ECN/ECON-101
(Practice Paper-M1-2014-15)
OCT-2014
SECTION-1-Please tick the right answers from the given choices:
1. Economics is the study of ?
a) the study of the use of scarce resources to satisfy unlimited human wants.
b) the study of how a society ought to allocate its resources.
c) the study of how to reduce inflation and unemployment.
d) None of above
2. Quantity demanded is the:
a) total amount of a good that purchasers wish to purchase at a given price during a
given period of time.
b) product of advertising, and is unrelated to price.
c) entire relationship between desired purchases and possible prices.
d) total amount of a good that people wish to buy, regardless of price.
3. A Society resources are:
a) Land & Labour
b) Labour and capital
c) Land, labour and capital
d) None of above
4) Economists use the term "marginal utility" to describe the:
a) change in total satisfaction caused by consumption of an additional unit of a good.
b)total satisfaction received from consumption of a good.
c) inverse of the measure of total utility.
d) average utility of each unit of a good consumed.
5) Productivity is defined as:
a) a measure of input used.
b) output per combination of two or more inputs.
c) a measure of output per unit of resource input.
d) the efficient use of technology.
6.
___________ is the study of the allocation of resources as it is affected by the workings
of the price system?
a) Microeconomics
b) Macroeconomics
c) Both (a) and (b)
d) None of above
7. Assume that the demand curve for product C is downward sloping. If the price of C falls
from $2.00 to $1.75:
a) the demand for C will decrease
b) the demand for C will increase
c) a larger quantity of C will be demanded
d) a smaller quantity of C will be demanded
Refer the following diagram and answer the question 8, 9 and 10:
8) Refer to the above diagram, the equilibrium price in the market is.
a) $27.
b) $18.
c) $9.
d) approximately $42.
9) Refer to the above diagram, the equilibrium quantity is
a) 27 units.
b) 30 units.
c) 32 units.
d) 34 units.
e) 35 units.
10) Refer to the above diagram, If we change the price from $9 to $27, what will be the new
quantitiy of demand?
a) 35 Units
b) 27 Units
c) 30 Units
d) 34 Units
11. ___________ deals with questions relating to the idleness of resources and the growth
of productivity.
a) Microeconomics
b) Macroeconomics
c) Both (a) and (b)
d) None of above
12. The Quantity Supplied is the amount of a commodity that:
a) firms wish to sell at a given price during a given period of time.
b) is supplied at a fair market price.
c) is exchanged between firms and consumers at all possible prices.
d) None ob above
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13. Normal goods
a) have positive income elasticity of demand.
b) have negative income elasticity of demand.
c) are sometimes also inferior goods.
d) have negative elasticity of supply.
14. A price elasticity of supply s is :
a) s =
Percentage change in quantity supplied
b) s =
Percentage change in quantity demanded
c) s =
Percentage change in quantity consumed
percentage change in Price
percentage change in Price
percentage change in Price
d) None of above
15. An inferior good has
a) an income elasticity of demand greater than zero but less than 1.
b) a negative income elasticity of demand.
c) a negative price elasticity of demand.
d) a positive income elasticity of demand.
16. If two goods, X and Y, have a negative cross-elasticity of demand, then we know that they
a) are complements.
b) are substitutes.
c) are both inferior goods.
d) are both normal goods.
17. If two goods, X and Y, have a positive cross-elasticity of demand, then we know that they
a) are complements.
b) are both normal goods.
c) are both inferior goods.
d) are substitutes.
18. The formula for the own-price elasticity of demand for a commodity can be written as which
of the following?
change in price
a) d = change in quantity demanded
b) d =
c) d =
d) s =
Percentage change in quantity demand
percentage change in Price
Percentage change in one price
percentage change in other Price
Percentage change in price
percentage change in quantity demand
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19. The condition required for a consumer to be maximizing utility, for any pair of products, X
and Y, is:
a). MUX/PX = MUY/PY.
b). MUX/PY = MUY/PX.
c) PX(MUX) = PY(MUY).
d) PX = PY.
20. Suppose that the quantity demanded of a good rises from 40 units to 60 units per month when
the price falls from $1.05 to 95 cents per unit. The price elasticity of demand for this product
is:
a) 1.0
b) 4.0
c) 1.5
d)2.0
Q.1. It relates inputs to outputs, it describes the technological relationship between the inputs that
a firm uses and the output that it produces, it is: [Ref: Ch-7]
(a) Production function
(b) Investment function
(c) Money Demand Function
(d) Supply Function
Q.2. Production is a number of units per period of time, thereby it is a: [Ref: Ch-7]
(a) Stock concept
(b) Stock and flow both concept
(c) Flow Concept
(d) None of the above.
Q.3. One of the following is not the type of input for production: [Ref: Ch-7]
(a) Intermediate Products
(b) Inputs provided directly by nature
(c) Inputs provided directly by people such as labor service
(d) Inputs provided directly by fixed factor
Q.4. ____________ is the increase in total cost resulting from increasing the output by one unit.
[Ref: Ch-7]
(a) Fixed Cost
(b) Total Cost
(c) Average Cost
(d) Marginal Cost
Q.5. It includes both implicit and explicit costs; it includes the opportunity cost of the owner’s
time and capital, it is: [Ref: Ch-7]
(a) Accounting profit
(b) Nominal Profit
(c) Economic Profit
(d) Normal Profit
Q.6. When the firms adjust the quantities of factors in response to changing relative factor prices,
the concept refers to: [Ref: Ch-8]
(a) Principle of income
(b) Principle of substitution
(c) Principle of merchandising
(d) Principle of business
Q.7. The long-run average cost (LRAC) curve shows the lowest possible cost of producing each
level of output when all inputs can be varied, the lowest point is: [Ref: Ch-8]
(a) Minimum Efficiency Scale
(2) Maximum Efficiency Scale
(c) Low Cost Scale
(d) None of the above
Q.8. The _________ Curve shows the lowest possible cost of producing each level of output
when all inputs can be varied. [Ref: Ch-8]
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(a) AVC
(b) TVC
(c) LRAC
(d) SRATC
Q.9. In ___________ returns to scale; output increases more than in proportion to inputs as the
scale of a firm’s production increases: [Ref: Ch-8]
(a) Increasing
(b) Minimum efficient scale
(c) Constant
(d) Decreasing
Q.10. In the following diagram; identify that where the point of MES (Minimum Efficient
Scale) for the given level of output lies: [Ref: Ch-8]
(a) Between A & B
(c) Between C & D
(b) Between B & C
(d) Between D & F
Q.11. The price will fall until it is equal to the SRATC of the new plants. Old plants may
continue, but will earn losses, this condition refers to: [Ref: Ch-9]
(a) The firm for eventually exit
(b) The firms will plan for entry.
(c) Firms will stay in competition
(d) Firms will be in loss and stay.
Q.12. From above three diagrams, find the correct name in case of continuous technological
progress: [Ref: Ch-9]
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(a) Plant 1:Low Cost, Plant 2:High Cost, Plant 3:Medium Cost
(b) Plant 1:Low Cost, Plant 2:Medium Cost, Plant 3:High Cost
(c) Plant 1:Constant Cost, Plant 2:Fixed Cost, Plant 3:Variable Cost
(d) Plant 1:High Cost, Plant 2:Medium Cost, Plant 3:Low Cost
Q.13. At the _______the firm can just cover its average variable cost, and so is indifferent
between producing and not producing. [Ref: Ch-9]
(a) Shut-down Price
(c) Fixed price
(b) Competitive Price
(d) None of these
Q.14. Average revenue is calculated by dividing _______ and ______.
[Ref: Ch-9]
(a) Total revenue (TR) and price (P)
(b) Total revenue (TR) and Quantity (Q)
(c) Total revenue (TR) and marginal revenue (MR)
(d) None of above
Q.15. A firm in a perfectly competitive industry will maximize profits by adjusting [Ref: Ch-9]
(a) Price until average revenue equals average total cost.
(b) Price until marginal revenue equals marginal cost.
(c) Average total cost until it equals price.
(d) Output until marginal cost equals marginal revenue.
Q.16. At the profit-maximizing level of output for a single-price monopolist, the price is:
[Ref: Ch-10]
(a) Equals marginal revenue.
(b) Equals marginal cost.
(c) Always exceeds average total cost.
(d) Exceeds marginal cost.
Q.17. Any one firm within the ______ has an incentive to cheat.
(a) Cartels
(b) Average profits
(c) Economic losses
(d) None of above
[Ref: Ch-10]
Q.18. A producer practices price discrimination by charging _______ for the same products that
have the same cost.
[Ref: Ch-10]
(a) Equal prices
(b) Different prices
(c) Average prices
(d) None of above
Q.19. The consequences of price discrimination by unit, firm will often increase their output and
overall efficiency will:
[Ref: Ch-10]
(a) Decrease
(b) Maximum
(c) Increase
(d) None of these
Q.20. If the different prices are charged for the same products produced at same cost, the
situation is referred to:
(a) Price evaluation
(b) Price discrimination
(c) Cartels
(d) Price acceptance
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Q.1. The industries that are made-up of small number of large firms have a market structure
called:
(a) Duopoly
(b) Perfect Competition
(c) Oligopoly
(d) Monopoly
Q.2. The Game theory is possibily applied in the market situation of:
(a) Perfet Competition
(b) Imperfect Competition
(c) Monopoly (d) Oligopoly
Q.3. When Demand and Supply interact to determine the prices of commodity, they also
determine the income of the:
(a) Households
(b) Factors (c) Government
(d) Banks.
Q.4. The competitive firms’ demand curev for a factor I given by that factor’s:
(a) Demand Curve
(b) Supply Curve
(c) Cost Curve
(d) MRP Curve
Q.5. The factor’s transfer earnings plus its economic rent equals to:
(a) Its Total Earning
(b) Its Total Expenditure
(c) Its supply (d) None
SECTION-B Fill in the blanks
1. Short-run is the length of time over which some of the firm’s factors of production are
___________
[Answer- Fixed, pp. 156, textbook, Chapt-7]
2. Long-run is the length of time over which all of the firm’s factors of production can be
___________, but its technology is fixed
[Answer- Varied, pp. 156, textbook, Chapt-7]
3. ____________ may be retained or distributed as profit to stock or equity holders.
[Answer- Dividend, pp. 150, textbook, Chapt-7]
4. Economists use different concept of costs and profits: Where Economic Profits =
Accounting profits – _____________
[Answer- Implicit Cost, pp. 153, textbook, Chapt-7]
5. Economic profit is sometimes called _____________________
[Answer- Pure Profit, pp. 154, textbook, Chapt-7]
6. Negative Economics profits are called __________________
[Answer- Economic Losses, pp. 156, textbook, Chapt-7]
7. __________________ is the total product divided by the number of units of the variable
factor used to produce it.
[Answer- Average Product (AP), pp. 157, textbook, Chapt-7]
8. _____________is the total amount of output that is produced during a given period of time.
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[Answer- Total product (TP), pp. 157, textbook, Chapt-7]
9. Average Total Cost (ATC) = Average Fixed Cost (AFC) + __________________
[Answer- Average Variable Cost (AVC), pp. 1162, textbook, Chapt-7]
10. Profit maximizing firms will adjust the quantities of ______________ they use to the prices
of the factors given by the market.
[Answer- Factors, pp. 175, textbook, Chapt-8]
11. The LRAC curve is usually ___________ shaped
[Answer- U, pp. 176, textbook, Chapt-8]
12. The LRAC curve separates __________________ and attainable cost levels, given
technology and factor prices.
[Answer- Unattainable, pp. 176, textbook, Chapt-8]
13. Methods of production will be change if the ________________ of factor change.
Relatively more of the cheaper factor and relatively less of the more expensive factor will be
used.
[Answer- Relative Prices, pp. 175, textbook, Chapt-8]
14. In _________________ ; the output increases in proportion to inputs as the scale of a firm’s
production increases.
[Answer- Constant Returns to Scale, pp. 176-177, textbook, Chapt-8]
15. Changes in technology are often_____________ responses to changing economic signals,
that is they results from responses by firms to the same things that induced the substitution.
[Answer- Endogenous, pp. 175, textbook, Chapt-8]
16. The perfect competitive firm adjusts its level of output in response to change in the
_____________ price.
[Answer- Market-determined, pp. 205, textbook, Chapt-9]
17. When industry is in short-run equilibrium, quantity demanded equals quantity supplied, and
each firm is _________________ its profits given the market price.
[Answer- Maximizing, pp. 208, textbook, Chapt-9]
18. Market is said to be have ___________ structure when it firms have little or no market
power.
[Answer- Competitive, pp. 198, textbook, Chapt-9]
19. A monopolist does not have a __________________ curve.
[Answer- Supply, pp. 227, textbook, Chapt-10]
20. The monopolists is the only producer in an industry so a monopolist is itself the ________
[Answer- Industry, pp. 228, textbook, Chapt-10]
21. Joseph Schumpeter favoured the monopolist some extent and called the replacement of one
product by another is the process of ______________
[Answer- Creative Destruction, pp. 237-38, Price Discrimination, textbook, Chapt-10]
22. _______________ is defined as the benefit given up by not using resources in the best
alternative way.
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23. A society’s resources are divided into land, ___________, and capital.
24. The term "marginal" in economics means________________.
25. In a decision making, all decisions are based on weighing marginal cost against
_____________________.
26. Assume leather is an input in the production of belts. An increase in the price of leather
would be expected to _______________________
27. ________________ implies that all factors other than the price of the good do not
change.
28. Quantity supplied is the amount that firms are willing to offer for sale and not necessarily
the ___________________.
29. If the percentage change in quantity demanded for a product is smaller than the
percentage change in price, then demand for the good is ___________________
30. The amount of a commodity that producers wish to sell in some time period is called
__________________.
31. In a perfectly competitive market buyers and sellers are _______________.
32. The _________________ of a product is the amount of money that must be spent to
acquire one unit of that product.
33. Demand is _________________ when quantity demanded is relatively responsive to a
change in the product’s own price.
34. The utility that any consumer derives from successive units of a particular product is
assumed to diminish as total _______________ of the product increases
35. For two products X and Y , the utility maximizing condition is:
MUx
PX
=
36. The ___________________ increases the quantity demanded of a good whose (relative)
price has fallen and reduces the quantity demanded of a good whose (relative) price has
increased.
37. A change in price has two distinct effects -- it alters __________________ and it changes
consumers’ _______________.
38. For a _______________, the income effect leads consumers to buy more of a product
that has fallen in price.
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39. For an _____________, the income effect is for consumers to buy fewer units when its
price falls.
40. The act of making goods or services is called___________________
41. The satisfaction that a consumer receives from consuming some good or service is known
as ______________
SECTION-C –SHORT ANSWERS
1. What is scarcity?
2. Describe three pure type of Economic systems.
3. What are the types of economics systems and compare between them
4. What is law of diminishing marginal utility?
5. Describe Microeconomis and Macroeconomics.
6. Describe any three factors that shift/change the Demand Curve
7. What is consumer’s surplus?
8. Describe Quantity Demand & Quantity Supply.
9. Describe any three factors that shift/change the Supply Curve
10. In the following figure, point-out the Demand, Supply and Equilibrium point.
11. How would you describe a demand curve?
12. What is demand schedule?
13. What is the formula for cross-price elasticity of demand?
14. What do we call equality between quantity demanded and quantity supplied?
15. Mention five factors that shift demand curve
16. Mention five factors that shift supply curve
17. What factors determine whether the demand for a commodity is price elastic or price
inelastic?
18. What signs would you expect the following cross elasticity calculations to take?
Quantity demanded
Butter
Cabbages
Train journeys
Large cars
Price of
Margarine
Cars
Coach tickets
Petrol/diesel
Sign (+ or -)
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19. What is elasticity?
20. Define Microeconomics.
21. Describe and differentiate the Accounting Vs. Economic Profit [Ref: Ch-7, pp. 153]
22. Describe any three types of inputs for productions. (Ref: Ch-7, pp. 153- slide 6)
23. Describe difference between Total product and Average product. (Ref:Ch-7,pp.157-slide
16)
24. Goofy Inc. can product snowboards according to the following schedule. Complete the
table by calculating the Marginal and Average products.
Inputs of Labour
(per week) L
Number of
Snowboards
(per week) TP
Average
Product
Marginal
Product
0
1
2
3
0
2
5
9
0
2
2.5
3
0
2
3
4
25. Define the ‘law of diminishing returns’
(Ref: Ch-7, pp. 159 textbook)
26. Explain the concept of Economies of Scale (Ref: Ch-8, pp. 177)
27. What are the three types of returns to scales? (Ref: Ch-8, pp. 177)
28. Discuss the principles Substitution (Ref: Ch-8, pp. 175)
29. Describe any two kinds of changes that influence production and cost in the very long
run. (ch8-slide 18)
30. What are the three important portion of LRAC curve? (Ref: Ch-8, pp. 177)
31. Discuss the concept of average revenue, marginal revenue and price under perfect
competition. (Ref: Ch-9, pp. 200-201).
32. The theory of perfect competition is built on a number of assumptions relating to each firm
or industry as whole. Describe any two assumptions of them.(Ref: Ch-9, pp.199- slide 6)
33. Explain the firm's shut-down price and when a firm does not shut down. (ch9-slide14)
34. What do you mean by ‘entry and exit in achieving long-run equilibrium. (Ref: Ch-9, pp.
211-212).
35. Analyse the cost and banefits of pollution abetment. [Text Book, pp. 420, CH-17]
36. When does a new firm Enter or existing firm exit the industry? (Ref: Ch-9, pp. 211-212slide 22)
37. Explain Entry barriers and its two types. (Ref: Ch-10-slide10)
38. Define Cartels and the problems of cartel? (Ref: Ch-10, pp 232-slide16)
39. Define Price Discrimination and the trend of its demand curve? (Ref: Ch-10, pp. 239-240slide17).
40. Define Price Discrimination and when price discrimination is possible? (Ref: Ch-10slide17-18)
41. Mention the relationship between price and marginal revenue for monopolist [Ref: Ch-10,
pp. 224-225].
42. Define the concepts of direct pollution control. [Text Book, pp. 422, CH-17]
43. Write a notes on ‘Tradable Emmissions”. [Text Book, pp. 426, CH-17]
44. Explain the concept of “derived demand for factors” [Text Book, pp. 309, CH-13]
45. Define the “Economic Rents” [Text Book, pp. 323, CH-13]
46. Elaborate the determinants of elasticity of factor demand. [Text Book, pp. 312, CH-13]
47. Explain the concept of “Administred Prices” [Text Book, pp. 271, CH-11]
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48. How does ‘Game theory’ worsk? [Text Book, pp. 251, CH-11]
49. What do you mean by ‘Product Differentiation’? [Text Book, pp. 253, CH-11]
50. Explain the concept of Nash Equilibrium with the help of Graph. [Text Book, pp. 261, CH-11]
SECTION-D –Long Answer (Minimum 250 words)
Q.1. Describe four laws of Demand and Supply.
Q.2. Calculate price elasticity for the values given below in a table.
Product
Original
Price
New Price
Average
Price
Original
Quantity
New
Quantity
Average
Quantity
Florida Juice
(6 packs)
SR 9:00
SR 8:00
SR 8.50
2000
3000
2500
Q.3. Refer to the graph below if the farmer moves from point E to point B what is the effect on
his production? (Explain in terms of opportunity cost and show the numbers to get the grade)
Q. 4. Consider two different products A and B with the following details
Product
A
B
Original
price
2
3
New price
3
4
Average
Price
2.5
3.5
Original
Quantity
100
90
New
Quantity
95
89
Average
Quantity
97.5
89.5
A) Compute the Demand Elasticity of product A.
B) Are the two products A and B substitute goods or complement goods? (Explain by
computing the cross elasticity)
Q.5. What do you mean by Shifts and Movements on demand curve? Explain through schedule
and graph.
Q.6. Describe the concept of Long-Run Average Cost Curve (LRAC) curve and any three types
of return to scale with the help of graph and hypothetical illustration. (Ch-8-pp. 176, slide 09-10
and 12).
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The following table shows data for a monopolist. The first two columns provided all the data
necessary to plot the monopolist demand curve.
Quantity
Total Revenue
Average Revenue Marginal Revenue
Demanded
(TR)
(AR)
(MR)
20
100
18
125
16
150
14
175
12
200
10
225
8
250
6
275
4
300
Q.7. Compute total and average revenue for each level of output.
Q.8. Compute Marginal revenue for each successive change in output and explain why MR is
less than Price.
Q.9. Draw the diagram and draw the demand, average revenue and marginal revenue curves.
Price
Q.10. Draw two diagrams of Monopolitically competitive firms, in the forts show the firms
earning profits in the short run. In the second show the firm in long-run equilibrium earning zero
profits. [Text Book, pp. 255-256, CH-11]
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Answer Key (Major-1)
SECTION-1-Please tick the right answers from the given choices [1 marks each]:
1. –a) the study of the use of scarce resources to satisfy unlimited human wants.
2. - a) total amount of a good that purchasers wish to purchase at a given price during a given
period of time.
3. - c) Land, labour and capital
4. - a) change in total satisfaction caused by consumption of an additional unit of a good.
5. - c) a measure of output per unit of resource input
6. - a) Microeconomics
7.- b) the demand for C will increase
8. - b) $18
9. - c) 32 units
10 - b) 27 units
11 - b) Macroeconomics
12 - a) firms wish to sell at a given price during a given period of time.
13 - a) have negative elasticity of supply.
Percentage change in quantity supplied
14 - s =
percentage change in Price
15 - d) a positive income elasticity of demand.
16 - d) are both normal goods.
17 - a) are substitutes.
Percentage change in quantity demand
18 - d =
percentage change in Price
19 - a). MUX/PX = MUY/PY.
20 - b) 4.0
SECTION-2-Fill in The Blanks:
1. Opportunity cost
2. Labor
3. Additional
4. marginal benefit.
5. increase the price of belts
6. Ceteris paribus
7. quantity actually sold
8. inelastic
9. quantity supplied
10. price takers
11. absolute price
12. elastic
13. consumption
MUY
14. PY
15. substitution effect
16. relative prices, real income
17. normal good
18. inferior good
19. Production
20. Utility
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