MGTA01H3- Final Exam Guide - Comprehensive Notes for the exam ( 72 pages long!)

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MGTA01H3
FINAL EXAM
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MGEA02 Introduction to Microeconomics: A Mathematical Approach
STUDY OBJECTIVES AND STUDY QUESTIONS
Topic 1 (Sept 5 - 11) Production Possibilities & Opportunity Costs
Coverage: Definition of economics. Definition of microeconomics and macroeconomics. The role
of scarcity of economic resources and of choice. Opportunity cost defined and explained. The
production possibilities model as a way of thinking about scarcity, choice and opportunity cost.
Recommended Reading: read Chapter 1 “First Principles” (pp. 5-21) as an introduction to some
of the key insights of economics and part of Chapter 2 “Economic Models: Tradeoffs and
Trade” (pp. 25-33). Many of you will also benefit from reading Appendix 2A “Graphs in
Economics” (pp. 50-63). We will be using graphs intensively throughout the term.
Study Objectives
1. To learn and comprehend the definition of economics.
2. To learn the meaning of opportunity cost and to be able to apply this analytical concept in
explaining economic behaviour.
3. To determine the specific meaning of the opportunity cost concept in the context of a
Production Possibilities model of an economy; to be able to calculate opportunity cost
mathematically.
4. To understand the meaning of concepts such as scarcity, efficiency, inefficiency, growth,
opportunity cost tradeoffs, attainable and unattainable regions, within the context of a
simple Production Possibilities model of the economy.
5. To begin to grasp the role of markets in making economic decisions in a market economy.
6. To distinguish clearly between the types of questions and issues addressed by
microeconomics and macroeconomics.
Recommended Textbook Questions
Do all the Check Your Understanding questions within the parts of the text in the assigned
readings. Answers for these are at the back of the textbook.
Chapter 1: Q3, 4, 6, 8, 9
Chapter 2: Q1-4
Chapter 2 Appendix: Q1, 4, 5, 8
Additional Study Questions
1-3 An economy can produce two goods, X and Y. The equation of the Production
Possibilities Frontier for this economy is given by:
Y = 144 - 10X - X2, 0 ≤ X ≤ 8, Y ≥ 0
Questions 1, 2 and 3 concern this economy.
1. When the economy is producing 8 units of X and 0 units of Y, what is the opportunity cost
of Y?
(A) 0 units of Y per unit of X. (B) 14 units of Y per unit of X.
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(C) 26 units of Y per unit of X. (D) 69 units of Y per unit of X.
(E) 90 units of Y per unit of X. (F) 100 units of Y per unit of X.
(G) 102 units of Y per unit of X. (H) 130 units of Y per unit of X.
(I) 144 units of Y per unit of X. (J) 1/144 units of X per unit of Y.
(K) 1/102 units of X per unit of Y. (L) 1/90 units of X per unit of Y.
(M) 1/69 units of X per unit of Y. (N) 1/36 units of X per unit of Y.
(O) 1/26 units of X per unit of Y. (P) 1/14 units of X per unit of Y.
(Q) 0 units of X per unit of Y. (R) none of the above
2. When the economy is producing 7 units of X and 20 units of Y, what is the opportunity
cost of X?
(A) 0 units of Y per unit of X. (B) 14 units of Y per unit of X.
(C) 26 units of Y per unit of X. (D) 69 units of Y per unit of X.
(E) 90 units of Y per unit of X. (F) 100 units of Y per unit of X.
(G) 102 units of Y per unit of X. (H) 130 units of Y per unit of X.
(I) 144 units of Y per unit of X. (J) 1/144 units of X per unit of Y.
(K) 1/102 units of X per unit of Y. (L) 1/90 units of X per unit of Y.
(M) 1/69 units of X per unit of Y. (N) 1/36 units of X per unit of Y.
(O) 1/26 units of X per unit of Y. (P) 1/14 units of X per unit of Y.
(Q) 0 units of X per unit of Y. (R) none of the above
3. We can tell that this economy has increasing opportunity costs because:
(A) d2Y/dX2 > 0 (B) dY/dX < 0 (C) d2Y/dX2 < 0
(D) dY/dX > 0 (E) all of the above (F) none of the above
(G) this economy does not have increasing costs.
4. An economy can produce two goods, X and Y. The equation of the production possibilities
frontier for this economy is given by the following equation:
Y = 36 - 0.25(X+1)2 for 0≤X≤11
a) a government official tells you that he hopes that the economy will produce 4 units of X
and 31 units of Y. Is this a reasonable or unreasonable estimate, and why?
b) when the economy is producing 9 units of X efficiently, what is the opportunity cost
(measured in units of Y given up) of getting a small amount more of X?
c) What is the general formula for measuring the opportunity cost of X in this economy?
d) Calculate the opportunity cost of X, when X = 1.
e) Calculate the opportunity cost of X when X = 10.
f) Explain, in an economic sense, why there is a difference in the opportunity cost measured
at different places along the PPF.
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