ECO401 Midterm Past Papers 2023

Mid Term Examination

Eco 401(Economics)

Q1. The concept of a risk premium applies to a person that is: (1 marks)

1. All of the given options.
2. Risk averse.
3. Risk neutral.
4. Risk loving.

Correct answer: Risk averse.

Q2. Assume that the current market price is below the market clearing level. We would expect: (1 marks)

1. A surplus to accumulate.
2. Downward pressure on the current market price.
3. Upward pressure on the current market price.
4. Lower production during the next time period.

Correct answer: Upward pressure on the current market price.

Q3. The "perfect information" assumption of perfect competition includes all of the following EXCEPT: (1 marks)

1. Consumers know their preferences.
2. Consumers know their income levels.
3. Consumers know the prices available.
4. Consumers can anticipate price changes.

Correct answer: Consumers know the prices available.

Q4. If income elasticity is negative, the good is: (1 marks)

1. Normal good.
2. A substitute good.
3. A complementary good.
4. Inferior good.

Correct answer: Inferior good.

Q5. The correlation between an asset's real rate of return and its risk (as measured by its standard deviation) is usually: (1 marks)

1. Positive.
2. Strictly linear.
3. Flat.
4. Negative.

Correct answer: Positive.

Q6. Insurance companies operate under the principle of: (1 marks)

1. Law of large numbers.
2. Law of small numbers.
3. Law of zero numbers.
4. All of the given options.

Correct answer: Law of large numbers.

Q7. A demand schedule is best described as: (1 marks)

1. A numerical tabulation of the quantity demanded of a good at different prices, ceteris paribus.
2. A graphical representation of the law of demand.
3. A systematic listing of all the variables that might conceivably bring about a change in demand.
4. A symbolic representation of the law of demand: P,Q and Q, P.

Correct answer: A numerical tabulation of the quantity demanded of a good at different prices, ceteris paribus.

Q8. A firm in monopolistic competition does not achieve minimum efficient scale because: (1 marks)

1. It is not a monopoly.
2. It is in competition with other firms.
3. It is operating on the downward-sloping part of the average cost curve.
4. It produces at the minimum average cost.

Correct answer: It is in competition with other firms.

Q9. Which of the following is NOT regarded as a source of inefficiency in monopolistic competition? (1 marks)

1. The fact that price exceeds marginal cost.
2. Excess capacity.
3. Product diversity.
4. The fact that long-run average cost is not minimized.

Correct answer: Product diversity.

Q10. When a firm charges each customer the maximum price that the customer is willing to pay, the firm: (1 marks)

1. Engages in a discrete pricing strategy.
2. Charges the average reservation price.
3. Engages in second-degree price discrimination.
4. Engages in first-degree price discrimination.

Correct answer: Engages in first-degree price discrimination.

Q11. The break-even point occurs when: (1 marks)

1. Price < Average Variable Cost.
2. Price < Average Total Cost.
3. Price = Average Total Cost.
4. Price > Average Variable Cost.

Correct answer: Price = Average Total Cost.

Q12. 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.

Q13. Which of the following is an example of a natural monopoly? (1 marks)

1. The trademark protecting Gatoraide.
2. The talents of Tom Hanks.
3. The local water company.
4. The patent on an Intel processor.

Correct answer: The local water company.

Q14. A monopoly occurs when: (1 marks)

1. Each firm produces a product that is slightly different from the other firms.
2. One firm sells a good that has no close substitutes and a barrier blocks entry for other firms.
3. There are many firms producing the same product.
4. All of the given options.

Correct answer: One firm sells a good that has no close substitutes and a barrier blocks entry for other firms.

Q15. If current output is less than the profit-maximizing output then the next unit produced: (1 marks)

1. Will decrease profit.
2. Will increase cost more than it increases revenue.