Introduction to Economics (Past Paper) Essay Example | Topics and Well Written Essays - 3000 words

Introduction to political economy (Past Paper) - Essay Example uncoiled If a country has the competitive advantage of producing a near(a), then it should aim the same advantage to release the same and export (Lipsey & Chrystal, 2007). Importing commodities that a country can produce more cheaply will only lead to trade deficits, hence a bad sparing policy.TRUE Demand curve for an inferior good must be upwards-sloping due to the fact that the income and commuting installs work in different directions. Whereas a decrease in price of an inferior good causes more consumption via the substitution effect, the same is in all likelihood to cause less consumption given the income effect (Lipsey & Chrystal, 2007). In the below figure, X is a inferior good while Y is a pattern good given the reduction and increase in demand respectively due to increases in income (income substitution).TRUE Marginal cost (MC) is the additional cost incurred in producing one more unit hence it changes wit h changes in the quantity produced. In a scenario where the marginal cost is increasing, the ordinary total cost (ATC) curve is likely to be U-shaped (Lipsey & Chrystal, 2007). MC is factored within ATC and as quantity increases the ATC and MC will decrease and increase respectively. MC will continue to increase thereby pulling up the ATC hence the marginal cost crosses average cost at a point where average cost is increasing as illustrated below.FALSE Diseconomies of denture occur in an organization when expansion of all available inputs such as labour and gravid causes an increase in the long-run average cost (Lipsey & Chrystal, 2007). On the otherwise hand, diminishing marginal generate refers to an economic scenario where marginal product continues to diminish despite addition of one input and holding the other inputs constant (Lipsey & Chrystal, 2007). Therefore, diseconomies of scale is not related to diminishing marginal returns since the latter only