Question

PLEASE SHOW WORKING IF POSSIBLE AS WELL. THANK YOU.

1) Suppose there is a market for electronic bikes that is currently at equilibrium. If the consumers of electronic bikes had an increase in income which resulted in a rightward parallel shift of the demand for electronic bikes, then at any given price, the price elasticity of demand will have:

A) increased in absolute terms.

B) decreased in absolute terms.

C) remained unchanged.

D) increased, decreased or stayed the same. It cannot be determined.

2) Suppose Jim consume goods “x” and “y” and his preferences for both goods are represented by convex indifference curves. This implies that Jim is willing to

A) give up more "y" to get an extra "x" the more "x" they have.

B) give up more "y" to get an extra "x" the less "x" they have.

C) settle for less of both "x" and "y".

D) acquire more "x" only if they do not have to give up any "y".

3) Suppose Jack has a marginal utility of electronic bikes equal to 1000 and his marginal utility of scooters equal to 200, then we know that

A) his indifference curves are convex.

B) his indifference curves are L-shaped.

C) his indifference curves are linear.

D) his indifference curves are downward sloping.

4) Suppose Fred and John consume e-bikes and scooters. Fred and John face the same prices and both claim to be in equilibrium. Therefore, we know that

A) they both have the same marginal utility for e-bikes.

B) they both have the same marginal utility for scooters.

C) they both have the same MRS of e-bikes for scooters.

D) All of the above.

5) Suppose John consumes e-bikes and scooters. If John’s income and prices of both goods increase by the same percentage,

A) John will buy more of both goods.

B) John will buy more of both goods if they are both normal goods.

C) John will buy less of both goods if they are both inferior goods.

D) John’s utility maximizing bundle stays the same.

6) Suppose Fred spends his entire income on e-bikes and scooters. Every month he spends half of his income on each of these goods. Fred's income elasticity of demand for e-bikes is -.75. What is the income elasticity of demand for scooters?

A) 2.75

B) 0.36

C) -2.75

D) Unknown with the information provided

7) The point in the production process at which diminishing marginal returns to capital begin is the point at which the marginal cost curve

A) peaks.

B) bottoms out.

C) is flat.

D) is downward sloping.

8) Suppose each mechanic must use only one wrench to fix the car, and wrenches are useless by themselves. In the short run, an increase in the price of wrenches will result in

A) fewer wrenches being purchased.

B) more mechanics being hired.

C) a decrease in the number of cars fixed.

D) no change in the number of cars fixed.

9) Suppose the company E-bikes R US has an isocost line that crosses the isoquant twice. To cost minimize, E-bikes R US will

A) use a different isocost line to select the bundle of inputs.

B) use the input bundle associated with the intersection on the higher point of the isoquant.

C) use the input bundle associated with the intersection on the lower point of the isoquant.

D) Both B and C.

10) Suppose the company E-bikes R US has isoquants that are straight lines or L-shaped. To cost minimize, E-bikes R US will

A) not be able to minimize costs.

B) find the lowest isocost line touching the relevant isoquant.

C) find the highest isocost line touching the relevant isoquant.

D) choose not to produce any output.

Answer 1

Answer 1:

Option C. Since the demand curve for electronic bikes has shifted rightwards in the above case, the slope will remain cinstant and the change in equilibrium price and quantity will also occur in the same ratio due to which the value of price elasticity of demand will remain unchanged.

Answer 2:

Option B. The convex indifference curve imply diminishing marginal rate of substitution which means that Jim is willing to give up more and more units of Y to get an extra unit of good X , the less of good X the person has. As the units of good X consumed increases, the units of good Y given up decreases.

Answer 3;

Option C. Since the value of MRS = Marginal utility of one good / marginal utility of another good remains constant and does not depend on value of x and y, thus we get linear indifference curves and thus it represents the case of linera indifference curves.

Answer 4:

Option D. The above case represents that MRS of both the consumers is same and thus marginal utilites are same and market is in equilibrium.