latest paper eco401 mid term paper 2011

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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
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: 3 ( 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: 4 ( Marks: 1 ) - Please choose one
A demand curve is price elastic when:

► Changes in demand are proportionately greater than changes in price.
► Changes in demand are equal to changes in price.
► None of the given options.
► Changes in demand are proportionately smaller than changes in price.

Question No: 5 ( Marks: 1 ) - Please choose one
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: 6 ( Marks: 1 ) - Please choose one
Which of the following is regarded as a general determinant of price elasticity of demand?
► Nature of the good (luxury versus necessity).
► Availability of close substitutes.
► Share of consumer's budget and passage of time.
► All of the given options.

Question No: 7 ( Marks: 1 ) - Please choose one
The substitution effect of a wage increase will lead a person to:

► Work more.
► Take more leisure.
► Not change anything.
► None of the given options.

Question No: 8 ( Marks: 1 ) - Please choose one
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: 9 ( Marks: 1 ) - Please choose one
If isoquants are straight lines, it means that:
► Only one combination of inputs is possible.
► There is constant returns to scale.
► Inputs have fixed costs at all use rates.
► The marginal rate of technical substitution of inputs is constant.

Question No: 10 ( Marks: 1 ) - Please choose one
A firm maximizes profit by operating at the level of output where:
► Average revenue equals average cost.
► Average revenue equals average variable cost.
► Total costs are minimized.
► Marginal revenue equals marginal cost.

Question No: 11 ( Marks: 1 ) - Please choose one
Producer surplus in a perfectly competitive industry is:
► The difference between profit at the profit-maximizing and profit-minimizing level of output.
► The difference between revenue and total cost.
► The difference between revenue and variable cost.
► The difference between revenue and fixed cost.

Question No: 12 ( Marks: 1 ) - Please choose one
The good produced by a monopoly:

► Has perfect substitutes.
► Has no substitutes at all.
► Has no close substitutes.
► Can be easily duplicated.

Question No: 13 ( Marks: 1 ) - Please choose one
A market with few entry barriers and with many firms that sell differentiated products is:

► Purely competitive.
► A monopoly.
► Monopolistically competitive.
► Oligopolistic.

Question No: 14 ( Marks: 1 ) - Please choose one
Which of the following is true in long run equilibrium for a firm in a monopolistic competitive industry?

► The demand curve is tangent to marginal cost curve.
► The demand curve is tangent to average cost curve.
► The marginal cost curve is tangent to average cost curve.
► The demand curve is tangent to marginal revenue curve.

Question No: 15 ( Marks: 1 ) - Please choose one
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: 16 ( Marks: 1 ) - Please choose one
You observe that the price of houses and the number of houses purchased both rise over the course of the year. You conclude that:


► The demand for houses has increased.
► The demand curve for houses must be upward-sloping.
► The supply of houses has increased.
► Housing construction costs must be decreasing.

Question No: 17 ( Marks: 1 ) - Please choose one
Insurance companies operate under the principle of:

► Law of large numbers.
► Law of small numbers.
► Law of zero numbers.
► All of the given options.

Question No: 18 ( Marks: 1 ) - Please choose one
If income elasticity is negative, the good is:

► Normal good.
► A substitute good.
► A complementary good.
► Inferior good.

Question No: 19 ( Marks: 1 ) - Please choose one
In monopoly, which of the following is NOT true?

► Products are differentiated.
► There is freedom of entry and exit into the industry in the long run.
► The firm is a price maker.
► There is one main seller.

Question No: 20 ( Marks: 1 ) - Please choose one

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: 21 ( Marks: 1 ) - Please choose one
How many points you need to know to calculate the price elasticity of demand on the same demand curve?
► One.
► Two.
► Three.
► Four.

Question No: 22 ( Marks: 1 ) - Please choose one
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: 23 ( Marks: 1 ) - Please choose one
Production possibilities curve will shift downward if there is:
► Immigration of skilled workers into the nation.
► An increase in the size of the working-age population.
► A decrease in the size of the working-age population.
► Increased production of capital goods.

Question No: 24 ( Marks: 1 ) - Please choose one
Which of the following will happen if the current market price is set below the market clearing level?
► There will be a surplus to accumulate.
► There will be downward pressure on the current market price.
► There will be upward pressure on the current market price.
► There will be lower production during the next time period.

Question No: 25 ( Marks: 1 ) - Please choose one
The total cost (TC) function is given as: TC = 200 + 5Q. What is the variable cost?
► 5Q.
► 5.
► 5 + (200/Q).
► 200.

Question No: 26 ( Marks: 1 ) - Please choose one
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: 27 ( Marks: 1 ) - Please choose one
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: 28 ( Marks: 1 ) - Please choose one
All the factors of production become variable in:
► Law of increasing return.
► Long run.
► Law of decreasing cost.
► Short run.

Question No: 29 ( Marks: 1 ) - Please choose one
Indifference curves that are concave to the origin reflect:
► An increasing marginal rate of substitution
► A decreasing marginal rate of substitution
► A constant marginal rate of substitution
► A marginal rate of substitution that first decreases then increases

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
Which of the following is not included in the key ingredients of any market structure?
► Number of firms in the market/industry
► Extent of barriers to entry
► Perfect knowledge
► Degree of control over price

Question No: 32 ( Marks: 1 ) - Please choose one
At the profit-maximizing level of output, marginal cost equals to:
► Average revenue
► Total revenue
► Marginal revenue

► None of the given options

Question No: 33 ( Marks: 1 ) - Please choose one
Monopolists produce lower quantities at higher prices compared to perfectly competitive firms, because monopolists do not produce where
► Marginal cost = marginal revenue
► Average revenue = marginal cost
► Price = average variable cost
► Price = marginal cost

Question No: 34 ( Marks: 1 ) - Please choose one
An increase in quantity demand is shown by:
► Shifting the demand curve to the left.
► Shifting the demand curve to the right.
► Upward movement along the demand curve.
► Downward movement along the demand curve.

Question No: 35 ( Marks: 3 )
Describe the profit-maximizing conditions that give answer to the following questions faced by any competitive business firm:
 How much output to produce?
 How to produce that output?


Question No: 36 ( 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)

Question No: 37 ( Marks: 5 )
How advertisement can affect a cartel’s marginal cost and average revenue?


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