MIDTERM EXAMINATION
Spring 2010
ECO401- Economics (Session - 6)
Time: 60 min
M a r k s: 47
Question No: 1 ( 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: 2 ( M a r k s: 1 ) http://vuzs.net
Ceteris paribus means:
► Equal access to public transportation.
► Other things being equal.
► Other things not being equal.
► All things considered.
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
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: 4 ( M a r k s: 1 ) http://vuzs.net
A market is said to be in equilibrium when:
► Demand equals output.
► There is downward pressure on price.
► The amount consumers wish to buy at the current price equals the amount producers wish to sell at that price.
► All buyers are able to find sellers willing to sell to them at the current price.
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
A demand curve is price inelastic when:
► Changes in demand are proportionately smaller than changes in price.
► Changes in demand are proportionately greater than changes in price.
► Changes in demand are equal to changes in price.
► None of the given options.
Question No: 6 ( 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: 7 ( M a r k s: 1 ) http://vuzs.net
As more of a good is consumed, then total utility typically:
► Increases at a decreasing rate.
► Decreases as long as marginal utility is negative.
► Decreases as long as marginal utility is positive.
► Is negative as long as marginal utility is decreasing.
Question No: 8 ( M a r k s: 1 ) http://vuzs.net
The numerical measurement of a consumer’s preference is called:
► Use.
► Pleasure.
► Utility.
► Satisfaction.
Question No: 9 ( M a r k s: 1 ) http://vuzs.net
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: 10 ( M a r k s: 1 ) http://vuzs.net
When the marginal utility of a good is zero, this implies that:
► The consumer would not spend any additional income to buy more of that good.
► Consumption of additional units would have positive marginal utility.
► Total utility is minimized.
► Total utility is also zero.
Question No: 11 ( M a r k s: 1 ) http://vuzs.net
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: 12 ( M a r k s: 1 ) http://vuzs.net
Which of the following is TRUE about price-consumption curve for good X?
► Nominal income falls as the price of X falls.
► The absolute price of X falls, but the relative price between X and the composite good Y stays the same.
► It is always downward sloping for a normal good.
► It represents only those market baskets that are optimal for the given price ratio and preference pattern and therefore a demand curve can be plotted from it.
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
A production function:
► Relates inputs with output.
► Generates a curve that is upward sloping.
► Shows diminishing marginal product of an input, since it gets flatter as output rises.
► All of the given options.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
_______________ arises when an increase in all inputs leads to a more-than-proportional increase in the level of output. _____________ means that as inputs are added to the production process, output increases proportionally.
► Economies of scale; constant returns to scale.
► Constant returns to scale; decreasing returns to scale.
► Decreasing returns to scale; economies of scale.
► Economies of scale; decreasing returns to scale.
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
The budget line is the boundary between:
► Preferred and non preferred consumption combinations.
► Affordable and unaffordable consumption combinations.
► Income and expenditure.
► One point on a budget line.
Question No: 16 ( 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: 17 ( M a r k s: 1 ) http://vuzs.net
Revenue is equal to:
► Price times quantity.
► Price times quantity minus total cost.
► Price times quantity minus average cost.
► Price times quantity minus marginal cost.
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
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: 19 ( M a r k s: 1 ) http://vuzs.net
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: 20 ( 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: 21 ( M a r k s: 1 ) http://vuzs.net
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: 22 ( M a r k s: 1 ) http://vuzs.net
A person with a diminishing marginal utility of income is said to be:
► Risk averse person.
► Risk neutral person.
► Risk loving person.
► None of the given options.
Question No: 23 ( M a r k s: 1 ) http://vuzs.net
Which of the following is TRUE in a planned economy?
► Goods and services produced reflect consumer sovereignty.
► Price is relatively unimportant as a means of allocating resources.
► There is no incentive for people to work hard.
► All income is completely evenly distributed.
Question No: 24 ( M a r k s: 1 ) http://vuzs.net
What is the assumption of constructing a production possibilities curve?
► 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: 25 ( M a r k s: 1 ) http://vuzs.net
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: 26 ( M a r k s: 1 ) http://vuzs.net
The total cost (TC) function is given as: TC = 200 + 5Q. What is the fixed cost?
► 5Q.
► 5.
► 5 + (200/Q).
► 200.
TC = FC + VC
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
Which of the following is TRUE for the total cost of producing a given level of output?
► It is maximized when a corner solution exists.
► It is minimized when the ratio of marginal product to input price is equal for all inputs.
► It is minimized when the marginal products of all inputs are equal.
► It is minimized when marginal product multiplied by input price is equal for all inputs.
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
“Each firm produces an identical product and there is freedom of entry and exit”. This is TRUE for which of the following market structures?
► For monopoly.
► For oligopoly.
► For perfect competition.
► For monopolistic competition.
Question No: 29 ( M a r k s: 1 ) http://vuzs.net
Usually, for electric sales, the electric power company uses block pricing strategy. It 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: 30 ( M a r k s: 1 ) http://vuzs.net
If average physical product (APP) is decreasing then which of the following must be true?
► Marginal physical product is more than the average physical product.
► Marginal physical product is less than the average physical product.
► Marginal physical product is decreasing.
► Marginal physical product is increasing.
Question No: 31 ( M a r k s: 1 ) http://vuzs.net
Which of the following statement describes decreasing returns to scale?
► Increasing the inputs by 1/4% leads to a 1/2% increase in output.
► Increasing inputs by 1/2 leads to an increase in output of 1/6.
► Doubling the inputs used leads to double the output.
► None of the given options.
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
If different firms in the oligoplistic structures do not cooperate with each other is known as
► Collusive oligopoly.
► Cartel.
► Price leadership.
► Non-collusive oligopoly.
Question No: 33 ( M a r k s: 1 ) http://vuzs.net
Consumers can make about the rational decision by using:
► Total utility and marginal utility approach.
► Income and consumption analysis.
► Cost and benefit analysis.
► Working hours and leisure time.
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
What might be the reason of a rightward shift in the demand curve for product X?
► An increase in income if X is a normal good.
► A decrease in income if X is an inferior good.
► An increase in the price of a product that is complementary to X.
► An increase in the price of a product that is substitute to X.
Question No: 35 ( M a r k s: 3 )
Why economists believe that when firms earn zero accounting profits, they actually earn normal economic profits?
Answer:
Economists believe that when firms earn zero accounting profits, they actually earn normal economic profits because TC already includes the normal profits that owners of the firms need for themselves to stay in the business. Positive profits are, for this reason, called supernormal profits as they are over and above what the owners normally require as a return for their entrepreneurship.
Profit = TR – TC
Question No: 36 ( M a r k s: 5 )
What are the two main theories of production regarding time?
Answer:
The two main theories of production regarding time are long run and short run.
Short run: Short run is a period of time in which some prices, especially wages, are rigid, inflexible, or otherwise in the process of adjusting.
Long run: It is a period of time in which all prices, especially wages, are flexible, and have achieved their equilibrium levels. Inlong run all inputs in the production process is variable.
Question No: 37 ( M a r k s: 5 )
Why marginal cost curve is not considered as supply curve in monopoly?
MC curve is not the supply curve of the firm as it is in the perfect competition.
Price is greater than MR in equilibrium. Therefore, price is not equal to MC. As such, therefore, the supply curve for the firm is not the rising part of the MC curve.
