Question

Question 1

The following are the implications about the Gains from Trade Model in the case of 2 economies, EXCEPT:

	a)By specializing and trade based on Comparative Advantages, both economies can attain Efficiency and Optimality.
	b)Economies that are Labor abundant should specialize in the kind of production that is Labor intensive.
	c)Even if only one economy initially benefits from trade, a pareto optimal agreement where both economies benefit is likely to occur.
	d)If an economy has Absolute Advantage in all kind of production, that economy cannot benefit from trade. Question 2 The following are correct descriptions about the Circular Flow Diagram as presented in class, EXCEPT: a)The Household sector represents the demand for goods and services. b)The Household sector represents the demand for factors of production. c)The Firm sector represents the demand in the factors of production market. d)The Firm sector represents the supply in the market for goods and services Question 3 The following are proper descriptions about the Demand Curve for certain good X, EXCEPT: a)It reflects the price the consumer is required to pay per unit consumed. b)It reflects the maximum price the consumer is able and willing to pay for each extra unit consumed. c)It is expected to have a negative slope. d)At any point on the demand, the marginal cost of consumption equals the marginal benefit of consumption, for any given price. Question 4 The following are reasons why we expect a negative relationship between price and quantity on the Demand Curve, EXCEPT: a)Due to the fact that as more consumption of good x is done, the cost per unit declines. b)In part due to a decline in purchasing power coming from an increase in Px. c)In part due to Substitution effect coming from a change in Px. d)Due to decreasing marginal satisfaction in consumption. Question 5 The following is the ONLY condition that guarantees optimality in consumption: MC: Marginal Cost of consumption. MB: Marginal Benefit of consumption. TC: Total cost of consumption. TB: Total Benefit of consumption. a) MB > MC b) TB > TC c) MB = MC d) TB = TC

Answer 1

The answer of Question 1 is option (d).

The answer of Question 2 is option (b).

In this diagram, Household represents the demand of goods amd services for consumption and supply factor services to the firm.

The answer of Question 3 is option (d).

The concept of decreasing marginal benefit implies that as more of a good or service is consumed, its marginal benefit decreases. Because it shows the maximum price that consumers are willing to pay for the last unit of the good at each quantity available, a demand curve isa marginal benefit curve.

The answer of Question 4 is option (c).

Substitution effect works in a positive direction, while income-effect works in a negative direction. ... As stated earlier, the individual demand curve shows the relationship between the quantity demanded of a commodity (say X) by an individual and its price (Px) under the ceteris paribus.

The answer of Question 5 is option (a).

Weigh benefits of your choice against the cost of the choice and maximize the difference between those benefits and costs ... total benefit - total cost. marginal benefit. amount by which an additional unit of an activity increases its total benefit. marginal decision rule. if MB > MC, the quantity of the activity should be increased.