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Managerial Economics 2010 Answers to All Tutorial Questions

Topic 1 : What is managerial economics

Questions from Chapter 1 of the Text (McTaggart, Findlay & Parkin)

Review Question 1 (pp. 4) List some examples of scarcity in Australia today. An example of scarcity at the economy-wide level would be people with lower incomes being forced to choose between food and petrol due to high prices for both. An example of scarcity at an individual level would be a person unable to afford both life-saving (or life-enhancing) medicine and food. At a more student-oriented level, examples of scarcity include not enough income to afford both tuition and a nice car, and not enough learning capacity to study for both an Economics exam and a
79) In January 2007, the price of petrol was $1.13 a litre. By September 2008, the price had increased to $1.55 a litre. Assume that there were no changes in average income, population, or any other influence on buying plans. How would you expect the rise in the price of petrol to affect a. The demand for petrol? Explain your answer. The rise in the price of petrol does not change the demand for petrol. The demand for petrol changes only when some influence other than the price of the good changes. b. The quantity of petrol demanded? Explain your answer. The rise in the price of petrol decreases the quantity of petrol demanded. A rise in the price of a good or service decreases the quantity of that good or service demanded. Question 10 (pp. 80) “As more people buy computers, the demand for Internet service increases and the price of Internet service decreases. The fall in the price of Internet service decreases the supply of Internet service.” Is this statement true or false? Explain. The statement is false for several reasons. First, if the demand for Internet services increases and nothing else changes, the price of Internet service will rise, not fall. Second, if the price of Internet services falls, the supply of Internet services does not change. Rather, there is a decrease in the quantity supplied, that