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Posts Tagged ‘VU. ECO401-. Economics. (Session – 2). MIDTERM .EXAMINATION .Spring .2009’

VU ECO401- Economics (Session – 2) MIDTERM EXAMINATION Spring 2009

.

MIDTERM EXAMINATION

Spring 2009

ECO401- Economics (Session – 2)

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

An

individual whose attitude towards risk is known as:

Risk averse.

► Risk loving.

► Risk neutral.

► None of the given options.

Question No: 2 ( 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: 3 ( Marks: 1 ) – Please choose one

A

normative economic statement:

► Is a statement of fact.

► Is a hypothesis used to test economic theory.

Is a statement of what ought to be, not what is.

► Is a statement of what will occur if certain assumptions are true.

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

Economics is different from other social sciences because it is primarily concerned with the

study of ________, it is similar to other social sciences because they are all concerned with

the study of ________.

► Limited resources, market behavior.

► Scarcity, human behavior.

Social behavior, limited resources.

► Biological behavior, scarcity.

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

Because of the relationship between a perfectly competitive firm’s demand curve and its

.

marginal revenue curve, the profit maximization condition for the firm can be written as:

► P = MR.

► P = AVC.

► AR = MR.

P = MC.

Question No: 6 ( 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: 7 ( 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: 8 ( Marks: 1 ) – Please choose one

Figure

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: 9 ( Marks: 1 ) – Please choose one

A

consultant for Mattel (the producer of Barbie) reports that their long run average cost

curve is decreasing. In other words, he is saying that:

► The firm has increasing returns to scale and the law of diminishing marginal productivity

does not apply to this firm.

► The firm has decreasing returns to scale and the law of diminishing marginal productivity

does not apply to this firm.

The firm has increasing returns to scale but the law of diminishing marginal

productivity may still apply to this firm.

► The firm has decreasing returns to scale but nonetheless the law of diminishing marginal

productivity may still apply to this firm.

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

If

the cross price elasticity of demand between two goods X and Y is positive; it means that

goods are:

► Independent.

► Complements.

Substitutes.

► Inferior.

Question No: 11 ( 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: 12 ( Marks: 1 ) – Please choose one

Which of the following best expresses the law of demand?

► A higher price reduces demand.

► A lower price reduces demand.

.

A higher price reduces quantity demanded.

► A lower price shifts the demand curve to the right.

Question No: 13 ( 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: 14 ( Marks: 1 ) – Please choose one

The

primary use of the kinked-demand curve is to explain price rigidity in:

Oligopoly.

► Monopoly.

► Perfect competition.

► Monopolistic competition.

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

A

monopolistically competitive firm in short run equilibrium:

► Will make negative profit (lose money).

► Will make zero profit (break-even).

► Will make positive profit.

Any of the given are possible.

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

A

market with few entry barriers and with many firms that sell differentiated products is:

► Purely competitive.

► A monopoly.

► Monopolistically competitive.

Oligopolistic.

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

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: 18 ( 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: 19 ( Marks: 1 ) – Please choose one

A

tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis

lessons for adults. The tennis pro is practicing:

► First-degree price discrimination.

► Second-degree price discrimination.

Third-degree price discrimination.

► All of the given options.

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

An

electric power company uses block pricing for electricity sales. Block pricing is an example

of:

► First-degree price discrimination.

Second-degree price discrimination.

► Third-degree price discrimination.

► Block pricing is not a type of price discrimination.

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

A

firm never operates:

► At the minimum of its average total cost curve.

At the minimum of its average variable cost curve.

► On the downward-sloping portion of its average total cost curve.

► On the downward-sloping portion of its average variable cost curve.

.

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

Marginal profit is equal to:

Marginal revenue minus marginal cost.

► Marginal revenue plus marginal cost.

► Marginal cost minus marginal revenue.

► Marginal revenue times marginal cost.

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

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: 24 ( Marks: 1 ) – Please choose one

At

the profit-maximizing level of output, what is TRUE of the total revenue (TR) and total

cost (TC) curves?

They must intersect with TC cutting TR from below.

► They must intersect with TC cutting TR from above.

► They must be tangent to each other.

► They must have the same slope.

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

The

total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q.

What is the average total cost?

► 5Q.

► 5.

► 5 + (200/Q).

None of the given options.

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

In

order for a taxicab to be operated in New York City, it must have a medallion on its hood.

Medallions are expensive but can be resold and are therefore an example of:

► A fixed cost.

► A variable cost.

► An implicit cost.

An opportunity cost.

Question No: 27 ( 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: 28 ( Marks: 1 ) – Please choose one

The

rate at which a firm can substitute capital for labour and hold output constant is the:

► Law of diminishing marginal returns.

► Marginal rate of substitution.

Marginal rate of factor substitution.

► Marginal rate of production.

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

If a

simultaneous and equal percentage decrease in the use of all physical inputs leads to a

larger percentage decrease in physical output, a firm’s production function is said to

exhibit:

Decreasing returns to scale.

► Constant returns to scale.

► Increasing returns to scale.

► Diseconomies of scale.

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

At

any given point on an indifference curve, the absolute value of the slope equals:

► Unity–otherwise there would be no indifference.

The marginal rate of substitution.

► The consumer’s marginal utility.

► None of the given options.

Question No: 31 ( 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: 32 ( Marks: 1 ) – Please choose one

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: 33 ( Marks: 1 ) – Please choose one

Cross-price elasticity measures whether:

► Goods are normal or inferior.

Two goods are substitutes or complements.

► Demand is elastic or inelastic.

► Supply is steeper than demand or vice versa.

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

Which of the following will be TRUE if demand is inelastic?

► The coefficient of elasticity is greater than one.

► The percentage change in quantity demanded is same as the percentage change in the

price.

An increase in price will increase total revenue.

► None of the given options.

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

Suppose your local public golf course increases the greens fees for using the course. If the

demand for golf is relatively inelastic, you would expect:

► A decrease in total revenue received by the course.

An increase in total revenue received by the course.

► No change in total revenue received by the course.

► An increase in the amount of golf played on the course.

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

Aslam decides to stay at home and study for his exam rather than going out with his

friends to a movie. His dilemma is an example of:

► The economic perspective.

► Marginal analysis.

► Allocative efficiency.

.

Opportunity cost.

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

Government authorities have managed to reduce the unemployment rate from 8% to 4%

in a hypothetical economy. As a result:

► The economy’s production possibilities curve will shift outward.

► The economy’s production possibilities curve will become steeper.

► The economy will move downward along its production possibilities curve.

The economy will move from a point inside to a point closer to its production

possibilities curve.

Question No: 38 ( 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: 39 ( Marks: 1 ) – Please choose one

In

pure capitalism, the role of government is best described as:

► Significant.

► Extensive.

Nonexistent.

► Limited.

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.

Define “Law of supply” and explain it with a schedule and diagram.

B. What are the factors which cause the shift in market supply curve?

.

(Marks: 6+4)

ANSWER: LAW OF SUPPLY: It states that as the price goes up the quantity supplied also

goes up and when price falls quantity supplied also falls.

Schedule for Supply:

Price (Rs.) Quantity supplied

5 100

4 95

3 80

2 60

1 40

Factors Causing Shift in Supply Curve:

There are various factors causing shift in market supply curve which are as

follows:

Factors

changing

supply

Effect on

supply

Direction of

Shift in supply

Equilibrium

Price

Equilibrium

quantity

Increase in

number of

suppliers

Increase Rightward shift Decrease Increase

Decrease in

number of

suppliers

Decrease Leftward shift Increase Decrease

Improved

technology

Increase Rightward shift Decrease Increase

Declined

technology

Decrease Leftward shift Increase Decrease

Increase in

future price

Decrease Leftward shift Increase Decrease

Decrease in

future price

Increase Rightward shift Decrease Increase

Increase in

resources’ price

Decrease Leftward shift Increase Decrease

Decrease in

resources’ price

Increase Rightward shift Decrease Increase

VU ECO401- Economics (Session – 2) MIDTERM EXAMINATION Spring 2009

.

MIDTERM EXAMINATION

Spring 2009

ECO401- Economics (Session – 2)

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

An

individual whose attitude towards risk is known as:

Risk averse.

► Risk loving.

► Risk neutral.

► None of the given options.

Question No: 2 ( 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: 3 ( Marks: 1 ) – Please choose one

A

normative economic statement:

► Is a statement of fact.

► Is a hypothesis used to test economic theory.

Is a statement of what ought to be, not what is.

► Is a statement of what will occur if certain assumptions are true.

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

Economics is different from other social sciences because it is primarily concerned with the

study of ________, it is similar to other social sciences because they are all concerned with

the study of ________.

► Limited resources, market behavior.

► Scarcity, human behavior.

Social behavior, limited resources.

► Biological behavior, scarcity.

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

Because of the relationship between a perfectly competitive firm’s demand curve and its

.

marginal revenue curve, the profit maximization condition for the firm can be written as:

► P = MR.

► P = AVC.

► AR = MR.

P = MC.

Question No: 6 ( 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: 7 ( 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: 8 ( Marks: 1 ) – Please choose one

Figure

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: 9 ( Marks: 1 ) – Please choose one

A

consultant for Mattel (the producer of Barbie) reports that their long run average cost

curve is decreasing. In other words, he is saying that:

► The firm has increasing returns to scale and the law of diminishing marginal productivity

does not apply to this firm.

► The firm has decreasing returns to scale and the law of diminishing marginal productivity

does not apply to this firm.

The firm has increasing returns to scale but the law of diminishing marginal

productivity may still apply to this firm.

► The firm has decreasing returns to scale but nonetheless the law of diminishing marginal

productivity may still apply to this firm.

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

If

the cross price elasticity of demand between two goods X and Y is positive; it means that

goods are:

► Independent.

► Complements.

Substitutes.

► Inferior.

Question No: 11 ( 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: 12 ( Marks: 1 ) – Please choose one

Which of the following best expresses the law of demand?

► A higher price reduces demand.

► A lower price reduces demand.

.

A higher price reduces quantity demanded.

► A lower price shifts the demand curve to the right.

Question No: 13 ( 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: 14 ( Marks: 1 ) – Please choose one

The

primary use of the kinked-demand curve is to explain price rigidity in:

Oligopoly.

► Monopoly.

► Perfect competition.

► Monopolistic competition.

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

A

monopolistically competitive firm in short run equilibrium:

► Will make negative profit (lose money).

► Will make zero profit (break-even).

► Will make positive profit.

Any of the given are possible.

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

A

market with few entry barriers and with many firms that sell differentiated products is:

► Purely competitive.

► A monopoly.

► Monopolistically competitive.

Oligopolistic.

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

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: 18 ( 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: 19 ( Marks: 1 ) – Please choose one

A

tennis pro charges $15 per hour for tennis lessons for children and $30 per hour for tennis

lessons for adults. The tennis pro is practicing:

► First-degree price discrimination.

► Second-degree price discrimination.

Third-degree price discrimination.

► All of the given options.

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

An

electric power company uses block pricing for electricity sales. Block pricing is an example

of:

► First-degree price discrimination.

Second-degree price discrimination.

► Third-degree price discrimination.

► Block pricing is not a type of price discrimination.

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

A

firm never operates:

► At the minimum of its average total cost curve.

At the minimum of its average variable cost curve.

► On the downward-sloping portion of its average total cost curve.

► On the downward-sloping portion of its average variable cost curve.

.

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

Marginal profit is equal to:

Marginal revenue minus marginal cost.

► Marginal revenue plus marginal cost.

► Marginal cost minus marginal revenue.

► Marginal revenue times marginal cost.

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

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: 24 ( Marks: 1 ) – Please choose one

At

the profit-maximizing level of output, what is TRUE of the total revenue (TR) and total

cost (TC) curves?

They must intersect with TC cutting TR from below.

► They must intersect with TC cutting TR from above.

► They must be tangent to each other.

► They must have the same slope.

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

The

total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q.

What is the average total cost?

► 5Q.

► 5.

► 5 + (200/Q).

None of the given options.

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

In

order for a taxicab to be operated in New York City, it must have a medallion on its hood.

Medallions are expensive but can be resold and are therefore an example of:

► A fixed cost.

► A variable cost.

► An implicit cost.

An opportunity cost.

Question No: 27 ( 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: 28 ( Marks: 1 ) – Please choose one

The

rate at which a firm can substitute capital for labour and hold output constant is the:

► Law of diminishing marginal returns.

► Marginal rate of substitution.

Marginal rate of factor substitution.

► Marginal rate of production.

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

If a

simultaneous and equal percentage decrease in the use of all physical inputs leads to a

larger percentage decrease in physical output, a firm’s production function is said to

exhibit:

Decreasing returns to scale.

► Constant returns to scale.

► Increasing returns to scale.

► Diseconomies of scale.

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

At

any given point on an indifference curve, the absolute value of the slope equals:

► Unity–otherwise there would be no indifference.

The marginal rate of substitution.

► The consumer’s marginal utility.

► None of the given options.

Question No: 31 ( 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: 32 ( Marks: 1 ) – Please choose one

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: 33 ( Marks: 1 ) – Please choose one

Cross-price elasticity measures whether:

► Goods are normal or inferior.

Two goods are substitutes or complements.

► Demand is elastic or inelastic.

► Supply is steeper than demand or vice versa.

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

Which of the following will be TRUE if demand is inelastic?

► The coefficient of elasticity is greater than one.

► The percentage change in quantity demanded is same as the percentage change in the

price.

An increase in price will increase total revenue.

► None of the given options.

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

Suppose your local public golf course increases the greens fees for using the course. If the

demand for golf is relatively inelastic, you would expect:

► A decrease in total revenue received by the course.

An increase in total revenue received by the course.

► No change in total revenue received by the course.

► An increase in the amount of golf played on the course.

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

Aslam decides to stay at home and study for his exam rather than going out with his

friends to a movie. His dilemma is an example of:

► The economic perspective.

► Marginal analysis.

► Allocative efficiency.

.

Opportunity cost.

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

Government authorities have managed to reduce the unemployment rate from 8% to 4%

in a hypothetical economy. As a result:

► The economy’s production possibilities curve will shift outward.

► The economy’s production possibilities curve will become steeper.

► The economy will move downward along its production possibilities curve.

The economy will move from a point inside to a point closer to its production

possibilities curve.

Question No: 38 ( 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: 39 ( Marks: 1 ) – Please choose one

In

pure capitalism, the role of government is best described as:

► Significant.

► Extensive.

Nonexistent.

► Limited.

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.

Define “Law of supply” and explain it with a schedule and diagram.

B. What are the factors which cause the shift in market supply curve?

.

(Marks: 6+4)

ANSWER: LAW OF SUPPLY: It states that as the price goes up the quantity supplied also

goes up and when price falls quantity supplied also falls.

Schedule for Supply:

Price (Rs.) Quantity supplied

5 100

4 95

3 80

2 60

1 40

Factors Causing Shift in Supply Curve:

There are various factors causing shift in market supply curve which are as

follows:

Factors

changing

supply

Effect on

supply

Direction of

Shift in supply

Equilibrium

Price

Equilibrium

quantity

Increase in

number of

suppliers

Increase Rightward shift Decrease Increase

Decrease in

number of

suppliers

Decrease Leftward shift Increase Decrease

Improved

technology

Increase Rightward shift Decrease Increase

Declined

technology

Decrease Leftward shift Increase Decrease

Increase in

future price

Decrease Leftward shift Increase Decrease

Decrease in

future price

Increase Rightward shift Decrease Increase

Increase in

resources’ price

Decrease Leftward shift Increase Decrease

Decrease in

resources’ price

Increase Rightward shift Decrease Increase

VU ECO401- Economics (Session – 2) MIDTERM EXAMINATION Spring 2009

.

MIDTERM EXAMINATION

Spring 2009

ECO401- Economics (Session – 2)

Ref No: 455273

Time: 60 min

Marks: 50

Student Info

StudentID:

Center: OPKST

ExamDate:

For Teacher’s Use Only

Q

No.

1 2 3 4 5 6 7 8 Total

Marks

Q No. 9 10 11 12 13 14 15 16

Marks

Q No. 17 18 19 20 21 22 23 24

Marks

Q No. 25 26 27 28 29 30 31 32

Marks

Q No. 33 34 35 36 37 38 39 40

Marks

Q No. 41

Marks

.

Question No: 1 ( 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: 2 ( 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: 3 ( Marks: 1 ) – Please choose one

When college students leave town for the summer, the demand for meals

at the local restaurants decline. This results in:

► A decrease in equilibrium price and an increase in quantity of meal.

► An increase in equilibrium price and quantity of meal.

► A decrease in equilibrium price and quantity of meal.

► An increase in equilibrium price and a decrease in quantity of meal.

Question No: 4 ( 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: 5 ( Marks: 1 ) – Please choose one

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: 6 ( Marks: 1 ) – Please choose one

If a 12% price reduction causes quantity demanded to rise by 12% then:

► Demand is inelastic.

► Demand is elastic.

► Demand is perfectly elastic.

► Total revenue will remain constant.

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

Which of the following will be TRUE if demand is inelastic?

► The coefficient of elasticity is greater than one.

► The percentage change in quantity demanded is same as the

percentage change in the price.

► An increase in price will increase total revenue.

► None of the given options.

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

Which of the following is the term that economists use to describe how

consumers rank different goods and services?

► Satisfaction index.

► Goodness.

► Utility.

► None of the given options.

Question No: 9 ( 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: 10 ( Marks: 1 ) – Please choose one

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 ( 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: 12 ( Marks: 1 ) – Please choose one

A person with a diminishing marginal utility of income will be:

► Risk averse.

► Risk neutral.

► Risk loving.

► None of the given options.

Question No: 13 ( 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: 14 ( Marks: 1 ) – Please choose one

Suppose you are a workaholic (like work a lot) and your friend is a leisure

lover. Compared to your friend your indifference curve will be:

► Flatter.

► Steeper.

► Identical.

► None of the given options.

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

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: 16 ( Marks: 1 ) – Please choose one

Which of the following is a correct statement about the substitution

effect?

► The substitution effect is always negative.

► The substitution effect is positive for an inferior good.

► The substitution effect measures how demand changes when income

changes.

► The substitution effect is positive for a Giffen good.

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

A normal good can be defined as one which consumers purchase more of

as:

► Prices fall.

► Prices rise.

► Incomes fall.

► Incomes increase.

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

The largest amount of output that a firm can produce with a given

combination of inputs is determined by the:

► Marginal product of labor.

► Gains from specialization.

► Cost function.

► Production function.

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

Which of the following is most likely to be a fixed input in the short run for

a Garage owner?

► The grease used to lubricate cars.

► The part-time labor employed to repair cars.

► The electricity used to heat and light the garage.

► The garage used to repair cars.

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

The total cost (TC) of producing computer software diskettes (Q) is given

as: TC = 200 + 5Q. What is the average total cost?

► 5Q.

► 5.

► 5 + (200/Q).

► None of the given options.

.

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

A firm maximizes profit by operating at the level of output where:

► Average revenue equals average cost.

► Average revenue equals average variable cost.

► Total costs are minimized.

► Marginal revenue equals marginal cost.

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

Revenue is equal to:

► Price times quantity.

► Price times quantity minus total cost.

► Price times quantity minus average cost.

► Price times quantity minus marginal cost.

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

A price taker is:

► A firm that accepts different prices from different customers.

► A monopolistically competitive firm.

► A firm that cannot influence the market price.

► An oligopolistic firm.

Question No: 24 ( 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: 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

If at the profit-maximizing quantity, profits are positive,then:

► Price < Average Total Cost.

► Price > Average Total Cost.

► Price < Average Variable Cost.

.

► Price = Marginal Cost.

Question No: 27 ( 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: 28 ( 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: 29 ( Marks: 1 ) – Please choose one

A firm never operates:

► At the minimum of its average total cost curve.

► At the minimum of its average variable cost curve.

► On the downward-sloping portion of its average total cost curve.

► On the downward-sloping portion of its average variable cost curve.

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

As compared to existing firms, a new firm entering in monopolist market

has:

► High costs.

► Low costs.

► Equal costs.

► None of the given options.

Question No: 31 ( 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: 32 ( 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: 33 ( 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: 34 ( Marks: 1 ) – Please choose one

What happens to an incumbent firm’s demand curve in monopolistic

competition as new firms enter?

► It shifts rightward.

► It shifts leftward.

► It becomes horizontal.

► New entrants will not affect an incumbent firm’s demand curve.

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

Which of the following is true for both perfectly competitive and

monopolistically competitive firms in the long run?

► Price = Marginal Cost.

► Marginal Cost = Average Total Cost.

► Price > Marginal Revenue.

► Profit equals zero.

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

Which one of the following is TRUE about pure monopoly?

► The monopoly’s demand curve and the market demand curve are one

and the same.

► The market is dominated by just two firms.

.

► The monopolist will always charge the highest possible price.

► The monopolist will always charge a high price because it wants to

maximize profits.

Question No: 37 ( 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: 38 ( Marks: 1 ) – Please choose one

If indifference curves cross, then:

► The assumption of a diminishing marginal rate of substitution is

violated.

► The assumption of transitivity is violated.

► The assumption of completeness is violated.

► Consumers minimize their satisfaction.

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

If the demand curve for a good is downward sloping, then the good:

► Must be inferior.

► Must be giffen.

► Can be normal or inferior.

► Must be normal.

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

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.

Question No: 41 ( Marks: 10 )

Explain all the factors which determine the value of price elasticity of

demand.

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