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