HARAMBEE UNIVERSITY
FACULITY OF BUSINESS AND ECONOMICS
FROM DEPARTMENT OF ECONOMICS
Group Assignment 1
Introduction to Economics
General Instructions
Make a group of 6 or 7 members
Do not forget to write your name, ID No, Department and Modality.
Attempt all questions and write your answer properly on space provided only.
Answers should be concise and readable.
All questions will be marked for a total of 20 points.
Please note that any similarities of your writings with other colleagues disqualify your work and
missing of following instructions result in give up of 2.5 from your points.
Multiple choices Answer Submission Date: 23/04/2017
1. 4. 7.
2. 5. 8.
3. 6. 9.
I. Choose the best answer from the given alternatives. (4.5 marks)
1. What happen on budget line if the price of good/s changed?
A. The budget line shift to the right when the price of the goods grow up
B. The slope of budget line remain the same if the change in price is not proportional
C. When the price of one good decreases, the budget line shifts to the right on the side of the good
D. The intercept of the budget line remain the same even the price of the goods changed
2. Suppose the demand for good Z goes up when the price of good Y goes down. We can say that
goods Z and Y are:
A. Substitutes. B. Complements. C. Unrelated goods. D. Perfect substitutes.
3. If the demand for coffee decreases as income decreases, coffee is:
A. An inferior good. B. A normal good. C. A complementary good. D. A substitute good.
4. Which of the following will NOT cause a shift in the demand curve for compact discs?
A. A change in the price of pre-recorded cassette tapes. B. A change in income.
C. A change in the price of compact discs. D. A change in wealth.
5. A technological advance in textbook production will lead to which of the following?
A. a decrease in textbook supply B. an increase in textbook demand
C. an increase in textbook supply D. a movement along the supply curve for textbooks
6. What you give up to pursue another alternative is known as
A. capital. B. land. C. money cost. D. opportunity cost.
7. Suppose that you prefer reading a book you already own to watching TV and that you prefer
watching TV to listening to music. If these are your only three choices, what is the opportunity cost
of reading?
A. watching TV and listening to music B. watching TV
C. listening to music D. sleeping E. the price of the book
8. Which of the following statements is/are normative?
I. The price of gasoline is rising.
II. The price of gasoline is too high.
III. Gas prices are expected to fall in the near future.
A. I only B. II only C. III only D. I and III only E. I, II, and III
II. Workout and answer the following questions by showing all necessary steps. (15.5 marks)
9. Explain the difference between positive economics and normative economics.(1pt)
10. A consumer’s Utility function is given by: U(x, y) = 2X0.6Y0.4. If the consumer’s income is Birr 900
and the price of X is Birr 8 per unit and the price of Y is Birr 12 per unit.
A. What is the utility maximizing level of X and Y?
B. What is the marginal rate of substitution x for y at equilibrium level?
11. Refer to the graph below. Assume that the country is producing at point C.
a) Does this country’s production possibilities curve exhibit increasing opportunity costs? Explain.(1pt)
b) If this country were to go to war, the most likely move would be from point C to which point?
Explain.(1pt)
c) If the economy entered into a recession, the country would move from point C to which point?
Explain.(1pt)
12. Given market demand Qd = 50 - P, and market supply P = Qs + 5
A) Find the market equilibrium price and quantity?(1.5pts)
B) What would be the state of the market if market price was fixed at Birr 25 per unit?(1pt)
C) Calculate and interpret price elasticity of demand at the equilibrium point.(1.5pts)
13. Based on the following table which indicates expenditure of the household on a commodity, answer
the questions that follow ( The price of the good is Br.10 )
A) Calculate income elasticity of demand, if income increases from Br.10, 000 to Br. 20,000 and if
income increases from Br.40, 000 to Br. 50,000.(2pts)
B) Is this a normal or an inferior or a luxury good? Justify.(1pt)
C) Does the proportion of household income spent on this good increase or decrease as income
increases? .Why?(1pt)
