MIDTERM EXAMINATION
Fall 2009
ECO401- Economics (Session - 2)
Time: 60 min
M a r k s: 50
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
In pure capitalism, freedom of enterprise means that:
► Businesses are free to produce products that consumers want.
► Consumers are free to buy goods and services that they want.
► Resources are distributed freely to businesses.
► Government is free to direct the actions of businesses.
Question No: 2 ( M a r k s: 1 ) http://vuzs.net
The
demand curve for chicken is downward-sloping. Suddenly the price of
chicken rises from Rs.130 per kg to Rs.140 per kg. This will cause:
► The demand curve for chiken to shift to the left.
► The demand curve for chiken to shift to the right.
► Quantity demanded of chiken to increase.
► Quantity demanded of chiken to decrease.
A
shift in demand curve results from changes in all other factors that
were held constant in constructing the demand curve. Such other factors
include the change in price of other commodities, change in supply of
the commodity in questio
(zh,vuzs,jan2011)
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
The supply curve is upward-sloping because:
► As the price increases, consumers demand less.
► As the price increases, suppliers can earn higher levels of profit or justify higher marginal costs to produce more.
► None of the given options.
► As the price increases, so do costs.
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
If the quantity supplied of oranges exceeds the quantity demanded then:
► There is a shortage of oranges.
► Market forces will cause the price to fall.
► Market forces will cause the price to rise.
► The market is in equilibrium.
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
A price ceiling might be an appropriate government response to a:
► Period of falling farm prices due to unusually good harvests.
► Substantial increase in farm productivity due to applications of new technology in agriculture.
► National security crisis leading to major shortages of essential goods.
► Period of extraordinary large surpluses of farm goods.
Question No: 6 ( M a r k s: 1 ) http://vuzs.net
Assume
that the government sets a ceiling on the interest rate that banks
charge on loans. If the ceiling is set below the market equilibrium
interest rate, the result will be:
► A surplus of credit.
► A shortage of credit.
► Greater profits for banks issuing credit.
► A perfectly inelastic supply of credit in the market place.
Question No: 7 (M a r k s: 1) http://vuzs.net
In order to calculate the price elasticity of supply, you need to know:
► Two prices and two quantities supplied.
► The slope of the supply curve.
► The equilibrium price and quantity in the market.
► The quantity supplied at two different prices, all else equal.
Question No: 8 ( M a r k s: 1 ) http://vuzs.net
When the price of petrol rises by 12%, the quantity of petrol purchased falls by 8%. This shows that the demand for petrol is:
► Perfectly elastic.
► Unit elastic.
► Elastic.
► Inelastic.
Question No: 9 ( M a r k s: 1 ) http://vuzs.net
The numerical measurement of a consumer’s preference is called:
► Use.
► Pleasure.
► Utility.
► Satisfaction.
Question No: 10 ( M a r k s: 1 ) http://vuzs.net
According to the utility model of consumer demand, the law of diminishing marginal utility indicates that the demand curve is:
► Vertical.
► U-shaped.
► Upward-sloping.
► Downward-sloping.
Question No: 11 ( M a r k s: 1 ) http://vuzs.net
If your demand price for one unit of a good is $100 and the market price is $75, your consumer's surplus is:
► $25.
► $50.
► $75.
► $100.
Question No: 12 ( M a r k s: 1 ) http://vuzs.net
Other things being equal, expected income can be used as a direct measure of well-being:
► No matter what a person's preference to risk.
► If and only if individuals are not risk-loving.
► If and only if individuals are risk averse.
► If and only if individuals are risk neutral.
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
If
diminishing marginal utility holds and a person consumes less of a good
then which of the following will happen; all else being equal?
► Marginal utility will decline.
► The price of the good will rise.
► Marginal utility will rise.
► Expenditure on the good will increase.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
Suppose
there are only two goods A and B, if more of good A is always preferred
to less, and if less of good B is always preferred to more, then:
► Indifference curves slope downwards.
► Indifference curves slope upwards.
► Indifference curves may cross.
► Indifference curves could take the form of ellipses.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
If a consumer’s marginal rate of substitution equals 2 eggs for 1 hamburger then:
► The consumer’s indifference curve must be positively sloped.
► The consumer’s indifference curve must be convex with respect to the origin of the graph.
► The ratio of the consumer’s marginal utility of 1 egg to that of 1 hamburger must equal ½.
► All of the given options.
Question No: 16 ( M a r k s: 1 ) http://vuzs.net
An indifference curve is:
► A collection of market baskets that are equally desirable to the consumer.
► A collection of market baskets that the consumer can buy.
► A curve whose elasticity is constant for every price.
► A curve which passes through the origin and includes all of the
market baskets that the consumer regards as being equivalent.
Question No: 17 ( M a r k s: 1 ) http://vuzs.net
Increase in pension benefits leads to income and substitution effect which:
► Encourage workers to retire later.
► Encourage workers to work more hours.
► Have no effect on incentive to retire.
► Encourage workers to retire earlier.
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
The substitution effect of a wage increase will lead a person to:
► Work more.
► Take more leisure.
► Not change anything.
► None of the given options.
Question No: 19 ( M a r k s: 1 ) http://vuzs.net
Which of the following statements about indifference curves is NOT correct?
► Indifference curves are generally negatively sloped.
► Without utility being quantifiable we can say that one indifference
curve is higher than (or preferred to) another but we cannot say by how
much.
► Two indifference curves cannot intersect unless they are identical throughout.
► Two different indifference curves can intersect but only once.
Question No: 20 ( M a r k s: 1 ) http://vuzs.net
The income effect of a price change:
► Is always positive.
► Is always negative.
► May be positive or negative.
► Is associated with a change in nominal income.
Question No: 21 ( M a r k s: 1 ) http://vuzs.net
When the substitution effect of a lowered price is counteracted by the income effect, the good in question is:
► An inferior good.
► A substitute good.
► An independent good.
► A normal good.
Question No: 22 ( M a r k s: 1 ) http://vuzs.net
Which of the following statements describes the presence of diminishing returns holding at least one factor constant?
► The marginal product of a factor is positive and rising.
► The marginal product of a factor is positive but falling.
► The marginal product of a factor is falling and negative.
► The marginal product of a factor is constant.
Question No: 23 ( M a r k s: 1 ) http://vuzs.net
Diminishing marginal returns implies:
► Decreasing marginal costs.
► Increasing marginal costs.
► Decreasing average variable costs.
► Decreasing average fixed costs.
Question No: 24 ( M a r k s: 1 ) http://vuzs.net
An isocost line reveals the:
► Cost of inputs needed to produce along an isoquant.
► Cost of inputs needed to produce along an expansion path.
► Input combinations that can be purchased with a given outlay of funds.
► Output combinations that can be produced with a given outlay of funds.
Question No: 25 ( M a r k s: 1 ) http://vuzs.net
Costs determine all of the following EXCEPT:
► Demand for a product.
► Firm's behaviour.
► How firms should expand?
► Firm's profitability.
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
If current output is less than the profit-maximizing output then which of the following must be TRUE?
► Total revenue is less than total cost.
► Average revenue is less than average cost.
► Marginal revenue is less than marginal cost.
► Marginal revenue is greater than marginal cost.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
In which market structure, each firm produces an identical product and there is freedom of entry and exit?
► Monopoly.
► Oligopoly.
► Perfect competition.
► Monopolistic competition.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
For a monopolist, changes in demand will lead to changes in:
► Price with no change in output.
► Output with no change in price.
► Both price and quantity.
► None of the given options.
Question No: 29 ( M a r k s: 1 ) http://vuzs.net
The maximum price that a consumer is willing to pay for a good is called:
► The reservation price.
► The market price.
► The first-degree price.
► The block price.
Question No: 30 ( M a r k s: 1 ) http://vuzs.net
Which of the following is NOT regarded as a source of inefficiency in monopolistic competition?
► The fact that price exceeds marginal cost.
► Excess capacity.
► Product diversity.
► The fact that long-run average cost is not minimized.
Question No: 31 ( M a r k s: 1 ) http://vuzs.net
Which of the following would most likely shift the production possibilities curve for a nation outward?
► A reduction in unemployment.
► An increase in the production of capital goods.
► A reduction in discrimination.
► An increase in the production of consumer goods
.
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
You
observe that the price of houses and the number of houses purchased
both rise over the course of the year. You conclude that:
► The demand for houses has increased.
► The demand curve for houses must be upward-sloping.
► The supply of houses has increased.
► Housing construction costs must be decreasing.
Question No: 33 ( M a r k s: 1 ) http://vuzs.net
If the income elasticity of demand is 1/2, the good is:
► A luxury.
► A normal good (but not a luxury).
► An inferior good.
► A Giffen good.
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
In monopoly, which of the following is NOT true?
► Products are differentiated.
► There is freedom of entry and exit into the industry in the long run.
► The firm is a price maker.
► There is one main seller.
Monopolistic
competition is also characterized by a large number of buyers and
sellers and absence of entry barriers. In these two respects it is like
perfect competition. Firms are price takers but
not in the extreme sense of perfect competition. Products are
differentiated and in this respect, it is different from perfect
competition.
Question No: 35 ( M a r k s: 1 ) http://vuzs.net
The principle economic difference between a competitive and a non-competitive market is:
► The number of firms in the market.
► The extent to which any firm can influence the price of the product.
► The size of the firms in the market.
► The annual sales made by the largest firms in the market.
Question No: 36 ( M a r k s: 1 ) http://vuzs.net
The amount of output that a firm decides to sell has no effect on the market price in a competitive industry because:
► The market price is determined (through regulation) by the government.
► The firm supplies a different good than its rivals.
► The firm's output is a small fraction of the entire industry's output.
► The short run market price is determined solely by the firm's technology.
Question No: 37 ( M a r k s: 1 ) http://vuzs.net
The basic difference between oligopoly and monopolistic competition is that.
► Products are differentiated in oligopoly.
► There are no barriers to entry in oligopoly.
► There are barriers to entry in oligopoly.
► An oligopoly includes downward sloping demand curves facing the firm.
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
Because of unusually warm weather, the supply of strawberries has substantially increased. This statement indicates that:
► The demand for strawberries will necessarily rise.
► The equilibrium quantity of strawberries will fall.
► The quantity of strawberries that will be available at various prices has increased.
► The price of strawberries will fall.
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
The marginal rate of substitution between food and shelter for a given point on an indifference curve:
► Is equal to the absolute value of the slope of the indifference curve at that point.
► Is equal to the rate at which the consumer is willing to exchange the two goods in the market place.
► Reflects the relative values the consumer attaches to the two good.
► Is described, in part, by each of the given statements.
highered.mcgraw-hill.com/sites/dl/free/007337573x/.../CH3new07.doc
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
Suppose
the first four units of an output produced incur corresponding total
costs of 100,300, 600, 1000.The marginal cost of the third unit of
output is:
► 100.
► 150.
► 200.
► 300.
MC = ΔTC/ΔQ = 300/1 = 300
Question No: 41 ( M a r k s: 10 )
Following table shows the price and quantity demanded of a good.
|
Price
|
Quantity demanded
|
|
2.5
|
400
|
|
5
|
200
|
|
10
|
100
|
|
20
|
50
|
|
40
|
25
|
a) Calculate the total revenue from this table.
TR = P x Q.
|
Price
|
Quantity Demanded
|
Total Revenue
|
|
2.5
|
400
|
1000
|
|
5
|
200
|
1000
|
|
10
|
100
|
1000
|
|
20
|
50
|
1000
|
|
40
|
25
|
1000
|
|
Price
|
Quantity demanded
|
|
2.5
|
400
|
|
5
|
200
|
|
10
|
100
|
|
20
|
50
|
|
40
|
25
|
a) Calculate the total revenue from this table.
b) Interpret whether the demand is elastic, inelastic or unitary elastic and why?
c) What will be the shape of demand curve according to the above table? Draw the graph.
(M a r k s: 5+2+3)
