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7. These are the basic questions that must be answered to understand the
functioning of the economic system, except ….
a. What gets produced?
b. How is it produced?
c. Who gets what is produced?
Essay
1. There are four criteria for judging economic outcomes, what are they?
Explain each criteria!
2. Explain briefly the differences between macroeconomics and
microeconomics!
.
CHAPTER 2
DEMAND, SUPPLY, MARKET EQUILIBRIUM & ITS
ELASTICITY
True or False
3. Edith buys 9 magazines per week when the price is $3. She buys 11
magazines per week when their price is $2. Edith’s price elasticity of
demand is ...
A. -1/2
B. -2/3
C. -3/4
D. -1.0
q
The graph above shows…
a. Elastic demand
b. Unitary elastic demand
c. Perfectly elastic demand
d. Perfectly inelastic demand
10. P
800 A
600 B
400 C
200 D
20 40 80 100 Q
According to the graph, the equilibrium price and quantity are? a.
$800, 80
b. $400, 20
c. $800, 20
d. $400, 80
Essay
True of False
1. A change in the price of one good can change the entire allocation of
income.
2. The real cost of a good or service is its opportunity cost.
3. If we impose a constraint of limited income and fixed prices on
households, those households would not be free to choose which
goods to buy and which not to buy.
4. Constraints exist in the labor market, the amount that household paid
is limited by current market wage rates.
5. Within the constraints of prices, income, and wealth, household
decisions ultimately depend on preferences and tastes.
6. Budget constraints change when prices rise or fall.
7. As the wage increases, a worker will substitute income for leisure
time.
8. Total utility is the additional satisfaction gained by the consumption
or use of one more unit of a good or service.
9. The more of any one good consumed in a given period, the less
satisfaction (utility) generated by consuming each additional
(marginal) unit of the same good is called law of diminishing
marginal utility.
10. Total utility decreases at an increasing rate while marginal utility
decreases.
Multiple Choice
1. Suppose that the price of good Y equals $2. How much is the income
of the consumer?
a. $40
b. $20
c. $30
d. $10
2. Suppose that the income of the consumer equals $20. Use the
information on the graph to determine the prices of goods Y and X.
a. PY = $20, PX =
$12. b. PY = $2, PX = $4.
c. PY = $2, PX = $3.
d. PY=$2, PX = $6.
4. Among the basic assumptions made in this and some of the following
chapters is perfect competition. Among the characteristics of perfectly
competitive industries is …
a. Homogeneous products and perfect knowledge.
b. Identical products and imperfect knowledge
c. Homogeneous knowledge and imperfect products.
d. Differentiated products and imperfect knowledge.
a. Points w and z.
b. Points b and e.
c. Points z and e.
d. Points b and z.
Essay
1. For this problem, assume that Fierera has $80 to spend on food and
books each month. Foods cost $8 each, and books cost $20 each.
Fie’s preferences for foods and books are summarized by the
following information:
1. These are three decisions that all firms make to achieve maximum
profit, except ………
a. How much output to supply.
b. Which production technology to use.
c. How much of input to demand.
d. How much output demanded.
a. Point C.
b. Point D.
c. Point D, C, and B.
d. Point D and B.
9. We can get profit from the difference between ......... and .........
a. Total revenue, total cost
b. The sale of the product, total input
c. Pocket cost, opportunity cost
d. Marginal revenue, marginal cost
Essay
a. Does the table show the law of diminishing returns? Explain it!
b. Graph curves of total product, average product and marginal
product!
3. Give an explanation how the technology can derive the cost of
production to low cost!
4. Define Isoquant and Isocost using graph and explanation!
K L K L K L
50 2 8 5 5 7 3
100 7 6 6 7 5 8
150 5 10 7 8 9 6
9. If the price of labour is $6 and the price of capital is $10, which technology is optimum production?
10. Suppose that in 2020, you became president of a small nonprofit theater company. Your playhouse has
120 seats and a small stage. The actors have national reputations, and demand for tickets is enormous
relative to the number of seats available; every performance is sold out months in advance. You are
elected because you have demonstrated an ability to raise funds successfully. Describe some of the
decisions that you must make in the short run. What might you consider to be your “fixed factor”?
What alternative decisions might you be able to make in the long run? Explain! During the early phases
of industrialization, the number of people engaged in agriculture usually drops sharply, even as
agricultural output is growing. Given what you know about production technology and production
functions, explain this seeming inconsistency