ECONOMICS 100

TUTORIAL GUIDE SEMESTER 1 2012

WEEK 1 Feb 27 Mar 2: "There ain't no such thing as a free lunch."
Lecture Outline: WHAT IS ECONOMICS?

Chapters 1 & 2

A definition of economics
Scarcity, tradeoffs & the economic problem
The economic way of thinking
Economic models
Production possibility frontiers & opportunity cost

Tutorial Week 1: INTRODUCTION

1.

Introduction to Economics 100 meet your tutor

2.

Textbook

3.

The purpose of tutorials

4.

Unit outline & assessment

Class quizzes 10%

Mid semester test 20%

Assignment 20%

Selecting an assignment article

WEEK 2 March 5 9
Lecture Outline: DEMAND & SUPPLY Chapter 3
Demand side of the market
Supply side of the market
Market equilibrium
Predicting changes in price & quantity

Tutorial Questions: Chapters 1 & 2

1.

What is the subject matter of economics?

Evaluate this statement: As long as there is scarcity, there will always be poverty.

2.

Using marginal analysis determine the optimal number of hospitals given the
following data:
No of Hospitals Total Benefits
Total Costs
$ million
$ million
1
100
50
2
190
110
3
270
180
4
340
260

3.

Textbook: Problem 4, p. 19.

4.

Read the article about Water Scarcity on page 16.

Why is water becoming increasingly scarce?
Which sector uses the most water households, industry, mining or agriculture?
Why do Australian cities, such as Perth face a shortage of scheme (municipal)
water but not bottled water?
Should the price of water be increased?

5.

Textbook: Problem 4, p. 55.

6.

The government should provide free health services to all. Evaluate this statement
using economic concepts such as scarcity, opportunity cost, PPF, MB, MC.

WEEK 3 March 12 16
Lecture Outline: ELASTICITY Chapter 4
Price elasticity of demand
Meaning
measurement
determinants
relationship with total revenue
Other demand elasticities
Price elasticity of supply

Tutorial Questions: Chapter 3

1.

What is the law of demand? What are the main variables that will cause the demand
curve to shift? Give an example of each.

2.

What is the law of supply? What are the main variables that will cause the supply
curve to shift? Give an example of each.

3.

Using the demand/supply model explain the effects of the following on the market
for pizza
a.
the price of mozzarella cheese increases.
b.
consumers incomes increase
c.
more pizza producers enter the market
d.
a new report states that pizzas consumption contributes to heart disease
e.
new pizza ovens reduce the cooking time of pizza
f.
McDonalds lowers the price of its burgers.

4.

Severe floods in Queensland caused vegetable prices to increase sharply in

Australia. Use the model of demand and supply to illustrate the vegetable market
and explain why prices have increased. What would happen in substitute markets?

5.

Textbook: problems 5, 7 & 11, p.89-90.

WEEK 4

March 19 23

Lecture Outline: ECONOMIC EFFICIENCY Chapter 5

Consumer surplus & producer surplus
Efficiency of competitive markets
Price floors & price ceilings
Taxes

Tutorial Questions: Chapter 4

1.

Indicate for each pair of goods below which good has the more elastic price
demand and why:
a.
fast food; pizza.
b.
breakfast cereals; sultana bran (see page 104).
c.
male haircuts; female haircuts.

2.

Textbook: problems 5, 6 & 7, p. 124.

3.

When Greater Union lowered the price of their cheap Tuesday night cinema tickets
from $9.50 to $6 their sales increased by 30%. Is Greater Unions demand elastic or
inelastic? What would have happened to Greater Unions revenue from ticket sales?
Why would Greater Union have adopted this pricing strategy?

4.

Htay always buys 50 litres of petrol every week, regardless of the price. Steven
always buys exactly $50 of petrol every week, regardless of the price. What is their
elasticity of demand for petrol?

5.

Read Making the Connection on page 111.

What is the price elasticity of demand for beer?
What is the cross elasticity of demand between beer & wine? What does this imply?
What is the income elasticity of demand for wine? What does this imply?

WEEK 5 March 26 30
Lecture Outline: MARKET FAILURE Chapter 11
Externalities negative & positive
The Coase Theorem
Government solutions
Public goods & the free rider problem
Common resources the tragedy of the commons
Asymmetric information

Tutorial Questions: Chapter 5

1.

What is consumer surplus? How is it measured? What is producer surplus? How is

it measured?

2.

What does economic analysis suggest regarding the impact on economic efficiency
of government imposed price ceilings & price floors?

3.

Textbook Problems: Nos 2, 4 & 8, p. 155-156

4.

The government wants to decrease the consumption of alcohol by teenagers by

imposing a large tax on alcopops.
a.
Should this tax be placed on buyers or sellers? Explain.
b.
Who would pay more of the tax buyers or sellers? Include a diagram in your
answer.
c.
In what way could this tax be considered efficient?
d.
Is it better to tax goods that are elastic or inelastic?

WEEK 6 April 2 5 MID SEMESTER TEST (No tut classes)

Test is held in lecture times refer to blackboard for day and time

WEEK 7

WEEK FREE

April 9 13

WEEK 8 April 16 20 (Assignment Option 1 Due April 20)

Lecture Outline: Chapters 12 & 14 Introduction to macroeconomics
Macroeconomics & the business cycle
Measuring GDP
Real & nominal GDP
Economic growth
Full employment & unemployment
Types of unemployment
Inflation - Costs & causes

Tutorial Questions: Chapter 11 Market Failure

1.

What is an externality? Explain the difference between a positive and a negative

externality. Identify each of the following externalities and explain why they are an
externality.
a.
after eating a burger you vomit on your best friend
b.
a cyclone causes the price of bananas to increase
c.
your mobile phone goes off during the lecture
d.
a firm pours chemical wastes into the river killing the fish
e.
you visit the doctor and get a flu vaccination
f.
tension in the Middle East increases the price of petrol

2.

The export of lead concentrate created serious health problems to the residents of
Esperance. What type of externality is this? Does the market over or underproduce lead? Illustrate this externality identifying MPC, MSC, MPB, MSB. What
type of government policy would be best in this situation?

3.

Define the four different types of goods and then classify each of the following,
giving reasons for your answers: public health; national park; police force; national
defence; suburban roads; CBD roads; internet; tigers; broadcast TV; Foxtel; a pizza

4.

What is a common resource? How is it different to a public good? Provide some

current examples of the tragedy of the commons. Is commercial whaling a modern
example of the tragedy of the commons? Explain whether you agree or disagree.

5.

How can imperfect (or asymmetric) information lead to market failure? Give an
example of adverse selection and moral hazard? Which is a bigger problem for
consumers in the market for used cars?

WEEK 9 April 23 27
Lecture Outline: AGGREGATE DEMAND & SUPPLY Chapter 13
Aggregate demand
Aggregate supply
Macroeconomic equilibrium
AD-AS & the business cycle

Tutorial Questions Chapters 12 & 14

1.

What is a business cycle? What phase is the Australian economy currently

experiencing? What happens during a recession?

2.

How is GDP measured? Explain each of the components of GDP. Why is economic
growth important?

3.

Find the latest economic indicators for Australia and rate Australias performance in
terms of economic objectives:
i rate of GDP growth (quarterly & annual)
ii unemployment rate
iii inflation rate (headline/underlying)
(refer to the ABS website: www.abs.gov.au)

4.

Explain how unemployment is measured and distinguish between the main types of
unemployment.

5.

Explain how inflation is measured. What are the costs of inflation?

WEEK 10 April 30 May 4

Lecture Outline: MONETARY POLICY Chapter 16
What is monetary policy?
The money market
The loanable funds market
Monetary policy & economic activity
Effectiveness of monetary policy

Tutorial Questions: Chapter 13 Aggregate Demand & Supply

1.

What does the aggregate demand curve show?

Why does the aggregate demand curve slope downwards?
What factors can shift the AD curve to the right?

2.

Distinguish between the long run aggregate supply (LRAS) curve and the short run
aggregate supply (SRAS) curve. What factors can increase potential GDP? What
effect does an increase in the price of oil have on the SRAS curve and on the
LRAS?

3.

Textbook: Problems 3, 4, 5, 6, 11

p.430-31

WEEK 11 May 7 11
Lecture Outline: FISCAL POLICY Chapter 17
What is fiscal policy?
Automatic stabilisers & discretionary policy
Fiscal policy & economic activity
The multiplier effect
Effectiveness of fiscal policy
Government debt

Tutorial Questions: Chapter 16 Monetary Policy

1.

What is the cash rate? What role does it play in monetary policy?

2.

How does a change in interest rates affect aggregate demand?

3.

Why do changes in the cash rate affect the sharemarket?

4.

Go to the Reserve Banks website and view the latest monetary policy decision
(http://www.rba.gov.au/media-releases/index.html )
Find out whether the RBA raised, lowered or left unchanged the cash rate.
Summarise the reasons for the decision. Do you agree?

5.

Textbook: Problems 6 & 12 p. 537-38.

WEEK 12 May 14 18 (Assignment Option 2 Due May 18)

Lecture Outline: THE INTERNATIONAL ECONOMY Chapter 19
The balance of payments
The foreign exchange market
Exchange rate fluctuations
National saving & investment

Tutorial Questions: Chapter 17 Fiscal Policy

1.

Explain how the Government can use fiscal policy to offset the effects of the
business cycle? Refer to both expansionary & contractionary fiscal policy?

2.

What is the multiplier effect? What is the formula for the expenditure multiplier?
Explain why an increase in government spending of $10bn has a bigger impact on
GDP than a cut in taxes of $10bn.

3.

What are automatic stabilisers? Explain how the governments budget balance will
automatically change if the economy expands or contracts.

4.

What is crowding out? How does it reduce the effectiveness of fiscal policy?

5.

Are budget deficits a problem? Is government debt a problem?

6.

Textbook: Problem 7 p. 569-70.

WEEK 13 May 21 25
Lecture Outline: REVISION
Tutorial Questions: Chapter 19 Macroeconomics in an Open Economy
1.

Last year Australia recorded a trade surplus and a current account deficit. How is
this possible? Why does Australia run a current account deficit? Is this a problem?

2.

What are the influences on the demand for Australian dollars and the supply of
Australian dollars in the foreign exchange market?

3.

Suppose that the RBA wanted to pursue a contractionary monetary policy to reduce
inflation. What would you expect to happen to the value of the Australian dollar, the
current account and the flows of investment to and from Australia?

4.

Why is the Australian dollar at record high levels against most of the worlds
currencies? Use the exchange rate model to explain your answer. What impact
does a high AUD have on the economy? How does it affect consumers &
producers?

5.

Textbook: Problem 8.