Intermediate Economics: Econ 021 Quiz — July 10, 2020 Studen

Intermediate Economics Econ 021quiz Onejuly102020student Name

Answer All Questions (Time Allowed: 30 Minutes) PART I: Multiple choice (only 15 questions) 15 marks In answering each of the following questions, Circle or tick each correct answer. More than one answer may be correct in some cases. 1. Which of the following statements are (in general) true? a. Marginal cost (MC) is minimized where MC = Average Variable Cost (AVC) b. Average Total Cost (ATC) is minimized where MC = ATC c. Average Variable Cost (AVC) is minimized where MC = AVC d. Total revenue is maximized where MC = Marginal Revenue (MR) 2. Which of the following functions have unit elasticity at P = 6? a. Demand: Qd = 10/P b. Demand: log Qd = log P c. Demand: Qd = 24 - 2 P d. Supply: Qs = 5 P 3. The function y = f(x) reaches a (relative) minimum where:- a. f(x) = 0 and f '(x) 0 c. f '(x) = 0 and f ''(x) 0 4. The supply and demand model applies when three of the following four conditions are met. Which condition is not required? a. There must be many buyers. b. There must be many sellers. c. The buyers and sellers must trade an identical item. d. The item traded must be a product. 5. f(x) = 3x3 - 4x2 + 10 implies a. f(1) = 10 b. f '(x) = 9x2 - 8x + 10 c. f ''(x) = 18x – 8 d. f '(2) = 14. Which of the following predictions is not made by the supply and demand model? a. If there is excess demand, the price will rise. b. If there is excess supply, the price will fall. c. If there is no excess demand or excess supply, the market will be in equilibrium. d. A market which is out of equilibrium will always move rapidly to the equilibrium. 7. Suppose there is excess supply in a market and the price decreases. Which of the following combinations of events will occur? a. There will be a fall in quantity supplied and a rise in quantity demanded. b. There will be a fall in quantity supplied and a rise in demand. c. There will be a fall in supply and a rise in quantity demanded. d. There will be a fall in supply and a rise in demand. 8. Suppose there is a decrease in supply in a market where the supply curve slopes upwards and the demand curve slopes downwards. Which of the following would not occur? a. An excess supply. b. A fall in price. c. A fall in supply. d. A fall in the equilibrium level of expenditure. 9. Which of the following are true? a. f(x) = ax3 - bx + c implies f '(x) = 3ax2 - b + c b. f(x) = 4x + 3 / x2 implies f '(x) = 4 - 6/x3 c. f(x) = 3x2/3 implies f '(x) = 6x-1/3 d. f(x) = 6x3 - 3x-2 + 5x + 7 implies f '(x) = 18x2 + 6x-3 + . 10. Which of the following might not lead to an increase in the demand for a product that can be stored? a. A fall in the price of a complement. b. A rise in consumer incomes. c. An increase in the number of buyers. d. An expected rise in price. 11. y = 100/x + 4x has a. a maximum point where x = 5 b. a minimum point where x = 5 c. a maximum point where x = -5 d. a minimum point where x = -. 12. Which of the following would not lead to a decrease in the supply of a product that can be stored? a. An increase in the demand for a joint product. b. A rise in the price of another input. c. A decrease in the number of firms supplying the product. d. An expected rise in the price of the product. 13. Suppose incomes double over a period of years. Which sorts of product will experience the biggest increases in price? a. Those with a PES close to 0.0 and an IED well above 0.0. b. Those with a PES close to 0.0 and an IED well below 0.0. c. Those with a PES well above 1.0 and an IED well above 0.0. d. Those with a PES well above 1.0 and an IED well below 0.0. 14. Suppose the price of a product increases from £50 to £70 and the quantity supplied rises from 40 a day to 80. What is the PES? a. 0.5 b. -0.5 c. 2.0 d. -2.0. 15. Which of the following statements is false? a. PES is infinity all along any horizontal supply curve. b. PES is 1.0 all along any supply curve which passes through the origin. c. PED is zero all along any vertical demand curve. d. PED is -1.0 along any demand curve where spending would be the same at each price.

Paper For Above instruction

The following paper provides a comprehensive analysis of key concepts in intermediate economics based on the quiz questions. It discusses supply and demand theories, elasticity, calculus applications in economics, and market behaviors under various conditions to enhance understanding of economic principles.

Introduction

Intermediate economics serves as a vital foundation for understanding how markets function and how economic agents respond to different variables. The quiz covers essential topics such as the relationships between marginal cost, average costs, and revenue maximization, as well as the mathematical tools necessary to analyze economic functions. This paper explores these concepts thoroughly, providing explanations, applications, and implications for economic analysis.

Understanding Cost and Revenue Curves

One fundamental aspect of economic analysis is the behavior of cost curves. Marginal cost (MC), for example, typically reaches its minimum point where it intersects the average variable cost (AVC). This is because, at this point, increasing or decreasing production begins to influence costs differently (Varian, 2014). Similarly, the minimum of the average total cost (ATC) occurs where MC equals ATC, indicating the most efficient scale of production (Mankiw, 2014). Revenue maximization occurs where marginal revenue equals marginal cost, a principle used to determine optimal output levels in competitive markets.

Elasticity and Demand Functions

Elasticity measures the responsiveness of demand or supply to changes in price. Unit elasticity at a specific price indicates that a 1% change in price results in a 1% change in quantity demanded or supplied. For instance, demand functions such as Qd=10/P and log Qd=log P exhibit different elasticities depending on the price level, as elasticity varies along the demand curve (Pindyck & Rubinfeld, 2018). The supply function Qs=5 P has constant elasticity at any given point because of its linear nature.

Mathematical Applications in Economics

Calculus plays a significant role in analyzing economic functions. When a function reaches a minimum or maximum, the first derivative f'(x) equals zero, and the second derivative f''(x) determines whether it is a minimum (f''(x) > 0) or maximum (f''(x)

Market Dynamics and Equilibrium

The supply and demand model assumes multiple conditions for its validity, including the homogeneity of traded items, many buyers, and many sellers. However, certain market predictions such as prices adjusting quickly toward equilibrium during excess supply or demand are idealized. For example, when excess supply exists, price reductions lead to increased demand and decreased supply over time, moving the market toward equilibrium (Case et al., 2017). Nonetheless, in real-world scenarios, factors like market frictions or price stickiness may impede this process.

Factors Influencing Market Conditions

Market behaviors are also impacted by external factors like consumer incomes, input prices, and expectations. An increase in consumer income generally shifts demand curves outward for normal goods and inward for inferior goods. Conversely, a rise in input prices tends to decrease supply, especially for products with upward-sloping supply curves. Expectations of future price changes can also influence current supply and demand, with anticipated price increases discouraging immediate supply increases or encouraging stockpiling of goods (Parkin, 2017).

Elasticity and Policy Implications

The concept of price elasticity of supply (PES) and price elasticity of demand (PED) informs policymakers about how markets respond to interventions. For instance, a product with highly elastic supply (PES > 1) can quickly respond to price changes, affecting tax policies and price controls. Similarly, understanding the income elasticity of demand (IED) helps predict how consumer behavior shifts with income changes, which is pivotal during economic growth or recession periods (Blanchard & Amcher, 2017).

Conclusion

In summary, the quiz encapsulates essential economic principles, from cost and revenue behaviors to market responses under different conditions. Mastery of these concepts enables economists and policymakers to analyze market dynamics effectively and craft informed interventions. As markets are complex and influenced by various external factors, continuous study and application of these foundational principles are necessary for advanced economic analysis.

References

• Blanchard, O., & Amcher, D. (2017). Macroeconomics (7th ed.). Pearson.
• Case, K. E., Fair, R. C., & Oster, S. M. (2017). Principles of Economics (12th ed.). Pearson.
• Frank, R. H., Bernanke, B. S., & Antonovics, K. (2014). Principles of Economics (4th ed.). McGraw-Hill Education.
• Mankiw, N. G. (2014). Principles of Economics (7th ed.). Cengage Learning.
• Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics (9th ed.). Pearson.
• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach. W.W. Norton & Company.