PRINCIPLES OF ECONOMICS SECTION B: True/False Questions (Answer ALL questions) (20 marks) Instructions · Answer all questions below. · For each statement nominate either TRUE or FALSE. · In about 75...

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PRINCIPLES OF ECONOMICS SECTION B: True/False Questions (Answer ALL questions) (20 marks) Instructions ·  Answer all questions below. ·  For each statement nominate either TRUE or FALSE. ·  In about 75 words (i.e. one paragraph) explain why you think it’s true or false. ·  It is important that you use diagrams where appropriate. Q1. True or False: A point outside the production possibilities frontier signifies a combination of the goods that leave society with unemployed resources. 5 marks Q2. True or False: The law of demand states that as pride rise, the demand for a good or service falls. 5 marks Q3. True or False: It is reasonable to expect the cross price elasticity of demand for golf clubs and golf balls to be positive. 5 marks Q4. True or False: If demand is relatively inelastic and supply is upward sloping, then consumers bear more of the burden of a tax. END OF SECTION B SECTION C: Long Answer Questions Instructions: Note: Answers that utilise graphs, where appropriate. Q1. 1. (a)  Explain why the average variable cost curve and the average total cost curve are both u-shaped. 2. (b)  Clearly explain at least two sources of diseconomies of scale as well as the shape of a firm’s long run average total cost curve. Please illustrate using an appropriate graph. Q2. 1. (a)  Why are firms that supply to a perfectly competitive market said to be a ‘price taker’? What impact does this have on the firm demand curve? 2. (b)  “There are occasions when a firm will minimise its losses by simply closing down.’ Discuss. Q3. 1. (a)  Why would a monopolist set its price exclusively in the elastic portion of its demand curve? 2. (b)  Explain why an increase in price above the profit maximising price implies that a reduction in profits for the monopolist. Q4. 1. (a)  What determines the price elasticity of demand for a monopolistically competitive firm’s product? 2. (b)  Can a monopolistic competitive market structure lead to above normal profits in the long run? Use an appropriate diagram to clearly explain your answer. Q5. 1. (a) How does game theory illustrate ‘mutual interdependence and collusion in oligopoly? 2. (b)  Using appropriate examples clearly explain and illustrate a negative externality and discuss ways the government could rectify the problem.