A) 0.2

B) 0.5

C) 2.0

D) 5.0

For Explanation Click Here:

Price elasticity of demand (PED) = % change in quantity demanded / % change in price.

Here, PED = -5% / 10% = -0.5 (take the absolute value as elasticity is usually reported as positive).

A) Firms earn positive economic profits.

B) Firms incur losses.

C) Firms earn zero economic profits.

D) Firms can freely set prices.

For Explanation Click Here:

In the long run, free entry and exit drive economic profits to zero in perfect competition. Firms earn normal profits (covering costs, including opportunity costs) but no supernormal profits.

A) A change in the price of the good.

B) A change in input costs.

C) A change in technology.

D) A change in the number of suppliers.

For Explanation Click Here:

A movement along the supply curve occurs due to a change in the price of the good itself. In contrast, factors like input costs or technology cause the entire supply curve to shift.

A) It requires a perfectly elastic demand curve.

B) It can only occur in perfect competition.

C) It requires the ability to segment the market.

D) It reduces the producer’s profit.

For Explanation Click Here:

Price discrimination involves charging different prices to different consumer groups based on their willingness to pay. It requires market segmentation and the ability to prevent resale.

A) Decreases.

B) Increases.

C) Remains unchanged.

D) Becomes perfectly elastic.

For Explanation Click Here:

If the price of a substitute (e.g., tea) rises, consumers switch to the original good (e.g., coffee). This increases demand for the original good, reflecting the positive relationship between the demand for substitutes.

A) Non-excludability.

B) Rivalry in consumption.

C) Non-rivalry in consumption.

D) Free-rider problem.

For Explanation Click Here:

Public goods are non-excludable (cannot prevent others from using them) and non-rivalrous (one person’s use does not reduce availability for others). Rivalry in consumption is a feature of private goods, not public goods.

A) Total utility increases at an increasing rate.

B) Total utility increases at a decreasing rate.

C) Marginal utility remains constant.

D) Marginal utility becomes negative as consumption increases.

For Explanation Click Here:

Diminishing marginal utility occurs when the additional satisfaction from consuming each extra unit of a good decreases, even though total utility continues to rise.

A) A shortage.

B) A surplus.

C) No effect on the market.

D) A decrease in supply.

For Explanation Click Here:

A price floor above the equilibrium price makes the good more expensive, reducing demand while encouraging higher supply. This results in excess supply or a surplus.

A) The burden of the tax falls entirely on consumers.

B) The burden of the tax falls entirely on producers.

C) The tax creates a deadweight loss.

D) The quantity demanded decreases.

For Explanation Click Here:

With perfectly inelastic demand, consumers will buy the same quantity regardless of price. The tax will simply raise the price consumers pay without affecting quantity, so they bear the entire burden.

A) Homogeneous products.

B) Price-taking behavior.

C) Free entry and exit.

D) A single seller dominates the market

For Explanation Click Here:

Monopolistic competition features many sellers offering differentiated products and free entry and exit, allowing firms to enter the market if profits exist or exit if they incur losses.

A) Marginal utility is increasing.

B) Consumers prefer averages to extremes.

C) Income and substitution effects are equal.

D) Goods are perfect substitutes.

For Explanation Click Here:

The convex shape reflects the diminishing marginal rate of substitution, meaning consumers are willing to give up less of one good to gain an additional unit of another as they move along the curve.

A) Marginal revenue equals marginal cost.

B) Price equals marginal cost.

C) Price equals marginal revenue.

D) All of the above.

For Explanation Click Here:

In perfect competition, the firm maximizes profit where marginal revenue equals marginal cost. Since price equals marginal revenue in perfect competition, all three conditions are satisfied.

A) A loss of consumer surplus.

B) A loss of producer surplus.

C) A loss of total welfare due to market inefficiencies.

D) A transfer of surplus from consumers to producers.

For Explanation Click Here:

Deadweight loss refers to the reduction in total welfare (consumer and producer surplus) that occurs when market equilibrium is not achieved, often due to taxes, subsidies, or price controls.

A) Marginal cost curve.

B) Average total cost curve.

C) Average variable cost curve.

D) All of the above.

For Explanation Click Here:

The marginal cost, average total cost, and average variable cost curves are all U-shaped in the short run due to the law of diminishing marginal returns. Costs initially decrease due to efficiencies, then increase as inefficiencies set in.

A) Price equals average variable cost.

B) Price equals average total cost.

C) Marginal cost equals marginal revenue.

D) Total cost equals total revenue.

For Explanation Click Here:

A The shutdown point is the level of output and price where the firm just covers its average variable costs. Below this price, the firm would minimize losses by shutting down rather than producing.