Economics of Enterprise Answers

4.1 Assume the aggregate demand of an economy is arising at 3%,but its productive capacity is only rising at 2%. Discuss the type of inflation this would lead to. Use diagram to motivate your answer.
4.2 explain how fiscal policy can be implemented if an economy is in the downswing of a business cycle.

2.1 Explain the kinked demand curve theory of an oligopoly. Include in your answer a discussion of a contemporary oligopoly.

2.2 discuss and motivate whether the following market structures can engage in price discrimination.
2.2.1 perfect competition
2.2.2 Monopoly

-Oil is considered to be a non-renewable energy source. Oil is:
a. An unlimited resource.
b. A scarce resource.
c. Not a productive resource.
d. A resource with no opportunity cost.


- Economists are particularly good at understanding that people respond to
a.Laws.
b.Incentives.
c.Punishments more than rewards.
d.Rewards more than punishments.

Draw a circular flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of money for each of the following activities:

a) Joe pays $8 for buying a coffee at Starbucks.

b) Joe earns $50 per hour working as an accountant to Deloitte.

Draw a circular flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of money for each of the following activities:

a) Joe pays $8 for buying a coffee at Starbucks.
b) Joe earns $50 per hour working as an accountant to Deloitte.

Your parents gave you 200 KD. You have a choice between spending the money now or investing your money and buy shares of a company. You will receive 20 KD as a dividend after one year.

a) What is the opportunity cost of spending 200 KD now? (10 points)

b) Based on your understanding define opportunity cost. Justify your answer with an example. (20 points)

a) Describe the factors that drive profits to zero in perfectly competitive markets in the long run. Explain carefully the incentives that drive the market to a long run equilibrium.

b) Why would a firm choose to operate at a loss in the short run? Explain carefully.

c) When do firms decide to shut down production in the short run? Explain carefully.

. Mr. Ali has Rs. 35000 income per month, the expenditure on pulses is 2000, when income
rises to 40000, the expenditure on pulses reduces to 1500 rupees, categorize the pulses as
inferior, superior or normal good.

Why presence of natural resource is not precondition for economic development

what is inflation