ECO401 Midterm Past Papers by Faheem Saqib

Q1. Which of the following is a positive statement? (1 marks)

1. When the price of a good goes up, consumers buy less of it.
2. When the price of a good goes up, firms produce more of it.
3. When the Federal government sells bonds, interest rates rise and private investment is reduced.
4. All of the given options.

Correct answer: When the price of a good goes up, consumers buy less of it.

Q2. Ceteris paribus means: (1 marks)

1. Equal access to public transportation.
2. Other things being equal.
3. Other things not being equal.
4. All things considered.

Correct answer: Other things being equal.

Q3. 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's production possibilities curve will shift outward.

Q4. The price elasticity of demand measures the responsiveness of quantity demanded to: (1 marks)

1. Quantity demanded.
2. Quantity supplied.
3. Price.
4. Output.

Correct answer: Price.

Q5. Which of the following is the term that economists use to describe how consumers rank different goods and services? (1 marks)

1. Satisfaction index.
2. Goodness.
3. Utility.
4. None of the given options.

Correct answer: Utility.

Q6. Aslam spends all of his money on racquetballs and food. What would happen to Aslam’s budget line if his income increased by 10 percent holding prices constant? (1 marks)

1. It would shift inward.
2. It would rotate about the axis for food.
3. It would rotate about the axis for racquetballs.
4. It would shift outward.

Correct answer: It would shift outward.

Q7. At any given point on an indifference curve, the absolute value of the slope equals: (1 marks)

1. Unity--otherwise there would be no indifference.
2. The marginal rate of substitution.
3. The consumer’s marginal utility.
4. None of the given options.

Correct answer: The marginal rate of substitution.

Q8. In economics, the “long run” is a time period in which: (1 marks)

1. All inputs are variable.
2. All inputs are paid for.
3. All outputs are determined.
4. All loans are repaid.

Correct answer: All inputs are variable.

Q9. The supply curve for a competitive firm is: (1 marks)

1. Its entire marginal cost curve.
2. The upward-sloping portion of its marginal cost curve.
3. Its marginal cost curve above the minimum point of the average variable cost curve.
4. Its marginal cost curve above the minimum point of the average total cost curve.

Correct answer: The upward-sloping portion of its marginal cost curve.

Q10. Second-degree price discrimination is the practice of charging: (1 marks)

1. The reservation price to each customer.
2. Different prices for different blocks of the same good or service.
3. Different groups of customers different prices for the same products.
4. Each customer the maximum price that he or she is willing to pay.

Correct answer: Different groups of customers different prices for the same products.

Q11. What happens to an incumbent firm's demand curve in monopolistic competition as new firms enter? (1 marks)

1. It shifts rightward.
2. It shifts leftward.
3. It becomes horizontal.
4. New entrants will not affect an incumbent firm's demand curve.

Correct answer: It shifts leftward.

Q12. 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.

Q13. The principle economic difference between a competitive and a non- competitive market is: (1 marks)

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

Correct answer: The number of firms in the market.

Q14. The price elasticity of supply for most products differs due to capacity constraints. Which of the following is TRUE in this context? (1 marks)

1. It is same in the long run and the short run.
2. It is greater in the long run than in the short run.
3. It is greater in the short run than in the long run.
4. It is too uncertain to be estimated.

Correct answer: It is too uncertain to be estimated.

Q15. Production possibilities curve will shift upward if there is: (1 marks)

1. A reduction in unemployment.
2. An increase in the production of capital goods.
3. A reduction in discrimination.
4. All of the given options.

Correct answer: A reduction in unemployment.