ECON1021

Week 2_Tutorial guide

You are expected to answer the following questions by yourself in advance of the
tutorial. Starting from next week, your tutor will also explore with your group
answers to the week’s question on the Discussion Forum (please complete this by
end Monday each week).
1) Assume the following table represents one of your indifference curves for free time
and exam marks.

a) Complete the following table using representative numbers that conform to the
assumptions for indifference curves outlined in the lecture and textbook.

One Indifference Curve

Hours of free time 15 16 17 18 19 20

Exam marks 84 75 67
Marginal Rate of
Substitution (MRS) 12 9 8

b) Explain the main ideas captured by this representation of an indifference curve.

c) Draw the indifference curve on a graph, showing the different combinations of

hours of free time and marks. On the horizontal axis put hours of free time and on
the vertical axis put exam marks.

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 2) Assume the following table represents the Feasibility Frontier you face between
hours of free time and exam marks.

a.) Fill in the table, making sure you follow the assumptions outlined for
Feasibility Frontiers in the lectures (and textbook). Some numbers are given
for you.

Feasible Frontier curve for studying.

Study 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Hours +

Marks 0 50 57 81 84

Free 24 23 22 21 20 19 18 17 16 15 14 13 12 11 10 9+
Time

MRT 7 3

b. Graph the Feasible Frontier for studying. Place hours of free time per day on
the horizontal axis and exam marks on the vertical axis. Interpret the Feasible
Frontier for studying.

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 c) Given your answers for questions 1 and 2, show on a diagram the combination
of marks and free time that maximises your utility in regard to the number of
hours of free time and exam marks.

d) Relative to that point, would choosing a point that offers a higher mark but less
free time be a better choice for you?

e) What could make you change this combination of free time and exam marks?

3). Assume that the market for bottle water can be analysed using the competitive
market model. Assume the market is initially in equilibrium. Now assume that the
local governments across Australia increase by a lot the number of water fountains
available in public spaces, and that Australian consumers become more aware of the
environmental costs of plastic bottles.
a) Draw a graph to show what happens to the demand and supply curves in the
bottled water market and the consequent change in the equilibrium price for bottled
water (is it higher or lower?).

b) Draw a graph to show the impact on the profit of a shop that sells bottled
water after these changes (is it higher or lower at that new price).