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Eco Finals
Eco Finals
Student Activities:
Microeconomics (Int 2)
9047
December 2001
HIGHER STILL
Economics
Student Activities
Microeconomics
Intermediate 2
Support Materials
INTERMEDIATE 2 ECONOMICS
STUDENT ACTIVITIES: MICROECONOMICS
Introduction
This pack contains classroom and homework activities to support the learning and
teaching process for Economics at Intermediate 2 level. It covers those parts of the
course content listed under the heading of Microeconomics (Int 2) and the material
associated with the unit specification, Microeconomics (Int 2).
This pack is divided into four sections:
Section A
Section B
Section C
Section D
Each Section contains a number of student activities and solutions are provided after
each section of activities. The solutions given represent some of the possible answers
which could be acceptable. When using the exercises and questions, some discretion
should be used when judging responses. Students should be given credit for
responses which are an acceptable answer to the exercise or questions but which do
not appear in the suggested solutions.
Teachers and lecturers will have their own preferred ways of using the material in this
pack. The Activities are intended to complement the delivery of course concepts.
They are exercises which can be done in class or as homework to introduce relevant
knowledge, to reinforce new knowledge and understanding or to extend existing
knowledge and understanding. While their primary use is likely to be during the
actual delivery of course material, they can be used for revision purposes.
CONTENTS
Section A
Section B
Demand
Section C
Supply
Section D
Costs
SECTION 1
STUDENT ACTIVITIES
ECONOMICS
INTERMEDIATE 2
A1
1
(a)
(b)
Give 2 examples of alternative uses for the resources given in the table
below:
Resource
Area of
Farmland
A person
good at
word
processing
Alternative Uses
(i)
(ii)
(i)
(ii)
(i)
A delivery
lorry
(ii)
(c)
(d)
(e)
(f)
10
ECONOMICS
INTERMEDIATE 2
A2
1.
2.
3.
(a)
(b)
(c)
(d)
Because resources are scarce and human wants are unlimited, choices must
be made. Every time a choice is made an opportunity cost is involved.
(a)
A school pupil
(ii)
(iii)
A Headteacher
(iv)
(b)
(c)
11
ECONOMICS
INTERMEDIATE 2
A3
1.
Scarce derelict land, owned by the local council in a Scottish city centre, is
wanted for a planned 100 million development by a London-based property
company. The local council may, however, have other priorities when deciding
what to do with the land.
(a)
(b)
(c)
(i)
(ii)
(i)
(ii)
For what reasons may a local council which owns a derelict city centre
site decide to build a leisure complex there, rather than allow its use as
a private property development.
12
ECONOMICS
INTERMEDIATE 2
A4
If everyone could have everything they wanted, there would be no need for
economics. Money would be irrelevant we could help ourselves to
anything.
Unfortunately, however, the world is not like that. Factors of production
are scarce, therefore every society has to find the answer to three basic
economic questions:
What to produce?
How to produce?
For whom to produce?
In answering these questions, every country strives for economic efficiency.
(a)
(b)
(c)
(d)
(e)
Because resources are scarce and wants are unlimited, economic choices
have to be made and an opportunity cost is involved.
Explain an economic choice which each of the following groups may have
to make and describe the possible opportunity costs involved.
(a)
Government
(b)
A business
(c)
An individual
13
ECONOMICS
INTERMEDIATE 2
A5
What to produce, how to produce and for whom to produce are questions that have to
be answered by any society. There are many different answers to these questions and
every society develops its own economic system to try and solve these problems. One
way of solving the problem is by having a
MIXED ECONOMY
where
(a)
(b)
(c)
a producer;
a consumer?
what to produce;
how to produce;
who the goods and services are for.
(i)
(ii)
14
ECONOMICS
INTERMEDIATE 2
A6
For many years, the City of Edinburgh Council has been looking at ways to solve the
ever-increasing traffic congestion in and around the city. One solution was to build
the City Bypass. However, some people believe that the building of this road has
made the problem worse rather than provided a solution to it. Many more people
using cars and lorries have been encouraged on to the roads and traffic congestion is
now worse than ever.
In the past, public transport users and cyclists have been neglected. However, the
Council is now looking towards schemes to improve public transport, as well as to
make provision for cyclists.
If public transport was better and cheaper then commuters - especially from outlying
areas - would be tempted to use it.
(a)
(b)
(c)
In the past, resources have been provided to satisfy motorists wants. What
groups of people might suffer because of this?
(d)
(e)
How does the above passage show that an economics problem exists?
(f)
(g)
Who would you give more resources to - motorists or public transport user?
Explain your+ answer.
(h)
Explain why the passage shows that in the past resources have been wasted.
15
ECONOMICS
Intermediate 2
A7
Read the letter below, then answer the questions which follow:
Dear Santa
I hope you dont think Im too early, but I had some spare time
and decided to put my list in just now - so here it is! For
Christmas this year I would like:
A Micro CD Player - one thats shaped like a Coca-Cola can
A Nintendo Game Boy - with Tetris, if possible
CD - either Shania Twain or Boyzone
Yours in anticipation
Kirsty (Age 10 years)
PS - I have made my list quite short this year because my mum
keeps telling me that economic resources are scarce (not just in
short supply) and that people have unlimited wants (including my
little sisters - her wants are unlimited!!).
(a)
(i)
(b)
(i)
(ii)
(c)
In view of the fact that resources are scarce, what economic decisions might the
following have to make?
Unfortunately, Kirsty didnt get any CDs from Santa, however, her Aunt gave her
a 15 CD Token. She decided to buy the Boyzone CD.
(i)
(ii)
(e)
Briefly explain how this letter describes The Basic Economic Problem.
16
ECONOMICS
INTERMEDIATE 2
A8
The UKs economic resources are scarce. These resources are important to us
because they are used in the production of goods and services. We must, therefore,
try to make the best use of them that we can and not waste them. This is true, not
only in this country, but in every country in the world.
(a)
(b)
(c)
(d)
Why must the UK try to make the best use of resources and not waste them?
(e)
Why does every country in the world have the same problem?
17
ECONOMICS
INTERMEDIATE 2
A9
1
(b)
(i)
a family thinking about taking a holiday in Switzerland;
(ii)
a farmer thinking about buying a new tractor;
(iii)
a local authority thinking about building a new sports
centre.
Countries attempted in different ways to solve the economic problem of
how to allocate scarce resources for different purposes.
4
4
4
(a)
(b)
(c)
Describe how decisions about the use of scarce resources are made
in a mixed economic system.
10
(b)
(c)
6
4
18
(b)
Give two examples of different uses for any one scarce resource.
(c)
10
19
ECONOMICS
INTERMEDIATE 2
A1
(a)
(b)
(c)
(d)
(e)
(f)
20
ECONOMICS
INTERMEDIATE 2
A2
Resources (land, labour, capital and enterprise) required to produce goods and
services are scarce relative to unlimited wants for goods and services.
(a)
(b)
(c)
(d)
(a)
(b)
(c)
Opportunity cost is the direct result of scarcity and occurs every time a
choice is made. In making a choice, there is always a sacrifice.
21
ECONOMICS
INTERMEDIATE 2
A3
(a)
(i)
(ii)
(i)
Opportunity cost is the sacrifice of the next best alternative. Not a money
cost, but the real cost i.e. what has been given up because of the course of
action taken.
(ii)
Discussion of what the council could have done instead with the site e.g.
build council offices, sold it to someone else, landscaped the site.
(b)
(c)
22
ECONOMICS
INTERMEDIATE 2
A4
(a)
(b)
(c)
(d)
(e)
(a)
(b)
(c)
23
ECONOMICS
INTERMEDIATE 2
A5
(a)
(b)
(c)
(ii)
(i)
(ii)
(iii)
(i)
(ii)
24
ECONOMICS
INTERMEDIATE 2
A6
(a)
(b)
(c)
(d)
Resources used to provide better facilities for motorists mean that less resources
are used to improve facilities for other e.g. cycle paths/bus lanes, more buses
and trains.
(e)
Scarce resources versus unlimited wants for these resources - motorists wants
versus bus/train/cyclist and pedestrians wants.
(f)
For example: more frequent services provided, bus lanes to increase speed of
journey or any other measure the student explains.
(g)
(h)
More roads have been built, however instead of solving the problem of
congestion, the problems is worse than ever.
25
ECONOMICS
INTERMEDIATE 2
A7
(a)
(i)
(ii)
(b)
(c)
(d)
(e)
(iii)
Yes - scarcity is the basic economic problem facing all countries (rich as
well as poor) and results from the fact that no country has enough
resources to produce enough goods to completely satisfy all of its people.
(i)
Wants are never satisfied, we always want more no matter what we have
already, we will always want something else.
(ii)
(i)
(ii)
What to produce, for example dolls or dolls prams, what resources to use.
(iii)
(i)
(ii)
Opportunity cost
Scarce resources used to produce goods and services (toys) versus unlimited
wants of consumers (children).
26
ECONOMICS
INTERMEDIATE 2
A8
(a) Explanation of resources i.e. factors of production land, labour, capital and
enterprise. Resources used in the production of goods and services.
(b) Resources (land, labour, capital and enterprise) required to produce goods and
services are scarce relative to unlimited wants for goods and services.
(c) Goods are tangible items i.e. you can see and touch them e.g. chairs, watches,
etc.
Services are intangible i.e. you cannot see them e.g. hairdressing,
education, etc.
(d)
(d)
27
Economics
INTERMEDIATE 2
A9
(a)
(b)
(a)
(ii)
(iii)
(b)
28
(c)
(a)
(i)
(ii)
(b)
29
(c)
(a)
(b)
(c)
30
ECONOMICS
INTERMEDIATE 2
B1 Demand
Tom Robinson makes high quality furniture but he knows that although a great
number of people would like to buy his furniture especially his dining tables few
can afford to.
One friend said to Tom recently If your dining tables were cheaper, Id certainly buy
one and I know several other people who would too!
Tom immediately enlisted the help of his son. They did some market research and
drew up the following demand schedule for dining tables:
800
700
600
500
400
300
2
4
7
10
15
25
(a)
Using an example from the above passage, explain the difference between
wants and demand.
(b)
(i)
(ii)
(c)
(d)
(i)
(ii)
(e)
Using a demand diagram, explain what might happen to the demand for
Toms dining tables if peoples real incomes rose.
(f)
Other than real income, what factors might affect the demand for Toms
dining tables.
31
ECONOMICS
INTERMEDIATE 2
B2 Demand
Economists assume that to show the effect of price on demand other factors remain
constant. Contractions and extensions of demand can then be examined. The
following diagram shows the demand curve for Yoyos:
In reality, the factors which determine demand (determinants of demand) are rarely
constant and they produce changes which would cause the demand curve to shift
(either to the left or right).
(a)
(b)
Using diagrams, explain what would happen to the demand for Yoyos in the
following situations.
(i)
(ii)
(iii)
(iv)
(v)
The Government Minister for Health warns that the paint used on
Yoyos may be poisonous.
32
ECONOMICS
INTERMEDIATE 2
B3 Demand
The two diagrams below show the number of holidays taken by Scottish
holidaymakers:
Diagram A
(a)
Diagram B
From the information in the above diagrams, describe what has happened to:
(i)
(ii)
(b)
(c)
Using a diagram, show how this might affect the demand for holidays
in Turkey and Greece.
(ii)
Using a diagram, show how this might affect the demand for holidays
in other foreign destinations.
(iii)
33
ECONOMICS
INTERMEDIATE 2
B4 Demand
There are many factors other than price that affect the demand for a product.
Decide which determinant of demand in each of the following examples is:
a)
b)
CD players have fallen in price, therefore more CDs are being bought.
c)
The price of PCs is expected to fall, therefore will wait before buying a PC.
d)
e)
f)
This years hot summer dramatically increased the demand for ice cream and
ice lollies.
g)
34
ECONOMICS
INTERMEDIATE 2
B5 Demand
Consumers buy goods and services because of the utility they receive. The table
below shows the utility a consumer receives from consuming good A.
Units of Good A
0
1
2
3
4
5
6
(a)
Total Utility
0
4
11
15
17
16
15
Marginal Utility
4
?
?
?
?
-1
total utility;
marginal utility.
(b)
(c)
(i)
(ii)
(d)
The above example shows the law of diminishing marginal utility. How does
this law explain the shape of a demand curve?
35
ECONOMICS
INTERMEDIATE 2
B6 Demand
The following table shows the weekly amount of total utility a consumer gains from
consuming a particular good GOOD Y:
Total Utility
0
8
4
18
20
20
Marginal Utility
0
a)
b)
c)
d)
Calculate the marginal utility between one and five units of consumption.
e)
36
ECONOMICS
INTERMEDIATE 2
B1 Demand - Suggested Solutions
(a)
Wants what people would like unsupported by the ability to pay. Effective
demand demand for goods and services backed up with resources (money)
to pay for them. (Concept is important as price mechanism is related to
effective demand, not wants).
(b)
(i)
(ii)
(c)
Some consumers may no longer be able to afford these dining tables (income
effect) therefore they would be unhappy if Tom increased his prices. They
may have to buy a dining table which they perceive to be of inferior quality
to Toms tables, or do without.
(d)
(i)
(iii)
37
(e)
(f)
38
ECONOMICS
INTERMEDIATE 2
B2 Demand - Suggested Solutions
a)
b)
(i)
(ii)
(iii)
(iv)
(v)
39
ECONOMICS
INTERMEDIATE 2
B3 Demand - Suggested Solutions
(a)
(i)
(ii)
Over the period shown demand for holidays in the UK fell sharply
between 1987 and 1991, then decreased more slowly over the rest of
the period shown.
(b)
(c)
(i)
(ii)
Demand for holidays in other foreign destinations might shift tot the
right as consumers switch to these countries.
(iii)
40
ECONOMICS
INTERMEDIATE 2
B4 Demand - Suggested Solutions
(a)
(b)
(c)
(d)
Income
(e)
Interest rates
(f)
Weather
(g)
Fashion
41
ECONOMICS
INTERMEDIATE 2
B5 Demand - Suggested Solutions
(a)
(i)
(ii)
The extra satisfaction gained from the consumption of one more unit
of a good.
(b)
(c)
(i)
7, 4, 2 and 1.
(ii)
(d)
42
ECONOMICS
INTERMEDIATE 2
B6 Demand - Suggested Solutions
a)
b)
Total utility increases, but by a smaller and smaller amount as each additional
unit is added. The fifth unit adds nothing to total utility.
c)
The extra utility gained from the consumption of one more unit of a good.
d)
8, 6, 4, 2, 0.
e)
43
ECONOMICS
INTERMEDIATE 2
C1
Supply
A supply curve slopes upwards from left to right and shows how much of a good
producers are willing to sell at any given price over a period of time.
(a)
(b)
(c)
an extension in supply;
a contraction in supply.
Explain, using diagrams, the other important factors which determine the
level of supply of a good
44
ECONOMICS
INTERMEDIATE 2
C2
Supply
Economists assume that to show the effect of price or supply, factors other than price
remain constant. Movement along a supply curve can be examined.
The following diagram shows the supply curve for Yoyos.
In reality, the factors which determine supply (determinants of supply) are not
constant and they produce changes which would cause the supply curve to shift.
(a)
(b)
(i)
(ii)
Using diagrams, explain what would happen to the supply of Yoyos in the
following cases..
(i)
(ii)
(iii)
(iv)
45
ECONOMICS
INTERMEDIATE 2
C3
Supply
Kevin Blackie owns a Mushroom Farm which supplies Greengrocers in East Lothian.
The following table shows the market supply schedule for these mushrooms..
PRICE OF MUSHROOMS
(per kg) ()
(kgs)
1.50
1600
1.25
1300
1.00
1000
0.75
700
0.50
400
(a)
(b)
(i)
(ii)
(c)
Kevin would like to supply more mushrooms to the market at every price.
(i)
(ii)
46
ECONOMICS
INTERMEDIATE 2
C1
(a)
(i)
(ii)
(b)
(i)
47
(ii)
(c)
Other factors cause a shift in the supply curve, for example costs of
production (or any factor which affects these), technology (usually
a shift to the right), prices of other goods, government legislation,
stockpiling, weather, ease of entry/exit of firms to an industry,
taxes, subsidies.
Student should show appropriate diagram with explanation.
48
ECONOMICS
INTERMEDIATE 2
C2
(a)
(b)
(i)
(ii)
(i)
(ii)
(iii)
(iv)
49
ECONOMICS
INTERMEDIATE 2
C3
(a)
(b)
(c)
(i)
(ii)
(i)
(ii)
50
ECONOMICS
INTERMEDIATE 2
D1
Costs
Production refers to the making of goods and services in order to satisfy peoples
wants.
(a)
(b)
(c)
employees;
employers;
consumers.
employees;
employers;
consumers.
51
ECONOMICS
INTERMEDIATE 2
D2
Costs
Angela Rayson is an excellent cook. She started a small business in her home town
making novelty cakes which she sells at 12 each.
She has the following costs:
Rent of premises
Hire of machinery
Materials/ingredients
Wages
Loan repayment
Other variable costs
(a)
(i)
(ii)
(b)
(i)
(ii)
(iii)
(iv)
(c)
(i)
(ii)
(iii)
(iv)
(d)
(i)
(ii)
(e)
52
ECONOMICS
INTERMEDIATE 2
D2
(f)
Costs (continued)
FIXED
COST
VARIABLE
COST
TOTAL
COST
0
50
100
150
200
250
300
200
200
(g)
(i)
(ii)
(iii)
(h)
(i)
MARGINAL
COST
(j)
AVERAGE
COST
53
ECONOMICS
INTERMEDIATE 2
D3
Costs
The following data relates to a firm which uses only labour and capital as its factors of
production:
(a)
LABOUR
CAPITAL
(Units)
(Units)
TOTAL
OUTPUT
3
6
12
24
3
6
12
24
100
300
600
900
(b)
If this firm increases its factor inputs from 3 to 6 units of labour and capital:
(i)
(ii)
(iii)
(iv)
(c)
If this firm increases its factor inputs from 6 to 12 units of labour and capital:
(i)
(ii)
(iii)
(iv)
54
(d)
If this firm increases its factor inputs from 12 to 24 units of labour and
capital:
(i)
(ii)
(iii)
(iv)
(e)
55
ECONOMICS
INTERMEDIATE 2
D4
Costs
Shown below are the short run units cost curves for a firm:
(a)
short run;
marginal cost;
average variable cost.
(b)
(c)
(i)
(ii)
(iii)
56
ECONOMICS
INTERMEDIATE 2
D5
Costs
Shown below are the short run unit cost curves for a firm:
(a)
(b)
(i)
(ii)
(c)
(d)
57
ECONOMICS
INTERMEDIATE 2
D1
(a)
(b)
(i)
(ii)
(iii)
Lower prices.
(i)
(ii)
(iii)
(c)
58
ECONOMICS
INTERMEDIATE 2
D2
(a)
Fixed costs costs which do not vary with output rent, hire of
machinery, loan.
200 per week
(ii)
(b)
(i)
(ii)
(iii)
(iv)
Fixed cost per unit i.e. total fixed cost divided by output.
2
1
Decreases continuously as production increases as fixed costs are
being spread over a larger and larger output.
(c)
(i)
(ii)
(iii)
(iv)
(d)
(i)
(ii)
(e)
(f)
(g)
(h)
CAKES
MADE
PER
WEEK
FIXED
COST
VARIABLE
COST
TOTAL
COST
AVERAGE
COST
MARGINAL
COST
0
50
100
150
200
250
300
200
200
200
200
200
200
200
0
250
500
750
1,000
1,250
1,500
200
450
700
950
1,200
1,450
1,700
9
7
6.33
6
5.80
5.67
5
5
5
5
5
5
(i)
(ii)
(iii)
(i)
(ii)
59
(i)
(i)
(ii)
150 x 12 = 1,800
1,800 - 950 = 850
(j)
(i)
(ii)
250 x 12 = 3,000
3,000 - 1,450 = 1,550
60
ECONOMICS
INTERMEDIATE 2
D3
(a)
(b)
(i)
(ii)
(iii)
(iv)
100%
300%
Increasing
Falling
(c)
(i)
(ii)
(iii)
(iv)
100%
100%
Constant
Staying the same
(d)
(i)
(ii)
(iii)
(iv)
100%
50%
Decreasing
Rising
(e)
61
ECONOMICS
INTERMEDIATE 2
D4
(a)
Period of time when at least one of a firms factor inputs remain fixed.
No fixed length of time depends on type of business/industry.
(ii)
(iii)
Variable cost per unit total variable cost divided by number of units.
(b)
Total cost divided by number of units produced or (fixed cost per unit plus
variable cost per unit).
(c)
(i)
Fixed costs costs with do not vary with output (with students
examples).
(ii)
(iii)
62
ECONOMICS
INTERMEDIATE 2
D5
(a)
(i)
(ii)
C
B
(b)
(i)
Fixed cost per unit of output i.e. total fixed cost divided by the
number of units produced.
(ii)
Fixed cost is being spread over a larger and larger number of units.
(Student could give a numerical example to explain this point).
(c)
(d)
Lowest point on average total cost curve. Productivity at its maximum and
unit cost at its lowest.
63