1. 2. 3. Economics is the study of how abundant resources are utilized efficient
ID: 1138487 • Letter: 1
Question
1. 2. 3. Economics is the study of how abundant resources are utilized efficiently. T-A or F-B Consumers are sovereign in socialist societies. T-A or F-B If marginal social benefit is less than the marginal social cost (a) Society must be under-allocating economic resource (b) Society must be over-allocating economic resources (c) Society is using its economic resources efficientl (d) Economic resources cannot be under-allocated. Figure 1: Increasing Cost Production Possibilities Frontier (PP Computers (thousands) 4. Wheat (thousands of bushels) If an economy is operating at point A, its policy makers might be (a) using economic resources efficiently (b) using economic resources inefficiently (b) operating beyond full capacity (d) very efficientExplanation / Answer
Ans.
1) T=A
The statement is true because economics is study of how to allocate,produce and distribute scarce resources effciently.
2) F=B
This statement is false because consumers have highest level of consumer sovereignty in free market economy , where consumers are free to buy any commodity and in whatever quantity. Whereas in Socialist societies , the central or state government decides what to produce. Such that consumers are not sovereign in socialist economy.
3) b. society must be over - allocating economic resources
When Marginal social costs are higher than Marginal social benefit then there is over production of product . That means there is over - allocation of economic resources.This further causes negative externality in an economy.
4) a. using economic resources effciently
The point A lies exactly on PPF that menas all the resources are being efficiently produced with given technology. There is no over utilisation and under utilisation of resources. Whereas Point G indicates that resources are operated beyond full capacity and point E is inefficient use of resources.
5) d. 1 thousand bushels of wheat in lieu of 1 thousand computers
MRT is marginal rate of transformation . It is a slope of PPF that defines the rate at which production of good can be reallocated for production of other good. It is also known as Opportunity cost of the commodity. So, to increase production of wheat by 1 thousand , there is reduction or sacrificing of production of computers by 1 thousand.
6) b. $50
The willingness to pay by consumer is $20 for a good but she pays $10 for 5 units of goods. That means she pays 10*5 = $50 . Whereas , her willinness to pay for 5 units is is 20*5 = $100. So her consumer surplus is difference between willingness to pay and the amount she spends i.e $100 - $50 = $50
7) a. decrease in income
The quanity supplied for coffee will change when there is increase in price or decrease in price. When there is change in climate such as hurricanes or windstorm may destroy the crops , which further ffects the quantity supplied. Moreover if number of suppliers increase to produce coffee then there will be increase in quantity supply. However with increase or decrease in income , there will be no effect on quantity supply of coffee but effect on quantity demanded.
8) A. True
There are two main policy to stabilise economy , that is fiscal policy and monetary policy. In fiscal expansionary policy there is increase in government spending or taxes are reduced to boost aggregate demand. Whereas expansionary monetary policy is when cantral banks uses its tools to stimulate the economy. In this with increase in money supply there is lower interest rate and increase in aggregate demand. So expansionary policy i.e fiscal expansionary policy , policy makers will make tax cuts.
9) b.$2b
GDP is calculated by expenditure approach , where , GDP = Consumption spending + government spending + investment + net exports.
GDP = $10 , consumption = $2 , government spending = $4 , Investment = $2
Thus , 10 = 2 + 4 + 2 + net exports
net exports = 10 - 8 = $2b
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