Question

SECTION A: 10 MULTIPLE CHOICE QUESTIONS - 10 MARKS Test 3 201901 Answer ALL questions. Record your answers to the MCQ on the answer table provided at the end of this section: 1. What is the only thing which causes an INCREASE in Quantity Demanded Lower Prices B. Higher income levels C. Increased prices of substitutes D. Favourable change in tastes A 2. Use Marginal Analysis to determine the OPTIMAL number of SCHOOLS from the table below. No of SCHOOLS TOTAL BENEFITS TOTAL COSTS 100 200 90 300 560 300 260 450 800 400 650 500 1000 1100 900 A B. c 200 300 400 500 3. Which of the following could be the best explanation for a sudden INCREASE in the Price of BANANAS. A. B. c. D. An decrease in Demand for bananas An increase in Supply of bananas A decrease in the price of apples (a substitute to bananas) A shortage of bananas 4. A production possibility frontier will shift inwards if A. There is a reduction in demand.. B. There is an increase in unemployment C. If resources are damaged. D. There is inefficiency in the economy. 5. A Production Possibility Frontier is bowed out because A of scarcity B. as more of one good is produced less of another must be produced C. opportunity costs decrease as production increases D. resources are not equal so opportunity costs increase with production 6. Opportunity Cost is best defined as A. The cost to producers that results from rising production costs The additional cost of purchasing one more unit of a good C. The additional cost of manufacturing one more unit of output D. The highest valued alternative that we forego when we make a choice or decision

Answer 1

1) A decrease in price is the cause of an increase in quantity demanded, As it moves downward along the demand curve. Option a is correct

2)

no of schools	total benefit	marginal benefit	total cost	marginal cost
0	0		0
100	300	300	90	90
200	560	260	260	170
300	800	240	450	190
400	1000	200	650	200
500	1100	100	900	250

When no of schools is 400, marginal benefit=marginal cost. So optimal no of school is 400. Option C is correct.

3) Reason of the increase in the price of banana could be-

a) increase in demand for bananas

b) A decrease in supply for bananas

c) An increase in the price of the substitutes of banana, so that people shift to the banana. Demand will be increased so that price increase.

d) Price of banana would increase when there is a shortage because suppliers would want to sell the bananas to the high valued customers.

Option D is correct.

4) PPF shifts inward when production of both goods decreases. When resources are damaged, PPF shifts inward. Option C is correct.

5) PPF is bowed outward because of increasing opportunity cost. As more of one good is produced, less of another good is produced. Option B is correct.

6) Opportunity cost is what we give up to get another high valued item. Option D is correct.