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.

• 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​:

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.

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​:
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​:
The ability to store a product affects its PES. Perishable products have lower PES, and durable products have higher PES.

Choices B, C, and D are all determinants of price elasticity of demand (PED), not PES.

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.

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​:
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.

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

Explanation​:
Satisficing is followed when there is bounded rationality.

Options A, C, and D are assumptions of rational consumer choice

Option A: as the consumer can make a rational choice only if perfect information about the products is available.

Option C: as a consumer always prefers to have more of a good rather than less of it.

Option D: a rational consumer buys a combination of goods within a given money limit that maximises his utility.

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​:
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​:

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​:
P1​ shows the equilibrium price, or market price, for the good in the diagram, so Choice C is a true statement.

Market forces determine the equilibrium price:

• Choice A is true: the supply curve shows the marginal cost to producers of producing an additional good.
• Choice B is true: the demand curve shows the additional, or marginal, benefit consumers receive from consuming an additional good.

Choice D is an incorrect statement because P1​ is not the opportunity cost of Q1​. The opportunity cost of Q1​ is the next best choice: that choice's marginal benefit is less than P1.

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​:
In the context of choice architecture, default choice is a choice made by default wherein the consumer does not do anything and would need to make a deliberate effort to select a different choice.

Choice B is a mandated choice.
Choice C is a restricted choice.
Choice D does not relate to choice architecture.

Explanation​:
Primary commodities tend to have price-inelastic supply because they take time to grow or extract. Producers of manufactured products can build up an inventory of products while waiting for prices to rise, making supply price-elastic.

Choices A, B, and C confuse the determinants of PES with the determinants of PED.

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.

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.