Question

24. The choice on a production possibilities frontier that is socially preferred, or the choice on an individual’s budget constraint that is personally preferred, will display _____________________.

Multiple Choice

1. allocative efficiency
2. productive efficiency
3. trade-offs
4. scarcity

44. What happens to the equilibrium price and equilibrium quantity of chicken, a normal good, if consumer incomes increase?

Multiple Choice

1. Equilibrium price and equilibrium quantity both decrease.
2. Equilibrium price and equilibrium quantity both increase.
3. Equilibrium price increases and equilibrium quantity decreases.
4. Equilibrium price decreases and equilibrium quantity increases.

45. What is the effect on the equilibrium price and equilibrium quantity of grapefruit, if the wages paid to grapefruit-grove workers rises substantially?

Multiple Choice

1. Equilibrium price and equilibrium quantity both decrease.
2. Equilibrium price and equilibrium quantity both increase.
3. Equilibrium price increases and equilibrium quantity decreases.
4. Equilibrium price decreases and equilibrium quantity increases.

46. What is the effect on the equilibrium price and equilibrium quantity of grapefruit, if the wages paid to grapefruit-grove workers rises and the price of oranges, a substitute, rises?

Multiple Choice

1. Equilibrium price and equilibrium quantity both decrease.
2. Equilibrium price increases and the effect on quantity is unclear until we know more about the magnitude of the shifts.
3. Equilibrium quantity increases and the effect on price is unclear until we know more about the magnitude of the shifts.
4. Equilibrium price decreases and equilibrium quantity increases.

Answer 1

Q 24.C trade-offs

Trade-off is a situation where a person has to sacrifice or give up some units of one commodity in order to get more units of another commodity because there are limited resources available and we cannot have it all at any given point of time.So a choice has to be made in trade-off depending on one's needs and preferences.

So in Production Possibilities Frontier,in order to increase the production of one commodity,production of other commodity has to be decreased because resources and technology is given(fixed) at any given point of time.

Similarly,in Individual's Budget Constraint,a consumer can get more units of one commodity only by sacrificing some units of other commodity because his income is fixed and thus he cannot afford to buy more of both the commodities at any given point of time.

Q 44.B Equilibrium price and equilibrium quantity both increase

'Normal goods' in economics refers to good quality goods which are expensive as compared to inferior goods(low quality goods). So,an increase in the income of consumer increases the demand for normal goods because now he can afford to spend more on consumption.This increase in the demand of normal goods increases their price because their supply is limited at any given point of time.

Q 45.C Equilibrium price increases and equilibrium quantity decreases

If the wages paid to grapefruit-grove workers rises substantially,it means that the cost of production for the producer increases.As a result,the producer will increase the price so as to compensate for the rise in the wages.At this increased price,consumers will demand less i.e. demand will decrease.

Q 46.B Equilibrium price increases and the effect on quantity is unclear until we know more about the magnitude of shifts.

If the wages paid to grapefruit-grove workers rises,it means that the cost of production for the producer increases.As a result,the producer will increase the price so as to compensate for the rise in the wages.At this increased price,demand for grapefruit will decrease.On the other hand,it is given that the price of oranges(a substitute) rises which should increase the demand of grapefruit because substitute goods can be used in place of each other.Hence,the effect on quantity is unclear until we know more about the magnitude of shifts.