ECO615 Midterm Preparation by ZB

Q1. Which of the following is a characteristic of a perfectly competitive market? a) Many buyers and few sellers

1. Homogeneous products
2. Barriers to entry
3. Product differentiation

Answer: B) Barriers to entry Homogeneous products

Q2. What does the law of demand state? a) As the price of a good increases, the quantity demanded decreases

1. As the price of a good increases, the quantity demanded increases
2. As income increases, demand decreases
3. As the price of a good decreases, the quantity demanded decreases

Answer: A) As the price of a good increases, the quantity demanded increases As the price of a good increases, the quantity demanded decreases

Q3. The income elasticity of demand for a normal good is: a) Negative

1. Zero
2. Positive
3. Infinity

Answer: C) Infinity Positive

Q4. Which of the following best describes a monopolist’s demand curve? a) Perfectly elastic

1. Perfectly inelastic
2. Downward sloping
3. Vertical

Answer: C) Vertical Downward sloping

Q5. In the short run, a firm in perfect competition: a) Cannot make a profit

1. Can earn economic profits
2. Always breaks even
3. Always incurs losses

Answer: B) Always breaks even Can earn economic profits

Q6. Which of the following is an example of a public good? a) A private park

1. National defense
2. A toll road
3. A subscription service

Answer: B) A toll road National defense

Q7. What is the primary objective of a firm in a perfectly competitive market? a) Maximizing revenue

1. Maximizing profit
2. Minimizing cost
3. Maximizing market share

Answer: B) Minimizing cost Maximizing profit

Q8. A negative externality occurs when: a) A third party benefits from a market transaction

1. A third party suffers from a market transaction
2. Market participants face lower costs
3. Market participants are fully informed

Answer: B) Market participants face lower costs A third party suffers from a market transaction

Q9. The marginal revenue product (MRP) of labor is the additional: a) Revenue generated from the additional unit of labor

1. Cost of hiring an additional worker
2. Total revenue generated by labor
3. Profit from the additional labor

Answer: A) Cost of hiring an additional worker Revenue generated from the additional unit of labor

Q10. Which market structure is characterized by a few large firms that have market power? a) Monopoly

1. Perfect competition
2. Oligopoly
3. Monopolistic competition

Answer: C) Monopolistic competition Oligopoly

Q11. In a monopolistically competitive market, firms produce: a) Identical products

1. Differentiated products
2. Homogeneous products
3. Non-differentiated products

Answer: B) Homogeneous products Differentiated products

Q12. The price elasticity of demand is defined as: a) The percentage change in price divided by the percentage change in quantity demanded

1. The percentage change in quantity demanded divided by the percentage change in price
2. The slope of the demand curve
3. The responsiveness of supply to price changes

Answer: B) The slope of the demand curve The percentage change in quantity demanded divided by the percentage change in price