Econs Micro Case Study

Question 1

Positive economic statement

Answer 1

statement of fact, can be tested

Question 2

Normative economic statement

Answer 2

statement of value, and cannot be proven true or false by referring to objective data

Question 3

Opportunity cost

Answer 3

Net benefit/value of the next best alternative forgone

Question 4

Factors of Production

Answer 4

1. Land
2. Labour
3. Capital Goods
4. Entrepreneurship

Question 5

Reasons for actual growth

Answer 5

Increase in C, I, G, FDI (AD)

Question 6

Reasons for potential growth

Answer 6

QQT

Question 7

Reasons for negative potential growth

Answer 7

1. Depletion of resources
2. Natural disaster
3. Political situation
4. Ageing population
5. Migration

Question 8

DD/SS graph analysis

Answer 8

1. Seen in the graph above, the rise/fall in demand for X due to () is represented by the rightward/leftward shift of the demand curve from D1 to D2 while the rise/fall in supply due to () is represented by the rightward/ leftward shift of the supply curve from S1 to S2
2. At original equilibrium price of P1, quantity demanded has risen/fallen to Q2 and quantity supplied has risen/fallen to Q3. Since demand/supply increases more than the other, the quantity demanded/supplied exceeds more than the other. This result in a shortage/surplus of Q2-Q3. This will put an upward/downward pressure on price to rise/fall.
3. As price rises/falls, quantity demanded will fall/rise as consumers are willing and able to consume less/more of X at a higher/lower price. Meanwhile, the rise/fall in price will lead to a rise/fall in quantity supplied as profit motivated producers are willing and able to produce more/less of X at higher/lower prices.
4. NEW MARKET EQUILIBRIUM where shortage/surplus is eliminated

Question 9

MF graph analysis (externality

Answer 9

1. Divergence between the two curves as MEC/MEB not taken into account
2. Current market output where consumer/producer welfare is max
3. Socially optimal level of output where society welfare is maximized
4. Under or overconsumption- how much resource is being allocated
5. DWL generated- potential welfare that is gained if society consumed at Q2
6. Fails to achieve allocative efficiency

Question 10

Public good requirements

Answer 10

1. Non-rivalrous (Supply)
2. Non-excludability (Demand)