Quiznetik

MicroEconomics, Theory and Applications 1 | Set 1

1. The law of demand states that an increase in the price of a good:

Correct : B. decreases the quantity demanded for that good.

2. The law of supply states that an increase in the price of a good:

Correct : B. increases the quantity supplied of that good.

3. If an increase in consumer incomes leads to a decrease in the demand for camping equipment, then camping equipment is:

Correct : C. a substitute good

4. Which of the following shifts the demand for watches to the right?

Correct : C. a decrease in the price of watch batteries if watch batteries and watches are complements

5. An inferior good is one for which an increase in income causes a(n)

Correct : D. decrease in demand.

6. If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

Correct : C. price elastic.

7. The price elasticity of demand is defined as

Correct : C. the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good.

8. In general, a flatter demand curve is more likely to be:

Correct : A. price elastic

9. In general, a steeper supply curve is more likely to be

Correct : D. price inelastic

10. Which of the following would cause a demand curve for a good to be price inelastic?

Correct : C. the good is a necessity

11. If the cross-price elasticity between two goods is negative, the two goods are likely to be:

Correct : B. complements

12. If there is excess capacity in a production facility, it is likely that the firm’s supply curve is:

Correct : D. price elastic

13. If the income elasticity of demand for a good is negative, it must be:

Correct : B. an inferior good

14. Which of the following would decrease the supply of wheat?

Correct : D. an increase in the price of corn

15. Which of the following defines marginal utility?

Correct : D. the additional satisfaction received from consuming one more unit of a product

16. Which best expresses the law of diminishing marginal utility?

Correct : C. the more consumption of a product, the smaller is the marginal utility fromconsuming an additional unit.

17. Which situation is consistent with the law of diminishing marginal utility?

Correct : B. the more cake henry eats, the less he enjoys another slice.

18. A consumer with a fixed income will maximize utility when each good is purchased in amounts such that the:

Correct : C. marginal utility per dollar spent is the same for all goods.

19. If a rational consumer is in equilibrium, then:

Correct : C. the marginal utility per last dollar spent is the same for all goods consumed.

20. If you know that the marginal utility per rupees spent on product Alpha is less than the marginal utility per rupees spent on product Beta, consumers who spend all their income on these two products can:

Correct : C. increase total utility by buying more of beta and less of alpha.

21. A consumer is in equilibrium and is spending income in such a way that the marginal utility of product X is 40 units and Y is 16 units. The unit price of X is Rs.5. The price of Y is:

Correct : B. rs.2 per unit.

22. Which is an explanation for why the demand curve is down sloping?

Correct : C. the law of diminishing marginal utility

23. As If a few large firms dominate an industry the market is known as:

Correct : D. oligopoly

24. In a cartel, member firms may be given a fixed amount to produce. This amount is called

Correct : C. quota

25. The Kinked Demand Curve theory assumes:

Correct : C. firms are competitive with each other

26. In Game Theory:

Correct : D. firms consider the actions of others before deciding what to do

27. In the Kinked Demand Curve theory:

Correct : D. non price competition is likely

28. In oligopoly:

Correct : D. firms may collude or compete depending on their assumptions about their competitors

29. A model of Game Theory of oligopoly is known as the:

Correct : A. prisoner\s dilemma

30. In a cartel:

Correct : D. firms collude

31. In cartels

Correct : B. there may be an incentive to cheat

32. A firm that considers the potential reactions of its competitors when it makes a decision

Correct : B. is engaged in strategic behaviour

33. Which of the following is an example of strategic behaviour?

Correct : D. all of the above are examples of strategic behaviour

34. Which one of the following is a part of every game theory model?

Correct : D. strategies

35. In game theory, a choice that is optimal for a firm no matter what its competitors do is referred to as

Correct : A. the dominant strategy

36. Which of the following circumstances in an industry will result in a Nash equilibrium?

Correct : A. all firms have a dominant strategy and each firm chooses its dominant strategy

37. A prisoners’ dilemma is a game with all of the following characteristics except one. Which one is present in a prisoners’ dilemma?

Correct : A. players cooperate in arriving at their strategies

38. Which of the following legal restrictions, if enforced effectively, would be likely to solve a prisoners’ dilemma type of problem for the firms involved?

Correct : C. a law that prohibits firms in an industry from advertising their services

39. Until recently, medical doctors and lawyers have been prohibited from engaging in competitive advertising. If the prisoners’ dilemma applies to this situation, then the presence of this restriction would be likely to

Correct : A. increase profits earned by individuals in these professions

40. Which one of the following conditions is required for the success of a tit-for-tat strategy?

Correct : B. the number of oligopolists in the industry must be relatively small

41. An oligopolist may engage in short-run behaviour that results in lower profits if

Correct : D. it lends credibility to the firm\s threats

42. A firm may decide to increase its scale so that it has excess production capacity because, by doing so, it is able to

Correct : B. establish a credible deterrent to the entry of competing firms

43. Game theory is concerned with

Correct : B. the choice of an optimal strategy in conflict situations

44. Which of the following is an example of a game theory strategy?

Correct : A. you scratch my back and i’ll scratch yours

45. In game theory, a situation in which one firm can gain only what another firm loses is called a

Correct : C. zero-sum game

46. Which of the following is a nonzero-sum game?

Correct : A. prisoners’ dilemma

47. Which of the following is a zero-sum game?

Correct : B. chess

48. A plan of action that considers the reactions of rivals is an example of

Correct : B. strategic behaviour

49. In game theory, the outcome or consequence of a strategy is referred to as the

Correct : A. payoff

50. A strategy that is best regardless of what rival players do is called

Correct : D. a dominant strategy

51. A game that involves interrelated decisions that are made over time is a

Correct : A. sequential game

52. A game that involves multiple moves in a series of identical situations is called a

Correct : B. repeated game

53. Sequential games can be solved using

Correct : C. backward induction

54. A firm that is threatened by the potential entry of competitors into a market builds excess production capacity. This is an example of

Correct : C. a credible threat

55. Implicit costs are:

Correct : C. “payments” for self-employed resources

56. Which would be an implicit cost for a firm? The cost:

Correct : D. of wages foregone by the owner of the firm.

57. If a firm’s revenues just cover all its opportunity costs, then:

Correct : B. economic profit is zero

58. Suppose a firm sells its product at a price lower than the opportunity cost of the inputs used to produce it. Which is true?

Correct : D. the firm may earn accounting profits, but will face economic losses

59. The short run is a time period in which:

Correct : D. some resources are fixed and others are variable

60. The law of diminishing returns states that:

Correct : B. as a firm uses more of a variable resource, given the quantity of fixed resources, marginal product of the firm will eventually decrease

61. The law of diminishing returns only applies in cases where:

Correct : C. there is at least one fixed factor of production

62. The marginal product of labour curve shows the change in total product resulting from a:

Correct : B. one-unit increase in the quantity of a particular resource used, holding constant other resources

63. When the total product curve is falling, the:

Correct : B. marginal product of labor is negative

64. When marginal product reaches its maximum, what can be said of total product?

Correct : C. total product is increasing if marginal product is still positive

65. Variable costs are:

Correct : C. costs that change with the level of production

66. Which is not a fixed cost?

Correct : D. a worker\s wage of rs.15 per hour

67. If you know that with 8 units of output, average fixed cost is Rs.12.50 and average variable cost is Rs.81.25, then total cost at this output level is:

Correct : C. rs.750

68. With fixed costs of Rs.400, a firm has average total costs of Rs.3 and average variable costs of Rs.2.50. Its output is:

Correct : C. 800 units

69. The reason the marginal cost curve eventually increases as output increases for the typical firm is because:

Correct : C. of the law of diminishing returns

70. If the short-run average variable costs of production for a firm are rising, then this indicates that:

Correct : C. marginal costs are above average variable costs

71. If a more efficient technology was discovered by a firm, there would be:

Correct : D. a downward shift in the mc curve

72. The firm’s short-run marginal-cost curve is increasing when:

Correct : B. marginal product is decreasing

73. A firm encountering economies of scale over some range of output will have a:

Correct : B. falling long-run average cost curve

74. When a firm doubles its inputs and finds that its output has more than doubled, this is known as:

Correct : A. economies of scale

75. The larger the diameter of a natural gas pipeline, the lower is the average total cost of transmitting 1,000 cubic feet of gas 1,000 miles. This is an example of:

Correct : A. economies of scale

76. If all resources used in the production of a product are increased by 20 percent and output increases by 20 percent, then there must be:

Correct : C. constant returns to scale

77. ______ shows the overall output generated at a given level of input:

Correct : B. production function

78. Isoquants are equal to:

Correct : A. product lines

79. The marginal product curve is above the average product curve when the average product is :

Correct : A. increasing

80. Increasing returns to scale can be explained in terms of:

Correct : A. external and internal economies

81. An isoquant is ______ to an iso cost line at equilibrium point:

Correct : C. tangent

82. At the point of inflexion, the marginal product is:

Correct : C. maximum

83. Diminishing marginal returns implies:

Correct : C. increasing marginal costs

84. If the marginal product of labour is below the average product of labour. It must be true that:

Correct : C. average product of labour is falling

85. Law of variable proportion is valid when:

Correct : A. only one input is fixed and all other inputs are kept variable

86. A significant property of Cobb Douglas production function is that the elasticity of substitution between inputs is

Correct : A. equal to 1

87. CES production function is

Correct : B. linearly homogeneous

88. --------- goods violate the law of demand after prices have risen above a certain level

Correct : C. veblen goods

89. According to ----------- when income increases by a small increment, it leads to increasing marginal utility of income

Correct : C. markowitz