QUESTION 21 decides the allocation of scarce resources In a

QUESTION 21 decides the allocation of scarce resources. In a competitive market,

Solution

Question 21

In a competitive market price mechanism (Demand & Supply) decides the allocation of scarce resources.

In competitive market the price is always determined by the force of demand and supply.

Question 15

Total revenue in graph A if the price is $5.

Price $5

At $5 quantity demanded is 100

TR = Price x Output

TR = $5 x 100 = $500

Answer – c. $500

Question 13

In the diagram A change from point A to point E represents

Answer – b. Decrease in supply.

A decrease in supply is represented by a shift of the supply curve to the left. In the diagram due to change in other things the supply curve shifts to left hand side, thereby results into decrease in the supply.

Question 8

At price $25, Quantity is 20

At price $35, Quantity is 14

If Midpoint method is used –

Mid Point Method

Ed = (?Q/?P) x (P1+P2 / Q1+Q2)

?Q = 20 – 14 = 6

?P = $25 – 35 = -$10

Ed = (6/-10) x ($25+$35 / 20+14)

Ed = (6/-10) x ($60 / 34) = -1.05 or 1.05

If proportionate method is used –

Ed = (?Q/?P) x (P/Q)

Ed = (6/-10) x ($25/20) = -0.75 pr 0.75