Question

Determine the statement below is True or False, then give the reason.

1. Market demand for an item is influenced by factors (a) the price of the goods themselves, (b) tastes and preferences of consumers, (c) income, (d) prices of goods complement and substitution, (e) future expectations and (f) number of buyers. If the price factor of the item itself changes, cateris paribus, then the market demand curve for goods will shift to a new position.

2. Price elasticity is influenced by factors such as (a) the amount of substitute goods of an item, (b) whether the item is a basic need or a luxury item, (c) the percentage of income spent on the item, and (d) time period for consideration

3. In the case of normal goods with an ideal indifference curve, assuming that the horizontal axis is goods Y and the vertical axis is goods X, then the consumer balance is reached when MRS = Px / Py.

4. The characteristic that characterizes the production process stage 3 is that the AP must be in ascending or peak conditions.

5. The company achieves the optimal input combination conditions when the isoquant slope is the same as the isocost slope

Answer 1

Ans 1: (A) True, the market demand of a good depends upon its own price.

(B) True, this is he factor other than own price of a good. A favorable change in taste and preferences for a good, increases its market demand.

(C) True, an increase in the income can increase the demand for a good (normal good), while in case of inferior good, there is a negative relation between income of the consumer and demand for inferior good.

(D) True, the market demand depends upon the prevailing prices of its substitute and complements good.

(E) True, future expectations is one the determinant of market demand.

(F) True, the number of buyers can influence the market demand for a product.

If the price factor of the item itself changes, cateris paribus, then the market demand curve for goods will shift to a new position.: This is FALSE, because a change in price of own good, would cause a movement along the market demand curve, whereas any change in factors other than own price of the good would cause a shift in the market demand curve.

Ans 2: All the options listed are TRUE, the elasticity of demand depends on these factors.

Ans 3: False, then the ideal condition will be MRS = Price of Y/ Price of x

Ans 4: False, in the 3rd case, the AP is falling but remains positive as the average cannot be zero.

Ans 5: True, the slope of isoquant = slope of isocost line because the slope of isoquant is MRTS, whereas the slope of isocost line is ratio of price of labor to price of capital.