IGCSE Economics Paper-1: Specimen Questions with Answers 42 - 43 of 64

Question 42

Question

MCQ▾

Goods Car and Petrol are complementary goods. What will be the value of cross elasticity of demand?

Choices

Choice (4)

a.

0

b.

-1

c.

1

d.

None of the above

Answer

b.

Explanation

Complementary goods have negative cross- price elasticity: as the price of one good increases, the demand for the second good decreases. Substitute goods have positive cross-price elasticity: as the price of one good increases, the demand for the other good increase.

Cross Elasticity Demand Formula. As the price for one-item increases, an item closely associated with that item and necessary for its consumption decreases because the demand for the main good has also dropped.

Question 43

Question

MCQ▾

In economics the meaning of increasing opportunity cost is to produce more units of one commodity by sacrificing the production of other commodity at an ________

Choices

Choice (4)

a.

Increasing rate

b.

Decreasing rate

c.

Initially at increasing rate then at a decreasing rate.

d.

Constant rate

Answer

a.

Explanation

  • The shape of production possibility curve concave to the origin indicating increase in production of one commodity by giving up the production of other commodity at an increasing rate as with the given resources a combination of both the commodities has to be produced efficiently.
  • The slope of PPC is marginal opportunity cost which is the additional sacrifice made by a firm when they shift resources and technology from production of one commodity to the other.
  • Since resources are use specific, therefore every time when one more unit of a commodity is produced more units of the other commodity is sacrificed that results in increasing marginal opportunity cost.

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