ECO401 Midterm Objective

MIDTERM EXAMINATION · Fall 2009 · ECO401- Economics (Session - 2) · SOLVED BY HONEY G · Ref No: · Time: 60 min · Marks: 50

Q1. In pure capitalism, freedom of enterprise means that: (1 marks)

1. Businesses are free to produce products that consumers want.
2. Consumers are free to buy goods and services that they want.
3. Resources are distributed freely to businesses.
4. Government is free to direct the actions of businesses.

Q2. The demand curve for chicken is downward-sloping. Suddenly the price of chicken rises from Rs.130 per kg to Rs.140 per kg. This will cause: (1 marks)

1. The demand curve for chicken to shift to the left.
2. The demand curve for chicken to shift to the right.
3. Quantity demanded of chicken to increase.
4. Quantity demanded of chicken to decrease.

Q3. The supply curve is upward-sloping because: (1 marks)

1. As the price increases, consumers demand less.
2. As the price increases, suppliers can earn higher levels of profit or justify higher marginal costs to produce more.
3. None of the given options.
4. As the price increases, so do costs.

Q4. If the quantity supplied of oranges exceeds the quantity demanded then: (1 marks)

1. There is a shortage of oranges.
2. Market forces will cause the price to fall.
3. Market forces will cause the price to rise.
4. The market is in equilibrium.

Reference: If the Supply increases the price will be fall for example jab ap bazar jaate ho to jis mosam ka phal aya hota he or bohat zyada aya hota he to us ke price bhe kam hote hai

Q5. A price ceiling might be an appropriate government response to a: (1 marks)

1. Period of falling farm prices due to unusually good harvests.
2. Substantial increase in farm productivity due to applications of new technology in agriculture.
3. National security crisis leading to major shortages of essential goods.
4. Period of extraordinary large surpluses of farm goods.

teachers/panwh/files/pe/Chap6.pdf+A+price+ceiling+might+be+an+appropriate+government+respon se+to+a&hl=en&gl=us&pid=bl&srcid=ADGEESisZCQQVfxENPuxBnxyjhD1hCYiWL F-VoIS4FO-6AaCilQgvb9-noaN86_y9LCgKkko_yu0y6jRhlFijwgVoBlcVXI-XZLGHxwC---7xCUWpjmGNNA3HY5lVI6c5RRaDpssRVq&sig=AHIEtbSK-ZR8lmmpmGsHO3kV78V4a-mNg (See the Question No. 03)

Q6. Assume that the government sets a ceiling on the interest rate that banks charge on loans. If the ceiling is set below the market equilibrium interest rate, the result will be: (1 marks)

1. A surplus of credit.
2. A shortage of credit.
3. Greater profits for banks issuing credit.
4. A perfectly inelastic supply of credit in the market place.

teachers/panwh/files/pe/Chap6.pdf+Assume+that+the+government+sets+a+ceiling+on+the+interest+ rate+that+banks+charge+on+loans.+If+the+ceiling+is+set+below+the+market+equilibriu m+interest+rate,+the+result+will+be:&hl=en&gl=us&pid=bl&srcid=ADGEESisZCQQV fxENPuxBnxyjhD1hCYiWLF-VoIS4FO-6AaCilQgvb9noaN86_y9LCgKkko_yu0y6jRhlFijwgVoBlcVXI-XZLGH-xwC--- 7xCUWpjmGNNA3HY5lVI6c5RRaDpssRVq&sig=AHIEtbScb_F9SdJoSgmmCAkacHt Ob8_jog (See the Question No. 05)

Q7. In order to calculate the price elasticity of supply, you need to know: (1 marks)

1. Two prices and two quantities supplied.
2. The slope of the supply curve.
3. The equilibrium price and quantity in the market.
4. The quantity supplied at two different prices, all else equal.

Q8. When the price of petrol rises by 12%, the quantity of petrol purchased falls by 8%. This shows that the demand for petrol is: (1 marks)

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

Reference: When the PED is elastic then the rise in price will result in a proportionately larger fall in the quantity demand, therefore, the consumer will be worse off.

Q9. The numerical measurement of a consumer’s preference is called: (1 marks)

1. Use.
2. Pleasure.
3. Utility.
4. Satisfaction.

Reference: you assign exact values or you measure utility in exact units, while the indifference curve approach is an ordinal approach. (See Handouts page no. 40)

Q10. According to the utility model of consumer demand, the law of diminishing marginal utility indicates that the demand curve is: (1 marks)

1. Vertical.
2. U-shaped.
3. Upward-sloping.
4. Downward-sloping.

Handouts Page No.40

Q11. If your demand price for one unit of a good is $100 and the market price is $75, your consumer's surplus is: (1 marks)

1. $25.
2. $50.
3. $75.
4. $100.

CS= MU – P CS= 100 – 75 = 25