The correct answer is Choice A. Prices act as signals, indicating resource scarcity when prices are high, or resource abundance when prices are low.

These answer choices do not specifically address the concept of signalling in the context of the price mechanism:

• Choice B refers to the law of demand.
• Choice C refers to the “incentive” function of price.

Choice D is incorrect because the price mechanism refers to market forces—demand and supply—not government intervention.

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​:
Bounded rationality, in the context of behavioral economics, refers to the idea that human decision-making is limited by cognitive constraints, such as information overload, time limitations, and cognitive biases.

It suggests that individuals do not always make fully rational decisions as assumed by classical economic theory, but instead make choices that are satisfactory or "good enough" given the constraints they face.

Choices A and D are also examples of the limitations of the theory of rational consumer choice, but they are not relevant in this scenario.

Choice B is an assumption supporting the theory of rational consumer choice.

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​:
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).

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​:
Statement I is incorrect: if a competing firm increases its hours, that firm is more competitive with the original firm—PED for the original firm increases.

Statement II is correct: if a competing firm begins to focus on other customers (offices), that firm is less competitive with the original firm—PED for the original firm decreases.

Statement III is correct: if the incomes of potential customers increase, the price of home cleaning will be a smaller proportion of income—PED for the service decreases.

Explanation​:
The diagram shows an increase of quantity supplied, which is a movement along the supply curve, not a shift. An increase in quantity supplied is caused by an increase in demand.

Choices A, B, and D are incorrect because they shift the supply curve.

• Choices A and D shift the supply curve to the left
• Choice B shifts the supply curve 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​:
A vertical supply curve indicates that supply is perfectly inelastic, meaning quantity supplied is fixed, and supply does not respond at all to changes in price. In this case, PES = 0. The number of tickets at a sporting event will likely be fixed as the stadium will have a fixed number of seats and a maximum capacity.

Choices A and B represent products that are likely to have relatively price-elastic supply as they can be stored.

Choice D represents a product that is likely to have relatively price-inelastic supply due to the time it takes to extract, refine and process oil.

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.

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.

A

Explanation​:
If quantity demanded changes by a greater percentage than an increase of income, it signifies that a good is a luxury good to that consumer.

On the Engel curve above, this relationship occurs when the slope of the curve is greater than 45$°$, so Choice A is an income elastic, or luxury, good.

Points B, C, and D are not luxury goods because they have slopes less than 45°.

Although Choices A, B, and C are biases that prevent rational consumer choice, they are not relevant in this scenario.

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.

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​:
Profit maximising conditions are:
(i) MR = MC
(ii) MC should rise after the point of equilibrium

Options A, B, and D are incorrect

• Option A: as the second condition is not met.
• Options B and D: as neither condition is met

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​:
Anchoring bias occurs when individuals heavily rely on the first piece of information they receive, influencing subsequent judgments or decisions. Awareness of anchoring bias can help individuals make more objective decisions by considering multiple sources of information and independently assessing the property's value, leading to mutually beneficial agreements.

Although choices B, C, and D are biases that prevent rational consumer choice, they are irrelevant 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.