Question

In calculating Gross Domestic Product for a country, we exclude the value of net factor incomes earned abroad.

True

False

Question 6 (1 point)

The substitution effect of a price change is strictly negative.

True

False

Question 7 (1 point)

Suppose if the price of a product is changed from $ 1.50 to $ 2.00 and its quantity demand also changes from $ 200 to $ 100, then the price elasticity of demand (elasticity coefficient) is:

a	66.66
b	2.33
c	50.3
d	28.57

Question 8 (1 point)

In the short-run at least one factor of production must be:

a	Fixed
b	Variable
c	Quasi-variable
d	An intermediate input alone.

Question 9 (1 point)

Economic profit incorporates :

a	Only explicit costs
b	Only implicit costs
c	Both explicit and implicit costs
d	Historical costs

Answer 1

True.

In calculating GDP, Net factor income from abroad is excluded as

GDP = GNP - Net factor income from abroad (NFIA)

Q-6

True

As the price increases product become expensive relative to other goods. Therefore substitution effect is always negative.

Q- 7

Price elasticity formula = (%Δ in qty demanded)/(%Δ in price)

%Δ in qty demanded = ((100-200)/200) = -0.5 or 50%

%Δ in price = ((2-1.50)/1.50) = 0.333 or 33.33 %

Price elasticity = 50/33.33 = 1.50 Ans.

Q-8

Option (b) variable.

There are both fixed factor of production and variable of production.

Fixed factor of production which cannot be changed in short run.

Most of factors in short run are fixed.

Variable factor are those factors which can be changed in short run.

There is atleast one factor which is variable in short run.

9) Option C

Both explicit cost and implicit cost.

Economic profit is different from accounting price, it not only includes direct payment (explicit cost) but also opportunity cost ( implicit cost).

All the best.

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