While the market mechanism generally leads to an efficient allocation of resources, markets sometimes fail to achieve that. Economists call it a market failure when the market itself falls short of allocating resources efficiently. The correct answer is C. External cost means negative externality. The best known example of an external cost (or negative externality) is pollution generated as a byproduct during a production process. Zero-sum game can be described as a basketball match where one party wins and the other loses. Market power is the ability of a single actor (or a few actors) to control or substantially influence market prices.  All the decisions made by economic actors and their interactions in the markets, as well as the linkages between these markets, produce economy wide outcomes.

The price elasticity of demand measures the responsiveness of demand to changes in its own price. Answer is B.

BUDGET CONSTRAINT

Consumption choices are limited by income and prices. We summarize these influences on buying plans in a budget line or constraint. Given his or her tastes or preferences, along with the assumption of rationality of consumers, he or she tries to get on the highest possible indifference curve. To do so, the consumer must consider factors other than his or her own tastes or preferences or choices. These factors, such as prices of commodities and the level of the consumer’s income, can limit or constrain the nature and size of the market basket that he or she can buy.

Two goods are said to be complements if they are generally or necessarily consumed together, such as tea and sugar cubes, DVD players and DVD discs, petrol and car, or printers and ink cartridges. In addition, there is a negative relationship between the price on one and the demand for the other. To put it more clearly, if there is a rise in the price of one of the products, the demand for the other product will decrease. The correct answer is C.

Preferences are complte, transitive. Consumers always prefer more of a commodity. And there is a diminishing marginal rate of substitution. The answer is C.

Normal goods are the goods for which the demand increases when income is higher and decreases when income is
lower. Therefore, an increase in income shifts the demand curve for air travel to the right, so more air travel is demanded at every price. The answer is A.

The price elasticity of demand measures the responsiveness of demand to changes in price. The law of demand indicates that there is an inverse relationship between the price of a good and the quantity demanded of that good. The law states that when the price of a good increases the quantity demanded of that good falls. 

A Budget constraint is “the combinations of quantities of X and Y that a consumer can purchase with certain amount of income or earning”.

Engel curves, named after 19th Century German statistician Ernst Engel, illustrate the relationship between consumer demand and household income. Engel curves for normal goods slope upwards – the flatter the slope the more luxurious the good, and the greater the income elasticity. That is, demand for the luxury good rises much more. In contrast, Engel curves for inferior goods have a negative slope. The correct answer is D.

Positive statements in economics are statements that intend to describe how things are and how things actually work. That is, positive statements are objective statements that can be tested, amended, or rejected by referring to the available evidence. On the other hand, a normative statement is a prescriptive statement, like the ones expected to be made by a policy adviser, involving normative judgements and prescriptions about how the world should be. The statement in the question is about a common belief about the tradeoff between inflation and unemployment, which is popular among economists. The correct answer is A.

In the situation of İlknur’s, she has to both study for the final exams and have a good sleep, and she also wants to go to the party. However, as she seems not to have enough time for doing all, she is in a difficult situation. The problem, according to an economist maybe, arises from the scarcity of resources, which is the scarcity of time in this situation. Therefore, she has to make a choice regarding how to use her limited time. The correct answer is E.

Price elasticity of demand is calculated as the percentage change in the quantity demanded of the good divided by the percentage of change in the price of that good. The formula would be this; Price elasticity demand = Percentage change in quantity demanded / Percentage change in price. In our example, the price of this phone rises from 1500 TL to 1650 TL; therefore; the percentage of change is 10 % (150 / 1500 = 0.1 = 10 %). On the other hand, the quantity demanded decreases from 10.000 to 8.700; therefore, the percentage of this change is 13 % (1.300 / 10.000 = 0.13 = 13 %). When we 10 % is divided by 13 %, we can reach the price elasticity of demand as 1.3. The correct answer is C.

Economists study human behavior as a relationship between unlimited ends and scarce means with alternative uses.

Scarcity of Resources

Our resources are limited relative to our needs, and this is true not only for individuals but also for societies. Scarcity refers to the society’s inability to produce all the goods and services people desire to have because of deficiency of resources. Societies therefore must also decide on their priorities and manage their resources accordingly with the priorities they set.

The nature, the slope and the position of the demand curve are determined by different factors. The slope and the curvature of the demand curve are the consequences of consumer responses to the changes in prices under ceteris paribus conditions. There are two channels in which these responses are shaped: Income effect and substitution effect. The position of the demand curve on the Quantity-Price plane is influenced by nonprice factors such tastes and preferences, income, prices of related goods, population, seasons and expectations. The correct answer is C.

Two goods are either substitute to each other or they are complement each other. If the price increase in one good (good X) causes consumers to use other good (good Y) in place of this good, we say that these two goods (X and Y) are substitutes for each other. Substitutes are goods that are generally used in place of one another. Concerning the substitute goods, a price increase in good X leads to quantity demanded of good Y to increase. Goods have also complementary relationship. Complements are goods that are typically used together. One good or service cannot be used without the other. Concerning the complements, price increase of good X causes quantity demanded in good Y to decrease. The correct answer is D.

Perfect Competition

A competitive market is a type of market in which there are many buyers and sellers so that the effect of each one on market price is negligible.

The price elasticity of demand for a good or service depends on many factors such as whether close substitutes are available, the good is necessity of luxury for the consumer, share (weight) of the good’s cost in the consumers’ budget, and the time period. The correct answer is B.

In general, elasticity can be defined as a measure that shows how much one variable responds to changes in another variable. So, elasticity shows not only the direction of the relationship between two variables, but also the quantitative response of one variable to another. Thus, elasticity is a numerical measure of the responsiveness of quantity demanded (Qd) or quantity supplied (QS) to one of its determinants. The correct answer is D.