An incentive is something that induces an action or greater effort to produce a desirable outcome or to avoid an undesirable outcome. Thus, the incentives can be positive or negative. For example, if a worker feels that he is paid better by the boss, he tends to work harder. On the other hand, if the meat prices go up, people will definitely begin to consume less meat. In short, people respond to incentives. In our example, the government’s intervention into economy by increasing the tax on cigarettes by 20 % will increase the price of cigarettes, and this will eventually lead to a drop in consumption. The correct answer is A.

Tradeoffs and Opportunity Cost

The opportunity cost of a desired item or outcome to a person is what that person has to give up to get that item or to achieve that outcome.

PRODUCTION AND COSTS

In the short run, some factors of production cannot be changed. If the firm decides to upgrade its technology, construct a new building, or expand its machinery and equipment capacity today, it would take quite some time to realize any of these changes. So, a time frame in which certain inputs cannot be changed is called the short run. These inputs are fixed in the short run and therefore called fixed inputs. The firm, however, can change certain inputs rather quickly—in the short run— and these inputs are called variable inputs.

Monopoly is a market structure with only one producer. Therefore, the correct option is A.

Marginal product of labor is the increase in total output produced from additional unit of labor is employed. Therefore, the correct option is A.

Revenue costs are not among the type of costs. The correct answer is D.

When the interest rate goes up, the price of the current consumption will also go up. A higher opportunity cost of current consumption due to the increase in interest rate generates a substitution effect that causes a decline in purchase of products in the current period. Therefore, saving will increase as a result of the substitution effect. However, a consumer will receive more income on his saving, if the interest rate increases. Because consumption is a normal good in the current period, it is expected that a raise in income could lead to an increase in current consumption and a reduction in saving.So saving reduces as a result of income effect of a higher interest rate. As a result, the total effect of an increase in interest rates on saving is ambiguous.

The main aim of a perfectly competitive firm is to maximize economic profit. In a perfectly competitive market, each firm can sell what quantity they want to sell at the market equilibrium price. A firm`s demand curve is perfectly elastic at the equilibrium market price. This means that at any price higher than the market equilibrium price, a firm is not able to sell anything at all, as buyers are well-informed and can obtain the identical product for a lower price without bearing extra search cost. One firm`s product is a perfect substitute for any other firm’s product. The correct answer is E.

Oligopoly is a market structure where there are only a few firms in the market due to barriers to entry. For example, the GSM market in Turkey is composed of a few firms such as Turkcell, Avea and Türk Telekom.. This industry is characterized with large economies of scale due to fixed costs and small and constant marginal costs. Hence large firms have an advantage over small firms and the industry is characterized with few large firms rather than many small firms.

Price Elasticity of Demand

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. The price elasticity of demand measures how much the quantity demanded (Qd) of a good changes when there is a change in the price of that good (P). Hence, the price elasticity of demand measures the price-sensitivity or responsiveness of consumers.

The term marginal is used frequently in economics to refer to small incremental adjustments made on an existing plan of action. The term “margin” means “edge,” so marginal changes are adjustments made to add to the total (the amount at the edge) achieved thus far. Eating one more meatball at dinner (increasing the total number of meatballs eaten from 3 to 4), or drinking one more cup of tea at breakfast (increasing the total cups drunk from 2 to 3) are examples of marginal additions. As can be understood from the examples given the correct answer is “B”.

Average revenue is how much revenue a firm gets for each unit sold. Average Revenue (AR) is calculated as follow;

 
Average Revenue (AR) = Total Revenue (TR) / quantity (q)

 
Thus, 12 / 3; 48 / 12; 80 / 20; or 140 / 35 is equal to 4. The correct answer is B.

Toal revenue of a firm equals price multiplied by quantity. Therefore, the correct option is D.

A firm needs to bring inputs together to produce goods or services. These inputs are called Factors of Production. Classical economists identified three widely defined groups of the factors of production: Labor, capital and land. The answer is B.

Economic rent is the price paid for the use of land or natural resources whose supply is perfectly inelastic. The
supply of land is perfectly inelastic because it is virtually fixed in the quantity available. Supply has no influence
in determining economic rent. Demand is the active determinant of economic rent. The answer is C.

Marginal Revenue: the additional revenue obtained by selling one more unit. Therefore, the correct option is C.

Monopolistic competition is a market structure in which there are many firms selling products that are similar but not identical. For example in the market for blue jeans, there are many producers such as Mavi Jeans, Levi’s, Guess, GAP, LC Waikiki. These are all brand names. Jeans sold by these producers are differentiated according to style, quality, design, etc. Hence consumers do not perceive these brand name jeans as identical. When this is the case, price is not the only factor that determines consumers’ decisions. When consumers perceive a product as a unique product without perfect substitutes, demand facing its producer is no longer perfectly elastic (horizontal). In other words, demand is downward sloping similar to the demand curve facing a monopolist.

In economics and particularly in consumer choice theory, the substitution effect is one component of the effect of a change in the price of a good upon the amount of that good demanded by a consumer. In other words, when prices increase, consumers will replace more expensive items with less costly alternatives. The correct answer is E.

Allocative efficiency refers to a situation in which production meets consumer preferences. Economic efficiency is achieved when the marginal social benefit (MSB) to consumers equals the marginal social cost of production (MSC). Therefore, the correct option is E.