MIDTERM EXAMINATION
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 ► 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.
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:
|
MIDTERM EXAMINATION
Fall 2009
ECO401- Economics (Session - 4)
Time: 60 min
Marks: 50
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
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: 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.
(Marks: 3+3+4)
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.
Answers : C)
The tossing of a coin and the probability of a head appearing is 50% i.e. the odds of success are fair. So the option of OR < 1 and OR > 1 is not there. The only possibility is OR = 1 which means that the chances are not that bad. Now it depends on the fact that whether I am a risk averse, risk neutral or risk loving person. In case of fair odds both risk loving and risk neutral person might decide to play. So I will play this game as the amount of money involved is not that much and as far as my perception of it is concerned the marginal benefit of gaining 200 Rs is perceived by me as more than the marginal cost of losing the 200 Rs. So I would definitely play this game. Moreover the excitement of winning might overshadow my rational judgement and I would definitely decide to play by being carried away by excitement.
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 ► 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 )
C. Define “Law of supply” and explain it with a schedule and diagram.
Define “Law of supply” and explain it with a schedule and diagram.D. 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:
|
MIDTERM EXAMINATION
Spring 2009
ECO401- Economics (Session - 2)
Time: 60 min
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 ► 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 )
E. Define “Law of supply” and explain it with a schedule and diagram.
Define “Law of supply” and explain it with a schedule and diagram.F. What are the factors which cause the shift in market supply curve?
(Marks: 6+4)
