## ECO402 Quiz 7 July 2010

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The price elasticity of demand for a demand curve that has a zero slope is:
Select correct option:

Zero.
One.
Negative but approaches zero as consumption increases.
Infinity.

The concept of a risk premium applies to a person that is:
Select correct option:

Risk averse.
Risk neutral.
Risk loving.
All of the given options.

Price ceilings:
Select correct option:

Always increase consumer surplus.
May decrease consumer surplus if demand is sufficiently elastic.
May decrease consumer surplus if demand is sufficiently inelastic.
Always decrease consumer surplus.

The demand for books is: Qd = 120 - P The supply of books is: Qs = 5P Refer to the above scenario, if P=\$15, which of the following is true?
Select correct option:

There is a surplus equal to 30.
There is a shortage equal to 30.
There is a surplus, but it is impossible to determine how large.
There is a shortage, but it is impossible to determine how large

A firm maximizes profit by operating at the level of output where:
Select correct option:

Average revenue equals average cost.
Average revenue equals average variable cost.
Total costs are minimized.
Marginal revenue equals marginal cost.

If Px = Py, then when the consumer maximizes utility:
Select correct option:

X must equal Y.
MU(X) must equal MU(Y).
MU(X) may equal MU(Y), but it is not necessarily so.
X and Y must be substitutes.

Consider the following statements when answering this question: I. "In the long run, if a firm wants to remain in a competitive industry then it needs to own resources that are in limited supply." II. "In this competitive market our firm's long run survival depends only on the efficiency of our production process."
Select correct option:

I and II are true.
I is true, and II is false.
I is false, and II is true.
I and II are false.

An investment opportunity is a sure thing; it will pay off \$100 regardless of which of the three possible outcomes comes to pass. The variance of this investment opportunity:
Select correct option:

Is 0.
Is 1.
Is 2.
Is -1.

If X and Y are perfect substitutes, which of the following assumptions about indifference curves is not satisfied?
Select correct option:

Completeness.
Transitivity.
More is preferred to less.
Diminishing marginal rate of substitution.

If the market price for a competitive firm's output doubles then:
Select correct option:

The profit maximizing output will double.
The marginal revenue doubles.
At the new profit maximizing output, price has increased more than marginal cost.
At the new profit maximizing output, price has risen more than marginal revenue.

The long run supply curve in a constant-cost industry is linear and:
Select correct option:

Upward-sloping.
Downward-sloping.
Horizontal.
Vertical.

Marginal revenue, graphically, is:
Select correct option:

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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.

Elasticity measures:
Select correct option:

The slope of a demand curve.
The inverse of the slope of a demand curve.
The percentage change in one variable in response to a one percent increase in another variable.
Sensitivity of price to a change in quantity.

Which of the following is a positive statement?
Select correct option:

The minimum wage should not be increased, because to do so would increase unemployment.
Smoking should be restricted on all airline flights.
All automobile passengers should be required to wear seatbelts in order to protect them against injury.
None of the given options.

The "perfect information" assumption of perfect competition includes all of the following except one. Which one?
Select correct option:

Consumers know their preferences.
Consumers know their income levels.
Consumers know the prices available.
Consumers can anticipate price changes.