Question

1- when demand is inelastic, an increase in price will cause

a. an increase in total revenue.

b. a decrease in total revenue.

c. no change in total revenue but an increase in quantity demanded.

d. no change in total revenue but a decrease in quantity demanded .

2- In competitive markets,

a.firms produce identical products.

b.no individual buyer can influence the market price.

c.no individual seller can influence the market price.

d.All of the above are correct.

3- In the circular-flow digram,

a.firms are buyers in the markets for goods and services.

b.households are sellers in the markets for the factors of production.

c.firms are sellers in the markets for factors of production and in the markets for goods and services.

d.dollars that are spent on goods and services flow directly from firms to households.

4- Factors of production are?

a.the mathematical calculations firms make in determining their optimal production levels.

b. social and political conditions that affect production.

c. the physical relationships between economic inputs and outputs.

d. inputs into the production process.

5- which of the following is not an example of the opportunity cost of going to school?

a.The money a student could have earned by working if he had not gone to college.

b. The nap a student could have enjoyed if he had not attended class.

c. The party a student could have enjoyed if he had not stayed in to study for his exam.

d. The money a student spends on rent for his apartment while attending school.

Answer 1

Ans) 1) An inelastic demand is when a significant price change does not cause significant change in the quantity demanded. When demand is inelastic, increasing the price will bring more revenue as quantity demanded will not change.

2) A competitive market is where there are many sellers selling homogeneous products. Firms and buyers are price takers. That is, neither of them are big enough to influence the market price.

3) Households are sellers in market for factors of production as they supply labour.

4) Factors of production are inputs needed to produce goods and services. Land, labour, capital and entrepreneurship are factors of production.

5) Opportunity cost is the cost of something that must be given up to get something else. When one attends college, he/she is sacrificing sleep, money from job, picnics etc. But rent of apartment is not an opportunity cost, because whether or not a person attends college, he will live somewhere.