Question

1. Who are winners of a move to free trades? A) Consumers of exported goods B) Producers of exported goods C) Producers of imported goods D) None of the above answers

2. The short-run shutdown condition occurs for a firm in the short-run when A) Price per unit good is equal to average variable cost per unit good B) Price per unit good is greater than average variable cost per unit good C) Price per unit good is less than average variable cost per unit good D) Price is greater than total cost.

3. Which of the following problems describes the ‘Decision Pitfalls' of a rational individual in economy? A) Ignoring implicit costs B) Failing to think at the margin C) Measuring costs or benefits proportionally D) All the above answers

4. Which of the following explanations is true? A) Higher inflation reduces the real value of money held by the public, reducing wealth and spending B) Inflation redistributes resources from less affluent people, who spend a high percentage of their disposable income, to more affluent people, who spend a smaller percentage of disposable income C) Higher inflation creates uncertainty in planning for households and firms, reducing their spending. D) All the above answers

Answer 1

Question 1

Option B is correct - Producers of exported goods

When there is free trade, the producers of the exported goods benefit the most. With no barriers to trade, they expand their production capacity and export more all over the country. Due to the expansion of the production to a large scale, they face economies of scale, and that further lowers to cost of production which is profitable for the firm and the producers of exported goods benefit from it.

Question 2

Option C is correct - Price per unit good is less than the average variable cost per unit good

A firm should shut down in the short run when the price per unit of the good is less than the average variable cost per unit of the good. This is because at this point the price of the good is not even covering the variable cost of production and thus it won't be profitable for the firm to continue its production after this point.

Question 3

Option D is correct - All of the above

All of the above are the problem that describes the 'decision pitfalls' of a rational individual. Decision pitfalls are the things that a rational consumer sometimes ignore while making a decision in the economy. A rational consumer sometimes ignores the implicit cost or opportunity cost in its cost, revenue, and profit calculation, sometimes it fails to differentiate between the average and the marginal values and ignore the marginal values and also it measures the cost and benefits proportionally instead of their absolute values in the cost-benefit analysis.

Question 4

Option D is correct - All of the above answers

Higher inflation means an overall increase in the price level in the economy. This happens when there is a lot of money in the hands of people which leads to a fall in the value of money. Fall in the value of money mean that a lot has to be spend now to buy few goods and this will reduce the wealth and spending of the individuals. It also redistributes income from poor to rich, since the poor tend to spend more of their disposable income on necessities as compared to rich. It also creates uncertainty in the economy for making decisions or planning something because real interest rates, prices, and wages are not known or clear due to high inflation.