Tutorial Problem Set 3
Tutorial questions on: Chapter 4, Work, wellbeing and scarcity
Questions for the teacher at the start of the class. From the midterm exam last year
Exercise 0.1: Open question 1, part A and B. Annual working hours across countries
and institutions (5 points)
Figure 1 Annual hours of work and real income (1870-2018)
a. Have a look at Figure 1. The standard of living rose in the second part of the 19 th
century. At the same time, the number of working hours decreased. Explain what
brought about this change by referring to the economic system and role of technology.
Make sure to define both concepts. (4 points)
b. Consider the model of working hours in Chapter 4 and Figure 1. Which type of labour
is not taken into account by both? Would the graph look different if you would make it
for men and women separately? (1 point)
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Exercise 0.2 (Multiple choice question from the exam last year): Which of the following
three statements regarding the marginal rate of substitution (MRS) and marginal rate of
transformation (MRT) is/are correct? Choose the correct answer below.
I. The MRT is the trade-off between hours of gaming and the number of courses that
Jo can pass.
II. At point E, the MRT (the slope of the feasible frontier) is steeper than the MRS
(the slope of the indifference curve).
III. Point D is an optimal choice for Jo since MRS=MRT at point D, and it maximizes
the number of courses Jo can pass.
a. Only statement I is correct
b. Statements I and II are correct
c. Statements I and III are correct
d. Statements II and III are correct
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Exercise 1. Working hours across countries
Use figure 4.1 below to answer the following questions:
1.1 Looking at both panel A and B, describe what happened to annual working hours over
the period 1900-2000.
1.2 Compare annual working hours in the countries in Panel A with those in Panel B, and
describe the differences you observe.
1.3. What possible explanations can you suggest for why the decline in annual working
hours was greater in some countries than others? You can refer to concepts from Ch. 1-3 in
your answer.
1.4 Why do you think the decline in annual working hours was much faster in most countries
in the first half of the 20th century compared to the second half? You can refer to concepts
from Ch. 1-3 in your answer.
1.5 In recent years, is there any country in which working hours have increased? Why do
you think this happened?
Exercise 2. Economic models and opportunity costs
2.1 Why is the ceteris paribus (all else equal) assumption crucial in economic modeling and
how does it compare to experiments in natural sciences or (natural) experiments carried out
by economists?
2.2 As a student in the Netherlands you pay an annual tuition fee. There are two different
fees: the statutory fee and the institutional fee. Which fee you pay depends on your
nationality, your degree programme and - for the statutory fee only - whether you study full-
time or part-time.
Most students pay the statutory fee, which amounts to €2,610 for full-time students in 2025-
2026. In response to the Covid pandemic, the Dutch government decided to give first year
students some financial breathing space. This implied for first year students who hadn't
studied before, that the statutory tuition fee of the first year was halved, so full-time students
paid €1,157 (which was half of the statutory fee at that time). This only applies if you paid the
statutory fee.
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From the viewpoint of an accountant, does this mean that the cost of going to university has
halved the first year? What would be an economist's viewpoint?
Exercise 3. Ceteris Paribus assumption and production functions
You have been asked to conduct a research study at the university of Groningen similar to
the one done at the Florida State University, as described in the book from page 148 onward
(see figure 4.6).
3.1 What factors do you think should be held constant in a model of the relationship between
study hours and final grades? Which information do you need to collect to examine the
relationship between hours worked and final grades?
3.2 You collect information on grades and free time, and come up with the following table of
average hours and average grades. Calculate the opportunity costs of an extra hour of free
time from going from points A to B, B to C etc. Interpret the opportunity costs, and explain
why they differ. Hint: you can use the excel sheet available on Brightspace.
A B C D E F G H J I K L M N O P
Free time 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Grade 9 9 9 8.8 8.5 8.1 7.6 7.0 6.3 5.5 4.6 3.6 2.5 1.3 0 0
Opportunity
cost
3.3 Draw a graph that represents the feasible frontier based on the points in the table above
with Final grade on the y-axis and Hours of free time per day on the x-axis. Is the
combination of 12 hours of free time and a grade of 8.9 feasible? Why (not)? Why is the
graph shaped like this? Hint: you can use the excel sheet available on Brightspace.
3.4 Do you have enough information to decide what the optimal combination of grade and
free time is? If not, what do you need? Explain.
3.5 Can you imagine situations where the returns to some activity may not be marginally
diminishing, give an example? How would the production function look graphically in your
example?
Exercise 4. Scarcity
The model in the book describes that the equilibrium choice of Alexei in terms of the tradeoff
between studying and free time is to set MRS=MRT. This relies on the assumption that free
time and grade points are scarce. Describe a situation in which Alexei’s grade points or free
time would not be scarce. Remember that scarcity depends on both preferences and the
production function.
Exercise 5. Technological change and choices (LG1)
Consider the constrained choice problem of final grades and study hours.
5.1 What could cause a technological improvement in you and your students’ production
function?
5.2 Draw a diagram to illustrate how this improvement would affect your production function,
as well as the feasible set of grades and study hours. Use the excel sheet that is available
on Brightspace to create some figures.
5.3 Analyse what might happen to your choice of study hours and the choices you might
make in case technology improves.
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Exercise 6.
The pay-off matrix below shows the desirability of designer (luxury) clothing and modest
clothing among two individuals: Taylor and Avery.
Taylor
Designer (Luxury) Modest
Designer (Luxury) 3, 3 6, 1
Avery
Modest 1, 6 4, 4
Which of the following statements is correct according to the pay-off matrix?
a. The Veblen effect can be curbed by imposing a tax on designer clothing of 1.
b. The desirability of modest clothing is lower because modest clothing is conspicuous
consumption for Avery and Taylor.
c. The game matrix in this case entails a prisoner’s dilemma.
d. The dominant strategy equilibrium is Pareto efficient and a Nash equilibrium.