Question

Question 1 [1 mark each/Total 20 marks] Choose the correct answer 5) A relative price is the A) slope of the demand curve. B) difference between one money price and another. C) slope of the supply curve. D) ratio of one money price to another. 6) Wants, as opposed to demands, A) are the unlimited desires of the consumer. B) are the goods the consumer plans to acquire. C) are the goods the consumer has acquired. D) depend on the price. Page 9 of 15 7) The price elasticity of demand for purses is measured in what units? A) dollars B) purses C) dollars per purse D) The price elasticity of demand is a unitless measure. 8) If a 20 percent increase in the price of a used car results in a 10 percent decrease in the quantity of used cars demanded, then the price elasticity of demand equals A) 0.5. B) 1.0. C) 2.0. D) 10.0. 9) In the United States, resources are most often allocated by A) market price. B) command system. C) lottery. D) contest. 10) The value of one more unit of a good or service is the A) marginal benefit. B) minimum price that people are willing to pay for another unit of the good or service. C) marginal cost. D) opportunity cost of producing one more unit of a good or service. 11) In order to have an effect, a price ceiling must be set ________. A) above the equilibrium price B) equal to the equilibrium price C) below the equilibrium price D) by suppliers Page 10 of 15 12) In the figure above, if a minimum wage of $6 per hour has been imposed and the labor demand curve then shifts from D0 to D1 the wage rate ________ and the amount of employment ________. A) falls; decreases B) does not change; increases C) does not change; decreases D) falls; increases 13) Which of the following statements is true? A) As more of a good is consumed, its total utility increases, unless the good is subject to diminishing marginal utility. B) As more of a good is consumed, its total utility increases, even if the good is subject to diminishing marginal utility. C) No two people have identical utility functions, just as no two people have identical fingerprints. D) Both A and C above. 14) The principle of diminishing marginal utility says that A) marginal utility is negative as the quantity of the good consumed increases. B) total utility decreases as the quantity of the good consumed increases. C) total utility increases by smaller and smaller amounts as the quantity of the good consumed increases. D) total utility increases by larger and larger amounts as the quantity of the good consumed increases. 15) For a consumer, a budget line shows the boundary between A) what is desired and what is not desired. B) what is needed and what is not needed. C) what is affordable and what is not affordable. D) what is available and what is not available. 16) Ernie has an income of $40 which he plans to spend on cookies and milk. The price of milk is $1 per gallon, and the price of cookies is $2 per dozen. If Ernie buys 12 gallons of milk, how many dozens of cookies will he buy if he spends all of his income? A) 28 B) 20 C) 14 D) 12 17) An electrician quits her current job, which pays $40,000 per year. She can take a job with another firm for $45,000 per year or work for herself. The opportunity cost of working for herself is A) $5,000. B) $40,000. C) $45,000. D) $85,000. Page 11 of 15 18) Economic depreciation is the A) firm's opportunity cost of using its own capital. B) change in the market value of capital over a given period. C) return that an entrepreneur can expect to receive on average. D) forgone return on the funds used to buy capital. 19) The short run is a period of time in which A) the quantity of at least one factor of production is fixed. B) the amount of output is fixed. C) prices and wages are fixed. D) nothing the firm does can be altered. 20) After constructing a new factory, the cost of building the factory is a A) past cost. B) sunk cost. C) variable cost. D) None of the above answers are correct.

Answer 1

5) The difference between one money price and another . 6) Wants are the unlimited desires of the consumers. Demands are the wants backed by ability to pay. 7) Dollars per purse --p/q* dq/dp 8) price elasticity of demand = {dQ/q}/ dp/p = 10/20 = .5// . 9) Market price ( Us is a market economy ) . 10) Marginal benefit ( since the question is about value ). 13) The problem is that if the consumer consume more of a commodity , total utility will increase . It will increase at an increasing rate for a commodity with out diminishing marginal utility and at a decreasing rate for a commodity with diminishing marginal utility. It will occur only up to the level where mu become negative . Once Mu become negative , total utility will start falling . ( So A and C are right ) 14) Total utility increases by smaller and smaller units as the consumer consumes more of the commodity . 15) what is affordable and what is not affordable 16) 14 , 12 Gallons of milk cost 12 $ , remaining 28 $ , Of which 28/2$ is 14 ( 2 $ is the price of 1 cookie ) 17) if she is not employed opportunity cost is 45000$ which is the cost of next best alternative sacrificed . 18) Of the given definitions ,it is the change in the market value of capital over a given period 19 ). Short run is the period in which atleast one factors of production is fixed . 20) Sunk cost ( ie , the cost which has already incurred and can't be recovered )