Question

1) A shift of the production possibilities curve outward could imply that

1. productivity has decreased at an increasing rate
2. society has chosen a different set of outputs.
3. the labor productivity has grown
4. productivity has declined because workers are demanding more leisure
5. an increase in inflation expectation

2) When price is $5 per unit, quantity demanded is 12 units. When price is $8 per unit, quantity demanded is 6 units. The value of the price elasticity of demand is approximately (before taking absolute value)

1. -4
2. -13/9
3. -20/11
4. -11/5
5. -4/11

3) When the price of silver rises, there will be

1. no change in quantity demanded
2. supply and demand will interact accordingly
3. a movement along the good's supply curve
4. both an outward shift in the demand for the good and a movement along the good's demand curve
5. an outward shift in the demand for the good

4) If goods X and Y are substitutes, then the cross elasticity of demand will be

1. positive
2. negative
3. zero
4. greater than 1
5. greater than zero but less than 1

5) When income is $100 per week, 10 units of good X are demanded. When income is $150 per week, 15 units of good X are demanded. The income elasticity of demand of good X equals to

1. 11/5
2. 5/11
3. 1
4. 10/15
5. 100/150

Answer 1

1. When there is increase in the output in an economy, the production possibilities curve moves outward. This also means increase in labor productivity in economy. Therefore, the correct option is c)

2. Price elasticity of demand (e_p ) = dQ/dP*P/Q, where dQ= change in quantity demanded, dP= change in price of a product

                    P= price of a product and Q = quantity of a product demanded

Here dP= $8-$5=$3 and dQ= 6-12=-6

Therefore, elasticity of demand = -6/3*5/12 =-5/6 which is nearest to absolute value -1. Therefore, the correct answer is b)

3. Silver like other precious metals such as Gold and platinum is an inelastic product. Therefore, any change in the price of silver will not affect demand of silver too much and therefore, supply of precious metal like silver will adjust according to its demand. Therefore the correct answer is c)

4. The cross elasticity of demand of substitutes is always positive because price of one good say X will increase the demand of substitute say Y. Therefore, the correct answer is a)

5. Income elasticity of demand (e_I ) = dQ/dI*I/Q where dQ= change in quantity demanded, dI= change in income,

                                      I= initial income and Q = Initial quantity demanded

Here, dQ= 15-10=5 and dI= 150-100=50

Therefore, income elasticity of demand = 5/50*100/10 =1

Therefore, the correct answer is c)