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With fixed cost of $450, a firm has average costs of $5 and average variable costs of $3. Its output is __
Increase in net capital inflow will increase interest rates in the domestic loanable funds
market” – do you agree with this statement? Explain by drawing a diagram and
comment how you think investment will change if there is an increase in capital inflow.
What do you understand by the term “closed economy”? For a closed economy show,
National savings = National Investment
“Natural resources are the most important determinant of long-term economic growth”
– do you agree with this statement. Briefly explain your views.
You are looking at cost curves. The value associated with the marginal cost
(MC) on the graph is higher than the value associated with the corresponding
average variable cost. (AVC). In other words MC is above AVC. This means:
Select one:
O a. average variable cost (AVC) is increasing
O b. average variable cost (AVC) is falling
O c. average variable cost (AVC) is remaining constant
O
d. none of the above
Cold drinks and pizza are complements because they are often enjoyed together. When the price of cold drinks rises, what happens to the supply, demand, quantity supplied, quantity demanded, and the price in the market for pizza?
The private marginal benefit for commodity X is given by 10 - X, where X is the
number of units consumed. The private marginal cost of producing X is given by 4 +
x and producing this commodity creates a negative externality, the marginal external
cost is constant at $2.
(a) How much X is produced without government intervention and at what price?
What are producer and consumer surplus in this case?
(b) What is the efficient level of production of X?
(c) Suggest a Pigouvian tax that would lead to the efficient level of production.
(d) What is the producer surplus in this market with the optimal Pigouvian tax?
(e) If some of the government revenue is spent compensating taxed producers for
their lost surplus, how much remains?
A. Choose a product with which you are familiar (i.e. Starbuck’s Frappuccinos) that will be
affected by the dynamics of the market economy.
B. Make up two different headlines for two graphs relating to factors causing a shift in demand,
then show how each will impact the product related to either surpluses or shortages and
ultimately a change in the equilibrium price. One must be an increase in demand, the other a
decrease in demand. You may only use each cause of a shift once!!! such as population.
C. Do the same for two factors causing a shift in supply. You must draw a separate graph for
each factor. You may only use each cause of a shift once!!! such as technology.
D. Type a paragraph about each of your graphs (four total) to predict whether the product will
demonstrate an increase or decrease in demand or supply and what will have to happen
economically (i.e., shortage, surplus, price increase, price decrease).
Drawing diagram explain the process of “crowding out”. Also explain why the private
sector might find budget deficit detrimental to their business planned projects
Section D: Essay Writing. (500 words limit) (10 marks)
Write ONE essay from the following topics. Spend at least 80 minutes in this section.
1. Discuss the merits of a proposal that the government should impose a tax or subsidy where a non-renewable resource is supplied monopolistically in order to increase the social net benefit. You may contextualize this to your home-country or to a current development that you may be aware of. (10 marks)
