Question

In economics, the term “scarcity”meansthere                    .

is a shortage of the factors ofproduction

is equilibrium in themarket

are unlimited wants and only limitedresources

are limited wants and unlimitedresources

A country has an absolute advantage in producing cars ifthat country                    .

has a lower opportunity cost of producing cars than any othercountry

can produce more cars in a given amount of time than any othercountry

has a higher opportunity cost of producing cars than any othercountry

charges the highest price forcars

During bad economic times, many people lose their jobs. How would that affect the market demand for newcars?

Demand will shift to theleft.

Demand will shift to theright.

Demand will not shift but the quantity of cars sold willincrease.

Demand will not shift but the quantity of cars sold willdecrease.

Market prices of a product are determined by thebalanceof                    .

government decisions and individual households

the cost to produce the product and the technology used to produce theproduct

the government and the sellers of theproduct

the cost to produce the product and the value that buyers get from theproduct

Demand for a good is inelastic if                    .

a decrease in price of this good results in an increase in total revenue

there are many substitutes for thegood

an increase in the price of this good results in an increase in totalrevenue

an increase in the price of this good results in a decrease in totalrevenue

Each time we add unit of labor, output grows but beyond some point the additional output that results from each additional worker begins to decrease. Thisiscalled                                                        .

the law of diminishingreturns

the law of positiveexternality

the law of negative externality

opportunity cost

Only one of the following isnota characteristic of a perfectly competitive firm, and this isthat         .

identical goods are offered by manysellers

no buyer orseller can influence price aproduct

sellers are not aware of all opportunities and technologies

no barriers to entering or exit themarkets.

A cost of an activity that falls on people not engaged in that activity is calleda(n):

Which of the following firms is an example of monopoly in theUAE?

Abdullah used to work at the local gym earning AED 35,000 a year. He quit that job and started working as a personal trainer. Abdullah earns AED 50,000 in total annual revenue. Abdullah’s out-of-pocket costs are AED 12,000 per year for rent and utilities, AED 1,000 per year for advertising and AED 3,000 per year forequipment.

Abdullah’saccounting profit                     , and Abdullah's economic profitis


Instructions: Carefully read each question and answer in the spaces provided.

The diagram below shows the market for Godiva chocolate inequilibrium.




What is the equilibrium price andequilibriumquantity?                   (2x2 = 4 marks)

Equilibrium Price isequal to                    . Equilibrium quantity isequal to                                                        .

The ministry of health announced that eating chocolate causes lots of diseases. What would happen to the price and quantity of Godiva chocolate? Show the impact on the graph above, draw andexplainbelow.       (2x2 = 4marks)

Using appropriate graphs, explain the difference between a movement along a supply curve and a shift in supply curve. Give two examples of factors that can cause a shift in the supply curve.  

The two factors that can shift the supply curve are;

The market for mobile phones is in equilibrium. The government has introduced VAT on the input prices of all mobile phones, at the same time consumer’s income hasdecreased.

Using demand and supply curves, explain what will happened to the market of mobile phones.           (8marks)

Using the midpoint method, calculate the price elasticity of demand between points A and B. ( showyoursteps)

The price Elasticity of demand=                                                                                   

Is the demand along this portion of the curve elastic orinelastic?

Based on your answer in b above, explain how the management in this casecould increase theirrevenues.

The manager of Gloria jeans notices that when she increases the price of her coffee from AED 20 to AED 25, the sales of chocolate chip cookies decreases from 45 cookies a day to 30.  (2 x 4 = 8marks)

Calculate Cross-price elasticity of demand for coffee and chocolate chipcookies.

Based on your answer above, is coffee and chocolate chip cookies substitutes?Explain why or whynot?

Using the table below, complete the shaded boxesin grey.                        (4 x2 = 8marks)

Output

TC

FC

VC

MC

0

30



0

1



10


2

48


18


3



22


4

56




5

64




Suppose a firm operating in a perfectly competitive market has the following costcurves;


Label the graphs above, identify which is MC, ATC, AVC, MR,P.

What is the quantity that the firm would produce to maximizeprofits?                  

Is the firm making a profit or aloss?                                                                       

Should this firm decide to shut down? Explain youranswer.

In the case of imperfect competition.

Mention 3 characteristics ofmonopolyfirms.                        (3 x 2 = 6marks)

Describe 2 ways by which governments can create monopolies.(2 x 1= 2marks)

Based on the graph below that represents the cost curves and marginal revenue curve for amonopolyfirm.  (8marks)




What is the quantity that maximizes the profit for thisfirm?                                   

What is the price that this firm should charge for itsproduct?                                 

Calculate the maximum profit that this firm canmake?                                           

The graph below shows the market for peaches in which the government has set a price floor of AED 4 per unit, based on the information shown in the graph answer the following questions;




What does “price floor”mean?                                   

Calculate the consumer surplus before and after setting the price floor. (4marks)

Homework Answers

Answer #1

.1.

C. are unlimited wants and only limited resources

The wants are unlimited, but to meet these wants, resources are limited.

----------

2.

B. can produce more cars in a given amount of time than any other country

Absolute advantage is measured in terms of efficiency of production.

----------------

3.

A. Demand will shift to the left.

Demand will decrease and will shift to the leftward direction. It will happen as people will save more due to gloomy economic outlook.

---------------

4.

D. the cost to produce the product and the value that buyers get from the product

It is the combination of cost plus pricing and value based pricing.

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