Principles of Economics Marginal Social Cost Discussion


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Tutorial_Week 2
1) Assume the following table represents one of your indifference curves for free time
and exam marks.
a) Complete the following table using representative numbers that conform to the
assumptions for indifference curves outlined in the lecture and textbook.
One Indifference Curve
Hours of free time
Exam marks
Marginal Rate of
Substitution (MRS)
b) Explain the main ideas captured by this representation of an indifference curve.
c) Draw the indifference curve on a graph, showing the different combinations of
hours of free time and marks. On the horizontal axis put hours of free time and on
the vertical axis put exam marks.
2) Assume the following table represents the Feasibility Frontier you face between
hours of free time and exam marks.
a.) Fill in the table, making sure you follow the assumptions outlined for
Feasibility Frontiers in the lectures (and textbook). Some numbers are given
for you.
Feasible Frontier curve for studying.
b. Graph the Feasible Frontier for studying. Place hours of free time per day on
the horizontal axis and exam marks on the vertical axis. Interpret the Feasible
Frontier for studying.
c) Given your answers for questions 1 and 2, show on a diagram the combination
of marks and free time that maximises your utility in regard to the number of
hours of free time and exam marks.
d) Relative to that point, would choosing a point that offers a higher mark but less
free time be a better choice for you?
e) What could make you change this combination of free time and exam marks?
Assume that the market for bottle water can be analysed using the competitive
market model. Assume the market is initially in equilibrium. Now assume that the
local governments across Australia increase by a lot the number of water fountains
available in public spaces, and that Australian consumers become more aware of the
environmental costs of plastic bottles.
Draw a graph to show what happens to the demand and supply curves in the
bottled water market and the consequent change in the equilibrium price for bottled
water (is it higher or lower?).
Draw a graph to show the impact on the profit of a shop that sells bottled
water after these changes (is it higher or lower at that new price).
ECON1021: Tutorial Programme
The tutorial program in ECON1021 has three main aims:
to explain and extend some of the material covered in lectures,
to focus attention on a problem solving approach to the analysis of economic
to encourage discussion of economic issues.
Tutorials are an important complement to the attendance at lectures and private study. They
provide a further means of understanding the unit material, and provide useful feedback on
your own progress and allow you to learn from the experience of others. As evidence from
past performance suggests, there is a high correlation between good overall performance and
good tutorial attendance and engagement.
The tutorial program begins in week 1 of the semester. There may not be enough time to
address all of the set questions in tutorials. If you wish an explanation to a particular
question, you should bring this to the attention of your tutors at the start of the tutorial. They
will try to assess where most attention is required for the class as a whole. Remember
tutorials are a dialogue, not a lecture. Student participation is extremely important in the
learning process.
In the weekly tutorial programme, there are questions requiring preparation by you from week
2 onwards: Questions need to be answered by your group at your weekly tutorial.
On iLearn for each week (from week 2), you can download a word document/PDF
containing questions and exercises that will be discussed in your weekly tutorial. These are
designed to review and to reinforce your understanding of key elements of economic topics,
introduced in lectures. Students will be organised into groups of approximately 4-5 students
in week 1 tutorial classes. You are required to work through the tutorial questions exercises
with your group throughout the semester. While each member of a group is expected to
present at least four times throughout the session, every member is expected to contribute to
team preparations. Each member of the group will receive an individual mark.
To derive full benefit from the tutorials, you are required to attempt the exercises before
the tutorial, whether you are presenting or not. Even if some of the questions appear to
be too difficult for you it is much better to make the attempt and thus identify problems
that you experience than to simply turn up to the tutorial with blank pages and take down
what you see and hear. If you experience difficulty with any of the tutorial questions and if you
are still unclear about tutorial material even after attending the tutorial meeting, you will need
to contact your tutors after class or during their consultation hours.
While the material discussed in tutorials is intended to spark detailed questions, it
represents only a part of the feedback on your understanding of the material covered in
ECON1021. If you require further assistance with this material, you should not
hesitate to discuss it with your tutor.
Solutions to tutorial questions will be available on iLearn by the end of the week. You need
to attend and make the most of your tutorial, your group and your tutor. In answering
questions and preparing your presentations, you should address each question in the
following way.
What you should ask yourselves….
What is being asked?
Do not say all that you know about the topic.
Be precise and address the question directly.
What economic theory applies to the question? The theory will normally come from
the previous week’s lecture.
What diagrams/graphs/equations should I be using that illustrates the answer? ALL
questions will require at least one of these:
What is the answer?
At the end of your presentation, you need to summarise or state your answer by readdressing the question.
Your tutor will also summarise the key points of all questions that are presented by
Even when you are not presenting, you MUST attend tutorials and practice ALL
questions either on your own or with your group before class.
TUTORIAL FORMAT : Presentations start in week 2. In Week 1 (Tutorial 1), your tutor
will organise you into groups of approximately 4-5 students and you will get a
chance to exchange contact details with other members of your group. Remember
that you will work and make presentations with your group throughout the semester. It
is your responsibility to maintain constant contact with your group. If you find that a
member of the group is not participating and is free-riding on the group, you
need to let your tutor know early. Students who do not participate in group work may
receive as little as zero for their tutorial work.
The questions will be announced the week prior to the presentation on iLearn. Each
student may present four times (total presentation is worth 10%) along with
attendance and engagement (is worth 10%) will form your 20% tutorial assessment
mark. Each student will be marked on both their individual presentation and their
performance as part the overall team. A maximum of 5 marks will be awarded on an
individual basis for presentations and a maximum of 5 marks will be awarded on a group
basis for how well each of the individual presentations demonstrate a clear and logical
progression towards the group work.
When presenting, you will have 15 minutes to present the solutions to your allocated
question, followed by 5 minutes question time and a summary by your tutor. You will be
marked on your presentation (how well you present and how prepared you are) as well as
your understanding of the topic of the question. (see above: What you should ask
You are required to prepare your answers on power points slides before your class.
The motivation behind preparing the slides,before your class is that it saves time during
tutorials. Students who fail to prepare these and consume time drawing or writing during
their presentations will be heavily penalised.
It is a requirement that all members of the group have an opportunity to present the
group’s work to the class through the semester. You may come up with any sharing
arrangement of tasks that is agreeable to the whole group. However, each group should
aim to have each member of the group do an approximately equal share of the
presenting over the course of the semester.
Good Luck
Dr Fatemeh (Marjan )Nazifi
Unit convenor
Week 3_Tutorial
1) The following diagram depicts Julia’s choice of consumption in periods 1 and 2.
She has no income in period 1 and an income of $115 in period 2. The current
interest rate is 15%. Based on this information, which of the following statements
is correct?
a. The maximum that Julia can borrow to spend in period 1 is $91.
b. If Julia borrows $80 to spend in period 1, she will have $23 to spend in period
c. The consumption choice of $60 in period 1 and $50 in period 2 is a feasible
d. The feasible set will be smaller when the interest rate is 10%.
2) The diagram depicts Marco’s choice of consumptions in periods 1 and 2. He has
$100 worth of grain in period 1 and no income in period 2. Marco has two
choices. In scheme 1, he can store the grain that he does not consume in period 1.
This results in a loss of 20% of the grain due to pests and rotting. In scheme 2, he
can sell the grain that he does not consume and lend the money at 10%. Based on
this information, which of the following statements is correct?
a. The substitution effect implies that Marco will consume more in period 1
under scheme 2 than under scheme 1.
b. The income effect implies that Marco will consume more in period 2 and less
in period 1 under scheme 2 than under scheme 1.
c. Marco will unambiguously consume more in period 2 under scheme 2 than in
scheme 1.
d. Marco will unambiguously consume less in period 1 under scheme 2 than in
scheme 1.
3) Graph four possible feasible frontiers for Marco, who has $120 worth of grain in
period 1 and no income in period 2 under four schemes:
In scheme 1, he can store the grain that he does not consume in period 1. This
results in some loss of the grain due to pests and rotting (the depreciation rate
from the storage is about 33%). In scheme 2, he can sell the grain that he does not
consume and lend the money (the lending rate is 20%). In scheme 3, he can
invest the remaining grain (e.g. plant it as seed and the return rate is 40%).
Finally in scheme 4, he can invest the entire amount of grain and borrow against
his future income (the borrowing rate is 20%). Which scheme would be a better
choice for Macro? Explain your answer.

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Social Costs

marginal social cost

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