Consumer
equilibrium is achieved when all budgeted income is spent and marginal
utility per dollar for both bananas and apples is the same (MUb/ Pb =
MUa/ Pa). If however, MUb/ Pb > MUa/ Pa, then according to the law of
diminishing marginal utility, more bananas would have to be consumed
and the consumption of apples would have to be reduced. By contrast, if
MUb/ Pb < MUa/ Pa, then the consumer must consume less of bananas and
more of apples.
In
this case, if you have substituted correctly, you would get 2MUb/ 2.5 =
0.8MUb. For apples, it would be 1MUa. According to what we have
discussed, therefore the solution would be to consume less of bananas
and more of apples. So A is the answer
Demand
for labour is also known as MRPL. Mathematically, it can also be
written as DL = MRPL = MPL x P. In this case, P = $1, and so, MRPL = MPL
(the MPL curve automatically represents the demand curve for labour).
Also would be KL which is C. JK is too short to represent the demand
curve for labour
Since
AVC is constant for all the quantities ($10,$10,$10,$10 etc), therefore
TVC must be an upward-sloping linear line that starts from the origin
($10,$20,$30, $40 etc) (hope you can imagine that!!). It is also stated
that TFC is incurred, which is the usual/ typical horizontal line for
all the quantities (say $2,$2,$2,$2 etc). Putting these two together,
you will get an upward sloping line which now starts from the vertical
cost axis ($12, $22, $32, $42 etc). ATC or AC would therefore be $12,
$11, $10.67, $10.50 etc. Answer is D
MR
= change in TR/ change in output. Initial TR = (v+z). New TR = (z+w).
Therefore, MR = {(z+w) - (v+z)} / {(x+1) - x} = (w-v) only. Answer is C
The
diagram shows a monopolistically competitive firm operating in the
long-run where normal profit is attained. The idea is, any short-run
supernormal profits will attract new entrants, and therefore, existing
customers will be competed away by new rivals. Monopolistic firms will
be left with relatively too many workers and under-utilised capital
relative to the level of output by then. Excess capacity is building up.
Since it serves fewer customers than before, it can no longer enjoy
economies of scale as it used to. Answer is D
Real
income = nominal income (or money income) - inflation rate = 5% - 4% =
1%. However, population increases at a faster rate which is 2%. Looking
at it, income rises but it will be shared by more people, and so, real
income would ideally decrease. Answer is A
Increase
in business confidence means that there will be a rise in the demand
for loanable funds. Reduction in propensity to save will reduce the
supply of loanable funds. Answer is B (not to worry cos this has been
recently taken out of syllabus)
JK
and FG are both SRPCs. Usually, it shifts upward and to the right as it
reflects expectation of higher inflation rate. Workers (supply-side
unemployment) who initially took up the job offers suffered from money
illusion. Soon, they will realise that they are not better-off in real
term. They will start asking for higher pay and this causes some of them
to be made redundant. This is why, in the long-run, unemployment will
not decrease and national output/ income will always remain the same (I
wish I can draw a LRPC/ NAIRU curve here). In this question, it is the
exact opposite since it shifts downward and to the left. Answer is B
For
financial year 2012/13, there was a budget deficit of US$ 370, 300. For
financial year 2013/14, there was another fiscal deficit of US$ 40,000.
A is incorrect as budget deficit fell. B is incorrect either as both
years showed budget deficit. C is incorrect as national debt aka
accumulated annual deficit rose. This means answer is D
This
question is related to crowding-out effect. There are two ways in which
it can happen. First, when the government sells bonds to private
sector, private firms would have less money themselves to invest upon
lending to the government. Another way is that, rise in government
spending would create competition for money which will cause interest
rates to increase (interest rate is the price of money). Eventually,
costs of borrowing will increase, and in the same way, private firms
would cut investment. Either way, a rise in G causes I to fall. AD may
or may not increase. Answer is A
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