MIDTERM EXAMINATION
Spring 2010
ECO401- Economics
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
Land is best described as:
► Produced factors of production.
► "Organizational" resources.
► Physical and mental abilities of people.
► "Naturally" occurring resources.
Question No: 3 ( 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: 4 ( Marks: 1 ) - Please choose one
Price floor results in:
► All of the given options.
► Excess supply.
► Equilibrium.
► Excess demand.
Question No: 5 ( 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: 6 ( Marks: 1 ) - Please choose one
The cross price elasticity of demand for complementary goods is:
► Less than 0.
► Equal to 0.
► Greater than 0.
► Between 0 and 1.
Question No: 7 ( 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: 8 ( 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: 9 ( Marks: 1 ) - Please choose one
An individual with a constant marginal utility of income will be:
► Risk loving.
► Risk neutral.
► Risk averse.
► Insufficient information for a decision.
Question No: 10 ( 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: 11 ( Marks: 1 ) - Please choose one
Increase in pension benefits leads to income and substitution effect which:
► Encourage workers to retire later.
► Encourage workers to work more hours.
► Have no effect on incentive to retire.
► Encourage workers to retire earlier.
Question No: 12 ( 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: 13 ( 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: 14 ( Marks: 1 ) - Please choose one
The income effect of a price change:
► Is always positive.
► Is always negative.
► May be positive or negative.
► Is associated with a change in nominal income.
Question No: 15 ( Marks: 1 ) - Please choose one
Which of the following is considered to be a variable cost in the long run?
► Expenditures for wages.
► Expenditures for research and development.
► Expenditures for raw materials.
► All of the given options.
Question No: 16 ( 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: 17 ( Marks: 1 ) - Please choose one
Graphically, marginal revenue is defined as:
► The slope of a line from the origin to a point on the total revenue curve.
► The slope of a line from the origin to the end of the total revenue curve.
► The slope of the total revenue curve at a given point.
► The vertical intercept of a line tangent to the total revenue curve at a given point.
Question No: 18 ( Marks: 1 ) - Please choose one
The optimal point of production for any individual firm is where:
► Marginal Revenue = Marginal Cost.
► Marginal Revenue > Marginal Cost.
► Marginal Revenue < Marginal Cost.
► None of the given options.
Question No: 19 ( Marks: 1 ) - Please choose one
The break-even point occurs when:
► Price < Average Variable Cost.
► Price < Average Total Cost.
► Price = Average Total Cost.
► Price > Average Variable Cost.
Question No: 20 ( 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: 21 ( Marks: 1 ) - Please choose one
Compared to the equilibrium price and quantity sold in a competitive market, a monopolist will charge a ______________ price and sell a ______________ quantity.
► Higher; larger.
► Lower; larger.
► Higher; smaller.
► Lower; smaller.
Question No: 22 ( 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: 23 ( 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: 24 ( Marks: 1 ) - Please choose one
If a sales tax on beer leads to reduced tax revenue, this means:
► Elasticity of demand is < 1.
► Elasticity of demand is > 1.
► Demand is upward-sloping.
► Demand is perfectly inelastic.
Question No: 25 ( Marks: 1 ) - Please choose one
[You must be registered and logged in to see this image.]In the above figure, 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: 26 ( Marks: 1 ) - Please choose one
Which of the following is true about supply curve under monopoly?
► It is same as the competitive market supply curve.
► It is the portion of marginal cost curve where marginal costs exceed the minimum value of average variable costs.
► It is the result of market power and production costs.
► None of the given statements is true.
Question No: 27 ( Marks: 1 ) - Please choose one
What is meant by freedom of enterprise in pure capitalism?
► It means that businesses are free to produce products that consumers want.
► It means that consumers are free to buy goods and services that they want.
► It means that resources are distributed freely to businesses.
► It means that government is free to direct the actions of businesses.
Question No: 28 ( Marks: 1 ) - Please choose one
Which of the following best describes a demand schedule?
► It is a numerical tabulation of the quantity demanded of a good at different prices, ceteris paribus.
► It is a graphical representation of the law of demand.
► It is a systematic listing of all the variables that might conceivably bring about a change in demand.
► It is a symbolic representation of the law of demand: P,Q and Q, P.
Question No: 29 ( Marks: 1 ) - Please choose one
Suppose the total utilities for the first four units of a good consumed are 13, 23, 33, and 43 respectively. What is the marginal utility of the third unit?
► 10.
► 13.
► 20.
► 33.
Question No: 30 ( Marks: 1 ) - Please choose one
Suppose all inputs are increased by 20% but output increases by less than 20% in a production process. This means that the firm experiences:
► Decreasing returns to scale.
► Constant returns to scale.
► Increasing returns to scale.
► None of the given options.
Question No: 31 ( Marks: 1 ) - Please choose one
Suppose all inputs are increased by 30% and output increases by more than 30% in a production process. This means that the firm experiences:
► Decreasing returns to scale.
► Constant returns to scale.
► Increasing returns to scale.
► None of the given options.
Question No: 32 ( Marks: 1 ) - Please choose one
If marginal cost is Rs.15,000/- and marginal revenue is Rs.20,000/-. The firm should:
► Reduce output until marginal revenue equals marginal cost.
► Do nothing without information about your fixed costs.
► Expand output until marginal revenue equals marginal cost.
► None of the given options.
Question No: 33 ( Marks: 1 ) - Please choose one
Rationing is needed due to the problem of
► Unemployment.
► Inflation.
► Scarcity.
► Poverty.
Question No: 34 ( Marks: 1 ) - Please choose one
The demand curve for eggs is downward-sloping. Suddenly the price of eggs decreases from Rs.60/- per dozen to Rs.50/- per dozen. This will cause:
► The demand curve for eggs to shift leftward.
► Quantity demanded of eggs to decrease.
► The demand curve for eggs to shift rightward.
► Quantity demanded of eggs to increase.
Question No: 35 ( Marks: 3 )
How the monopolist can maintain the high price even in the long run?
A monopolist can make super normal, profits even in long run because there is no easy entry fo other firms as in the case of perfect competition therefore a monopolist can maintain her high price even in the long run.
Question No: 36 ( Marks: 5 )
A. Compare the characteristics of oligopoly and monopoly market structures.
B. Differentiate between the shape of demand curve in oligopoly and monopoly.
(Marks: 3+2)
Question No: 37 ( Marks: 5 )
Explain engel curve for giffen commodities with the help of graph.
