Economics Answers

A firm producing five units of output has an average total cost of R100 and has to pay
R150 to its fixed factors of production. The average variable cost is …

1. R30
2. R70
3. R100
4. R150

If the total cost is R750 and the average fixed cost is R15 when 30 units of output are
produced, then the average variable cost at that level of output is …

1. R15.
2. R10.
3. R450.
4. Impossible to determine.

The substitution effect of a price decrease for a good with a normal indifference curve
pattern …

1. is always inversely related to the price change
2. measures the change in consumption of the good, which is due to the consumer
feeling richer.
3. is measured by the horizontal distance between the original and the new indifference
curves.
4. provides sufficient information to plot an ordinary demand curve for the commodity
being considered

Terry has R100 to spend on two goods, shoes and shirts. If the price of a pair of shoes is
R35 per pair and the price of a shirt is R15 each, which one of the following combinations
is unaffordable to Terry?

1. 0 pairs of shoes and 0 shirts.
2. 2 pairs of shoes and 2 shirts.
3. 2 pairs of shoes and 3 shirts.
4. 0 pairs of shoes and 7 shirts.

If an indifference curve is convex from above (bowed out), which of the following
statements would be true?

1. The more you have of a good, the less you desire additional units of the good.
2. The less you have of a good, the more intense your desire for more of it.
3. The more you have of a good, the more intense your desire for more of it.
4. This type of indifference curve violates the more-is-better-than-less assumption
underlying indifference curves.

Which of the following describes the Giffen good case? When the price of the good …

1. rises, the income effect is opposite to and greater than the substitution effect, and
consumption falls.
2. falls, the income effect is in the same direction as the substitution effect, and
consumption rises.
3. falls, the income effect is in the opposite direction to the substitution effect, and
consumption falls.
4. falls, the income effect is in the opposite direction to the substitution effect, and
consumption rises.

If the cost of producing an inferior product rises, and people’s incomes increase at the
same time, the equilibrium price will …

1. decrease.
2. increase.
3. stay the same.
4. be indeterminate.

The income elasticity of an inferior good is …

1. negative because as people become richer, they increase their purchases of the
good by smaller and smaller amounts.
2. 1 because the increased income offsets the desire to consume less of the good
because it is inferior.
3. greater than 1 because the richer you become, the less you will consume of the
good.
4. negative because higher income leads to a reduction in the amount consumed of the
product.

Assume that beer is a normal good. If the price of beer rises, then the substitution effect
results in the person buying … of the good, and the income effect results in the person
buying … of the good.

1. more, more
2. more, less
3. less, more
4. less, less

A decrease drop in the price of a product from R25,00 to R20,00 causes the quantity
demanded to increase from 1 500 to 2 000 units. Using the arc elasticity of demand, the
price elasticity of demand is … .
1. 0.77
2. – 0.78
3. – 0.82
4. – 1.29