, ECS2601
ASSIGNMENT 1 SEMESTER 2
2026
DUE 11 AUGUST 2026
Question 1: (10 marks)
Question 1.1: In your own words, explain the idea of trade-offs in microeconomics.
In microeconomics, the idea of trade-offs stems from the fundamental problem of scarcity.
Individuals, firms, and societies have unlimited wants but are constrained by limited resources such
as time, money, and raw materials. A trade-off means that to obtain more of one thing, you must
give up something else. For example, a consumer must decide how to allocate a limited income
among various goods; buying more food might mean buying less clothing. Similarly, a worker might
trade off leisure time for more work hours to earn a higher income. The core of microeconomics is
understanding how to make these trade-offs optimally to maximize satisfaction or profit given
these limitations (Pindyck & Rubinfeld, 2018, p. 26).
Question 1.2: Differentiate between any two of the following concepts (choose two).
(a) Infinite elastic and completely inelastic demand
An infinitely elastic demand curve is a horizontal line. This represents a situation where consumers
are willing to buy any quantity of a good at a single, specific price. If the price rises even slightly
above this level, the quantity demanded drops to zero. Conversely, if the price falls, the quantity
demanded increases without limit. This is typical in a perfectly competitive market where a firm is a
price taker (Pindyck & Rubinfeld, 2018, p. 56).
In contrast, a completely inelastic demand curve is a vertical line. This means the quantity
demanded is fixed and does not change, no matter what the price is. Consumers will buy a specific
quantity regardless of price, often because the good is a necessity with no close substitutes
(Pindyck & Rubinfeld, 2018, p. 56).
(c) Positive versus normative analysis
Positive analysis is concerned with objective explanations and predictions about cause and effect. It
deals with "what is" and can be tested against data. For example, a positive statement would be: "If
the government imposes a quota on car imports, the price of cars will increase." It describes the
relationship between variables without making value judgments (Pindyck & Rubinfeld, 2018, p. 28).
ASSIGNMENT 1 SEMESTER 2
2026
DUE 11 AUGUST 2026
Question 1: (10 marks)
Question 1.1: In your own words, explain the idea of trade-offs in microeconomics.
In microeconomics, the idea of trade-offs stems from the fundamental problem of scarcity.
Individuals, firms, and societies have unlimited wants but are constrained by limited resources such
as time, money, and raw materials. A trade-off means that to obtain more of one thing, you must
give up something else. For example, a consumer must decide how to allocate a limited income
among various goods; buying more food might mean buying less clothing. Similarly, a worker might
trade off leisure time for more work hours to earn a higher income. The core of microeconomics is
understanding how to make these trade-offs optimally to maximize satisfaction or profit given
these limitations (Pindyck & Rubinfeld, 2018, p. 26).
Question 1.2: Differentiate between any two of the following concepts (choose two).
(a) Infinite elastic and completely inelastic demand
An infinitely elastic demand curve is a horizontal line. This represents a situation where consumers
are willing to buy any quantity of a good at a single, specific price. If the price rises even slightly
above this level, the quantity demanded drops to zero. Conversely, if the price falls, the quantity
demanded increases without limit. This is typical in a perfectly competitive market where a firm is a
price taker (Pindyck & Rubinfeld, 2018, p. 56).
In contrast, a completely inelastic demand curve is a vertical line. This means the quantity
demanded is fixed and does not change, no matter what the price is. Consumers will buy a specific
quantity regardless of price, often because the good is a necessity with no close substitutes
(Pindyck & Rubinfeld, 2018, p. 56).
(c) Positive versus normative analysis
Positive analysis is concerned with objective explanations and predictions about cause and effect. It
deals with "what is" and can be tested against data. For example, a positive statement would be: "If
the government imposes a quota on car imports, the price of cars will increase." It describes the
relationship between variables without making value judgments (Pindyck & Rubinfeld, 2018, p. 28).
