Question

ECON1001: Introduction to Microeconomics

Answer all questions

1. What is a model? Explain why economists use models.

2. Your time is a scarce resource. What if the quantity of time were increased, say to 48 hours per day, and everyone still lived as many days as before. Would time still be scarce?

3. State whether the following statements belong in positive or normative economics.

a. The taxes imposed on gasoline in Barbados is excessive and inequitable to motorists.

b. The government of Trinidad and Tobago should increase the minimum wage to $4000 per week to reduce poverty.

c. A decrease in income will result in a fall in the demand for motorcycles.

d. Rising flour prices will increase the price of bread.

e. The government should spend more on cancer research.

4. For parts (a) and (b) respectively, DRAW a market that is initially in equilibrium, labelling the initial equilibrium price and equilibrium quantity. Then show what happens in each market based on the given scenarios. Label the new equilibrium price and equilibrium quantity. Write the given sentence after each scenario in your examination booklet and fill in the blanks with the words “increase” or “decrease” to describe what happens.

a. There is an increase in income and the good is an inferior good:

The equilibrium price will _______________ and the equilibrium quantity will _______________.

b. Buyers expect the price of the good to fall in the future: The equilibrium price will _______________ and the equilibrium quantity will _______________.

Answer 1

1)

The model makes the study of any phenomena easy and understandable. The model converts the complex relationship into a simple and easy format.

The model is frequently used in economics. it helps economists to understand complex problems and represent them in the easiest and understandable manner.

2)

Scarcity occurs when demand or needs overshoot the available resources. Even if the time increases to the 48 hours, the problem of scarcity can not be done away with.

When time or resources increase, the demand or needs of people also become multiple.

3)

a. The taxes imposed on gasoline in Barbados is excessive and inequitable to motorists.

This is a positive statement. this is factual description

b. The government of Trinidad and Tobago should increase the minimum wage to $4000 per week to reduce poverty.

This is a normative statement. this is advisory in nature.

c. A decrease in income will result in a fall in the demand for motorcycles.

This is positive statement.

d. Rising flour prices will increase the price of bread.

This is positive statement

e. The government should spend more on cancer research.

this is normative statement. thi is advisory in nature.