ECO401 Final Term Solved Paper 3

ECO401Economics

Q1. If the quantity demanded of a product is greater than the quantity supplied of a product, then: (1 marks)

1. There is a shortage of the product.
2. There is a surplus of the product.
3. The product is a normal good.
4. The product is an inferior good.

Q2. The cross price elasticity of demand for complementary goods is: (1 marks)

1. Less than 0.
2. Equal to 0.
3. Greater than 0.
4. Between 0 and 1.

Q3. Assume leisure is a normal good. If income effect equals substitution effect then a wage rate increase will lead a person to: (1 marks)

1. Increase hours of work.
2. Decrease hours of work.
3. Not change hours of work.
4. None of the given options.

Q4. Please choose one _______________ arises when an increase in all inputs leads to a more-than proportional increase in the level of output. _____________ means that as inputs are added to the production process, output increases proportionally. (1 marks)

1. Economies of scale; constant returns to scale.
2. Constant returns to scale; decreasing returns to scale.
3. Decreasing returns to scale; economies of scale.
4. Economies of scale; decreasing returns to scale.

Q5. An isoquant curve shows: (1 marks)

1. All the alternative combinations of two inputs that yield the same maximum total product.
2. All the alternative combinations of two products that can be produced by using a given set of inputs fully and in the best possible way.
3. All the alternative combinations of two products among which a producer

is indifferent because they yield the same profit.

1. None of the given options.

Q6. Total costs are the sum of: (1 marks)

1. Marginal costs and variable costs.
2. Fixed costs and variable costs.
3. Fixed costs and marginal costs.
4. Average variable costs and marginal costs.

Q7. A firm is charging a different price for each unit purchased by a consumer. This is called: (1 marks)

1. First-degree price discrimination.
2. Second-degree price discrimination.
3. Third-degree price discrimination.
4. None of the given options.

Q8. Which of the following best expresses the law of demand? (1 marks)

1. A higher price reduces demand.
2. A lower price reduces demand.
3. A higher price reduces quantity demanded.
4. A lower price shifts the demand curve to the right.

Q9. If a sales tax on beer leads to reduced tax revenue, this means: (1 marks)

1. Elasticity of demand is < 1.
2. Elasticity of demand is > 1.
3. Demand is upward-sloping.
4. Demand is perfectly inelastic.

Q10. For a firm buying labor competitively, the marginal input cost is equal to the: (1 marks)

1. Wage.
2. Interest rate.
3. Price of output.
4. Cost of raw materials.

Q11. The classical economists thought that the economy would quickly overcome any short run instability because: (1 marks)

1. Price level and quantity are flexible.
2. Prices would get stuck at a low level.
3. The long run aggregate supply would shift to the left.
4. Prices and wages are flexible.

Q12. Final goods are meant for: (1 marks)

1. Direct use by the consumers.
2. Further processing.
3. The term do not exist.
4. None of the given options.

Q13. The average propensity to consume is the ratio of: (1 marks)

1. A change in consumption to a change in disposable income.
2. A change in consumption to total disposable income at a specific income level.
3. Total consumption to total disposable income at a specific income level.
4. Total consumption to a change in disposable income.

Q14. The slope of the saving function (or line) is the: (1 marks)

1. Average propensity to save.
2. Average propensity to consume.
3. Marginal propensity to save.
4. Marginal propensity to consume.

Q15. The government increases the number of job centres and uses more advanced computers to improve the information database. This creates: (1 marks)

1. Structural Unemployment.
2. Regional Unemployment.
3. Frictional Unemployment.
4. Demand Deficient Unemployment.