UNIVERSITY OF GHANA BUSINESS SCHOOL
DEPARTMENT OF FINANCE
UGBS 201: MICROECONOMICS AND BUSINESS
TUTORIAL SET ONE
1. Define the following terms as used in economics;
a) Scarcity
b) Choice
c) Scale of Preference
d) Trade off
e) Opportunity Cost
f) Microeconomics
g) Macroeconomics
h) Self Interest
i) Social Interest
2. Distinguish between a normative statement and positive statement in economics.
3. Explain whether the following statements are positive or normative economic statements.
a. Hillary Clinton was elected President of the United States in 2008," is a normative or
positive statement.
b. housing practices are too high in Accra
c. Ghana was adjudged the seventh filthiest country in the world in 2015
d. since we indirectly pay NHIL, everyone ought to enroll on the NHIS
e. In order for Ghana to improve upon its trade balance, citizens should adopt the habit
of consuming made in Ghana goods
f. the developing world, particularly Africa has experienced the highest urban growth at
3.5% per year in the past two decades
g. I don’t think there should be any landfill sites because these things that we call waste
are the raw materials that we need to produce either energy compost or something
else.
h. Flood victims should pay for their own rebuilding
i. The government should increase tariffs on Japanese cars to protect the American car
industry from competition," is a normative or positive statement.
j. An increase in the tax on gasoline increase the price of gasoline
k. Universal access to quality health insurance is the most important domestic policy
issue of our time.
l. “All children should receive free health care" is an example of what kind of
statement?
m. The minimum wage should be increased to $8.50 per hour.
n. Lower ticket prices would lead to more people attending ballgames
o. Every American household should have health care insurance coverage
p. Car prices should be affordable.
4. Classify the following topics as relating to microeconomics or macroeconomics
a. Jospong group of companies’ decision about how many towing trucks to purchase
b. Esther’s budget on how much to spend on transport
c. the relationship between the supply of money and the general price levels
d. the impact of high public debts on private sector investment
e. the effect of government policies on inflation
5. What is an economic model?
6. Your aunt is thinking about opening a hardware store. She estimates that it would cost
Gh¢ 500,000 per year to rent the location and buy the stock. In addition, she would have
to quit her gh¢ 50,000 per year job as an accountant.
(i)
What is your aunt’s opportunity cost of running a hardware store for a year?
(ii)
What cost would her accountant measure?
(iii)
If your aunt thought she could sell Gh¢ 510,000 worth of merchandise in a year,
should she open the store?
7. Obama drives up miles-per-gallon requirements
Suppose the government passes a law which it requires that emissions from all new
vehicles must be cut from 354 grams to 250 grams. To meet this new standard, the price
of a new vehicle will rise by $1,300. Calculate the opportunity cost of reducing the
emission level by 1 gram. Source: USA, May 20, 2009 (ans. Check Bade and Parkin, pg.
109)
8. A country is producing only two goods with its available resources and technology on a
given PPF as shown below.
Possibility
COCOA (MILLION
COTTON (MILLION
DOLLAR PER YEAR)
DOLLAR PER YEAR)
A
70
0
B
65
50
C
60
55
D
55
64
E
0
67
a. Use the production possibilities frontier to show and explain the concepts of scarcity,
production efficiency, opportunity cost.
b. Calculate opportunity cost of cotton for all the levels and explain intuitively why opportunity
cost is increasing
9. UGBS is known to produce two goods: exercise books and cloth. the following is the
production possibility frontier tabular illustration for UGBS:
Books (x)
Cloth (y)
0
1698
73
1620
138
1517
197
1328
244
1072
285
771
321
409
342
0
a. draw and label each axis and each point
b. indicate on the graph with Point K where inefficient is
c. indicate on the graph with Point L where unattainable is
d. what is the opportunity cost of producing exercise books at each level of production?
e. what is the opportunity cost of producing cloth at each level of production?
f. assume a technological advancement in UGBS, how will the new PPF look
g. if there is a drought in UGBS which leads to a decline in cotton production (raw
material for producing cloth), illustrate with a diagram how the new PPF will look
like for UGBS.
10. Country A and country B produce kelewele (x) and grapes (y). The production possibility
frontier for A and B can be represented by the following equations:
A: 2𝑥 + 3𝑦 = 12
B: 𝑥 + 𝑦 = 5
a) Using two separate graphs, draw the PPF for both countries by plotting kelewele (x) on xaxis and grapes (y) on y-axis.
b) Consider the following combinations:
(i) 3 units of kelewele and 2 units of grapes,
(ii) 1 unit of kelewele and 4 units of grapes,
(iii) 2 units of kelewele and 2 unit of grapes.
Fill in the following grid for each of the above combinations.
Combinatio
ns
(i)
(ii)
(iii)
Country A
Attainab
Unattainabl
le
e
Efficient
Country B
Inefficie
Attaina
Unattainabl
Efficie
nt
ble
e
nt
Inefficient