c. Which country has the comparative advantage in producing oranges? Support your answer with appropriate calculations. d. Suppose that Australia and New Zealand would specialise (i.e. one country focuses on producing only one product), then trade with each other. Which country should produce apples? Which country should produce oranges?