Option A: any amount of profit allows management to distribute dividends, so it need not profit maximise.
Options B and C: pursuing growth or CSR goals can keep a firm from being profitable, especially in the short run.

A

Explanation​:
Plug the known variables into the PED formula and solve for the percentage change of quantity demanded.

−1.9 = %ΔQd/−5%​

Quantity demanded increases by 9.75$\%$ when the price decreases by 5%, so eliminate choices B and D.

When prices are lowered and PED is elastic—the value is greater than 1—the total revenue will increase, so eliminate choice C. This leaves choice A as the correct answer.

• Income elasticity of demand = [percent change of quantity demanded]/[percent change of income change]​

Explanation​:
Applying the YED values of the goods to the formula for YED shows that a decrease in income decreases demand for goods with positive YED values and increases demand for goods with negative YED values.

Choice D is correct: demand for widgets increases, but demand for gizmos and whatsits decreases. To reflect changes in demand, Firm A should produce more widgets and fewer gizmos and whatsits.

Choices A, B, and C are incorrect: the demand for gizmos and whatsits has decreased, so Firm A should not produce more of these products.

Explanation​:
Corporate social responsibility (CSR) refers to a company's commitment to conducting its business in a manner that supports society's values. For example, a firm may consider the impact of its operations on various stakeholders (employees, customers, communities) or the environment.

CSR involves integrating social and environmental concerns into the company's decision-making processes and pursuing initiatives that contribute to sustainable development. In the example above, the company integrates a social concern into its decision-making processes.

Choices A, C, and D are other examples of alternative business objectives but they are not relevant in this scenario.

Explanation​:
Availability bias refers to information which is recently available. People rely heavily on recent information and thus don't act rationally.

Options A, B, and D are other ideas related to behavioural economics.

• Option A: anchoring means making decisions on the first piece of information that people come across.
• Option B: framing deals with the way choices are presented to the consumers.
• Option C: a rule of thumb means making decisions based on experience.

Explanation​:
If bread prices are expected to rise, firms will hoard grain in anticipation, reducing supply.

Choice A is incorrect, as a change in demand for rice has no impact on the supply of bread.

Choices B and D are incorrect, as improvements in technology and favourable weather would both increase supply and cause the supply curve to shift to the right.

Explanation​:
Statement I: A more durable product will often lead to supply being more price-elastic as producers can store inventory when prices are too low. Consequently, an increase in price causes a proportionally larger increase in quantity supplied.

Statement II: Electronics are often assembled in factories and production can be increased in a relatively short period of time.

Statement III: Availability of substitutes is a determinant of PED, not PES.

Statement IV: The degree of luxury/necessity is a determinant of PED, not PES.

Explanation​:
Allocative efficiency occurs when the market is in equilibrium. Consumer surplus is the triangle created by the demand curve, the price, and the vertical axis.

Therefore, if the market is allocatively efficient, the price is $12 and the consumer surplus is the area of the green triangle:

[(26−12) × 13]/2=$91

The following answers are incorrect because they refer to:

• (Choice A) consumer spending ($12\times 13$) when the price is $\text{\$}$12
• (Choice B) consumer surplus when the price is $\text{\$}$8
• (Choice D) producer surplus

Explanation​:

Canned corn and corn-based ethanol are in competitive supply. If demand for corn-based ethanol increases, more corn will be allocated toward producing that instead of canned corn, causing the supply of canned corn to fall. Also, falling incomes will cause demand for canned corn to fall.

Explanation​:
Choice D is not relevant to the choice architect as it is personalized and differs from each individual consumer to the next.

Choice architecture shapes decision-making through the presentation and structure of choices. It includes default choice, where a pre-selected option is favored if no active decision is made (Choice A), mandated choice which requires active selection (Choice B), and restricted choice which narrows down options (Choice C).

Key ideas​:

• A decrease in demand refers to a leftward shift of the demand curve.
• Only non-price determinants of demand can shift the demand curve.

Explanation​:
B is correct, as petrol and cars are complementary goods. If the price of petrol goes up, fewer people will want to buy cars (used or otherwise).

Choice A is incorrect because a rise in the price of used cars would cause a decrease of quantity demanded—a movement along the demand curve—not a shift of the demand curve.

Choices C and D are both incorrect as public transit and new cars are substitutes for used cars. Therefore, a growing distaste for public transit and a rise in price for new cars should both increase demand for used cars.

Explanation​:
All three statements can be true of a free-market economy. Resources are owned, controlled and managed by private individuals. Income distribution is unequal as the factors are paid on the basis of productivity.

Explanation​:
Demand for cigarettes is likely to be inelastic because of their addictive and habit-forming nature, so most of the tax burden will likely be shifted to consumers in the form of higher prices.

Choices A, B and C are all possible outcomes of high indirect taxes on cigarettes.

Explanation​:
D is not a correct statement as it is not enough for a consumer to desire a particular good, they must also be able to purchase it in order for them to $\text{‘}$demand$\text{’}$ it.

The following statements are correct: The market demand curve is created by horizontally adding the points of all individual demand curves (Choice A).

Price is the y-axis, so anything that impacts quantity demanded besides price will cause a shift of the demand curve (Choice B).

Future price expectations are a non-price determinant of demand (Choice C).

Explanation​:
Statement I: In the short run, one or more factors of production are fixed. The long run is defined as the amount of time that needs to pass in order for all factors of production to be changeable.

Statement II: The marginal product curve intercepts the average product curve (AP) at the highest point of AP.

Statement III: Marginal Cost = ΔTC/Δq​

Explanation​:
Bounded self-control is the idea that individuals, even when they know what they want, may not be able to act in their own interests. Other examples of bounded self-control include evidence of procrastination, and submitting to temptation.

Although choices A, C, and D are examples of the limitations of the assumptions of rational consumer choice, they are not relevant to the phenomenon of impulse buying.

Key idea​:

• Non-price determinants of demand shift the demand curve.

Explanation​:

A rise in the price of orange juice would decrease the quantity demanded of orange juice. As the overall demand for juice does not change, this causes an increase in demand for apple juice, as apple juice and orange juice are substitutes.

Choice A is wrong because apples are an input in the production of apple juice, so a rise in the price of apples would shift the supply curve, not the demand curve.

Choices C and D are wrong because both a fall in incomes and the emergence of new, more popular, alternatives would shift the demand curve for apple juice leftward.

Explanation​:

Choice I is incorrect: the number of substitutes for oil relates to PED, not PES

Choice II is correct: the time needed to adjust oil production inputs means that oil production does not respond to changes in price, thus making oil’s PES more inelastic

Choice III is incorrect: the cost of production is not a factor affecting PES

Choice IV is incorrect: a product being a necessity relates to PED, not PES

Explanation​:
In the 2 sector circular flow of income model, firms pay income to households because households own the factors of production.

Options A, B, and C are incorrect

• Option A: injections are not shown in the 2 sector circular flow.
• Option B money does not flow equally to all household because some factors of production are more highly valued than others.
• Option C: money flows from firms to households in the form of income for the factor services hired and from households to firms in the form of expenditures on the purchase of goods.

Explanation​:
I: This describes what is happening in the diagram. When price decreases, quantity demanded increases as expressed by a movement along the demand curve.

II: This does not describe what is happening in the diagram, as an increase in demand refers to a shift of the demand curve, not a movement along it.

III: The substitution effect is one of the reasons why the demand curve is downward-sloping.

Key idea​:

• Bounded rationality means that consumers behave in a rational manner only within limits.

Explanation​:
Statement I is incorrect because maximising utility is a characteristic of a perfectly rational consumer.

Statement II is correct because a consumer is behaving rationally only within limits, so instead of maximising utility, consumers satisfice.

Statement III is correct because consumers cannot process all information to behave in a rational manner.

Statement IV is incorrect because consumers typically have insufficient information.

Explanation​:

The effect of a price change varies depending on the original price. A US $\text{\$}$1 decrease is 20$\%$ of an original price of US $\text{\$}$5, but the same decrease is 50$\%$ of an original price of US $\text{\$}$2. Similarly, increasing quantity demanded (QD​) by 10 has a greater impact when the original quantity is smaller.

As a result, PED decreases when moving down a straight-line demand curve.

Incorrect choices:

• (Choice A) Total revenue (TR) is maximised at the midpoint of the demand curve. Lowering the price below the midpoint reduces TR.
• (Choice B) Changing the price causes a movement along the demand curve, not a shift of the demand curve.
• (Choice D) Lowering the price of a product increases QDQD​, so the demand curve for complementary goods shifts rightward.