ECS2602 ASSIGNMENT 1 COMPLETE ANSWERS
STUDY GUIDE 2025/2026 ACCURATE SOLUTIONS
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Part 1: Basic Economic Concepts and Demand & Supply
Q1: What is the fundamental economic problem that all societies face?
A1: Scarcity. This refers to the fact that resources are limited, while human
wants are virtually unlimited. This forces economic agents (individuals, firms,
governments) to make choices about how to allocate these scarce resources
efficiently.
Q2: In microeconomics, what does the term "opportunity cost" refer to?
A2: Opportunity cost is the value of the next best alternative that is forgone
when a choice is made. For example, the opportunity cost of spending an hour
studying is the leisure or work income you sacrificed during that hour.
Q3: What is the difference between a 'movement along' a demand curve and a
'shift of' the demand curve?
A3: A movement along the demand curve is caused by a change in the
product's own price (e.g., a price decrease leads to an expansion in quantity
demanded). A shift of the entire demand curve is caused by a change in a non-
price determinant of demand, such as consumer income, tastes, prices of related
goods, or population.
Q4: If coffee and tea are considered substitutes, what will happen to the
demand for tea if the price of coffee increases?
A4: The demand for tea will increase (the demand curve for tea will shift to the
right). As coffee becomes more expensive, consumers will switch to the cheaper
substitute, tea.
Q5: If yoghurt and berries are complements, what is the effect on the demand
for yoghurt if the price of berries falls?
, A5: The demand for yoghurt will increase (the demand curve for yoghurt will
shift to the right). The cheaper price of berries makes consuming the
complementary good, yoghurt, more attractive.
Q6: Define 'normal goods' and 'inferior goods'.
A6: A normal good is one for which demand increases as consumer income
rises (e.g., restaurant meals). An inferior good is one for which demand decreases
as consumer income rises (e.g., instant noodles).
Q7: What is the 'law of supply'?
A7: The law of supply states that, all other factors being constant (ceteris
paribus), there is a direct relationship between the price of a good and the quantity
supplied. As the price rises, the quantity supplied rises, and vice versa.
Q8: What factors can cause the supply curve to shift?
A8: Non-price determinants that shift the supply curve include: changes in the
cost of production (inputs), technological advancements, taxes/subsidies, the
number of sellers in the market, and producer expectations about future prices.
Q9: What is market equilibrium?
A9: Market equilibrium is the point where the quantity demanded by
consumers equals the quantity supplied by producers. At this point, the market
clears, and there is no inherent pressure for the price to change.
Q10: Describe a situation of 'excess supply' (surplus) and what typically
happens to the price.
A10: A surplus occurs when the market price is above the equilibrium price. At
this high price, the quantity supplied exceeds the quantity demanded. To sell their
excess inventory, producers will lower their prices, which will increase quantity
demanded and decrease quantity supplied until equilibrium is restored.
Part 2: Elasticity
Q11: What does the price elasticity of demand (PED) measure?
A11: PED measures the responsiveness or sensitivity of the quantity demanded
STUDY GUIDE 2025/2026 ACCURATE SOLUTIONS
AND CORRECT DETAILED ANSWERS || 100%
GUARANTEED PASS <UPDATED VERSION>
Part 1: Basic Economic Concepts and Demand & Supply
Q1: What is the fundamental economic problem that all societies face?
A1: Scarcity. This refers to the fact that resources are limited, while human
wants are virtually unlimited. This forces economic agents (individuals, firms,
governments) to make choices about how to allocate these scarce resources
efficiently.
Q2: In microeconomics, what does the term "opportunity cost" refer to?
A2: Opportunity cost is the value of the next best alternative that is forgone
when a choice is made. For example, the opportunity cost of spending an hour
studying is the leisure or work income you sacrificed during that hour.
Q3: What is the difference between a 'movement along' a demand curve and a
'shift of' the demand curve?
A3: A movement along the demand curve is caused by a change in the
product's own price (e.g., a price decrease leads to an expansion in quantity
demanded). A shift of the entire demand curve is caused by a change in a non-
price determinant of demand, such as consumer income, tastes, prices of related
goods, or population.
Q4: If coffee and tea are considered substitutes, what will happen to the
demand for tea if the price of coffee increases?
A4: The demand for tea will increase (the demand curve for tea will shift to the
right). As coffee becomes more expensive, consumers will switch to the cheaper
substitute, tea.
Q5: If yoghurt and berries are complements, what is the effect on the demand
for yoghurt if the price of berries falls?
, A5: The demand for yoghurt will increase (the demand curve for yoghurt will
shift to the right). The cheaper price of berries makes consuming the
complementary good, yoghurt, more attractive.
Q6: Define 'normal goods' and 'inferior goods'.
A6: A normal good is one for which demand increases as consumer income
rises (e.g., restaurant meals). An inferior good is one for which demand decreases
as consumer income rises (e.g., instant noodles).
Q7: What is the 'law of supply'?
A7: The law of supply states that, all other factors being constant (ceteris
paribus), there is a direct relationship between the price of a good and the quantity
supplied. As the price rises, the quantity supplied rises, and vice versa.
Q8: What factors can cause the supply curve to shift?
A8: Non-price determinants that shift the supply curve include: changes in the
cost of production (inputs), technological advancements, taxes/subsidies, the
number of sellers in the market, and producer expectations about future prices.
Q9: What is market equilibrium?
A9: Market equilibrium is the point where the quantity demanded by
consumers equals the quantity supplied by producers. At this point, the market
clears, and there is no inherent pressure for the price to change.
Q10: Describe a situation of 'excess supply' (surplus) and what typically
happens to the price.
A10: A surplus occurs when the market price is above the equilibrium price. At
this high price, the quantity supplied exceeds the quantity demanded. To sell their
excess inventory, producers will lower their prices, which will increase quantity
demanded and decrease quantity supplied until equilibrium is restored.
Part 2: Elasticity
Q11: What does the price elasticity of demand (PED) measure?
A11: PED measures the responsiveness or sensitivity of the quantity demanded
