Department of Economics Eco 101: Introduction to Microeconomics

North South University Semester: 11-1 (Spring 2011)

North South University

Department of Economics
Eco 101: Introduction to Microeconomics
Semester: 11-1 (Spring 2011)

Practice Questions: Set 1- The Scope and Method of Economics

The following are for PRACTICE ONLY

Interpret with economic logic and intuition
Please do not expect to see any of them in any future assessment
Please correct any typo that may arise

TOPIC 1: Why Study Economics?

1. Define economics. Interpret the definition with economic logic and intuition. HINT:
Provide a definition of economics. Then explain key terms in the definition and how
they relate to your definition. Key terms include scarce resources; nature and
previous generations etc.

2. Define opportunity cost. Interpret the concept when an individual (a) faces two
options A and B, both of which were available to the individual to choose; and (b)
faces three options A, B and C, each of which were available to the individual to
choose. Interpret.

3. Define a scarce good and an economic good. Why is the opportunity cost of a scarce
good positive but zero for a free good? Interpret with appropriate examples.

4. Define marginalism. How does an individual make a decision at the margin in the
following two situations? You can use hypothetical data to establish your argument.

a. The decision to drink an extra glass of water where the units are from 0 to 4
b. There are two Goods A (Nokia E71) and B (Nokia N900). The individual already
possesses Good A. Good B is better than Good A. How will the individual decide to
buy or not to buy Good B?

5. In Que 4 show and interpret: MB and MC. Why is MB a psychological evaluation

and MC an actual evaluation?

6. In Que 4 show and interpret: (MB-MC)>0; (MB-MC)<0; and (MB-MC)=0

7. Define sunk cost. For two options A and B show how sunk cost differs from
opportunity cost.

8. Define efficiency. Interpret with an economic example why an efficient situation is

when the net marginal benefit of a decision is zero, i.e., when (MB-MC)=0

TOPIC 2: The Method of Economics

9. Define positive economics (theoretical economics) and normative economics

(applied or policy economics) with appropriate examples.

10. Define economic theory and an economic model with an appropriate example.

Practice Questions- Set 1: The Scope and Method of Economics- FOR PRACTICE ONLY
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Department of Economics Eco 101: Introduction to Microeconomics
North South University Semester: 11-1 (Spring 2011)

11. Define theories and models in the context of economic theory. Why do we need the
Ockham’s Razor principle? Interpret with an appropriate economic example.

12. In economic model building why do we need the following? Interpret with
appropriate economic examples.
a. All else equal (ceteris paribus)
b. Post hoc fallacy
c. Fallacy of composition

13. There are six statements below. Which of the statements follow the foundations of logic
in economics and which do not? Why? Interpret.

Post Hoc Fallacy

You enter the room (1st event). Tamim Iqbal hits a six (2nd event) to win a World Cup
Match for the Tigers.
The tariff on mobile phones increases (1st event). Students reduce their amount of
talking (2nd event).

Ceteris Paribus
The government increases the price of CNG. Traffic congestion reduces in Dhaka City
after one month
The price of essentials increase during Ramadan or any festival in Bangladesh.
Households do not decrease their consumption of essentials.

Fallacy of Composition
If a single student in a class works hard their grades will be good in an exam. If all
students work hard the average performance of the class will rise.
If a single person in an economy saves each day they create capital over time. If
everybody in the economy saves each day the total capital of the economy will reduce.

TOPIC 3: How To Read And Understand Graphs

14. Define a slope and show in a graph when (a) X is the independent variable; and (b) Y
is the independent variable.

15. Define a Slope. What does a Slope show, and what advantage does this concept
have in economics? Interpret with an example.

16. What is a functional relationship? How can such a relationship be expressed?

Interpret with an appropriate example.

17. What do you mean by a positive and negative functional relationship? Interpret
with graph(s).

18. How does the concept of Slope help determine if a functional relationship is positive
or negative? Briefly comment.

Practice Questions- Set 1: The Scope and Method of Economics- FOR PRACTICE ONLY
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Department of Economics Eco 101: Introduction to Microeconomics
North South University Semester: 11-1 (Spring 2011)

19. What is the value of a slope for a straight line and that for a non-linear curve?
Interpret with graph(s).

20. Interpret the following in graph(s) and interpret where X is the independent variable
a. Positive slope with increasing, decreasing and constant function.
b. Negative slope with increasing, decreasing and constant function.
c. Redo (a) and (b) when Y is the independent variable.
d. A convex and a concave function.
e. A U-shaped function and an inverted U-shaped function.

21. At either a Minimum or Maximum value of a function, its slope is zero. What is the
mathematical and economic interpretation of this phenomenon? Interpret with
graph(s).

22. If the vertical axis (Y) now denotes the independent variable, and the horizontal axis
(X) denotes the dependent variable, what will the values of the Slopes be in
Questions 26 and 27? Interpret your results.

23. Define an X-Intercept and a Y-Intercept. Interpret with graph(s).

NOTE
LABEL GRAPHS CLEARLY where asked for or where you think relevant
ECONOMIC LOGIC & INTUITION with INTERPRETATION is expected

QUIZ TIME
SUNDAY 27 FEBRUARY 2011. CLASS TIME from 1:00 NAC 401
PLEASE DO NOT BE LATE

QUESTION FORMAT
There will be TWO QUESTIONS in EACH SET
You ANSWER ANY ONE
TOTAL TIME 20 Minutes

Economic theory is the most intuitive of all the social sciences. Mathematics and graphs are
only tools to explain and interpret economic logic with intuition. Microeconomics is the
foundation of mainstream economic theory. Once the foundations are grasped the branches
of the economics tree become as clear as daylight.

Good Luck in your journey in the world of Microeconomics.

Asrar Chowdhury (ArC)

Course Teacher
Tue 22 February 2011

Practice Questions- Set 1: The Scope and Method of Economics- FOR PRACTICE ONLY
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