82. For a normal good, income elasticity of demand will be: A) B) C) D) negative
ID: 1122025 • Letter: 8
Question
82. For a normal good, income elasticity of demand will be: A) B) C) D) negative. positive. zero. determined by the direction of the change in income. 83. Assume the sui t the right by a given amount at each price. Price in the market will decline the most if demand is more: A) price elastic and supply is more price inelastic. B) price inelastic and supply is more price inelastic. C) price elastic and supply is more price elastic D) price inelastic and supply is more price elastic. 84. The price elasticity of a demand curve with a constant slope: A) B) C) D) is equal to the slope. is greater than the slope. is less than the slope. increases in absolute value as the price rises. 85. When an additional unit of a variable factor of production adds less to total product than the previous unit, the firm must be experiencing: A) increasing returns. B) diminishing marginal returns. C) diminishing average returns. D) both B and C 86. A fixed factor of production is defined in the text as one: A) B) C) D) that exists in nature and there is only so much of it. that can be used for one thing only. that can never produce more or less in any time period. whose quantity cannot be changed in a particular period. 87. As a firm increases its use of labor relative to capital, it is becoming more: A) capital intensive. B) labor intensive. C) efficient. D) cost conscious.Explanation / Answer
82) For Normal good as Income increase demand will also increase hence income elasticity=%change in Demand/% Change in Income will be Positive
83) If Supply curve shifted to the right then the prices will drop most for a particular quantity if demand is heavily proportional to Price(i.e at lower prices quantity demanded is much higher) or in other sense at higher quantity demanded Price will be much lower and also supply should be relatively unaffected with the price changes so the supply will not drop much at lower prices.so Price will decline more if Demand is highly Price elastic and supply is Price Inelastic
84) Price elasticity of Demand=%change in Demand/% Change in Price so if the slope is constant i.e Linear curve then at the top of demand curve % change in price will be lower for a unit change in price then at the bottom and corresponding percentage change in quantity will be higher since increasing from close to 0 hence Elasticity increases in absolute terms as Price increases
85) Since with each unit of production factor addition we are seeing less addition to total product then the addition of previous unit hence marginal returns are decreasing and firm is experiencing diminishing marginal returns diminishing average return will be there only when marginal returns are lower than the average return which is not specified hence( B)
86) FIxed factor of production are one which do not change with the output hence option c)
87) As labor is increased relative to capital firm is becoming more Labor Intensive
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