Question

For questions 1 to 20 indicate whether each of the statements is TRUE or FALSE.

(20 marks)

1. A demand curve is downward sloping because as the price of a good falls, consumers will substitute some other good for that good whose price has fallen.

2. An improvement in the technology for producing Gari will shift the supply curve for Gari to the left.

3. The minimum wage is an example ofa price floor.

4. Ifthe price ofa good goes up by 5 percent and the quantity demanded falls by 15 percent, the

price elasticity of demand is 1/3.

5. The cross-price elasticity of demand is the percentage change in quantity divided by the

percentage change in price of another good.

6. The principle of diminishing marginal utility states that people enjoy consuming more of a

good.

7. If marginal utility is declining but still positive, total utility is decreasing.

8. ]n the long run all inputs are variable; in the short run all inputs are fixed.

9. Fixed costs decrease as output is increased.

10. The law of diminishing marginal productivity states that provided one input is constant,

increases in other inputs will eventually result in smaller increments to total output.

11. If total cost is 150, total fixed cost is 50, and output is 20, then average variable cost is 5.

12. An economically efficient method of production is a method that produces a given level of

output at the lowest possible cost.

13. In perfect competition, price is greater than marginal revenue.

14. An increase in the number of firms causes market supply to shift to the left.

15. A monopolistically competitive industry is characterized by few sellers In a highly

competitive market.

16. The demand for labor is based on the worker's trade-off between income and leisure.

17. ]n a price support system, the government maintains a higher than equilibrium price.

Answer 1

Answer

1. False

The demand curve is downward sloping because as price falls consumers desire more of the product and as price rises consumers desire less of it.

2. False

An improvement in technology will increase the productivity of the good. This will help increase production which will be represented by a rightward shift of the supply curve.

3. True

The minimum price is an example of a price floor. The the price floor is always set above the equilibrium price and is the minimum price at which a good order can be bought and sold.

4. False

The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Sure the price elasticity e will be 3

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