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.
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:
|
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