Question

Millions of tons of strawberries (per month) 1,000 950 A B F 800 D 550 G 0 1 E 2 3 4 Submarines (per month) Where is the worse point the economy can be at? ОА oc OE OG

Answer 1

Ans. D) G

For the given production possibility frontier ( PPF ) for this economy the worse point is at G where ( 1 submarine, 500 millions strawbarries ) because resouces are inffeciently utilized ( use less of the resources than available for the production ) in the production of submarines and strawbarries.

The optimum use of resoucres lies on the PPF and each point on the PPF represents the efficient use of the resources.

The point F is unattainable because with the given resources in the economy, the production combination of submarines and strawberries at this point cannot be attained and with increase in resources this point can be achieved.

Ans. A) 0.2; inelastic

The price elasticity of demand = % change in gas purchsed/% change in price gasoline

= 1%/5%

= 0.2

Hence, the price elasticity of demand is 0.2 which is inelastic as the value of the price elasticty of demand is less than the one. This is a necessary good.

Note: Ignoring the negative sign of a decrease in purchase of gasoline because price elasticity of demand measures in absolute value ( positive value ).