Assessment TestAssessment TestShort AnswerShort Answer

General commentsGeneral comments

1. Demonstrate an understanding of the 1. Demonstrate an understanding of the principles of economicsprinciples of economics TheoryTheory Define termsDefine terms ExamplesExamples

2. Diagrams2. Diagrams Accuracy!Accuracy! ExplainExplain

3. Structure your answer3. Structure your answer 4. Answer the question!4. Answer the question!

Example question 1Example question 1

‘‘With one factor fixed, the marginal product of With one factor fixed, the marginal product of the variable factor will initially rise, but then fall, the variable factor will initially rise, but then fall, as more of the variable factor is added due to as more of the variable factor is added due to decreasing returns to scale.’decreasing returns to scale.’

TRUE, FALSE or UNCERTAINTRUE, FALSE or UNCERTAIN

AnswerAnswer

FalseFalse Short run production Short run production

Define fixed (K) and variable (L) factorsDefine fixed (K) and variable (L) factors Define marginal product: Define marginal product:

Change in TPP/ Change in LChange in TPP/ Change in L

Draw TPP and MPP curvesDraw TPP and MPP curves TPP is at a peak when MPP=0TPP is at a peak when MPP=0 Explain what happens as L increasesExplain what happens as L increases

AnswerAnswer

Why does MPP rise and then fall?Why does MPP rise and then fall? Law of diminishing marginal returnsLaw of diminishing marginal returns Example?Example? Decreasing returns to scale (?) is a long run Decreasing returns to scale (?) is a long run

conceptconcept

Example question 2Example question 2

‘‘For an inferior good, income and substitution For an inferior good, income and substitution effects always move in the same direction.’ effects always move in the same direction.’ Explain your answer with the aid of an Explain your answer with the aid of an appropriate diagram.appropriate diagram.

TRUE, FALSE or UNCERTAINTRUE, FALSE or UNCERTAIN

AnswerAnswer

FALSEFALSE Explain your answer using the tools of Explain your answer using the tools of

indifference analysisindifference analysis What is an inferior good?What is an inferior good? What are income & substitution effects?What are income & substitution effects?

Draw & define indifference curves and Draw & define indifference curves and budget constraintsbudget constraints

Identify the effect of a price increase Identify the effect of a price increase Identify total change in demandIdentify total change in demand

AnswerAnswer

Now isolate the substitution effectNow isolate the substitution effect Compensating variationCompensating variation

Give the consumer incomeGive the consumer income Original indifference curve – utility unchangedOriginal indifference curve – utility unchanged

Identify the income effectIdentify the income effect Answer: income and substitution effects Answer: income and substitution effects

move in opposite directionsmove in opposite directions

AdviceAdvice

Answer all questionsAnswer all questions Time managementTime management 5 questions in 50 minutes – 10 minutes each5 questions in 50 minutes – 10 minutes each

RememberRemember Diminishing marginal returns to writing!Diminishing marginal returns to writing! Diminishing marginal utility from marking!Diminishing marginal utility from marking! Be succinct!Be succinct!