Question

Gasoline (gallons per week) Coffee (pounds per week) 19) The substitution effect from a fall in the price of a gallon of gasoline is shown in the above figure by the movement from A) point A to point C. B) point A to point B. C) point B to point C. D) point A to point B and then to point C. 20) The market supply curve shows the A) minimum price suppliers must receive in order to produce another unit of the good. B) maximum price suppliers must receive in order to produce another unit of the good. C) amount of producer surplus suppliers receive. D) profit that suppliers receive from producing another unit of the good. 21) An electrician quits her current job, which pays $40,000 per year. She can take a job with another firm for $45,000 per year or work for herself. The opportunity cost of working for herself is A) $5,000. B) $40,000. C) $45,000 D) $85,000 22) Which of the following constrain (that is, limit) a firm's profits? I. its technology II. its information III. the market in which it operates A) I only B) I and II C) II and III D) I, II and III

Answer 1

(19) (B)

To find substitution effect (SE), a line is drawn parallel to new budget line which is tangent to original indifference curve at point B. So, SE is movement from A to B.

(20) (A)

Market supply is the minimum price acceptable to sellers.

(21) (C)

Opportunity cost is the highest benefit foregone by choosing one alternative over another.

(22) (D)

Firm profit is constrained by market, information and technology.