ECO402 Midterm Preparation

Question

Answer

For normal goods, Engel curve always have…………..Slope Positive / upward

which of the following will be the shape of Engle curve for inferior goods Downward sloping

market equilberm is a market state where the supply in the market is equal to the demand in the market in a production process, all inputs are increased by 10% but the output increases less than 10%. This means the firm experience decreasing returns to scale

individual demand curve can be drawn from Price consumption

Which of the following costs always declines as output increases

fixed costs are fixed with respect to changes in Output The average total cost to produce 100 cookies is $0.25 per cookie. The marginal cost is constant at $0.10 for all cookies produced. For 100 cookies, the average total cost is Falling

the marginal rate of technical substitution is equal to the Change in output divided by change in labor input In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus marginal cost is below average variable cost

Which of the following costs are always increasing as output increases?

total cost and variable cost A firm employs 100 workers at a wage rate of $10 per hour, and 50 units of capital at a rate of $21 per hour. The marginal product of labor is 3, and the marginal product of capital is 5. The firm Could reduce the cost of producing its current output level by employing more labor and less capital.

when the average rate is increasing, marginal product will Exceed average product as the price of good X increase from Rs 50 to Rs 100. Quality demanded falls from 100 units to 80 units. based upon the information we can conclude that the demand for X is Elastic A 10% increase in the price of movie ticket in West ridge 8 leads to a 15% decrease in the number of tickets sold, indicating the demand for movie ticket in West ridge 8 is: Elastic

The price elasticity of demand is the ratio of the percentage change in quantity demanded to the percentage change in price

If demand is price elastic, then a fall in price will raise total revenue

Complementary goods have negative cross price elasticities of demand with respect to each other

The price elasticity of demand generally tends to be smaller in the short run than in the long run If the cross-price elasticity between two commodities is 1.5 the two goods are substitutes

the ratio of wage rate to rental cost of capital is called Slope of the Isocost Suppose demand curve for good A has shifted to the result of increase in price of good B. From this we can infer that A and B are substitutes

when the cost of raw material increase then it will lead to shift in Supply curve towards left or upward

a percentage change in quantity supplied divided by a percentage change in price is called The price elasticity of supply

Marginal product crosses the horizontal axis (is equal to zero) at the point where total product is maximized when the two goods are perfect substitutes to each other than the marginal rate of substation for them will be Constant

marginal rate of substitution represents the slope of indifference curve

when the cost of labor increase then curve will lead to shift Supply curve towards right which of the following explains the relationship between quantity demanded of a good and consumer income Demand Curve

which of the following is included in economic depreciation to make it equal to the user cost of capital User Cost of Capital = Economic Depreciation + (Interest

Rate)(Value of Capital)

since car and petrol are complements the cross price elasticity of demand for car and petrol will be if the cross price elasticity are negative the goods are complements. if the cross price elasticity is positive the goods are substitutes.

POINT ELASTICITY OF DEMAND (P/Q)(1/Slope)

Indifference Curve 1. Higher indifference curve represents higher level of satisfaction. 2. indifference curve always are convex to origin. 3. indifference curve intersect each other.

if the isoquants are straight lines. Than the marginal rate of technical substitution of inputs is constant

in the long run, which of the following is considered a variable cost All The rate at which one input can be reduced per additional unit of the other input, while holding output constant is measured by the marginal rate of technical substitution in the long run, if a firm is facing higher marginal cost than the average cost; then certainly per unit cost will Rise If X is a normal good, a rise in money income will shift the Supply curve for X to the left.

if price are held constant, an increase in income will shift budget line rightward 0r Outward shift in the budget line

income elasticity of demand for an inferior good is always Negative (as consumers' income rises, they buy fewer inferior goods.)

when the cost of labor increase then it will lead to shift in the supply curve for labor will shift to the left If the percentage change in quantity demanded for milk is less than the percentage change in price of milk then the price elasticity of demand for milk is inelastic Inelastic

when the actual market price is lower than the equilibrium market price in goods market Shortage (If the market price is below the equilibrium price, quantity supplied is, less than quantity demanded, creating a shortage. The market is not clear. It is in shortage. Market price will rise because of this shortage cross price elasticy of demand for the complements will always be The cross elasticity of demand for substitute goods is always positive because the demand for one good increases when the price for the substitute good increases.

Alternatively, the cross elasticity of demand for complementary goods is negative Average Total Cost = AFixedC + AVeriableC 250 = AFixedC + 100 250 – 100 = AFixedC

incremental cost is the same concept as marginal cost Marginal

cost-output elasticity can be calculated as It is calculated by dividing the percentage change in cost with percentage change in output

AC/MC

Consumer can maximize their satisfaction at the point where the marginal rate of substitution is Is equal to the price ratio of the two goods.

When two goods are perfect substitutes, the marginal rate of substitution

is constant along the indifference curve

the slope of total product curve is called

What is the shape of total product curve?

S Shaped

when the income of the consumer decrease then curve will shift Demand Curve to right

the expenditure that has been made and cannot be recovered is called Sunk Cost