Tutorial Questions

Introduction to Economics and Macroeconomics

Discussion Questions
1 Explain why both nations with high living standards and nations with low living
standards face the problem of scarcity. If you won $1 million in a lottery, would you
escape the scarcity problem?

You would not escape the scarcity problem even if you won $1 million in a lottery because
the problem of scarcity will always be present. There will always be unlimited wants that
cannot be satisfied due to limited resources

2 Why is money not considered as capital in economics?
Money is not a productive resource. It is used for purchasing resources. Capital in
economics can actually be used to produce goods and services.

3 Explain the difference between macroeconomics and microeconomics. Give
example of the areas of concern to each branch of economics.
Micro: individual unit. Eg household, market, industry
Macro: economic behavior of aggregate (national level) Eg national output, unemployment
rates, etc.

4 Explain why it is important for an economic model to be an abstraction from
the real world.
TO UNDERSTAND THE COMPLEXITIES OF THE REAL WORLD.

5 Explain the importance of the ceteris paribus assumption for an economic
model.
Ceteris paribus = all other things being held constant/equal. Using the ceteris paribus you
will then be able to rule out certain changes in the variables.
6 Explain the statement There is no such thing as a free lunch in relation to
scarce resources.

idea is that of opportunity cost. Whenever you choose to do something, you give up
the ability to do something else at the same time. So, if someone uses grain to feed
cows to make the hamburger for your free lunch, they lost the opportunity to use that
grain for something else. And that's another cost of the lunch.

7 We can easily commit errors in reasoning as most economic events appear to
have many possible simultaneous causes. Hence it is difficult in economics to
unscramble cause and effect.

(i) Explain what is the post hoc, ergo propter hoc fallacy.
It is also known as the fallacy that association is causation. It means if
the events A happens before Event B, it cannot be inferred that Event
A caused Event B.

(ii) Furnish an example in the field of economics to enhance your
explanation.

When stock market rises, Job market rises too. Cannot infer that job
market rises because of stock market rises. It may rises because
company restricting.

Case Study

Analyze the positive versus normative arguments in the following cases. What
statements of positive economics are used to support requiring air bags? What
normative reasoning is used?

Normative = Is just a statement, may not be facts.
Positive = With facts and supported with figure.
Read the articles Should the Government Require Air Bags? on page 17,
Tucker, 8
th
Ed.
Experiential Exercise
Explore the web sites http://www.asiaone.com and http://www.economist.com to find
two stories about the economy that have been in the news lately. Use the relevant
economic concepts to explain the articles you have chosen.