ECO603 Midterm Preparation by ZB

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

1. Product differentiation
2. Free entry and exit of firms
3. Monopolistic pricing
4. Government regulations

Answer: b) Free entry and exit of firms

Q2. In a monopoly, the firm’s marginal revenue curve is:

1. Above the demand curve
2. The same as the demand curve
3. Below the demand curve
4. Vertical

Answer: c) Below the demand curve

Q3. The law of demand states that, other things being equal, as the price of a good increases, the quantity demanded:

1. Increases
2. Decreases
3. Stays the same
4. Fluctuates

Answer: b) Decreases

Q4. Which of the following is the best example of a public good?

1. A private car
2. National defense
3. A restaurant meal
4. A movie ticket

Answer: b) National defense

Q5. The marginal cost curve intersects the average total cost curve at the:

1. Minimum of the average variable cost curve
2. Maximum of the average total cost curve
3. Minimum of the average total cost curve
4. Maximum of the marginal cost curve

Answer: c) Minimum of the average total cost curve

Q6. Which of the following is true for monopolistic competition?

1. Firms sell identical products
2. There are barriers to entry
3. There is product differentiation
4. Firms are price takers

Answer: c) There is product differentiation

Q7. The elasticity of demand measures the:

1. Change in quantity supplied
2. Responsiveness of quantity demanded to changes in income
3. Responsiveness of quantity demanded to changes in price
4. Change in price with respect to changes in demand

Answer: c) Responsiveness of quantity demanded to changes in price

Q8. In the short run, a firm’s total cost is equal to:

1. Fixed cost plus variable cost
2. Variable cost plus marginal cost
3. Total revenue minus fixed costs
4. Total revenue minus total variable costs

Answer: a) Fixed cost plus variable cost

Q9. Which of the following is an example of a negative externality?

1. Education
2. Pollution
3. Public parks
4. Vaccinations

Answer: b) Pollution

Q10. If a firm is producing at a point where marginal cost equals marginal revenue, it is:

1. Maximizing profit
2. Minimizing cost
3. Breaking even
4. Experiencing losses

Answer: a) Maximizing profit

Q11. A Giffen good is a type of inferior good for which an increase in price leads to an increase in quantity demanded. This violates:

1. The law of supply
2. The law of demand
3. The principle of diminishing returns
4. The law of diminishing marginal utility

Answer: b) The law of demand

Q12. Which market structure is characterized by a few firms that dominate the market and have the ability to set prices?

1. Perfect competition
2. Monopoly
3. Oligopoly
4. Monopolistic competition

Answer: c) Oligopoly