UNIVERSITY OF BOTSWANA

DEPARTMENT OF ECONOMICS
ECO-111 BASIC MICROECONOMICS
Tutorial questions
Topic- 1 and Topic-2
1.

What is economics?

2.

What do you mean by the following perspectives?

a)
b)
c)
d)

3.

Distinguish between the following

a)
b)
c)
d)
e)

a)
b)

Scarcity and choice

Rational behaviour and rational self-interest
Generalisations
Ceteris Paribus

Microeconomics and macroeconomics

Normative economics and positive economics
Economic principle and economic policy
Independent variable and dependent variable
Direct relationship and indirect relationship between any two
variables

4.

Explain the reasons why every economy is faced with the basic
economic problem to answer five questions such as what to produce,
how to produce, for whom to produce, how to accommodate change
and how to promote progress?

5.

Explain the following

Consumer goods and capital goods
Public goods and private goods

6.

The alternative production possibilities faced by the economy of

Botswana in the production of cloth and bread are indicated in the
following Production Possibilities Table (PPT).
Production
possibilities

Bread
(000 loaves)

Cloth
(000 metres)

Combination

A
B
C
D
E

0
1
2
3
4

10
9
7
4
0

a) With cloth on vertical axis (Y) and bread on the horizontal axis
(X), graph the above data using an appropriate scale to derive
Production Possibilities Curve (PPC)
b) What is opportunity Cost?
c) If the economy wants to move from combination B to the
combination C, what is the opportunity cost of producing one
million more loaves of bread?
d) Explain how the increasing opportunity cost is reflected in the
shape of the production possibilities curve.
7.

What is meant by demand and demand schedule?

8.

What is law of demand?

9.

Why is that demand curve downward sloping?

10.

Distinguish between change in demand and change in the quantity

demanded.

11.

Explain the non-price determinants of demand and their effect on

demand.

12.

What will each of the following have on the demand for shoes? Show
these effects graphically.
a) Bata shoes become fashionable.
b) Government workers have a higher income due to a generous
salary increment (assuming Bata shoes are normal goods).
c) The price of a substitute to Bata shoes, Nike shoes falls.
d) The consumers expect the price of Bata shoes to fall in the near
future (assuming they will still fashionable)
e) An increase in interest rates (assuming consumers are net
borrowers)
f) A reduction in income tax

13.

Distinguish between the following:

a)
b)

Normal and inferior goods.

Substitutes and complements goods.
14.

How will your demand for normal good change when your income
rises? How will your demand for normal good change when your
income falls? How do your answers change if the good is an inferior
good? Explain with the help of diagrams

15.

How will the demand for a good change when the price of its
substitute decreases? How will the demand for a good change when
the price of its complementary good falls? Explain with the help of
diagrams.

16.

Define supply schedule and the law of supply. What is the

relationship between price and quantity supplied? Why is the supply
curve upward sloping?

17.

Distinguish between a change in supply and a change in quantity

supplied.

18.

Discuss the non-price determinants of supply that shift the supply

curve and show graphically the effect of the following.
a) Increase in wages and the prices of raw material that influences
cost of production
b) Technological progress
c) Negative expectations of suppliers
d) Increase in the number of suppliers

19.

Explain, with diagrams, the following

a) Market equilibrium
b) Market equilibrium price and equilibrium quantity
c) Market surplus and market shortage

20.

With the help of diagrams, explain the effect of the following on

equilibrium price and equilibrium quantity
a)
b)
c)
d)

Supply
Supply
Supply
Supply

increase and demand decrease

increase and demand increases
increases and demand increases
decrease and demand decrease
3

e) Supply remains constant and demand increases

f) Supply increases and demand remains constant

21.

Given the following demand and supply equations, solve

mathematically to derive market equilibrium price and quantity
Demand equation represented by 30 -2P
Supply equation represented by 12 + 4 P

22.

What is price elasticity of demand? How is it measured?

23.

Explain the following graphically

a)
b)
c)
d)
e)

Elastic demand
Unit elastic
Inelastic demand
Perfectly elastic
Perfectly inelastic

24.

Distinguish between arc/midpoint elasticity and point elasticity

25.

Suppose the demand schedule for CDs is as follows

Price per CD (Pula)
8
7
6

a)

Quantity demanded

1
2
4
5
6
7
8

Calculate the elasticity coefficient for each price change and

quantity change. At what price(s) or price range is the demand
elastic, unit elastic and inelastic?

b)

By using the above figures, draw the demand curve.

c)

What price would bring in the highest revenue to the

seller?

d)

How would the price changes affect total revenue?

26.

When price of milk is reduced from P10 to P7 per litre in Gaborone

city, milk purchased by Mrs. Doreen per week for her family has
increased from 12 to 14 litres. Calculate price elasticity of demand for
milk by using point elasticity and arc elasticity methods. Indicate
whether the demand is elastic or inelastic.

27.

How do businesses and government use the concept of elasticity while

fixing the price of a product or service and imposing taxes on people?

28.

Discuss the factors that determine price elasticity of demand.

29.

Define elasticity of supply and explain how it is measured?

30.

Explain the following and give examples of products that are relevant
for each:
Immediate market
Short run market
Long run market

31.

What are the determinants of Price elasticity of supply?

32.

Explain cross-price elasticity of demand? How is it measured?

33.

Analyse cross-price elasticity of demand for the following

Substitute goods
Complementary goods
Independent goods

34.Define income elasticity of demand

34 Explain income elasticity of demand for the following
Normal goods
Inferior goods
35.

What are regulated prices? Distinguish between price ceiling and price
floor

36. Explain, with the help of diagrams, the implications of price ceiling and
price floor for equilibrium quantity
37. Discuss the economic effects of rent ceiling and minimum wage or floor on
the supply and demand for houses and labour respectively in Gaborone.

Questions on Topic 3 and 4

1.

Distinguish between the following

a)
b)
c)
d)
e)

Accounting costs and economic costs

Explicit costs and implicit costs
Short-run and long-run period
Fixed costs and variable costs
Short run costs and long run costs

2.

John runs a bakery firm. He hires one helper at P20, 000 per year, pays
annual rent of P5000 for his bakery, and spends P50, 000 for materials.
He has P75, 000 of his own funds invested in equipment (baking
machine, ovens etc.) that could earn him P7500 per year if alternatively
invested. He has been offered P35, 000 per annum to work as a baker for
a competitor. He estimates his entrepreneurial talents are worth P25,
000. Total annual revenue from bread sales is P190, 000. Calculate the
accounting profit and economic profit for Johns bakery firm.

3.

Make out the distinction between accounting profit and economic profit

4.

Define the following concepts:

a)
b)

Marginal Product (MP), Average Product (AP) and

Total Product (TP)
Marginal revenue, Average Revenue and Total Revenue

5. What is the law of diminishing returns? How is it relevant to the short run?
6. How does the change in the size of the variable factor (labour) in the short
run influence the shape of the TP, MP and AP curves?
7. Complete the table below:
Variable factor (labour)
0

T.P
0

AP

MP

1
2
3
4
5
6
7
8
a)

15
34
51
65
74
80
83
82

Present the above data graphically

b)
Show the three stages of production as per the law of diminishing
returns

8. Explain the
production:
i.
ii.
iii.

relationship between the following in the three stages of

The TP and the MP
The AP and the MP
The AP and the TP

9. Define the following:

a) Total Cost; b) Average Total cost; c) Fixed cost;
d) Average fixed cost; e) Total variable cost; f) Average variable
cost g) Marginal cost
10.By using the figures given for an industry in the short run, complete the
table below. Draw the curves of AFC, AVC, ATC and MC by using the figures
and explain their relationship.
Output (units)

TFC

TVC

TC

AFC

AVC

ATC

MC

P100
-

105
-

54

1
2
3

P50
-

160
180

150 -

4
5

11. Why is the law of

run?

67.5
-

20

diminishing returns not applicable to a firm in the long

12.What is meant by the economies of scale? Indicate the important factors

that explain its existence

13. What are the diseconomies of scale? What are the factors that bring
diseconomies of scale?
14. Why is the long run ATC Curve of a firm generally U shaped?
Use your knowledge of economies/diseconomies of scale to explain the
shape of the long-run average cost curve.
15. Why is the equality of Marginal Revenue and Marginal Cost essential for
profit maximisation in all market structures?
16. Explain the basic characteristics of a pure/perfect competitive market.
17.Under pure competition the demand curve of the individual firm is perfectly
elastic, why?
18.Why does the following situation arise under perfect competitive market?
Average Revenue (AR)= Marginal Revenue (MR) =Price (P)

19.Explain why price can be substituted for marginal revenue in the MR = MC

rule when an industry is purely competitive.
20.Under perfect competition, at what stage can a firm:
a. Continue to operate even though it does not realise an economic
profit?
b. Close or shut down?
21.Explain how a competitive firm will:
(a) Attain equilibrium
(b) Attain economic profit
(c) incur losses
22. What are the characteristics of pure monopoly? Compare them with the
characteristics of pure competition
23.

Explain the factors that prevent the entry of other firms under monopoly.

24.

How do the entry barriers help the monopoly firm to derive economies of
scale?
8

25. Explain why the monopolists demand curve is downward slopping, causing
the MR curve to lie below it?
26. Why does demand curve of monopoly firm differ from that of pure
competitive firm?
27. The pure monopolist has no supply curve why?
28.

Discuss how a monopolist firm adjusts the price on the elastic and
inelastic segments of its demand curve in order to increase/maximise its
total revenue

29. Explain why a profit maximising monopolist is unlikely to operate on the

inelastic part of the demand curve facing him.

30. The following data present the cost and revenue of a pure monopolist.
Quantit
y

Total
Revenue

1
2
3
4
5
6
7
8
9
10

P162
304
426
528
610
672
714
736
738
720

Total
Cost

A
R

MR

ATC

MC

Profit/Loss

P190
270
340
400
470
550
640
750
880
1030

(a) Calculate AR, MR, ATC and Profit/Loss.

(b) Plot the AR, MR, ATC and MC schedules on the same graph and estimate
the profit-maximising price and quantity.
31.

What is price discrimination?

32. How will the monopolist be able to charge different prices to different
consumers of similar goods and services in different markets? How does the
monopolist separate the markets?
33. Discuss the welfare effects of monopoly

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