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Posts Tagged ‘VU. ECO401-. Economics .(Session – 4). MIDTERM. EXAMINATION .Spring .2009’

VU ECO401- Economics (Session – 4) MIDTERM EXAMINATION Spring 2009

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MIDTERM EXAMINATION

Spring 2009

ECO401- Economics (Session – 4)

Time: 60 min

Marks: 50

Question No: 1 ( 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: 2 ( 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: 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

The

textbook for your class was not produced in a perfectly competitive industry because:

► There are so few firms in the industry that market shares are not small, and firm’s

decisions have an impact on market price.

► Upper-division microeconomics texts are not all alike.

► It is not costless to enter or exit the textbook industry.

.

► All of the given options.

Question No: 5 ( 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: 6 ( Marks: 1 ) – Please choose one

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: 7 ( 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: 8 ( 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: 9 ( Marks: 1 ) – Please choose one

Which of the following markets is most likely to be oligopolistic?

.

► The market for corn.

► The market for aluminum.

► The market for colas.

► The market for ground coffees.

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

For

the monopolist shown below, the profit maximizing level of output is:

► Q1.

► Q2.

► Q3.

► Q4.

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

If a

monopolist sets his output such that marginal revenue, marginal cost and average total cost

are equal, economic profit must be:

► Negative.

.

► Positive.

► Zero.

► Indeterminate from the given information.

Question No: 13 ( 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: 14 ( 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: 15 ( Marks: 1 ) – Please choose one

Increasing returns to scale in production means:

► More than twice as much of only one input is required to double output.

► Isoquants must be linear.

► More than 10% as much of all inputs are required to increase output 10%.

► Less than twice as much of all inputs are required to double output.

Question No: 16 ( 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: 17 ( Marks: 1 ) – Please choose one

What will happen to the isocost line if the price of both goods increases?

► It shift farther away from the origin of the graph.

.

► It shift inward, closer to the origin.

► It vanishes.

► It undergoes no change.

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

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: 20 ( Marks: 1 ) – Please choose one

Indifference curves that are convex to the origin reflect:

► An increasing marginal rate of substitution.

► A decreasing marginal rate of substitution.

► A constant marginal rate of substitution.

► A marginal rate of substitution that first decreases, then increases.

Question No: 21 ( 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: 22 ( 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: 23 ( 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: 24 ( Marks: 1 ) – Please choose one

The

extra value that consumers receive above what they pay for that good is called:

► Producer surplus.

► Utility.

► Marginal utility.

► Consumer surplus.

Question No: 25 ( 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: 26 ( 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: 27 ( Marks: 1 ) – Please choose one

We

know that the demand for a product is elastic:

► When price rises, total revenue rises.

► When price rises, total revenue falls.

► When income rises, quantity demanded rises.

► When income falls, quantity demanded rises.

Question No: 28 ( 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: 29 ( 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: 30 ( Marks: 1 ) – Please choose one

Which of the following measures the percentage change in quantity demanded given a

percentage change in consumer’s income?

► Price elasticity of demand.

► Income elasticity of demand.

► Supply price elasticity.

► Cross price elasticity.

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

If

both supply and demand increase simultaneously, the equilibrium:

► Price must rise and the equilibrium quantity must fall.

► Price must rise and the equilibrium quantity may either rise or fall.

► Quantity must rise and the equilibrium price may either rise or fall.

► Price must fall and the equilibrium quantity may either rise or fall.

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

A

good for which income and quantity demanded are inversely related is known as:

► Inferior good.

► Complementary good.

► Normal good.

► None of the given options.

Question No: 35 ( 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: 36 ( Marks: 1 ) – Please choose one

If

the quantity demanded of a product is greater than the quantity supplied of a product,

then:

► There is a shortage of the product.

► There is a surplus of the product.

► The product is a normal good.

► The product is an inferior good.

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

When constructing a typical production possibilities curve, economists assume that:

► Economic resources are underutilized.

► Resources are equally productive in many alternative uses.

► All available resources are employed efficiently.

► Production technology is allowed to vary.

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

Our

economy is characterized by:

► Unlimited wants and needs.

► Unlimited material resources.

► No energy resources.

► Abundant productive labor.

Question No: 39 ( 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: 40 ( Marks: 1 ) – Please choose one

Which of the following is a normative statement?

► Intermediate microeconomics should be required of all economics majors in order to

build a solid foundation in economic theory.

► The minimum wage should not be increased, because to do so would increase

unemployment.

► Smoking should be restricted on all airline flights.

► All of the given options.

Question No: 41 ( Marks: 10 )

.

Q

O

MR

P

D = AR

400 725

12

600

9

AC

Subsidy to the monopolist MC

a. According to the given graph, at which point allocative efficiency is achieved?

b. Is the productive efficiency is also attained at the point of allocative efficiency? why

c. At which point economist might make a loss and what will be the role of

Government in this regard?

d. At which point monopolist is able to get allocative efficiency as well as productive

efficiency?

(Marks: 2.5+2.5+2.5+2.5)

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