Introducing economics - exercises

1. Andrew has just started his AS courses, and has chosen to take economics, mathematics, geography and French. Although he was certain about first three, it was a close call between French and English. What is Andrew's opportunity cost of choosing French?

Andrew's opportunity cost of choosing French is English.


2. Classify each of the following as human, natural (renewable or non-renewable) or produced resources:

a   timber
b   services of a window cleaner
c   natural gas
d   solar energy
e   a combine harvester
f    a computer programmer who sets up a company to market his software
g   a computer

human: services of a window cleaner, a computer programmer who sets up a company to market his software
natural: timber (renewable), natural gas (non-renewable), solar energy (renewable)
produced: a combine harvester, a computer


3. With which of Samuelson's (the US economist Paul Samuelson, who won the Nobel Prize for Economic Sciences in 1970) three questions (what, how, for whom) would you associate the following?

a  A firm chooses to switch from producing CD players in order to increase its output of DVD recorders.
b  The government reduces the highest rate of income tax.
c   Faced with increased labour costs, a firm introduces labour-saving machinery.
d  There is an increase in social security benefits.
e   The owner of a fish-and-chip shop decides to close down and take a job in local factory.

Three key questions that economics sets out to investigate:

1 What? What goods and services should be produced in a society from its scarce resources? In other words, how should resources be allocated among producing DVD players, potatoes, banking services and so on?
2  How? How should the productive resources of the economy be used to produce these various goods and services?
3  For whom? Having produced a range of goods and services, how should these be allocated among the population for consumption?

1 : a e
2 : b c 
3 : d 


4. Beverly has been cast away on a desert island, and has to survive by spending her time either fishing of climbing trees to get coconuts. The PPC shows the maximum combinations of fish and coconuts that she can gather during a day. Which of the points A to E represent each of the following?

a  a situation where Beverly spends all her time fishing
b  an unreachable position
c  a day when Beverly goes for a balanced diet - a mixture of coconuts and fish
d  a day when Beverly does not fancy fish, and spends all day collecting coconuts
e  a day when Beverly spends some of the time trying to attract the attention of a passing ship

A  d
B  c
C  a
D  e
E  b


5. Think about the following and see whether you think each represents a macroeconomic or microeconomic phenomenon:

a  The overall level of prices in an economy
b  The price of ice cream
c  The overall rate of unemployment in the UK
d  The unemployment rate among catering workers in Aberdeen
e  The average wage paid to construction workers in Southampton

macroeconomic : a c d
microeconomic : b d