Question

1. An entrepreneur is:

a. an employee in a factory.

b. the manager of a factory.

c. the person who conceives and starts a business.

d. the person who contracts to work for a specific price.

e. the person who does not assume any risk in business

2. The study of microeconomics and macroeconomics differ in that:

a. macroeconomics is concerned with the domestic economy and macroeconomics is concerned only with the international economy.

b. microeconomics examines the individual markets of the economy while macroeconomics studies the whole economy.

c. microeconomics studies the actions of households and macroeconomics studies the actions of business firms.

d. microeconomics studies the economy in terms of private individuals and firms while macroeconomics includes the effect of government.

e. microeconomics examines the whole economy while macroeconomics studies the individual units of the economy.

3. Which of the following is a statement of positive economics?

a. Government control of rent is a fair way to help poor people afford housing.

b. Government control of rent keeps landlords from charging too much rent.

c. Government control of rent decreases the number of new apartments constructed.

d. Government control of rent is an injustice.

4. The amount of a good that must be given up to produce another good is the concept of:

a. scarcity.

b. specialization.

c. trade.

d. efficiency.

e. opportunity cost.

5. For the economy shown in Exhibit 2-6 to operate at point C, it must:

a. be willing to lower the price of grain.

b. use its given resources more efficiently than it would at point A.

c. experience resource unemployment.

d. experience an increase in its resources and/or an improvement in its technology

6. If the market price is below the equilibrium price, then:

a. a surplus of product will result.

b. the quantity supplied will exceed the quantity demanded.

c. the market supply curve will shift to the right.

d. the quantity demanded will exceed the quantity supplied.

e. the market demand curve will shift to the left.

7. Assume that the equilibrium price for a good is $5. If the market price is $10, a:

a. shortage causes the price to decline toward $5.

b. surplus causes the price to rise above $10.

c. shortage causes the price to rise above $10.

d. surplus causes the price to decline toward $5.

8. If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:

a. raise prices 1 percent.

b. lower prices 1 percent.

c. raise prices until the elasticity becomes very high.

d. keep the price where it is.

e. lower prices until the elasticity becomes very high.

9. If an increase in the price of a product from $1 to $2 per unit leads to a decrease in the quantity demanded from 100 to 80 units, then demand is:

a. elastic.

b. inelastic.

c. of unitary elasticity.

d. 0.

e. inferior

10. In Exhibit 5-6, suppose promoters charge a price of $30 per ticket. How much total revenue will their sales generate?

a. $300,000.

b. $400,000.

c. $500,000.

d. $600,000

11. What is scarcity and why does it exist? How is scarcity related to the study of economics?

12. Why are all costs really "opportunity costs"?

13. Distinguish the laws of demand and supply. How are the laws of demand and supply illustrated graphically?

14. What does the "price elasticity of demand" measure? What does a price elasticity of demand coefficient of 1.2 mean? Does the product have an elastic, unitary elastic or inelastic demand?

15. What happens to total revenue given a price increase and demand is inelastic? Why?

16. What are the characteristics of the product that has an inelastic demand?

Answer 1

1. An entrepreneur is “the person who conceives and starts a business.”

2. The study of microeconomics and macroeconomics differ in that “microeconomics examines the individual markets of the economy while macroeconomics studies the whole economy.”

In microeconomics, we study the behavior of individual economic agents in the markets for different goods and services. - In macroeconomics, we try to get an understanding of the economy as a whole by focusing our attention on aggregate measures such as total output, employment and aggregate price level.

3. “ Government control of rent decreases the number of new apartments constructed.” is a positive statement

The positive statement can be verified with facts

4. The amount of a good that must be given up to produce another good is the concept of “opportunity cost.”

5. (diagram is not given)

6. If the market price is below the equilibrium price, then “ the quantity demanded will exceed the quantity supplied.”

7. Assume that the equilibrium price for a good is $5. If the market price is $10, a “ surplus causes the price to decline toward $5”

Higher price will generate surplus and lower demand causing prices to fall toward equilibrium price.

8. If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should: “ keep the price where it is.”

When demand is unitary elastic it is advised to the firm to keep the price same to maximize the revenue

9. The demand is “inelastic”

Price elasticity of demand = %age change in QD / %age change in price

Here,

%age change in QD = Q2 – Q1 / Q1 * 100 = 80– 100 / 100 * 100 = 20

%age change in Price = P2 – P1 / P1 * 100 = 2 – 1 / 1 * 100 = 100

Now, PED = 20/100 = 0.2 (PED is less than 1)

10. (diagram not provided)