QUIZ FOR MICRO AND MACRO ECONOMIC

1. When the decrease in the price of one good causes the demand for another good to decrease, the goods are A. Normal B. Substitutes C. Complements D. Inferior 2. Which of the following will NOT cause a shift in the demand curve for compact discs A. A change in income. B. A change in the price of prerecorded cassette tapes C. A change in the price of prerecorded cassette tapes D. A change in the price of prerecorded cassette tapes

1 When the decrease in the price of one good causes the demand for another good to decrease, the goods are

A Normal

B Substitutes

C Complements

D Inferior

2 Which of the following will NOT cause a shift in the demand curve for compact discs

A A change in income

B A change in the price of pre-recorded cassette tapes

C A change in the price of pre-recorded cassette tapes

D A change in the price of pre-recorded cassette tapes

3 Market equilibrium exists when _ at the prevailing price

A quantity demanded is less than quantity supplied

B quantity supplied is greater than quantity demanded

C quantity demanded is greater than quantity supplied

D quantity demanded equals quantity supplied

4 The price of an item drops 10% in such a way that the price elasticity of demand of that item is unit elastic We would expect the quantity of the item demand to

A Drop by 5%

B Stay the same

C Increase by 5%

D Increase by 10%

5 If the price of a certain brand of sneakers falls from

$27.50 to $22.50, and the quantity demanded by consumers increases from 15 to 25 pairs per week, then using point elasticity, the price elasticity of demand is ( e )

A -0.25

B -1.00

C -2.75

D -1.50

E -2.50

6 The MUX/MUY is ten and the PX/PY is eight, so the consumer should buy

A less X and less Y

B less X and more Y

C more X and more Y

D mores X and less Y

7 Jane has £500 a week to spend on food and

clothing The price of food is £10 and the price of clothing is £25 Which of the following pairs of food and clothing are in Jane's choice set?

A 50 units of clothing and 50 units of food

B 20 units of clothing and 50 units of food

C 10 units of clothing and 25 units of food

D 0 units of clothing and 500 units of food

8 A company could produce 99 units of a good for

$316 or produce 100 units of the same good for

$320 The marginal cost of the 100th unit

A is $320

B is $3.20

C is $4.00

D cannot be calculated with this information

9 The marginal product of labor is the

A output level above which the slope of the total product curve falls

B output level above which the rate of total product per unit

of labor falls

C maximum output attainable with fixed factors when labor

is the only variable factor

D change in output resulting from a one-unit increase in labor

10 Which of the following statements describes increasing returns to scale:

A Doubling the inputs used leads to double the output

B Increasing the inputs by 50% leads to a 25% increase in output

C Increasing inputs by 1/4 leads to an increase in output of 1/3

D None of the above

11 The short run is a period of time in which

A nothing the firm does can be altered

B the amount of output is fixed

C prices and wages are fixed

D the quantities used of all resource are fixed

12 A cost that has already been made and cannot

be recovered is called a

A marginal cost

B fixed cost

C variable cost

D sunk cost

13 Total cost is the sum of fixed costs and

A implicit costs

B accounting costs

C explicit costs

D variable costs

14 Monopolistic competition differs from perfect competition primarily because:

A in monopolistic competition, firms can differentiate their

products

B in perfect competition, firms can differentiate their

products

C in perfect competition, firms can differentiate their

products

D in perfect competition, firms can differentiate their

products

15 A form of industry structure characterised by a few firms, each large enough to influence market price is:

A Oligopoly

B Monopolistic competition

C Perfect competition

D Monopoly

16 The kinked demand curve model of oligopoly assumes that the elasticity of demand:

A Is constant regardless of whether price increases or

decreases

B is perfectly elastic if price increases and perfectly inelastic

if price decreases

C in response to a price increase is less elastic than the

elasticity of demand in response to a price decrease

D in response to a price increase is more elastic than the elasticity of demand in response to a price decrease

17 If a particular resource has no alternate use then its opportunity cost is

A One

B Two

C Zero

D Cant say

18 The shares of the firms A B C D are 10, 20, 10, 5

respectively the H.H Index is

A 2475

B 1000

C 625

D 45

19 Marginal revenue is = 10 Average revenue is 20 the price elasticity of demand is

A 1

B 0

C 1.5

D 2

20 the price elasticity of demand is 2.5 the monopoly power is : ( )

A 5/2

B 2/5

C 1

D none of the above

1 Suppose the demand for good Z goes up when the price of good Y goes down We can say that goods

Z and Y are

A Substitutes

B Unrelated goods

C Complements

D Perfect substitutes

2 A movement along the demand curve to the left may be caused by

A A rise in income

B A rise in the price of inputs

C A decrease in supply

D A fall in t he number of substitute goods

3 According to the law of demand

A a positive relationship between quantity demanded and price

B as the price rises, demand will shift to the left

C there is a negative relationship between quantity

demanded and price

D as the price rises, demand will shift to the right

4 If the income elasticity of demand for a good is greater than 0 but less than 1.0, then the good is ( b )

A an economic luxury

B an economic necessity

C one with relatively little demand

D provided by a monopoly producer

5 Which of the following is assumed constant along the demand curve for gasoline

A the price of gasoline and the prices of related goods

B the price of gasoline, buyers' incomes, and tastes

C all variables affecting demand other than the price of

gasoline

D all variables affecting demand other than the supply of gasoline

6.A utility-maximising consumer changes their spending for goods X and Y so that

A.MUX = MUY

B.PX (MUX) = PY(MUY)

C.MUX/MUY = PX/PY

D TUX/PX = TUY/PY

7.A typical indifference curve…

A.shows that as a consumer has more of a good he

or she is less willing to exchange it for one unit of another good

B.shows all combinations of goods that give a

consumer the same level of utility

C.shifts out if income increases

D All of the above

8.A short-run production function assumes that

A.the usage of at least one input is fixed.

B.the level of output is fixed.

C.all inputs are fixed inputs.

D both a and b

9 The marginal product of labor is the change in total product from a one-unit increase in

A the wage rate

B both the quantity of labor and the quantity of capital

employed

C the quantity of labor employed, holding the quantity of capital constant

D the quantity of capital employed, holding the quantity of labor constant

10.Which of the following statements describes

increasing returns to scale:

E Doubling the inputs used leads to double the output

F Increasing the inputs by 50% leads to a 25% increase in output

G Increasing inputs by 1/4 leads to an increase in output of 1/3

H None of the above

11 A company could produce 100 units of a good for $320 or produce 101 units of the same good for

$324 The $4 difference in costs is

A the marginal benefit of producing the 101st unit

B the marginal cost of producing the 101st unit

C both the marginal benefit and the marginal cost of

producing the 101st unit

12 A firm has fixed costs

A in the short run but not in the long run

B in the long run but not in the short run

C in the short run and in the long run

D neither in the long run nor in the short run

13.In monopolistic competition, firms achieve some degree of market power:

A.because of barriers to entry into the industry

B by producing differentiated products.

C.because of barriers to exit from the

industry

D by virtue of size alone

14 If a particular resource has no alternate use then its opportunity cost is

A One

B Two

C Zero

D Cant say

15 The shares of the firms A B C D are 10, 20, 10, 5 respectively the H.H Index is

A) 2475

B )1000

C) 625

D) 45

16 if there are four firms in an industry if the perfectly competitive output is 100 then the output

of four firms is

A) 50

B)120

C) 80

D)110

17 Marginal revenue is = 10 Average revenue is 20 the price elasticity of demand is

A) 1

B) 0

C) 1.5

D) 2

18 the price elasticity of demand is 2.5 the monopoly power is :

A) 5/2

B) 2/5

C) 1

D)none of the above

19 A four-firm concentration ratio of 75

A Implies that this is a monopolistically competitive industry

B Means that the largest four firms in the industry earn 75 percent of the industry's profits

C Indicates a high degree of product differentiation because the four largest firms produce a total of 75 different brands of the product

D Indicates that this is a highly contestable market

20 The kinked demand curve model of oligopoly assumes that the elasticity of demand:

E Is constant regardless of whether price increases or

decreases

F is perfectly elastic if price increases and perfectly inelastic

if price decreases

G in response to a price increase is less elastic than the elasticity of demand in response to a price decrease

H in response to a price increase is more elastic than the elasticity of demand in response to a price decrease

1 Given the data below showing the demand and supply of

X in a given market

Price of X per ton

Quantity Demanded

Quantity Supplied

a) Draw the demand and supply curves

b) What would be equilibrium price of X

c) What would be the increase in price if demand increased

by 4 tons

d) What would be the effect of government’s imposing of a minimum price of Rs 4.5 per ton

2 Distinguish between a movement along a demand curve and shift in a demand curve

3 Given the following data, calculate the price elasticity of demand when

a) Price increases from Rs 3 per unit to Rs 4 per unit

b) The price falls from Rs 4 per unit to Rs 3 per unit

Price per

Quantity

Demanded 750 1250 2000 3250 4650 8000

4 From the data given below calculate TFC, TVC, AFC, ATC and MC and plot them

Units of

Total

5 Draw a diagram to show a firm’s average product, marginal product and total product curves in the short period? How do these curves illustrate the application of the law of variable proportions to the firm?

6 Explain with diagrams price and output determination under perfect competition

7 monopolist has total revenue given by TR = 480 Q – 8Q2

and total cost given by TC = 400 + 8 Q2

a) What are profit maximising price and quantity

b) what would be the profit maximising price and

quantity if the firm made its output decision rule

employed by firms in a perfectly competitive market structure?

8 With respect to the production function below(K = capital; L = labour)

3K 80 120 150

2

K 70 100 120

1K 60 70 80

1 L 2 L 3L

a) Indicate whether we have increasing returns to scale, diminishing returns to scale or constant returns to

scale

b) Which of these points are on the same isoquant

c) Is the law of diminishing returns operating

9 Define price elasticity of demand and distinguish its

various types Discuss the role of price elasticity of

demand in managerial decision making

10 firm sells in two markets and has constant marginal costs

of production equals to Rs 2 per unit The demand and

marginal revenue equations for the two markets are as follows: Market 1: P1 = 14-2Q1 and Market 2 : P2 = 10- Q2 find out

a) the profit maximisng prices and quantities with price

discrimination and without price discrimination ?

b) Show that greater profits result from each price

discrimination than would be obtained if a uniform price were used

c) Compute and compare price elasticity of demand in both the markets

11 What are the sources of monopoly power? How is it

determined? Explain the process of price and output

determination in monopoly market structure

Distinguish between collusive and non collusive oligopoly? Explain any one collusive

12 iven the data below showing the demand and supply

of X in a given market

Price of X per ton

Quantity Demanded

Quantity Supplied

e) Draw the demand and supply curves

f) What would be equilibrium price of X

g) What would be the increase in price if demand increased

by 4 tons

h) What would be the effect of government’s imposing of a minimum price of Rs 4.5 per ton

13 Explain the factors on which the demand for a

commodity depends?

14 Fill in the blanks in the following table

Variable

factor TFC TVC TC MC AFC AVC ATC

15 Define isoquants and explain their properties

16 Explain the price and output determination under perfect competition with the help of examples

17 Explain the price and output determination in a dominant firm model of oligopoly

1 Explain the law of diminishing returns with the help of a diagrams? Discuss the reasons for their operation

2 A monopolist has total revenue given by TR = 480 Q – 8Q2

and total cost given by TC = 400 + 8 Q2

c) What are profit maximising price and quantity

d) what would be the profit maximising price and quantity if

the firm made its output decision rule employed by firms in a perfectly competitive market structure?

3 Mona consumes only Pizza Combo (X) and Turkey Combo (Y) while she is on campus She

has a budget of EGP 240 to spend monthly on campus Pizza Combo costs EGP 6 and

Turkey Combo costs EGP 8

a) Write down the budget line equation

b) Graph the budget line

c) Calculate the slope of the budget line

d) If Mona’s budget increased from EGP 240 to EGP 300, what will happen to the budget line, holding prices

constant?

e) If the price of Pizza Combo (X) increases to EGP 8,

holding other things constant, how much she could buy? What is the slope of the budget line after this change? f) If the price of Turkey Combo (Y) further increases to EGP

12, holding other things constant, how much she could buy? What is the slope of the budget line after this

change?

g) If the both the price of Pizza Combo (X) and Turkey

Combo (Y) increase simultaneously to EGP 9 and EGP 15 respectively, while holding income constant How much she could buy?

Or

Explain how the consumer attains equilibrium in indifference curve analysis and derive the demand curve

1 1 What are various sources of monopoly power? Explain the characteristics of Monopolistic Competition and price and output determination both in the short run and long run? Why the firm in monopolistic competition produces at less than optimal capacity?

2 What do you mean by collusive and non collusive oligopoly? Discuss the phenomena of price rigidity explained by Paul Sweezy

3 Exercise: A monopolist faces two market segments each with a well defined demand function

Demand in market 1 is P = 10 – Q1

Demand in market 2 is P = 20 – Q2

Total Cost (TC) = 5 + Q2

a) If the monopolist exercises his monopoly power to price discriminate in the two market, what are the