MIDTERM EXAMINATION
Spring 2009
ECO401- Economics (Session - 2)
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
An individual whose attitude towards risk is known as:
► Risk averse.
► Risk loving.
► Risk neutral.
► None of the given options
Question No: 2 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
The primary use of the kinked-demand curve is to explain price rigidity in:
► Oligopoly.
► Monopoly.
► Perfect competition.
► Monopolistic competition.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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.
Ref by Abdul Ghafoor
5Q is variable cost
Formula of average total cost is ATC=TC/Q
TC/Q = (200 + 5Q)/Q=200/Q+5
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
Costs determine all of the following EXCEPT:
► Demand for a product.
► Firm's behaviour.
► How firms should expand?
► Firm's profitability.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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.
The construction of the production possibilities curve assumes that all available resources are fully employed. A reduction in unemployment will bring the economy closer to this frontier.
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
Land is best described as:
► Produced factors of production.
► "Organizational" resources.
► Physical and mental abilities of people.
► "Naturally" occurring resources.
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
In pure capitalism, the role of government is best described as:
► Significant.
► Extensive.
► Nonexistent.
► Limited.
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 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?
(M a r k s: 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 |
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