Microeconomics (ECO402)

1. Which of the following costs always increase(s) as output increases?

   1. Fixed Cost
   2. Average Fixed Cost
   3. Total Variable Cost
   4. Average Variable Cost

2. Suppose a firm produces 10 units of output, its average variable cost is Rs. 100 and average total cost is Rs.250. Firm's average fixed cost is:

   1. Rs. 100
   2. Rs. 150
   3. Rs. 350
   4. Rs. 200

3. Marginal utility measures:

   1. The slope of the indifference curve
   2. The additional satisfaction from consuming one more unit of a good
   3. The slope of the budget line
   4. The marginal rate of substitution

4. The expenditure that has been made and cannot be recovered is called:

   1. Opportunity cost
   2. Accounting cost
   3. Sunk cost
   4. Economic cost

5. The bowed out shape of the production possibilities frontier indicates:

   1. That resources are perfectly adaptable to the production of the two goods
   2. That resources are not perfectly adaptable to the production of the two goods
   3. The constant opportunity cost
   4. Resources are used inefficiently

6. In the long run, if a firm is facing higher marginal cost than the average cost; then certainly per unit total cost will:

   1. Rise
   2. Fall
   3. Remain constant
   4. Be at minimum level

7. Which of the following is correct mathematical formula of marginal cost?

   1. ∆TC+∆Q
   2. ∆TC−∆Q
   3. ∆TC*∆Q
   4. ∆TC/∆Q

8. Slope of income consumption curve for an inferior good is:

   1. Positive
   2. Negative
   3. First positive then negative
   4. First negative then positive

9. Cross-price elasticity of demand for the substitute goods will always be:

   1. Zero
   2. Infinity
   3. Negative
   4. Positive

10. The supply curve slopes upward demonstrating that at:

    1. Higher prices firms will increase output
    2. Higher prices firms will decrease output
    3. Lower prices firms will increase output
    4. None of the given

11. When the two goods are perfect substitutess to each other then the marginal rate of substitution for them will be:

    1. Zero
    2. Constant
    3. Positive
    4. Negative

12. If the cross elasticity of demand is -2

    1. The products are substitutes
    2. The products are inferior goods
    3. The products are complements
    4. All of the given

13. Which of the following concepts shows the maximum output that a firm can produce for every specified combination of inputs given the state of technology?

    1. Isocost line
    2. Isoquants
    3. Production function
    4. Production possibility curve

14. Total utility increases at a decreasing rate is shown by negative slope of ________ curve.

    1. Demand
    2. Supply
    3. Total utility
    4. Marginal utility

15. Amount of one good that a consumer gives up to obtain more of another good is known as marginal rate of:

    1. Utility
    2. Disutility
    3. Substitution
    4. Technical substitution

16. All the points on the indifference curve give equal level of

    1. Utility
    2. Supply
    3. Demand
    4. Marginal utility

17. Which of the following inputs is(are) variable in the long run?

    1. Labor
    2. Plant size
    3. Capital and equipment
    4. All of the given

18. The cost associated with opportunities that are foregone when a firm's resources are not put to their highest value use is called

    1. Opportunity cost
    2. Accounting cost
    3. Marginal cost
    4. Economic cost

19. Which of the following is included in economic depreciation to make it equal to the user cost of capital?

    1. Interest Rate * Vlue of Capital
    2. Interest Rate − Vlue of Capital
    3. Interest Rate / Vlue of Capital
    4. Interest Rate + Vlue of Capital

20. In a production process, all inputs are increased by 10%; but output increases more than 10%. This means that the firm experiences:

    1. Decreasing returns to scale
    2. Constant returns to scale
    3. Increasing returns to scale
    4. Negative returns to scale

21. Market equilibrium is a market state where:

    1. The supply in the market is equal to the demand in the market
    2. The supply in the market is greater than the demand in the market
    3. The supply in the market is not equal to the demand in the market
    4. The supply in the market is less than the demand in the market

22. If a change in the price of one good has no effect on the quantity demanded of another good, then both goods are ________.

    1. Complement of each other
    2. Substitute of each other
    3. inferior
    4. Independent

23. Amount of total money spent on a good having price "P" and quantity "Q" can be obtained by which of the following?

    1. PQ
    2. P/Q
    3. P+Q
    4. P−Q

24. Which of the following is a branch of economics that deals with observations of real economic facts?

    1. Normative economics
    2. Positive economics
    3. Welfare economics
    4. All of the given

25. When demand is inelastic, an increase in price will result in

    1. An increase in quantity demanded
    2. An increase in consumer expenditures
    3. A decrease in consumer expenditures
    4. No change in consumer expenditures

26. In the long run, which of the following is considered a variable cost?

    1. Expenditures for wages
    2. Expenditures for raw materials
    3. Expenditures for capital machinery and equipment
    4. All of the given

27. Suppose a college professor opens an academy for the coaching classes. He hires three more teachers with him. The college professor would most likely be which of the following factors of production?

    1. Labor
    2. Land
    3. Capital
    4. Entrepreneurship

28. The difference between the economic and accounting costs of a firm are:

    1. The accountant's fees.
    2. The corporate taxes on profits.
    3. The opportunity costs of the factors of production that the firm owns.
    4. The sunk costs incurred by the firm.

29. Indifference curve cannot slope upward due to the assumption of

    1. More of any good is preferred to less
    2. Preferences are transitive
    3. Preferences are complete
    4. None of the given

30. The additional satisfaction a consumer gains from consuming one more unit of a good is called as:

    1. Total utility.
    2. Average utility.
    3. Marginal utility.
    4. Consumer satisfaction.

31. Which of the following is correct?

    1. Price elasticity of demand = Percentage change in Quantity demanded / Percentage change in Price
    2. Price elasticity of supply = Percentage change in Quantity demanded / Percentage change in Price
    3. Price elasticity of demand = Percentage change in price / Percentage change in Demand
    4. Price elasticity of demand = Change in price / Change in Demand

32. Which of the following statements is correct?

    1. Butter and margarine are examples of complement goods
    2. Car and petrol are substitute goods
    3. Butter and margarine are examples of substitute goods
    4. Tea and coffee are complementary goods

33. Which of the following is NOT true about indifference curve?

    1. Indifference curves always are convex to origin.
    2. Indifference curves always are concave to origin.
    3. Indifference curves can not interact each other.
    4. Higher indifference curve shows high level of satisfaction.

34. Coffee and tea are considered as substitutes, if price of tea decreases then it will shift

    1. Demand curve for tea towards left
    2. Demand curve for coffee towards left
    3. Supply curve for coffee towards right
    4. Demand curve for coffee towards right

35. Which of the following characteristics differentiates competitive market from non-competitive market?

    1. The extent to which any firm can influence the price of the product
    2. The size of the firms in the market
    3. The annual sales made by the largest firms in the market
    4. The presence of government intervention

36. Coffee and tea are considered as substitutes if price of coffee increases then it will shift

    1. Demand curve for tea towards left
    2. Supply curve for tea towards left
    3. Demand curve for coffee towards right
    4. Demand curve for tea towards right

37. Coffee and tea are considered as substitutes if price of tea increases then it will shift:

    1. Demand curve for tea towards right.
    2. Demand curve for coffee towards right.
    3. Supply curve for coffee towards left.
    4. Demand curve for coffee towards left.

38. Income elasticity of demand for a normal good is always

    1. Negative
    2. Between 0 and 1
    3. Between 1 and 2
    4. Greater than 1

39. Which of the following will cause the demand curve for Apple to shift to the right?

    1. Increase in taste and preferences
    2. Decrease in taste and preference
    3. Decrease in the income
    4. Decrease in the price of substitutes

40. Marginal product crosses the horizontal axis (is equal to zero) at the point where:

    1. Average product is maximized.
    2. Total product is maximized.
    3. Diminishing returns set in.
    4. All of the given

41. Entrepreneur gets its reward in shape of:

    1. Wages
    2. Interest
    3. Profit
    4. Both Interest and profit

42. If the percentage change in quantity demand for milk is same as the percentage change in price of milk then the price elasticity of demand for milk is:

    1. Elastic
    2. Inelastic
    3. Unitary elastic
    4. Perfectly elastic

43. Which of the following will cause the demand curve for butter to shift to the right?

    1. An increase in the price of the butter
    2. A decrease in consumers' income
    3. An increase in the price of margarine (a substitute)
    4. All of the given

44. When we buy a product at low price in one location and sell it at high price in another location, it is known as ________ in economics.

    1. Arbitrage
    2. Market parameter
    3. Consumer theory
    4. Price discrimination

45. The ratio of the wage rate to rental cost of capital is called

    1. Slope of isoquant
    2. Slope of indifference curve
    3. Slope of isocost
    4. Slope of production function

46. Which of the following is correct?

    1. Real price =(CPI base year + CPI current year) * Nominal price current year
    2. Real price =(CPI base year / CPI current year) * Real price current year
    3. Real price =(CPI base year / CPI current year) * Nominal price current year
    4. Real price =(Nominal price current year / CPI current year) * Nominal price current year

47. When the average product is decreaing, marginal product will:

    1. Increase
    2. Exceed average product
    3. Be equal to average product
    4. Be less than average product

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Select a course code for Subjective Questions:

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