Introduction to Economics 1

Yanıt Açıklaması: Market demand is the sum of all the quantities of a product demanded per period by all the buyers in the market. The market demand curve is found by adding horizontally the individual demand curves at all prices. Because there are hypothetically only four people in our market, we can reach the market demand by adding each individuals demanded quantity of soft drinks. That is, when drinks are 3 TL, 17 bottles of drink are demanded in total (5+2+6+4= 17). When they are 2,5 TL, 29 bottles of drink are demanded in total (8+3+13+5= 29). When they are 2 TL, 39 bottles are demanded in total (11+5+15+8= 29). When they are 1,5 TL, 52 bottles are demanded in total (14+6+20+12= 52). The correct answer is D.

Yanıt Açıklaması: Positive statements in economics are statements that intend to describe how things are and how things actually work. A normative statement is a prescriptive statement, like the ones expected to be made by a policy adviser, involving normative judgements and prescriptions about how the world should be. The correct answer is D.

Yanıt Açıklaması: If the supply curve shifts to the right and the demand curve shifts to the right, basically the equilibrium price would most probably decrease and the equilibrium quantity would be uncertain. The correct answer is A.

Yanıt Açıklaması: The marginal rate of substitution (MRS) MRS is defined as the number of units of one good (namely Y) that must be given up if the consumer, after receiving an extra unit of another good (namely X) , is to maintain a constant level of satisfaction. In other words, the marginal rate of substitution is the amount of a good that a consumer is willing to give up for another good, as long as it is equally satisfying. The correct answer is A.

Yanıt Açıklaması: CHANGES IN MARKET EQUILIBRIUM-Changes in demand Consider the effects of an increase in the income of the consumers on the demand for vacations abroad. Vacationing abroad is a “normal good”: When income increases, ceteris paribus , there will be an increase in their demand and the demand curve for vacations abroad will shift to the right. So the change in demand causes both the equilibrium price and the equilibrium quantity to increase. The new equilibrium price and equilibrium quantity will be P1 and Q1, respectively.

Yanıt Açıklaması: Determinants of Price Elasticity of Demand-Are Close Substitutes of the Good Available to Consumers? Price changes affect the consumer behavior by changing their quantity demanded in the opposite direction. How much consumers change their quantity demanded is mostly affected by the availability of close substitutes of the good. Goods with close substitutes tend to have more elastic demand than goods without close substitutes since it is easier for consumers to give up that good and switch to its substitutes. For example, apple and orange or pears are easily substitutable.

Yanıt Açıklaması: On the supply side of the market, the determinants of the supply of a good or service involve the price of the good, the input prices, technology available to production and the number of sellers/suppliers of the good. The correct answer is A.

Yanıt Açıklaması: When utility rises, indifference curve shifts outward. The answer is C.

Yanıt Açıklaması: The PPF  is concave to the origin or bowed outward. This curvature implies that the number of one good that the firm has to give up to be able to increase the number of other good produced vary as more and moreof that good are produced. the answer is C.

Yanıt Açıklaması: If the demand curve is vertical, its slope and its price elasticity is zero, and if the demand curve is horizontal, its slope and the price elasticity would be infinite. Answer is D.

Yanıt Açıklaması: The positioning of the demand curve on the Quantity-Price plane is influenced by non- price factors such tastes and preferences, income, prices of related goods, population, seasons and expectations. The answer is E.

Yanıt Açıklaması: Consumers and producers act as if their actions are guided by an “invisible hand” leading them to desirable market outcomes. As all students of economics eventually learn, the actual instruments that do what Adam Smith thought the invisible hand does are prices. As it can be understood from this information, the correct answer is “D”.

Yanıt Açıklaması: The theory of demand indicates that an individual’s decision about what quantity of a specific good to demand is determined by factors such as the tastes and preferences of the individual, the price of the good, the income of the individual, the price of related goods and services, the individual’s expectations about the future income, wealth, and prices, etc. The correct answer is E.

Yanıt Açıklaması: While the market mechanism generally leads to an efficient allocation of resources, markets sometimes fail to achieve that. Economists call it a market failure when the market itself falls short of allocating resources efficiently.

Yanıt Açıklaması: The price elasticity of demand for a good or service depends on many factors such as whether close substitutes are available, the good is necessity of luxury for the consumer, share (weight) of the good’s cost in the consumers’ budget, and the time period.

Yanıt Açıklaması: Consumption choices are limited by income and prices. The true answer is B.

Yanıt Açıklaması: Production Possibilities Frontier and Opportunity Cost Efficiency refers to the ability to put a given amount of scarce resources into use in such a way to produce the highest level of output that could be produced with the available production technology.

Yanıt Açıklaması: On the supply side of the market, the determinants of the supply of a good or service involve the price of the good, the input prices, technology available to production and the number of sellers/suppliers of the good. The law of supply tells us that there is a positive relationship between the price of a good and the quantity produced and supplied of that good. The correct answer is E.

Yanıt Açıklaması: If two products are substitutes for each other, a change in the price of one product will change the demand for the other product in the opposite direction. For example, if the price of chicken goes down, the demand for beef will shift down to the left. As chicken is a substitute product for beef, a fall in the price of chicken will increase the consumption of chicken and the quantity demanded in the beef market will fall for all possible levels of price. In other words, substitute goods serve as replacements for one another. When the price of one rises, the demand for the other increases. The correct answer is C.

Yanıt Açıklaması: For complement goods, the cross-price elasticity of demand is negative because a price increase in good X causes the quantity demanded of good Y to decrease. For example, computers and software products are complements since one cannot be used without the other. An increase in the price of computers causes a decrease in the quantity demanded for software products. For Substitute goods, the cross-price elasticity of demand is positive since the price increase of good X causes the quantity demanded of good Y to increase. Butter and margarine, tea and coffee, print books and e-books, beef and chicken are all examples of substitute goods.