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Posts Tagged ‘VU .Eco .401.(Economics) .Mid Term .Examination’

VU Eco 401(Economics) Mid Term Examination

.

Mid Term Examination

Eco 401(Economics)

Question No: 1 ( Marks: 1 ) – Please choose one

The concept of a risk premium applies to a person that is:

► All of the given options.

► Risk averse.

► Risk neutral.

► Risk loving.

Question No: 2 ( Marks: 1 ) – Please choose one

Assume that the current market price is below the market clearing level. We would

expect:

► A surplus to accumulate.

► Downward pressure on the current market price.

Upward pressure on the current market price.

► Lower production during the next time period.

Question No: 3 ( Marks: 1 ) – Please choose one

The “perfect information” assumption of perfect competition includes all of the following

EXCEPT:

► Consumers know their preferences.

► Consumers know their income levels.

Consumers know the prices available.

► Consumers can anticipate price changes.

Question No: 4 ( Marks: 1 ) – Please choose one

If income elasticity is negative, the good is:

► Normal good.

► A substitute good.

► A complementary good.

Inferior good.

Question No: 5 ( Marks: 1 ) – Please choose one

The correlation between an asset’s real rate of return and its risk (as measured by its

standard deviation) is usually:

► Positive.

► Strictly linear.

.

► Flat.

► Negative.

Question No: 6 ( Marks: 1 ) – Please choose one

Insurance companies operate under the principle of:

► Law of large numbers.

► Law of small numbers.

► Law of zero numbers.

► All of the given options.

Question No: 7 ( Marks: 1 ) – Please choose one

A demand schedule is best described as:

A numerical tabulation of the quantity demanded of a good at different prices,

ceteris paribus.

► A graphical representation of the law of demand.

► A systematic listing of all the variables that might conceivably bring about a change in

demand.

► A symbolic representation of the law of demand: P,Q and Q, P.

Question No: 8 ( Marks: 1 ) – Please choose one

A firm in monopolistic competition does not achieve minimum efficient scale because:

► It is not a monopoly.

It is in competition with other firms.

► It is operating on the downward-sloping part of the average cost curve.

► It produces at the minimum average cost.

Question No: 9 ( Marks: 1 ) – Please choose one

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: 10 ( Marks: 1 ) – Please choose one

When a firm charges each customer the maximum price that the customer is willing to

pay, the firm:

.

► Engages in a discrete pricing strategy.

► Charges the average reservation price.

► Engages in second-degree price discrimination.

► Engages in first-degree price discrimination.

Question No: 11 ( Marks: 1 ) – Please choose one

The break-even point occurs when:

► Price < Average Variable Cost.

► Price < Average Total Cost.

Price = Average Total Cost.

► Price > Average Variable Cost.

Question No: 12 ( Marks: 1 ) – Please choose one

If a firm experiences economies of scale, then the:

► Long-run average total cost curve is equal to the economies of scope.

Long-run average total cost curve is positively sloped.

► Long-run average total cost curve is horizontal.

► Long-run average total cost curve is negatively sloped.

Question No: 13 ( Marks: 1 ) – Please choose one

Which of the following is an example of a natural monopoly?

► The trademark protecting Gatoraide.

► The talents of Tom Hanks.

The local water company.

► The patent on an Intel processor.

Question No: 14 ( Marks: 1 ) – Please choose one

A monopoly occurs when:

► Each firm produces a product that is slightly different from the other firms.

One firm sells a good that has no close substitutes and a barrier blocks entry for

other firms.

► There are many firms producing the same product.

► All of the given options.

Question No: 15 ( Marks: 1 ) – Please choose one

If current output is less than the profit-maximizing output then the next unit produced:

► Will decrease profit.

► Will increase cost more than it increases revenue.

.

Will increase revenue more than it increases cost.

► Will increase revenue without increasing cost.

Question No: 16 ( Marks: 1 ) – Please choose one

The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 +

5Q. What is the variable cost?

► 200.

► 5Q.

► 5.

► 5 + (200/Q).

Question No: 17 ( Marks: 1 ) – Please choose one

Incremental cost is the same concept as:

► Average cost.

► Marginal cost.

► Fixed cost.

► Variable cost.

Question No: 18 ( Marks: 1 ) – Please choose one

Fixed costs are fixed with respect to changes in:

► Output.

► Capital expenditures.

► Wages.

► Time.

Question No: 19 ( Marks: 1 ) – Please choose one

When an isocost line is just tangent to an isoquant, we know that:

Output is being produced at minimum cost.

► Output is not being produced at minimum cost.

► The two products are being produced at the medium input cost to the firm.

► The two products are being produced at the highest input cost to the firm.

Question No: 20 ( Marks: 1 ) – Please choose one

A negatively sloped isoquant implies:

► Products with negative marginal utilities.

Products with positive marginal utilities.

► Inputs with negative marginal products.

► Inputs with positive marginal products.

Question No: 21 ( Marks: 1 ) – Please choose one

Diminishing marginal returns implies:

► Decreasing marginal costs.

.

Increasing marginal costs.

► Decreasing average variable costs.

► Decreasing average fixed costs.

Question No: 22 ( Marks: 1 ) – Please choose one

In economics, the “long run” is a time period in which:

► All inputs are variable.

► All inputs are paid for.

► All outputs are determined.

► All loans are repaid.

Question No: 23 ( Marks: 1 ) – Please choose one

The following table shows a firm’s Total Product of labor. What is the Marginal Product

of labor between 20 and 30 units of labor?

Table

Quantity

of Labor

Total

Product

0 0

10 100

20 230

30 340

40 410

50 460

► 340 units.

220 units.

► 11 units.

► 110 units.

Question No: 24 ( Marks: 1 ) – Please choose one

If Average Physical Product (APP) is increasing then which of the following must be true?

Marginal physical product is greater than average physical product.

► Marginal physical product is less than average physical product.

► Marginal physical product is increasing.

► Marginal physical product is decreasing.

Question No: 25 ( Marks: 1 ) – Please choose one

Assume Leisure is a normal good. If income effect exceeds substitution effect then a wage

decrease will lead a person to:

► Decrease hours of work.

.

Increase hours of work.

► Not change anything.

► All of the given options.

Question No: 26 ( Marks: 1 ) – Please choose one

If a market basket is changed by adding more to at least one of the goods, then every

consumer will:

► Rank the market basket more highly after the change.

► Rank the market basket more highly before the change.

► Rank the market basket just as desirable after the change.

Be unable to decide whether he prefers the first market basket to the second or the

second to the first.

Question No: 27 ( Marks: 1 ) – Please choose one

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: 28 ( Marks: 1 ) – Please choose one

Aslam spends all of his money on racquetballs and food. What would happen to Aslam’s

budget line if his income increased by 10 percent holding prices constant?

► It would shift inward.

► It would rotate about the axis for food.

► It would rotate about the axis for racquetballs.

It would shift outward.

Question No: 29 ( Marks: 1 ) – Please choose one

Suppose the first four units of an output produced incur corresponding total costs of 400,

700, 900, and 1000. The marginal cost of the fourth unit of output is:

► 50.

100.

► 150.

► 200.

Question No: 30 ( Marks: 1 ) – Please choose one

Consumers will maximize satisfaction when:

.

► The price of each good is exactly equal to the price of every other good consumed.

► The price of each good is exactly equal to the total utility derived from the consumption

of every other good.

The marginal utility of the last dollar spent on each good is exactly equal to the

marginal utility of the last dollar spent on any other good.

► Marginal utility is equal to average utility.

Question No: 31 ( Marks: 1 ) – Please choose one

Marginal utility is best described as:

► The total satisfaction gained from the total consumption of the good.

► The change in satisfaction from consuming one additional unit of the good.

► The additional satisfaction gained by consumption of the last good.

► The per unit satisfaction of the good consumed.

Question No: 32 ( Marks: 1 ) – Please choose one

Cross price elasticity between coffee and tea is 1.5. It means that:

► Given a 1% increase in coffee price, we would expect a 1.5% increase in tea demand.

► Given a 1% increase in coffee price, we would expect a 1.5% decrease in tea demand.

► Given 1% increase in coffee price, there will be no change in tea demand.

► None of the given options.

Question No: 33 ( Marks: 1 ) – Please choose one

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: 34 ( Marks: 1 ) – Please choose one

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: 35 ( Marks: 1 ) – Please choose one

Assume that steak and potatoes are complements. When the price of steak goes up, the

demand curve for potatoes:

Shifts to the left.

► Shifts to the right.

► Remains constant.

.

► Shifts to the right initially and then returns to its original position.

Question No: 36 ( Marks: 1 ) – Please choose one

An increase in supply is shown by:

► Shifting the supply curve to the left.

Shifting the supply curve to the right.

► Upward movement along the supply curve.

► Downward movement along the supply curve.

Question No: 37 ( Marks: 1 ) – Please choose one

In a free-market economy, the allocation of resources is determined by:

► Votes taken by consumers.

A central planning authority.

► Consumer preferences.

► The level of profits of firms.

Question No: 38 ( Marks: 1 ) – Please choose one

Which of the following might be considered to be a characteristic of a planned economy?

► Price is relatively unimportant as a means of allocating resources.

► Goods and services produced reflect consumer sovereignty.

There is no incentive for people to work hard.

► All income is completely evenly distributed.

Question No: 39 ( Marks: 1 ) – Please choose one

Which of the following is a positive statement?

► When the price of a good goes up, consumers buy less of it.

► When the price of a good goes up, firms produce more of it.

► When the Federal government sells bonds, interest rates rise and private investment is

reduced.

► All of the given options.

Question No: 40 ( Marks: 1 ) – Please choose one

Microeconomics is the branch of economics that deals with which of the following topics?

► The behavior of individual consumers.

► Unemployment and interest rates.

► The behavior of individual firms and investors.

► The behavior of individual consumers and behavior of individual firms and investors.

Question No: 41 ( Marks: 10 )

a. What is the relationship between average physical product and marginal physical

product in three cases if:

i. Marginal physical product is equal to average physical product.

The average physical product will not change.

ii. Marginal physical product is above the average physical product.

The average physical product will also increase.

iii. Marginal physical product is below the average physical product.

The average physical product will also fall

.

VU Eco 401(Economics) Mid Term Examination

.

Mid Term Examination

Eco 401(Economics)

Question No: 1 ( Marks: 1 ) – Please choose one

Land is best described as:

► Produced factors of production.

“Organizational” resources.

► Physical and mental abilities of people.

“Naturally” occurring resources.

Question No: 2 ( Marks: 1 ) – Please choose one

While moving from left to right, the typical production possibilities curve has:

► An increasingly steep negative slope.

► A decreasingly steep negative slope.

► An increasingly steep positive slope.

► A constant and negative slope.

Question No: 3 ( Marks: 1 ) – Please choose one

When government sets the price of a good and that price is above the equilibrium price, the result will

be:

A surplus of the good.

► A shortage of the good.

► An equilibrium.

► None of the given options.

Question No: 4 ( Marks: 1 ) – Please choose one

If pen and ink are complements, then an increase in the price of pen will cause:

► An increase in the price of ink.

► Less ink to be demanded at each price.

► A decrease in the demand for pen.

.

► A rightward shift in the demand curve for ink.

Question No: 5 ( Marks: 1 ) – Please choose one

An increase in supply is shown by:

► Shifting the supply curve to the left.

► Shifting the supply curve to the right.

► Upward movement along the supply curve.

► Downward movement along the supply curve.

Question No: 6 ( Marks: 1 ) – Please choose one

When an industry’s raw material costs increase, other things remaining the same:

► The supply curve shifts to the right.

► Output increases regardless of the market price and the supply curve shifts upward.

► Output decreases and the market price also decrease.

► The supply curve shifts to the left.

Question No: 7 ( Marks: 1 ) – Please choose one

Sugar can be refined from sugar beets. When the price of those beets falls:

► The demand curve for sugar would shift right.

► The demand curve for sugar would shift left.

► The supply curve for sugar would shift right.

► The supply curve for sugar would shift left.

Question No: 8 ( Marks: 1 ) – Please choose one

The price elasticity of demand measures the responsiveness of quantity demanded to:

► Quantity demanded.

► Quantity supplied.

► Price.

► Output.

.

Question No: 9 ( Marks: 1 ) – Please choose one

Since the fish that are caught each day go bad very quickly, the daily catch will be offered for sale no

matter what price it brings. As a result, we know that:

► None of the given options.

► The daily supply curve for fish slopes upward.

► The daily supply curve for fish is perfectly inelastic.

► The daily supply curve for fish is perfectly elastic.

Question No: 10 ( Marks: 1 ) – Please choose one

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: 11 ( Marks: 1 ) – Please choose one

Suppose the first four units of an output produced incur corresponding total costs of 50, 150, 300, and

500. The marginal cost of the second unit of output is:

► 50.

► 100.

► 150.

► 200.

Question No: 12 ( Marks: 1 ) – Please choose one

Law of diminishing marginal utility indicates that the slope of the marginal utility curve is:

► Horizontal.

► Vertical.

► Negative.

► Positive.

Question No: 13 ( Marks: 1 ) – Please choose one

.

Assume that the total utilities for the fifth and sixth units of a good consumed are 83 and 97, respectively.

The marginal utility for the sixth unit is:

► -14.

► 14.

► 83.

► 97.

Question No: 14 ( Marks: 1 ) – Please choose one

Suppose that the price of a pizza is $10 and price of a jeans is $30. If ratio of marginal utility of pizza to

marginal utility of jeans is 1/4 then to maximize total utility, a consumer should:

► Buy more pizzas and fewer jeans.

► Buy fewer pizzas and more jeans.

► Continue to buy the same quantities of pizza and jeans.

► Spend more time consuming pizza.

Question No: 15 ( Marks: 1 ) – Please choose one

Which of the following is NOT an assumption of ordinal utility analysis?

► Consumers are consistent in their preferences.

► Consumers can measure the total utility received from any given basket of good.

► Consumers are non-satiated with respect to the goods they confront.

► All of the given options are true.

Question No: 16 ( Marks: 1 ) – Please choose one

Assume leisure is a normal good. If income effect equals substitution effect then a wage rate increase will

lead a person to:

► Increase hours of work.

► Decrease hours of work.

► Not change hours of work.

► None of the given options.

.

Question No: 17 ( Marks: 1 ) – Please choose one

Ali initially leased one-room space and started a small day care centre with only 4 children and one staff

member. But he found that the cost per child is very high. He wants to expand the centre. Which of the

following will happen when Ali expand the centre?

► Economies of scale.

► Diseconomies of scale.

► Decreasing returns to the labor inputs.

► Increasing returns to the labor inputs

Question No: 18 ( Marks: 1 ) – Please choose one

A graph showing all the combinations of capital and labour available for a given total cost is the:

► Budget constraint.

► Expenditure set.

► Isoquant.

► Isocost.

Question No: 19 ( Marks: 1 ) – Please choose one

An isoquant curve shows:

► All the alternative combinations of two inputs that yield the same maximum total product.

► All the alternative combinations of two products that can be produced by using a given set of inputs

fully and in the best possible way.

► All the alternative combinations of two products among which a producer is indifferent because they

yield the same profit.

► None of the given options.

Question No: 20 ( Marks: 1 ) – Please choose one

L-shaped isoquant:

Indicate that capital and labor cannot be substituted for each other in production.

► Is impossible.

► Indicate that the firm could switch from one output to another costlessly.

► Indicate that the firm could not switch from one output to another.

.

Question No: 21 ( Marks: 1 ) – Please choose one

Costs determine all of the following EXCEPT:

► Demand for a product.

► Firm’s behaviour.

► How firms should expand?

► Firm’s profitability.

Question No: 22 ( Marks: 1 ) – Please choose one

Total costs are the sum of:

► Marginal costs and variable costs.

► Fixed costs and variable costs.

► Fixed costs and marginal costs.

► Average variable costs and marginal costs.

Question No: 23 ( Marks: 1 ) – Please choose one

To find the profit maximizing level of output, a firm finds the output level where:

► Price equals marginal cost.

► Marginal revenue and average total cost.

► Price equals marginal revenue.

► None of the given options.

Question No: 24 ( Marks: 1 ) – Please choose one

The good produced by a monopoly:

► Has perfect substitutes.

► Has no substitutes at all.

► Has no close substitutes.

► Can be easily duplicated.

Question No: 25 ( Marks: 1 ) – Please choose one

.

A perfectly competitive firm maximizes profit by finding the level of production at which:

► Price = Marginal Cost.

► Price = Average Total Cost.

► Average Total Cost = Marginal Cost.

► Price < Marginal Cost.

Question No: 26 ( Marks: 1 ) – Please choose one

The monopolist has no supply curve because:

► The quantity supplied at any particular price depends on the monopolist’s demand curve.

► The monopolist’s marginal cost curve changes considerably over time.

► The relationship between price and quantity depends on both marginal cost and average cost.

► Although there is only a single seller at the current price, it is impossible to know how many sellers

would be in the market at higher prices.

Question No: 27 ( Marks: 1 ) – Please choose one

In monopoly, which of the following is TRUE at the output level, where price = marginal cost?

► The monopolist is maximizing profit.

► The monopolist is not maximizing profit and should increase output.

► The monopolist is not maximizing profit and should decrease output.

► The monopolist is earning a positive profit.

Question No: 28 ( Marks: 1 ) – Please choose one

Following are the disadvantages of monopoly EXCEPT:

► Monopolists earn higher profits.

Monopolists produce high quality goods at higher prices.

► Most of the “surplus” (producer + consumer surplus) accrues to monopolists.

► Monopolists do not pay sufficient attention to increasing efficiency.

Question No: 29 ( Marks: 1 ) – Please choose one

When a firm charges each customer the maximum price that the customer is willing to pay, the firm:

.

► Engages in a discrete pricing strategy.

► Charges the average reservation price.

► Engages in second-degree price discrimination.

► Engages in first-degree price discrimination.

Question No: 30 ( Marks: 1 ) – Please choose one

Third-degree price discrimination involves:

► Charging each consumer the same two part tariff.

► Charging lower prices the greater the quantity purchased.

► The use of increasing block rate pricing.

► Charging different prices to different groups based upon differences in elasticity of demand.

Question No: 31 ( Marks: 1 ) – Please choose one

Which of the following is true in long run equilibrium for a firm in a monopolistic competitive industry?

► The demand curve is tangent to marginal cost curve.

► The demand curve is tangent to average cost curve.

► The marginal cost curve is tangent to average cost curve.

► The demand curve is tangent to marginal revenue curve.

Question No: 32 ( Marks: 1 ) – Please choose one

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: 33 ( Marks: 1 ) – Please choose one

A demand schedule is best described as:

.

► A numerical tabulation of the quantity demanded of a good at different prices, ceteris paribus.

► A graphical representation of the law of demand.

► A systematic listing of all the variables that might conceivably bring about a change in demand.

► A symbolic representation of the law of demand: P,Q and Q, P.

Question No: 34 ( Marks: 1 ) – Please choose one

A partial explanation for the inverse relationship between price and quantity demanded is that a:

► Lower price shifts the supply curve to the left.

► Higher price shifts the demand curve to the left.

► Lower price shifts the demand curve to the right.

► Higher price reduces the real incomes of buyers.

Question No: 35 ( Marks: 1 ) – Please choose one

The total utility curve for a risk neutral person will be:

► Straight line.

► Convex.

► Concave.

► None of the given options.

Question No: 36 ( Marks: 1 ) – Please choose one

In figure given above, the marginal utility of income is:

► Increasing as income increases.

► Constant for all levels of income.

► Diminishes as income increases.

.

► None of the given options.

Question No: 37 ( Marks: 1 ) – Please choose one

A welfare loss occurs in monopoly where:

► The price is greater than the marginal cost.

► The price is greater than the marginal benefit.

► The price is greater than the average revenue.

► The price is greater than the marginal revenue.

Question No: 38 ( Marks: 1 ) – Please choose one

Which of the following is NOT a factor of production?

► Labour.

► Land.

► Capital.

► Investment.

Question No: 39 ( Marks: 1 ) – Please choose one

Which of the following does NOT refer to macroeconomics?

► The study of the aggregate level of economic activity.

► The study of the economic behavior of individual decision-making units such as consumers,

resource owners, and business firms.

► The study of the cause of unemployment.

► The study of the cause of inflation.

Question No: 40 ( Marks: 1 ) – Please choose one

Demand is elastic when the elasticity of demand is:

► Greater than 0 but less than 1.

► Greater than 1.

► Less than 0.

.

► Equal to 1.

Question No: 41 ( Marks: 10 )

A. Differentiate between risk and uncertainty.

B. What would the risk neutral person, risk averse person and risk loving person do in the

following cases?

o If Odds Ratio > 1

o If Odds Ratio = 1

o If Odds Ratio < 1

C. You toss a coin, if head comes, you are given Rs. 200 and if tail comes, you have to pay Rs. 200. Will

you play this game or not? Give your answer with brief explanation.

Answers : A)

Risk and Uncertainty : Risk is when an outcome may or may not occur but its probability is known while

uncertainty is when an outcome may or may not occur but its probability is not known.

Answers : B)

1) For risk neutral person

o If Odds Ratio > 1, then he will definitely buy

o If Odds Ratio = 1, then he will be indifferent

o If Odds Ratio < 1, then he might not buy as OR < 1

2) For risk averse person

o If Odds Ratio > 1, then in this case as well he might decide not to buy.

o If Odds Ratio = 1, then he will definitely not buy

o If Odds Ratio < 1, then he will definitely not buy

3) For risk loving person

o If Odds Ratio > 1, then he will definitely buy

o If Odds Ratio = 1, then he will definitely buy

.

o If Odds Ratio < 1, then in this case as well he might decide to buy.

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