Question

23 Microeconomic foundations include

a. a marginal product of labor that falls as more labor is employed.

b. a rising quantity supplied of goods as demand for goods shifts out.

c. a marginal cost of output equaling the price of output.

d. all of the above.

24 In supply and demand

a. the demand for capital depends on the real interest rate.

b. the supply of labor depends on the real wage.

c. supply and demand intersect at the equilibrium.

d. all of the above.

Answer 1

23) Microeconomic foundations include option a) since as more labor is employed, marginal product of labor keeps on falling due to other resource constraints. b) is also true as the higher demand for goods is met with increased supply. c) is also true as a competitive firm maximises profit when price equals MC. Option d) is correct.

24) In supply and demand, the demand for capital depends directly on the real interest rate as it is the opportunity cost of holding capital. As real wage increases, labor supply also increases. The demand and supply intersects at the equilibrium. Option d) is correct.