# Ass1Answers - UNIVERSITY OF ESSEX DEPARTMENT OF ECONOMICS...

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SECTION A (5 marks per question) State whether each statement is TRUE, FALSE or UNCERTAIN, giving a brief explanation in the space provided. Use diagrams where appropriate. Your marks will depend entirely on the quality of this explanation: e.g., even if it is correct, putting “TRUE” will get no marks unless you explain your answer. 1) If a country has a concave Production Possibility Frontier, for each good the opportunity cost falls as more of that good is produced. The diagram shows a concave PPF. The opportunity cost of a good is the amount of the other good that must be given up to obtain another unit. For good X this is the slope of a line tangent to the PPF. At Q X1 the slope (a tangent to the PPF at A) is smaller than at Q X1 (the tangent at B). Thus the opportunity cost of X increases as more X is produced. FALSE. [2 marks for a diagram of the PPF; 2 marks for some understanding of opportunity cost; 1 mark for showing that the opportunity cost declines along the PPF, a bonus for anyone who recognises that the same is true for Y] 2) The government introduces a per-unit tax on a good and the price paid by consumers increases by the full amount of the tax. The demand curve must be completely inelastic. P X is the price facing consumers, so the introduction of a tax, T, is equivalent to shifting up the supply curve. If demand was completely inelastic then the burden of the tax would fall entirely on the consumer. But this is not the only possibility. The alternative, as shown in the diagram, is that the supply curve is completely
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Ass1Answers - UNIVERSITY OF ESSEX DEPARTMENT OF ECONOMICS...

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