ECO401 Economics midterm paper 2010

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Question No: 1 ( Marks: 1 ) - Please choose one
If the quantity demanded of a product is greater than the quantity supplied of a product, then:
► There is a shortage of the product.
► There is a surplus of the product.
► The product is a normal good.
► The product is an inferior good.

Question No: 2 ( Marks: 1 ) - Please choose one
If pen and ink are complements, then an increase in the price of pen will cause:

► An increase in the price of ink.
► Less ink to be demanded at each price.
► A decrease in the demand for pen.
► A rightward shift in the demand curve for ink.

Question No: 3 ( Marks: 1 ) - Please choose one
A new technology which reduces costs for firms:

► Shifts the supply curve to the right.
► Shifts the supply curve to the left.
► Reduces the equilibrium quantity.
► Raises the equilibrium price.

Question No: 4 ( Marks: 1 ) - Please choose one
If the quantity supplied of oranges exceeds the quantity demanded then:

► There is a shortage of oranges.
► Market forces will cause the price to fall.
► Market forces will cause the price to rise.
► The market is in equilibrium.

Question No: 5 ( Marks: 1 ) - Please choose one
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 ( 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: 7 ( 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: 8 ( Marks: 1 ) - Please choose one
Increase in pension benefits leads to income and substitution effect which:

► Encourage workers to retire later.
► Encourage workers to work more hours.
► Have no effect on incentive to retire.
► Encourage workers to retire earlier.

Question No: 9 ( Marks: 1 ) - Please choose one
Assume Leisure is a normal good. If income effect exceeds substitution effect then a wage decrease will lead a person to:

► Decrease hours of work.
► Increase hours of work.
► Not change anything.
► All of the given options.

Question No: 10 ( 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: 11 ( Marks: 1 ) - Please choose one
A graph showing all the combinations of capital and labour available for a given total cost is the:
► Budget constraint.
► Expenditure set.
► Isoquant.
► Isocost.

Question No: 12 ( Marks: 1 ) - Please choose one
Increasing returns to scale in production means:

► More than twice as much of only one input is required to double output.
► Isoquants must be linear.
► More than 10% as much of all inputs are required to increase output 10%.
► Less than twice as much of all inputs are required to double output.

Question No: 13 ( Marks: 1 ) - Please choose one
In monopolist market, a new entrant firm should produce where:
► Marginal Cost < Marginal Revenue.
► Marginal Cost > Marginal Revenue.
► Marginal Cost = Marginal Revenue.
► Marginal Cost = Average Revenue.

Question No: 14 ( Marks: 1 ) - Please choose one
The market structure in which there is interdependence among firms is:

► Monopolistic competition.
► Oligopoly.
► Perfect competition.
► Monopoly.

Question No: 15 ( 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: 16 ( Marks: 1 ) - Please choose one
If the cross price elasticity of demand of two goods is -1.5, then both goods are:

► Normal.
► Inferior.
► Complements.
► Substitutes.

Question No: 17 ( Marks: 1 ) - Please choose one
Suppose an increase in income causes demand curve to shift to rightward. In this case, what will happen at any given price?
► The price elasticity of demand will remain unchanged.
► The price elasticity of demand will decrease in absolute terms.
► The price elasticity of demand will increase in absolute terms.
► The price elasticity of demand will increase, decrease or stay the same. It cannot be determined.

Question No: 18 ( Marks: 1 ) - Please choose one
The supply curve is positively sloped because:
► As the price increases, consumers demand less.
► As the price increases, suppliers can earn higher levels of profit or justify higher marginal costs to produce more.
► None of the given options.
► As the price increases, so do costs.

Question No: 19 ( Marks: 1 ) - Please choose one
Assume that pen and ink are complements. When the price of pen goes up, the demand curve for ink:
► Shifts to the left.
► Shifts to the right.
► Remains constant.
► Shifts to the right initially and then returns to its original position.

Question No: 20 ( Marks: 1 ) - Please choose one
What is meant by the term utility?
► Useless.
► Require.
► Necessary.
► Satisfaction.

Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following is TRUE about the marginal product of labour in any production process?
► It is total output divided by total labour inputs.
► It is total output minus the total capital stock.
► It is the change in total output resulting from a 'small' change on the labour input.
► It is total output produced by labour inputs.

Question No: 22 ( 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: 23 ( Marks: 1 ) - Please choose one
Which of the following occur when an isocost line is just tangent to an isoquant?
► Output is being produced at minimum cost.
► Output is not being produced at minimum cost.
► The two products are being produced at the medium input cost to the firm.
► The two products are being produced at the highest input cost to the firm.

Question No: 24 ( Marks: 1 ) - Please choose one
Which of the following is the basic difference between oligopoly and monopolistic competition?
► Products are differentiated in oligopoly.
► There are no barriers to entry in oligopoly.
► There are barriers to entry in oligopoly.
► An oligopoly includes downward sloping demand curves facing the firm.

Question No: 25 ( Marks: 1 ) - Please choose one
What will happen to the isocost line if the price of both goods decreases proportionality?
► It shifts farther away from the origin of the graph.
► It shift inward.
► It shifts outward.
► None of the given options.


Question No: 26 ( Marks: 1 ) - Please choose one
A price maker is:
► A firm that accepts different prices from different customers.
► A monopolistically competitive firm.
► An oligoplistic firm.
► A firm that can individually influence the market price.

Question No: 27 ( Marks: 1 ) - Please choose one
Concentration ratio is used to assess:
► The level of competition in an industry.
► The degree of control over prices.
► The technological gaps between the firms.
► Marginal cost and marginal benefit analysis.

Question No: 28 ( 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: 29 ( Marks: 1 ) - Please choose one
The long run average fix cost for a monopolist firm starts to decrease as the firm

► Increases its price.
► Decreases its output.
► Increases its output.
► None of the given options.

Question No: 30 ( Marks: 1 ) - Please choose one
It is not possible to identify any single equilibrium in
► Perfect competition.
► Monopoly.
► Oligopoly.
► Duopoly.

Question No: 31 ( Marks: 1 ) - Please choose one
In cartels, there are a small number of sellers and usually involve
► Heterogeneous products.
► Large competition.
► Homogeneous products.
► Less demand in market.

Question No: 32 ( Marks: 1 ) - Please choose one
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: 33 ( Marks: 1 ) - Please choose one
Since bread and butter are complements. When the price of bread goes down, the demand curve for butter:
► Shifts to the left.
► Shifts to the right.
► Remains constant.
► Shifts to the right initially and then returns to its original position.

Question No: 34 ( Marks: 1 ) - Please choose one
If the cross price elasticity of demand between two goods A and B is negative; it means that goods are
► Independent.
► Inferior.
► Complements.
► Substitutes.

Question No: 35 ( Marks: 3 )
What will be the role of fims in case of maximin strategy and maximax strategy regarding profit?


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


Question No: 37 ( Marks: 5 )
a) What is meant by production function in economics?
b) Write complete equation of production function.