ECO601 Midterm Preparation by ZB

Q1. Which of the following is a characteristic of a perfectly competitive market?

1. Single seller
2. Barriers to entry
3. Homogeneous products
4. Limited information

Answer: c) Homogeneous products

Q2. What is the main objective of monetary policy?

1. Control inflation
2. Increase government spending
3. Decrease the interest rates
4. Encourage private investment

Answer: a) Control inflation

Q3. Which of the following is an example of a public good?

1. National defense
2. Education
3. Healthcare
4. Private insurance

Answer: a) National defense

Q4. In economics, the opportunity cost refers to:

1. The value of the next best alternative forgone
2. The cost of production
3. The total cost of a decision
4. The amount of money spent on a product

Answer: a) The value of the next best alternative forgone

Q5. A shift in the demand curve is caused by:

1. Change in the price of the good
2. Change in income of consumers
3. A change in the price of related goods
4. All of the above

Answer: d) All of the above

Q6. Which of the following is a feature of a monopoly?

1. Many sellers
2. Barriers to entry
3. Homogeneous products
4. Perfect knowledge

Answer: b) Barriers to entry

Q7. The law of diminishing marginal utility states that:

1. Utility decreases with the increase in income
2. Total utility increases with additional consumption
3. Marginal utility decreases as more of a good is consumed
4. Utility is constant for all consumers

Answer: c) Marginal utility decreases as more of a good is consumed

Q8. What is the effect of a price floor set above equilibrium price?

1. Surplus
2. Shortage
3. No change
4. Increased demand

Answer: a) Surplus

Q9. Which of the following is an example of a factor of production?

1. Rent
2. Labor
3. Taxation
4. Government

Answer: b) Labor

Q10. If the price of a good decreases, the quantity demanded will:

1. Increase
2. Decrease
3. Stay the same
4. Be unaffected by income changes

Answer: a) Increase

Q11. In perfect competition, firms produce at the point where:

1. Marginal cost equals average total cost
2. Marginal revenue equals marginal cost
3. Average revenue equals marginal revenue
4. Average fixed cost is minimized

Answer: b) Marginal revenue equals marginal cost

Q12. The income elasticity of demand for a normal good is:

1. Greater than 1
2. Less than 1
3. Equal to 0
4. Positive

Answer: d) Positive