Category: Economics

3.
➤ How do you show the change in consumer surplus on a demand curve?
Graphically, consumer surplus is the triangular area between the demand curve and the horizontal price line. When price increases, draw a higher price line. The new triangle is smaller, reflecting lost area above the new price and lost buyers to the left, which equals the decrease in consumer surplus.

➤ How can you test whether goods are complements or substitutes?
You test complementarity with cross‑price elasticity of demand. Estimate how quantity demanded of good B responds to price changes of good A using regressions, panel data, or natural experiments. A significantly negative coefficient indicates complements; a positive coefficient indicates substitutes. Controlled price variation improves identification.

Question 7Suppose there are only two commodities in the economy. If both marginal utilities are positive, anoptimal basket must include a strictly positive amount of both commodities.TrueFalse

➤ How does a nominal scale differ from ordinal, interval, and ratio scales?
Nominal scales name categories without order. Ordinal scales impose a rank but not equal spacing. Interval scales provide equal differences between values but lack a true zero point. Ratio scales offer equal intervals and an absolute zero, allowing meaningful ratios. Each level determines which summary statistics and tests are appropriate.

➤ How does mass production differ from customization in relation to economies of scale?
Mass production uses standardized processes, large batches, and automation to cut per-unit costs by exploiting scale. Customization needs flexible setups, smaller runs, and skilled labor, which raises unit cost. The choice depends on demand heterogeneity, setup and variable cost structure, and the firm’s profit margins.

systems feature economic cooperation and varying degrees of centralized ownership and control of the means of production.
capitalism
globalization
collectivism
specialization