Assignment for the course Economics (Econ 1011)
INSTRUCTIONS: Please read the following instructions carefully. Failure to follow these
instructions will result in a large penalty (even rejection) on the assignment.
This assignment is designed to assess your understanding and problem solving skills on the
course.
It contains 12 questions. Please, you are supposed to do all selected assignment questions.
While answering questions in the assignment, you must show your work exhaustively. You
have to show all the necessary steps that you use to get an answer especially for the problem
solving part (zero point for right solution without explanation).
The assignment must be done INDIVIDUALLY; you must not do in groups, and you must not
copy any student’s submission or any part even. Further, you must not allow another student
to copy your submission. Of course you are free to discuss ideas with each other on how to
approach a problem, but you should be very careful not to write answers together. You must
convince your instructor that you understand the problem and that you did it yourself. (Your
instructor is eager to see your own effort). A blind duplication of any part of the assignment
will result rejection of it regardless of who copied from whom.
The submission deadline for this assignment is class end for the course. You must submit your
assignment with in the deadline. Submissions after the deadline will not be accepted.
The submission should be in handwriting (computer typing and photocopy is not allowed)
No need of binding and laminating, a simple staple is enough
1. Define economics. What are the branches of economics? Are these branches
independent or interlinked? Explain
2. Indicate whether each of the following statements applies to microeconomics or
macroeconomics:
a. The unemployment rate in the United States was 9.7 percent in March 2018.
b. A U.S. software firm discharged 15 workers last month and transferred the work
to India.
c. An unexpected freeze in central Addis Ababa reduced the citrus crop and caused
the price of oranges to rise.
d. Ethiopia output, adjusted for inflation, decreased by 2.4 percent in 2019.
e. Last week Dashen Bank lowered its interest rate on business loans by one-half of
1 percentage point.
f. The consumer price index rose by 2.7 percent from December 2018 to December 2019.
3. What do you understand by positive economics and normative economics?
4. What is an opportunity cost? How does the idea relate to the definition of economics?
5. What is a production possibility curve? Use a production possibilities frontier to
describe the idea of “efficiency.”
6. Assume that a certain simplified economy produces only two goods, X and Y, with given
resources and technology. The following table gives the various possible combinations
of the production of the two goods (all units are measured in millions of tons).
Production Possibility Good X Good Y
A 0 100
B 2 90
C 4 60
D 6 20
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a. Calculate the opportunity cost of the production of good X at each point. What law
does the trend in those values exhibit?
b. What changes are required for this economy to shift the PPF outward?
7. What are the basic economic questions that every economy faces and what are the
different economic systems that countries adapt in order to answer the above basic
questions? Discuss them briefly
8. Briefly describe the different decision making units in the economy and their inter-
linkage in the market. Draw a four sectors circular flow diagram.
9. Explain the law of demand. Why does a demand curve slope downward? How a market
demand curve is derived from individual demand curves?
10. What are the determinants of demand? What happens to the demand curve when any
of these determinants change? Distinguish between a change in demand and a
movement along a fixed demand curve, noting the cause(s) of each.
11. Briefly explain how you could tell: a) whether a good is a normal good or an inferior
good. b) Whether a good is a luxury or a necessity. c) Whether two goods are
complements or substitutes.
12. Briefly define each of the following: a) Inverse demand function. b) Demand. c) Supply
d) law of demand e) Elasticity of demand f) law of supply
13. The demand for tickets to an Ethiopian Camparada film is given by D(p)= 200,000-
10,000p, where p is the price of tickets. If the price of tickets is 12 birr, calculate price
elasticity of demand for tickets and draw the demand curve
14. 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 )
Income (Br/month) Quantity Demanded (units/month)
10,000 50
20,000 60
30,000 70
40,000 80
50,000 90
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.
b. Is this a normal or an inferior or a luxury good? Justify.
c. Does the proportion of household income spent on this good increase or decrease
as income increases? Why?
15. When price of tea in local café rises from Br. 10 to 15 per cup, demand for coffee rise
from 3000 cups to 5000 cups a day despite no change in coffee prices.
a. Determine cross price elasticity.
b. Based on the result, what kind of relation exists between the two goods?
c. Explain the law of supply. Why does the supply curve slope upward? How is the
market supply curve derived from the supply curves of individual producers?
16. What are the determinants of supply? What happens to the supply curve when any of
these determinants changes? Distinguish between a change in supply and a change in
the quantity supplied, noting the cause(s) of each
17. How will each of the following changes in demand and/or supply affect equilibrium
price and equilibrium quantity in a competitive market; that is, do price and quantity
rise, fall, or remain unchanged, or are the answers indeterminate because they depend
on the magnitudes of the shifts? Use supply and demand to verify your answers.
a. Supply decreases and demand is constant.
b. Demand decreases and supply is constant.
c. Supply increases and demand is constant.
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d. Demand increases and supply increases.
e. Demand increases and supply is constant.
f. Supply increases and demand decreases.
g. Demand increases and supply decreases.
h. Demand decreases and supply decreases.
18. Assume that demand for a commodity is represented by the equation P = 10 - 0.2Qd
and supply by the equation P = 2 + 0.2Qs, where Qd and Qs are quantity demanded
and quantity supplied, respectively, and P is price. Using the equilibrium condition,
solve the equations to determine equilibrium price. Now determine equilibrium
quantity.
19. Define utility. Explain the cardinalist Versus Ordinalist approaches of utility and their
respective equilibrium conditions of the consumer.
20. Define/explain the following terms/phrases
a. Production function
b. Total product, average product and marginal product
c. The law of diminishing marginal return
d. Cost of production
21. Briefly discuss the stages of short run production function and show it graphically
22. Suppose that labor is the only variable input to the production process. If the marginal
cost of production is diminishing as more units of output are produced, what can you
say about the marginal product of labor?
23. How can the distinction between fixed costs and variable costs be made in the short
run production? Classify the following as fixed or variable costs: advertising
expenditures, fuel, interest on company-issued bonds, shipping charges, payments for
raw materials, real estate taxes, executive salaries, insurance premiums, wage
payments, depreciation and obsolescence charges, sales taxes, and rental payments on
leased office machinery.
24. A firm has fixed costs of $60 and variable costs as indicated in the table below.
a. Complete the table below
b. Graph total fixed cost, total variable cost, and total cost.
c. Graph AFC, AVC, ATC, and MC. Explain the derivation and shape of each of these
four curves and their relationships to one another.
Total Total Total Total Average Average Average Marginal
Product Fixed cost variable cost Cost fixed cost variable cost total cost cost
0 $_______ $0 $_______ $_______
1 _______ 45 _______ $_______ $ _______ _______ $_______
2 _______ 85 _______ _______ _______ _______ _______
3 _______ 120 _______ _______ _______ _______ _______
4 _______ 150 _______ _______ _______ _______ _______
5 _______ 185 _______ _______ _______ _______ _______
6 _______ 225 _______ _______ _______ _______ _______
7 _______ 270 _______ _______ _______ _______ _______
8 _______ 325 _______ _______ _______ _______ _______
9 _______ 390 _______ _______ _______ _______ _______
10 _______ 465 _______ _______ _______ _______ _______
25. Explain the reasons why a rational producer will not produce in stages I and III of
production.
26. Explain the basic features of perfect competition market structure.
27. Assuming the cost function faced by coca-cola plc is given as TC=1000 + 2Q + 0.01Q2
and the price charged per bottle is birr10. Using the MC-MR approach, determine
i. The output that maximizes profit
ii. The maximum profit level
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iii. From the cost function differentiate between the total fixed cost and total
Variable cost
28. Explain the conditions of TR-TC approach and MR-MC approach to attain equilibrium
of a perfectly competitive firm.
29. Explain the sources and features of monopoly market structure. What are the various
types of monopoly?
30. Explain the characteristic features of monopolistic competition
31. What is macroeconomics? Discuss it (focus area, objectives, evolutions)
32. What is the difference between GDP and GNP? Which one is a better measure of the
economic performance of a country?
33. What is unemployment? How can we measure it?
34. What is inflation? What are its causes? What is its impact on the economy? How can
we measure it?
NB: Assignment Questions: 5, 6, 13, 14, 15, 17, 18, 24, 27, 29, 30, and 32