Question

1. The lower the price in a market, the higher the consumer surplus in that market.

True

False

2. The marginal cost curve always crosses  

		the total cost curve at its minimum point.
		the average fixed cost curve at its minimum point.
		the average variable cost curve at its maximum point.
		both b and c are correct.

3. Suppose that a firm in a perfectly competitive market sells 400 units of output at a price of $4 each. Which of the following statements is correct?

		Average revenue equals $100.
		This firm definitely makes a profit.
		The marginal revenue is $4.
		Total revenue equals $400.

4. For a particular good, a 7 percent increase in price causes a 28 percent decrease in quantity demanded. Which of the following statements is most likely applicable to this good?

		There are no close substitutes for this good.
		The market for the good is broadly defined.
		The good is a luxury.
		The relevant time horizon is short.

5. Which one of the following statements is a normative statement?

		Prices rise when the government increases the quantity of money.
		When more people find jobs, unemployment rates drop.
		The central bank should print less money.
		When the price of a good increases, the quantity demanded goes down.

6. When quantity demanded responds strongly to changes in price, demand is said to be

		fluid.
		elastic.
		dynamic.
		highly variable.

7. It is reasonable to expect the cross-price elasticity of demand for coffee and milk to be positive.

True

False

8. Price is equal to marginal revenues in both competitive markets and monopolies.

True

False

9. A binding minimum wage (price floor) above the equilibrium creates a surplus of labor.

True

False

10. Suppose buyers of computers and printers regard those two goods as complements. Then an decrease in the price of computers will cause

		a decrease in the quantity demanded for printers.
		a increase in the quantity demanded of printers.
		an decrease in the quantity demanded of printers and computers.
		an increase in the quantity demanded of printers and a decrease quantity demanded of computers.

Answer 1

Consumer surplus:- Consumer surplus is defined as the difference between the total amount that consumers are willing and able to pay minus the price paid.

An increase in the price will reduce consumer surplus, while a decrease in the price will increase consumer surplus.

1). The correct option is (True).

2). The correct option is (d).

Both b and c are correct.

We know that MC curve is U shaped.  Marginal cost curve intersects both the average variable cost curve and (short-run) average total cost curve at their minimum points.

3). The correct option is (c).

Marginal revenue is equal to $4.

Marginal revenue is the additional revenue from the sale of a good.MR is the revenue gained by producing one additional unit of a product or service.

The total revenue is = 400 units X $4

TR = $1600.

4). The correct option is (c).

The good is luxury.

We know that when price of luxury goods decreases there demand also decreases.

5). The correct option is (b).

When more people find jobs, unemployment rates drop.
Normative economics focuses on the value of economic fairness, or what the economy "should be" or "ought to be."We know that a normative statement is one that makes a value judgment. Such a judgment is the opinion of the speaker; no one can “prove” that the statement is or is not correct.

6). The correct option is (b).

Elastic.

We know that Elastic demand means that demand responds strongly to changes in price. Quantity demanded changes infinitely with any change in price.

7). The correct option is (False).

The cross elasticity between complementary goods is negative as the price of one good increases, the demand for the second good decreases.

8). The correct option is (False).

We know that competitive firms experience marginal revenue that is equal to price – represented graphically by a horizontal line – monopolies have downward-sloping marginal revenue curves that are different than the good's price. For monopolies, marginal revenue is always less than price.

9). The correct option is (True).

Minimum wage is like a price floor and it creates a surplus of labour.

10). The correct option is (a).

decrease in the quantity demanded for printers.

When the price of a particular good rises the demand for its complement drops because consumers are unlikely to use the complement alone. when there is decrease in the price of complement (computer) it will cause the demand for its complement to decrease as well (printer).

Hope you got the answer.

Kindly comment for further explanation.

Thanks!