ECO 105-Principles of Economics (BBA) SPECIAL ASSESSMENT PART I. SELECTED/SHORT

Question

ECO 105-Principles of Economics (BBA) SPECIAL ASSESSMENT PART I. SELECTED/SHORT RESPONSE (60 marks) TRUE OR FALSE (10 marks) 1. The Latin phrase economists use that means "all else equal" is ceteris paribus 1. -2. If coffee and tea are substitutes, then an increase in the price of coffee will result in an increase in the demand for tea. Perfect competition results in less efficient market outcomes. 4. Monopolistic competition is an industry market structure with many firms each able to differentiate their product. 5. The income of U.S. citizens working abroad counts in U.S. GNP. 2. MUTIPLE CHOICE (30 marks) 1) The economy is currently at Point A. The opportunity cost of moving from Point A to Point 8 is the 120 90 40 60 80 Plasma televisions A) 90 LCD televisions that must be forgone to produce 20 additional plasma televisions. B) 30 LCD televisions that must be forgone to produce 60 additional plasma televisions. C) 120 LCD televisions that must be forgone to produce 40 additional plasma televisions. D) 30 LCD televisions that must be forgone to produce 20 additional plasma televisions. Special Assessment

Explanation / Answer

Answer:

True or False.

1) True.

Explanation: The phrase Ceteris Paribus is Latin meaning ‘Other things remaining equal’ or ‘all else equal’.

2) True.

Explanation: Substitute goods are goods whose demand increases when the others price increases. For instance, Tea and Coffee, Pepsi and Coca-cola. When the price of Tea increases consumer demand more of coffee than of tea and vice versa. The same can happen with Pepsi and coca-cola. When price of Pepsi rises people can switch to coca-cola which is much cheaper than Pepsi.

3) False.

Explanation: Perfect Competition is a market structure where exist productive and allocative efficiency in the longrun. Perfect competition is rare in the real world.

4) True.

Explanation: Producers produce differentiated products under monopolistic competition, it’s a form of imperfect competition. Product differentiation takes place in the form of branding, quality etc. Many firm takes part in this market structure.

5) True.

Explanation: GNP is defined as the “value of all final goods and services within the domestic territory of a country by normal residents in an accounting year plus net factor income from abroad.” Net Factor Income from Abroad is the difference between the aggregate income earned by domestic residents working abroad , and foreign nationals working in the domestic country.

Multiple Choice.

1)Option A.

Explanation: The economy is at point A. The opportunity cost of moving from point A to point B is the 30 LCD televisions that must be forgone 20 additional plasma televisions.

Here there are two goods that are being produced in the economy. They are 1)LCD Television and 2)Plasma Television. The production of Plasma television is plotted along the X axis and production of LCD television is plotted along the Y axis. The curve consisting of points A,B, and C is the production possibility frontier or production possibility curve. This curve helps us to find out different combinations of goods that can be produced with the same resources and technology. When the economy is producing at point A, the amount of LCD televisions produced is 120 and that of Plasma television is 40. Now suppose the economy has moved from point A to point B. At the point B the amount of LCD televisions produced is 90 and that of Plasma television is 40. Thus the opportunity cost of producing 20more units of Plasma television is 30LCD television. Like wise, moving from poin B to C the economy is ready to allocate more resources in order to increase production of Plasma television from 60units to 80units. All the points that lies in the production possibility frontier are Pareto efficient in nature. Any point within the ppf is considered to be Pareto inefficient because the firm will not be producing at its full capacity. Pareto efficiency is defined as the situation in which “it is impossible to make someone better off without making anyone worse off.”

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.