True/False/Uncertain statements. Answer TEN questions. State first whether each is TRUE/FALSE/UNCERTAIN and then briefly justify your answer. Marks will be awarded only for the justification you give. 1. The UK produces 1kg of Cheese using 2 workers, while it produces 1L of Wine using 2 workers. The US produces 1kg of Cheese using 2 workers, while it produces 1L of Wine using 1 worker. Then, the UK has a comparative advantage in producing Cheese. 2. Suppose the production function of a firm is Q = K + L, where Q denotes the amount produced, K denotes the amount of capital used in production and L denotes the amount of labour. Then the average cost of production of this firm does not change as output changes. 3. Suppose that the demand function of good X is Q = 100 2Px2Y, where Q is the quantity demanded of X, Px is the price of good X and Y is consumers' income. Then good X is a normal good. 4. Consider a competitive market for a good. Suppose that the government introduces a specific tax on suppliers. Then the tax burden of suppliers depends only on the elasticity of supply. 5. Consider a rational consumer with the following utility function; U = XY, where U denotes utility, X denotes the quantity of good X and Y denotes the quantity of good Y. The Marginal Rate of Substitution (MRS) in absolute value is Y/X (= Y divided by X). Suppose the price of good X is Px = 2, the price of good is Py = 1 and the consumer's income is M = 16. Then the consumer maximises her utility by consuming X = 5 and Y = 6.
