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    ECO401 Midterm Paper

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    MIDTERM EXAMINATION
    Spring 2010
    ECO401- Economics (Session - 2)
    Time: 60 min
    Marks: 47


    Question No: 1 ( 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: 2 ( 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: 3 ( Marks: 1 ) - Please choose one
    If the income elasticity of demand for boots is 0.2, a 10% increase in consumer's income will lead to a:


    ► 20 percent decrease in the quantity of boots demanded.
    ► 2 percent increase in the quantity of boots demanded.
    ► 0.2 percent increase in the quantity of boots demanded.
    ► 20 percent increase in the quantity of boots demanded.

    Question No: 4 ( Marks: 1 ) - Please choose one
    The numerical measurement of a consumer’s preference is called:

    ► Use.
    ► Pleasure.
    ► Utility.
    ► Satisfaction.

    Question No: 5 ( Marks: 1 ) - Please choose one
    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: 6 ( Marks: 1 ) - Please choose one
    The law of diminishing marginal utility states:


    ► The supply curve slopes upward.
    ► Your utility grows at a slower and slower rate as you consume more and more units of a good.
    ► The elasticity of demand is infinite.
    ► None of the given options.

    Question No: 7 ( Marks: 1 ) - Please choose one
    Consumers will maximize satisfaction when:


    ► The price of each good is exactly equal to the price of every other good consumed.
    ► The price of each good is exactly equal to the total utility derived from the consumption of every other good.
    ► The marginal utility of the last dollar spent on each good is exactly equal to the marginal utility of the last dollar spent on any other good.
    ► Marginal utility is equal to average utility.

    Question No: 8 ( Marks: 1 ) - Please choose one
    As long as all prices remain constant, an increase in money income results in:


    ► An increase in the slope of the budget line.
    ► A decrease in the slope of the budget line.
    ► An increase in the intercept of the budget line.
    ► A decrease in the intercept of the budget line.

    Question No: 9 ( Marks: 1 ) - Please choose one
    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: 10 ( Marks: 1 ) - Please choose one
    _______________ 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: 11 ( 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: 12 ( Marks: 1 ) - Please choose one
    Fixed costs are fixed with respect to changes in:

    ► Output.
    ► Capital expenditures.
    ► Wages.
    ► Time.

    Question No: 13 ( Marks: 1 ) - Please choose one
    A price taker is:

    ► A firm that accepts different prices from different customers.
    ► A monopolistically competitive firm.
    ► A firm that cannot influence the market price.
    ► An oligopolistic firm.

    Question No: 14 ( Marks: 1 ) - Please choose one
    If a firm experiences economies of scale, then the:


    ► Long-run average total cost curve is equal to the economies of scope.
    ► Long-run average total cost curve is positively sloped.
    ► Long-run average total cost curve is horizontal.
    ► Long-run average total cost curve is negatively sloped.


    Question No: 15 ( 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: 16 ( 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: 17 ( Marks: 1 ) - Please choose one
    The principle economic difference between a competitive and a non-competitive market is:


    ► The number of firms in the market.
    ► The extent to which any firm can influence the price of the product.
    ► The size of the firms in the market.
    ► The annual sales made by the largest firms in the market.

    Question No: 18 ( Marks: 1 ) - Please choose one
    Usually the shape of production possibilities curve is:


    ► Concave.
    ► Convex.
    ► Linear.
    ► Positive.

    Question No: 19 ( Marks: 1 ) - Please choose one
    For price making firm, 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: 20 ( Marks: 1 ) - Please choose one
    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: 21 ( Marks: 1 ) - Please choose one
    What questions are related with explanation? What questions are related with what ought to be?

    ► Positive, negative.
    ► Negative, normative.
    ► Normative, positive.
    ► Positive, normative.

    Question No: 22 ( Marks: 1 ) - Please choose one
    Production possibilities curve will shift upward if there is:

    ► A reduction in unemployment.
    ► An increase in the production of capital goods.
    ► A reduction in discrimination.
    ► All of the given options.

    Question No: 23 ( Marks: 1 ) - Please choose one
    What will happen to the demand for product X, if there is an increase in consumer’s income?

    ► It will shift to the right if X is a complementary good.
    ► It will shift to the right if X is a normal good.
    ► It will shift to the right if X is an inferior good.
    ► It will necessarily remain unchanged.

    Question No: 24 ( Marks: 1 ) - Please choose one
    What will happen if there is an increase in the raw material costs, other things remaining the same?

    ► The supply curve will shift to the left.
    ► The supply curve will shift to the right.
    ► Output will increase regardless of the market price and the supply curve will shift upward.
    ► Output will decrease and the market price will also decrease.

    Question No: 25 ( Marks: 1 ) - Please choose one
    Suppose the total costs of first four units of an output produced are 20, 40, 60, and 80 respectively. What is the marginal cost of the second unit of output?

    ► 10.
    ► 20.
    ► 30.
    ► 40.

    Question No: 26 ( Marks: 1 ) - Please choose one
    Which of the following determines the largest amount of output that a firm can produce with a given combination of inputs?

    ► Marginal product of labor.
    ► Gains from specialization.
    ► Cost function.
    ► Production function.

    Question No: 27 ( Marks: 1 ) - Please choose one
    Suppose that 36 units of output are produced by using 12 units of labor. Which of the following is TRUE in this context?

    ► The marginal product of labor is 3.
    ► The total product of labor is 1/3.
    ► The average product of labor is 3.
    ► None of the given options.

    Question No: 28 ( Marks: 1 ) - Please choose one
    Which of the following best defines the marginal rate of technical substitution?

    ► The rate at which a producer is able to exchange, without affecting the quantity of output produced, a little bit of one input for a little bit of another input.
    ► The rate at which a producer is able to exchange, without affecting the total cost of inputs, a little bit of one input for a little bit of another input.
    ► The rate at which a producer is able to exchange, without affecting the total inputs used, a little bit of one output for a little bit of another output.

    ► A measure of the ease or difficulty with which a producer can substitute one technique of production for another.


    Question No: 29 ( Marks: 1 ) - Please choose one
    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 ( Marks: 1 ) - Please choose one
    The total cost (TC) function is given as TC = 500 + 30Q. What is the average total cost?

    ► 500
    ► 30+ (500/Q)
    ► 30Q2+500Q
    ► 30

    Question No: 31 ( 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: 32 ( Marks: 1 ) - Please choose one
    It is not possible to identify any single equilibrium in

    ► Perfect competition.
    ► Monopoly.
    ► Oligopoly.
    ► Duopoly.

    Question No: 33 ( Marks: 1 ) - Please choose one
    Theory of firm is not clearly discussed & established in

    ► Monopoly.
    ► Perfect competition.
    ► Oligopoly.
    ► None of the given options.

    Question No: 34 ( Marks: 1 ) - Please choose one
    If you sum the marginal utilities obtained by consumption from one unit to five units of any commodity, you will get:

    ► The marginal utility for the consumption of the fifth unit.
    ► The marginal utility for the consumption of the sixth unit.
    ► The total utility for the consumption of the first five units.
    ► The average utility for the consumption of the first five units.

    Question No: 35 ( Marks: 3 )
    Assuming that supernormal profits can be made in the short run in a monopolistically competitive industry; will there be any difference in the long-run and short-run elasticity of demand?

    Question No: 36 ( Marks: 5 )
    Compare the characteristics of perfect competition and monopolistic competition with examples.


    Question No: 37 ( Marks: 5 )
    A. Derive the equation of budget line. Which part of the equation shows the slope and which part shows the intercept?
    B. Which factors cause the shift in budget line and which cause the change in slope of budget line?
    (Marks: 3+2)
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