ECO401 Economics Midterm Spring 2009

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

 An individual whose attitude towards risk is known as:

       ► Risk averse.

       ► Risk loving.

       ► Risk neutral.

       ► None of the given options.

   

Question No: 2    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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: 9    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( 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: 13    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 The primary use of the kinked-demand curve is to explain price rigidity in:

       ► Oligopoly.

       ► Monopoly.

       ► Perfect competition.

       ► Monopolistic competition.

   

Question No: 15    ( Marks: 1 )    - Please choose one

 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    ( 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: 17    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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.

   

Question No: 26    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 Costs determine all of the following EXCEPT:

       ► Demand for a product.

       ► Firm's behaviour.

       ► How firms should expand?

       ► Firm's profitability.

   

Question No: 28    ( 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: 29    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( 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: 35    ( Marks: 1 )    - Please choose one

 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    ( Marks: 1 )    - Please choose one

 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    ( 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: 38    ( Marks: 1 )    - Please choose one

 Land is best described as:

       ► Produced factors of production.

       ► "Organizational" resources.

       ► Physical and mental abilities of people.

       ► "Naturally" occurring resources.

   

Question No: 39    ( Marks: 1 )    - Please choose one

 In pure capitalism, the role of government is best described as:

       ► Significant.

       ► Extensive.

       ► Nonexistent.

       ► Limited.

   

Question No: 40    ( 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: 41    ( Marks: 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?

(Marks: 6+4)