Price floor is a legal minimum on the price at which a good or service can be sold. The correct answer is D.

Trade as a Positive-sum Game

Just like other voluntary exchanges such as those between individuals, trade between two nations make (citizens in) each country better off. Trade between Spain and Turkey, for example, improves social welfare in both countries, not just in Spain, nor in Turkey alone. So, unlike a basketball match where one party wins and the other loses, both parties are winners in international trade. In other words, international trade is a positive-sum game, not a zero sum-game. Notice, however, that trade is actually carried out typically by the private firms of each country. In that sense, international trade is like a basketball match between Fenerbahçe and Real Madrid (the champion and finalist, respectively, of Euroleague 2017), rather than a match between national teams of Turkey and Spain.

The cross-price elasticity of demand is a measure of how much the quantity demanded of one good responds to a change in the price of another good. The correct answer is C.

The production possibilities frontier or PPF, as it is shortly called, is a graph that shows various combinations of output that the firm/a society can produce with the available workforce and other inputs by using the available production technology. The answer is B.

Consumers' income whe considerin demand is related to income elasticity, not price elasticity.

Total revenue is computed as the price of a good times the quantity sold.

If the consumer’s preferences or tastes are transitive, as we assume in this section, there cannot be an intersection of indifference curves.

The price elasticity of supply is a measure of the response of quantity supplied of  a good to a change in price. The correct answer is B.

CONSUMER PREFERENCES

Given the limited budget available to them, consumers choose a combination of goods that will maximize the satisfaction they can achieve. The maximizing market basket must satisfy two conditions:

1. It must be located on the budget line.
2. Must give the consumer the most preferred combination of goods and services.

Recall, the slope of an indifference curve is: MRS = – (?Y / ?X)

The slope of the budget line is Px/Py.

Therefore, it can be said that satisfaction is maximized where:

MRS = – (?Y / ?X) = Px/Py

It can be said that satisfaction is maximized when the marginal rate of substitution (of good X and Y) is equal to the ratio of the prices (of X and Y).

The law of demand indicates that when the price of a good increases, the quantity demanded of that good decreases. Also, it tells us that for the normal goods an increase in income causes individuals to buy more of that good.

The intercepts of this budget constraint on each axis equals income divided by the price of the good represented on the axis. This can be demonstrated quite easily using basic algebra as follows:

X = 1/Px – (Py/Px)Y

In Equation, the first term on the right is the intercept of the line on the horizontal axis: it is the amount of good X that could be bought by the consumer if he or she spent all his or her income on good X. In other words, if the consumer expends all her or his income just for good X, Equation provides the answer. Similar logic is supposed to apply for the maximum consumed amount of good Y, as well. Or, if the consumer spends all his or her income just for consuming good Y, intersection on Y axis will be equal to I/Py. When we combine these two intersection points on both axis, we find the budget line or constraint and its slope is equal to the negative of price ratios, Px/Py which is the result of (I/Py)/(I/Px). Thus, the slope equals the relative price of the two goods, that is, the price of one good compared to the price of the other.

Economists also analyze changes in economywide indicators that affect the whole society such as growth rate of total income, unemployment rate and inflation rate over time. In addition to these three critical “rates”, economists study the determination of exchange rates at which national currencies of trading nations are exchanged, and interest rates that lenders get in return on funds they lend to borrowers.

A change or shift of a demand curve occurs when the other factors, other than the price, such as the income changes, happens. Any change that increases the quantity that buyers wish to buy at a given price causes a shift of the demand curve to the right. Buying high fashion brands, eating out in luxury restaurants, preferring air travel instead of bus travel, or going to a cinema instead of watching a movie at home are mostly interrelated with the price of the service/product and the income of the individual. However, when the situation related with the Valentine’s day is taken into account, it can be seen that the cause of the increase of the sales is related with it’s being a special day rather that the increase of the incomes of the customers or the price cut of the flowers. The correct answer is Choice C.

Consumer surplus is the difference between the maximum amount a person is willing to pay for a good and the market price.

The price elasticity of demand measures the price-sensitivity or responsiveness of consumers. It is calculated as the percentage change in the quantity demanded divided by the percentage change in price. The correct answer is C.

An externality is the one that has often unintended impact that an economic actor’s actions has on the well-being of another actor who stands by. We can divide externality into two as positive and negative. The best-known type of externality is the external cost (or negative externality). For example, the pollution generated as a byproduct during a production process is a negative externality. On the other hand, external benefits (or positive externalities), such as R&D (research and development) activities, lead to productivity-enhancing inventions. The correct answer is D. 

Prices of the other goods and services rose by similar amounts. This path that prices in the Turkish economy followed from the late-1970s to the early-2000s marks the high inflation episode of Turkey’s economic history. Defined as an increase in the general price level (or overall level of prices) in the economy, inflation forced the Turkish Central Bank to drop 6 zeros from the currency in 2005.

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.

Economists call it a market failure when the market itself falls short of allocating resources efficiently. A possible cause of market failure is market power. Market power is the ability of a single actor (or a few actors) to control or substantially influence market prices. The correct answer is A.