ECO401 Final Term Past Paper 2010

Q1. Government authorities have managed to reduce the unemployment rate from 8% to 4% in a hypothetical economy. As a result: (1 marks)

1. The economy's production possibilities curve will shift outward.
2. The economy's production possibilities curve will become steeper.
3. The economy will move downward along its production possibilities curve.
4. The economy will move from a point inside to a point closer to its production possibilities curve.

Correct answer: The economy will move from a point inside to a point closer to its production possibilities curve.

Q2. Which of the following measures the percentage change in quantity demanded given a percentage change in consumer's income? (1 marks)

1. Price elasticity of demand.
2. Income elasticity of demand.
3. Supply price elasticity.
4. Cross price elasticity.

Correct answer: Income elasticity of demand.

Q3. If the income elasticity of demand for boots is 0.2, a 10% increase in consumer's income will lead to a: (1 marks)

1. 20 percent decrease in the quantity of boots demanded.
2. 2 percent increase in the quantity of boots demanded.
3. 0.2 percent increase in the quantity of boots demanded.
4. 20 percent increase in the quantity of boots demanded.

Correct answer: 2 percent increase in the quantity of boots demanded.

Q4. Increase in pension benefits leads to income and substitution effect which: (1 marks)

1. Encourage workers to retire later.
2. Encourage workers to work more hours.
3. Have no effect on incentive to retire.
4. Encourage workers to retire earlier.

Correct answer: Encourage workers to retire earlier.

Q5. Marginal profit is equal to: (1 marks)

1. Marginal revenue minus marginal cost.
2. Marginal revenue plus marginal cost.
3. Marginal cost minus marginal revenue.
4. Marginal revenue times marginal cost.

Correct answer: Marginal revenue minus marginal cost.

Q6. The good produced by a monopoly: (1 marks)

1. Has perfect substitutes.
2. Has no substitutes at all.
3. Has no close substitutes.
4. Can be easily duplicated.

Correct answer: Has no close substitutes.

Q7. If a firm experiences economies of scale, then the: (1 marks)

1. Long-run average total cost curve is equal to the economies of scope.
2. Long-run average total cost curve is positively sloped.
3. Long-run average total cost curve is horizontal.
4. Long-run average total cost curve is negatively sloped.

Correct answer: Long-run average total cost curve is positively sloped.

Q8. When the marginal revenue product of labor is greater than the marginal input cost of labor then the profit maximizing firm will: (1 marks)

1. Hire more labor.
2. Hire less labor.
3. Maintain the same employment.
4. Decrease output.

Correct answer: Hire more labor.

Q9. An increase in the wage rate: (1 marks)

1. Will usually lead to more people employed.
2. Will decrease total earnings if the demand for labour is wage elastic.
3. Is illegal in a free market.
4. Will cause a shift in the demand for labour.

Correct answer: Will usually lead to more people employed.

Q10. Keynesian economics rejected the classical assumption that: (1 marks)

1. Supply creates its own demand.
2. Prices and wages are inflexible.
3. Self-correction takes a long time.
4. Consumption expenditures depend on disposable income.

Correct answer: Supply creates its own demand.

Q11. A nation's balance of payments can be affected by changes in: (1 marks)

1. Foreign income.
2. The differential between domestic and foreign interest rates.
3. The real exchange rate.
4. All of the given options.

Q12. According to Keynesian economics, aggregate expenditures are the sum of desired or planned spending undertaken by: (1 marks)

1. All four sectors only when the economy is at full employment.
2. All four sectors at a specific aggregate production level.
3. The household sector after taxes.
4. The business and government sectors.

Correct answer: The business and government sectors.

Q13. All of the following conditions lead to the successful operation of a cartel EXCEPT: (1 marks)

1. Market demand for the good is relatively inelastic.
2. The cartel supplies all of the world's output of the good.
3. Cartel members have substantial cost advantages over non-member producers.
4. The supply of non-cartel members is very price elastic.

Correct answer: Cartel members have substantial cost advantages over non-member producers.

Q14. If the total product of labor per day is as shown in the table below and the price of the product is $20/unit. What is the value of the marginal product of labor (VMPL) of the 5th worker? (1 marks)

Labor

Total output

1. 100.
2. 10.
3. 40.
4. 60.

Correct answer: 60.

Q15. All of the following are the reasons of downward sloping curve of aggregate demand EXCEPT: (1 marks)

1. The exchange-rate effect.
2. The wealth effect.
3. The classical dichotomy / monetary neutrality effects.
4. The interest-rate effect.

Correct answer: The classical dichotomy / monetary neutrality effects.