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1.

If your demand price for one unit of a good is $100 and the market price is
$75, your consumer's surplus is:
$25.
$50.
$75.
$100.
PAGE NO.41
Consumer Surplus:
Consumer surplus is the difference between willingness to pay and what the consumer
actually has to
pay: i.e. CS= MU-P
CS=100-75=25.

2. In economics, the “long run” is a time period in which:


Select correct option:

All inputs are variable.


All inputs are paid for.
All outputs are determined.
All loans are repaid.
Long run: a period of time in which all inputs in the production
process is variable.

3. When the price of petrol rises by 8%, the quantity of petrol purchased falls by 6%.
This shows that the demand for petrol is:
Select correct option:

Perfectly elastic.
Unit elastic.
Price elastic.
Price inelastic.

PЄd = Percentage change in Quantity Demanded


Percentage change in Price
= 6%/8% = 0.75<1
In the above figure, Elasticity for firm is equal to 0.75; it is less than 1 (ignoring
minus sign) which shows that the demand curve is inelastic

4. demand curve facing a perfectly competitive firm is:


Select correct option:

The same as the market demand curve.


Downward-sloping and less flat than the market demand curve.
Downward-sloping and more flat than the market demand curve.
Perfectly horizontal.

Page no.73 on handouts


The demand (or AR) curve for the industry is downward sloping but for any
individual perfectly competitive firm, is horizontal.

5. The budget line is the boundary between:


Preferred and non preferred consumption combinations.
Affordable and unaffordable consumption combinations.
Income and expenditure.
One point on a budget line.
Page no.60 on david begg book
The budget line shows afforadable bundles given a consumer markete environment.
6. If the supply of a product decreases and supply curve shifts leftward, and the
demand for that product simultaneously increases and demand curve shifts rightward,
then equilibrium:
Select correct option:

Price must rise.


Price must fall.
Quantity must rise.
Quantity must fall.
Ref. page no 34 on book ,schaum’s outline of theory and problems……..
Equilibrium prices is greater when the demand increases is greater than the increased
in supply.

7. : partial explanation for the inverse relationship between price and quantity
demanded is that a:
Select correct option:

Lower price shifts the supply curve to the left.


Higher price shifts the demand curve to the left.
Lower price shifts the demand curve to the right.
Higher price reduces the real incomes of buyers.
Ref.
The demand curve is the relationship between price and quantity demanded, all else
equal. A change in price changes quantity demanded, but does not shift the demand
curve. One explanation for the inverse relationship between price and quantity
demanded along the curve is that a higher price reduces the real incomes of buyers.
For normal goods, this drop in real income will reduce desired purchases.

8. Which of the following is a correct statement about the substitution effect?


Select correct option:
The substitution effect is always negative.
The substitution effect is positive for an inferior good.
The substitution effect measures how demand changes when income changes.
The substitution effect is positive for a Giffen good.

Page no.47 at handouts


The substitution effect of a price rise is always negative, while
the income effect of a price rise on the consumption of a normal
good is negative.

9. When an industry's raw material costs decrease, other things remaining the same:
Select correct option:
The supply curve shifts to the right.
The supply curve shifts to the left.
Output increases regardless of the market price and the supply curve shifts upward.
Output decreases and the market price also decrease.

Ref. page no 31 on book ,schaum’s outline of theory and problems……..


Other factor ,causing the market supply curve to shift down and to right are
decreasing in factor or material prices, improvement in technology, and government
subsidization

10. Average physical product is equal to:


Select correct option:
TPPF
TPPF/QF
QF / TPPF
TPPF * QF

Average physical product (APP) is TPP per unit of the variable


factor. APP can be represented by the
following formula,
APP = TPPF/QF

11. If the quantity supplied of mangoes exceeds the quantity demanded of mangoes:
Select correct option:
There is a shortage of mangoes.
Market forces will cause the price to fall.
Market forces will cause the price to rise.
The market is in equilibrium.
Page no.24 on handouts
.Because supply is at a high level. The increased supply creates a surplus which
pushes down the price

12. You observe that the price of houses and the number of houses purchased both
rise over the course of the year. You conclude that:
Select correct option:

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

13. If you sum all of the marginal utilities for the consumption of units one through
five, 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.
PAGE NO .40
Bottle of coke TU MU
0 0 -------------
1 7 7
2 11 4
4 13 2
5 14 1

14. If marginal product is above the average product:


Select correct option:

The total product will fall


The average product will rise
Average variable costs will fall
Total revenue will fall

The marginal product is the extra output per factor (e.g. employee) the average
product is the output per factor (e.g. per employee). At input levels where marginal
product is above average product, the average product is rising (the curve slopes up as
more input is used).

15. The percentage change in quantity demanded of a given good, with respect to the
percentage change in the price of “another” good is called:
Select correct option:

Price elasticity of demand.


Income elasticity of demand.
Cross price elasticity of demand.
Supply price elasticity.

Cross - Price Elasticity of Demand:


cross- Price elasticity of demand is the percentage change in quantity demanded of a
specific good with respect to the percentage change in the price of another related
good

16. A price taker is:


Select correct option:

A firm that accepts different prices from different customers.


A monopolistically competitive firm.
A firm that cannot influence the market price. P#45
An oligopolistic firm.

A firm that cannot influence the market price


17. The short run, as economists use the phrase, is characterized by:
Select correct option:
All inputs being variable.
At least one fixed factor of production and firms neither leaving nor entering the
industry.
No variable inputs - that is, all of the factors of production are fixed.
A period where the law of diminishing returns does not hold.

Ref. page no 261 on book ,schaum’s outline of theory and problems……..


Short run.the time period in which at least one factor of production is fixed in
quantity.

18. 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.
PAGE NO.14 .TABLE.
Improved technology, Direction of Shift in Supply Curve Rightward

19. The law of diminishing marginal utility states:


Select correct option:
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.

THE LAW OF DIMINISHING MARGINAL UTILITY


The law of diminishing marginal utility states that as you consume
more and more of a particular good,the satisfaction or utility that
you derive from each additional unit falls.

20. Which of the following is considered to be a variable cost in the long run?
Select correct option:
Expenditures for wages.
Expenditures for research and development.
Expenditures for raw materials.
All of the given Costs.

Long run: a period of time in which all inputs in the production


process is variable.

21. Demand is elastic when the elasticity of demand is:


Select correct option:
Greater than 0.
Greater than 1.
Less than 1.
Less than 0.
Page no.29 on hand outs
ELASTIC DEMAND Є > 1
(Elastic demand curve). it is greater than 1 (ignoring minus sign) which shows
that the demand curve is elastic

22. Which of the following is true about the entrepreneur?


Select correct option:
An entrepreneur is an innovator.
An entrepreneur is someone who brings resources together and produces a product.
An entrepreneur is a risk taker.
All of the given options are correct.

23. If a firm pays cash to buy a building so as to have office space for its workers, the
monthly opportunity cost of the building is best measured as:
Select correct option:
The price the firm paid divided by twelve.
Zero.
The rent the firm could earn if it rented the building to another firm.
The monthly mortgage payment the firm would have had to pay.

OPPORTUNITY COST
The opportunity cost of a particular choice is the satisfaction that
would have been derived from the next best alternative foregone

24. If there is a price ceiling, there will be:


Select correct option:
Shortages.
Surpluses.
Equilibrium.
None of the given options.

Ref. page no 47 on book ,schaum’s outline of theory and problems……..


A price ceiling is a government-mandated that exists below the markete’s equilibrium
price,price ceiling result in shortages.

25. If the supply of a product decreases and supply curve shifts leftward, and the
demand for that product simultaneously increases and demand curve shifts rightward,
then equilibrium:
Select correct option:

Price must rise.


Price must fall.
Quantity must rise.
Quantity must fall.
Ref. page no 34 on book ,schaum’s outline of theory and problems……..
Equilibrium prices is greater when the demand increases is greater than the increased
in supply
26. When the price of petrol rises by 8%, the quantity of petrol purchased falls by 6%.
This shows that the demand for petrol is:
Select correct option:

Perfectly elastic.
Unit elastic.
Price elastic.
Price inelastic.

PЄd = Percentage change in Quantity Demanded


Percentage change in Price
= 6%/8% = 0.75<1

In the above figure, Elasticity for firm is equal to 0.75; it is less than
1 (ignoring minus sign) which shows that the demand curve is
inelastic.

27. demand curve facing a perfectly competitive firm is:


Select correct option:

The same as the market demand curve.


Downward-sloping and less flat than the market demand curve.
Downward-sloping and more flat than the market demand curve.
Perfectly horizontal.

Page no.73 on handouts

The demand (or AR) curve for the industry is downward sloping
but for any individual perfectly competitive firm, is horizontal.

28. In economics, the “long run” is a time period in which:


Select correct option:
All inputs are variable.
All inputs are paid for.
All outputs are determined.
All loans are repaid.

Long run: a period of time in which all inputs in the production


process is variable.

29. If the cross price elasticity of demand between two products is +3.5, then:
Select correct option:
One of the products is expensive and one is relatively inexpensive.
One product is a normal good and the other is an inferior good.
The two products are complements.
The two products are substitutes.

Page no.35 on handouts


CROSS-PRICE ELASTICITY OF DEMAND
Cross price elasticity of demand is the percentage change in quantity demanded of a
specific good, withrespect to the percentage change in the price of another related
good.
Goods are substitutes (sign is positive). Demand is cross price elastic | є | > 1.

30. Which best expresses the law of demand?


Select correct option:

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.
Page no.11 on handouts
Law of demand:
The law of demand states that if the price of a certain commodity rises, its quantity
demanded will go down, and vice-versa