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Tuesday, April 5, 2022

ECONOMICS EXCERCISE Important Questions and Answer


Could production and consumption take place without money? If you think they could, give


Yes. People could produce things for their own consumption. For example, people could grow vegetables

in their garden or allotment; they could do their own painting and decorating. Alternatively people could

engage in barter: they could produce things and then swap them for goods that other people had produced.

Must goods be at least temporarily unattainable to be scarce?

Goods need not be unattainable to be scarce. Because people’s incomes are limited, they can not have

everything they want from shops, even though the shops are stocked full. If all items in shops were free,

the shelves would soon be emptied!

If we would all like more money, why does the government not print a lot more? Could it not

thereby solve the problem of scarcity ‘at a stroke’?

The problem of scarcity is one of a lack of production. Simply printing more money without producing

more goods and services will merely lead to inflation. To the extent that firms cannot meet the extra

demand (i.e. the extra consumer expenditure) by extra production, they will respond by putting up their

prices. Without extra production, consumers will be unable to buy any more than previously.

Which of the following are macroeconomic issues, which are microeconomic ones and which could

be either depending on the context?

a) Inflation.

b) Low wages in certain service industries.

c) The rate of exchange between the dollar and the rupee.

d) Why the price of cabbages fluctuates more than that of cars.

e) The rate of economic growth this year compared with last year.

f)The decline of traditional manufacturing industries.

a) Macro. It refers to a general rise in prices across the whole economy.

b) Micro. It refers to specific industries

c) Either. In a world context, it is a micro issue, since it refers to the price of one currency in terms

of one other. In a national context it is more of a macro issue, since it refers to the exchange rate

at which all Pakistanis goods are traded internationally. (This is certainly a less clear–cut division

that in (a) and (b) above.)

d) Micro. It refers to specific products.

e) Macro. It refers to the general growth in output of the economy as a whole.

f) Micro (macro in certain contexts). It is micro because it refers to specific industries. It could,

however, also help to explain the macroeconomic phenomena of high unemployment or balance

of payments problems.

Assume that you are looking for a job and are offered two. One is more unpleasant to do, but pays

more. How would you make a rational choice between the two jobs?

You should weigh up whether the extra pay (benefit) from the better paid job is worth the extra hardship

(cost) involved in doing it.

How would the principle of weighing up marginal costs and benefits apply to a worker deciding how

much overtime to work in a given week?

The worker would consider whether the extra pay (the marginal benefit) is worth the extra effort and loss

of leisure (the marginal cost).

Would it ever be desirable to have total equality in an economy?

The objective of total equality may be regarded as desirable in itself by many people. There are two

problems with this objective, however. The first is in defining equality. If there were total equality of

incomes then households with dependants would have a lower income per head than households where

everyone was working. In other words, equality of incomes would not mean equality in terms of standards

of living.

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