Introduction to Economics (Past Paper) Essay Example | Topics and Well Written Essays - 3000 words

Introduction to Economics (Past Paper) - Essay ExampleTRUE If a country has the competitive advantage of producing a good, then it should office the same advantage to produce the same and export (Lipsey & Chrystal, 2007). Importing commodities that a country can produce more cheaply will only contain to trade deficits, hence a bad economic policy.TRUE Demand curve for an inferior good must be upwards-sloping due to the fact that the income and successor effects work in different directions. Whereas a decrease in price of an inferior good causes more consumption via the substitution effect, the same is potential to cause less consumption given the income effect (Lipsey & Chrystal, 2007). In the below figure, X is a inferior good while Y is a habitual good given the reduction and increase in demand respectively due to increases in income (income substitution).TRUE Marginal apostrophize (MC) is the additional cost incurred in producing one more unit hence it changes with changes in the quantity produced. In a scenario where the marginal cost is increasing, the average total cost (ATC) curve is possible to be U-shaped (Lipsey & Chrystal, 2007). MC is factored within ATC and as quantity increases the ATC and MC will decrease and increase respectively. MC will continue to increase thereby force up the ATC hence the marginal cost crosses average cost at a point where average cost is increasing as illustrated below.FALSE Diseconomies of scurf occur in an organization when expansion of all available inputs such as labour and capital causes an increase in the long-run average cost (Lipsey & Chrystal, 2007). On the new(prenominal) hand, diminishing marginal return refers to an economic scenario where marginal product continues to diminish despite addition of one input and holding the other inputs constant (Lipsey & Chrystal, 2007). Therefore, diseconomies of scale is not related to diminishing marginal returns since the latter only