Introduction to Ecocomics & Finance (B-3)

INTRODUCTION TO ECOCOMICS & FINANCE (B-3)

1Basic Economic concepts

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) Which of the following is not an economic good?

(a)Land(b)Today’s newspaper

(c)Sun-Shine (d)Mobile set

(ii)Microeconomics is concerned with:

(a)Optimal production decisions(b)Optimal resource allocation.

(c)Pricing policy.(d)All of the above.

(iii)If a Society is producing inside the production possibilities curve, it means:

(a)Resources are not used efficiently.

(b)There is full employment of resources.

(c)Per capita income is increasing.

(d)Income is distributed equally amongst all.

(iv)Anything the firm uses in its production process is called:

(a)Technology(b)Production function

(c)Input(d)All of the above

(v)A commodity is free if:

(a)It is sold at zero price.(b)government supplies it.

(c)it involves no opportunity cost.(d)everyone has it.

(vi)Which one of the following is not held constant in drawing up a nation’s PPF curves?

(a)The nation’s technology.(b)The nation’s labour resources.

(c)The nation’s capital resources.(d)The nation’s money income.

(vii)The opportunity cost of producing a tank is:

(a)The amount spent on producing a tank.

(b)The money spent on labour engaged in the production of tank.

(c)The value of goods and services that could have been produced with the help of resources used to produce a tank.

(d)The explicit costs incurred on the production of a tank.

(viii)The opportunity cost involves when:

(a) The economy moves from one point to another point along the same PPF.

(b) The economy moves from a point lying inside the PPF to on the PPF.

(c)The economy moves from the inner PPF to the outer PPF.

(d)All of the above.

(ix)Division of labour means:

(a)Dividing labour into rich and poor class of labour.

(b)Dividing a work into different groups of labour.

(c)Allowing the labour to do the same work on alternate day.

(d)Dividing the labour by management on the political basis.

(x)Which on of the following does not shift the PPF outwards:

(a)Efficiency allocation of the existing resources.

(b)increase in investment.

(c)Increase in natural resources.

(d)Improvement in technology.

(xi)Which of the following topics are studied in Macro Economics?

(a) Theory of Demand

(b) Aggregate Demand and Aggregate Supply

(d) None of the above

(xii)Which of the following is not a factor of production?

(a) Land(b) Labour

(xiii)Which of the following is not an economic resource?

(a) Air (b) Water

(xiv) The opportunity cost to an economy of increasing capital investment is:

(a)A fall in present income.(b) A fall in present consumption.

(xv) An economy is faced with the production possibility curve PP shown in the diagram.

The selection of point K rather than point J implies

(a) A more rapid rate of future economic growth.

(b) A fuller utilization of resources.

(d) An increase in current consumption relative to future consumption.

(xvi)The existence of scarcity means that:

(a)An economy is underdeveloped.

(b)There is no free good.

(c)Households, firms and government must make choices.

(d)High inflation rate in an economy.

2Economic systems

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) An economic system in which public and private sectors exist side by side is known as:

(a) Capitalism(b)Islamic economic system

(c)Mixed economy(d)Socialism

(ii) Which of the following is the characteristic of underdeveloped nation?

(a)High per capital income. (b)High growth rate of G. N. P.

(c)Relatively high educational levels. (d)High population growth rates.

(iii) Which of the following is the best example of a public good: -

(a)Airline service(b)Education

(c)Health facilities (d)Radio broadcasts

(iv) The price mechanism plays an active role:

(a)In guiding consumers, producers and government in planned economy.

(b) In allocating resources in free market economy.

(d) All of the above.

(v)The role of state in a mixed economy is:

(a)To regulate private sector through economic policies.

(b)To provide public and merit goods to its people.

(c)To make and execute plans.

(d)All of the above.

(vi) The price mechanism is a system:

(a)To coordinate the economic activities of consumers, producers and owners of factors of production in a planned economy.

(b)To coordinate the economic activities of economic agents in a market economy.

(c)To coordinate the economic activities of consumers, producers and state in a mixed economy.

(d)All of the above.

(vii) Which one of the following does not exist in free market economy?

(a) Profit motive.(b) Incentive to work.

(c)Optimum allocation of resources.(d) Protection of labour.

(viii) The government imposes tax on good X to discourage its consumption. At the same time, the government itself supplies another good Y, which would otherwise not be supplied because it is impracticable to charge for it. Good X and Y are:

(a)X is public and Y is a merit good.

(b)X is demerit and Y is a merit good.

(c)X is merit and Y is a public good.

(d)X is demerit and Y is a public good.

3DEMAND

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) Which statement is true of a curve with a constant slope?

(a) it is a straight line (b) it is non linear

(ii)If the price of a good falls and the negative income effect outweighs the positive substitution effect, the good is defined as:

(a) Substitute good(b)Inferior good

(iii) If the price of a good falls and the positive substitution effect outweighs the negative income effect, the good is defined as:

(a)Substitute good(b)Inferior good

(c)Giffen good (d)Public good

(iv)Giffen goods are those goods for which the demand decrease when their prices:

(a)Increase(b)Decrease

(c)Remain constant (d)Reduce to a certain level

(v) Engel curve has a negative slope for:

(a) Normal goods.(b) Giffen goods.

(vi) Demand curve for a giffen good has a:

(a) Negative slope (b) Shape of rectangular hyperbola.

(vii) Which one of the following causes inwards shift in Demand curve for a commodity:

(a) Fall in price of substitute good.(b) Decrease in consumer income.

(viii) The Demand for a commodity shifts outwards if:

(a)Price of complementary good falls and consumer income decreases.

(b)Price of substitute good falls and consumer income increases.

(c)Price of substitute good falls and price of complementary good increases.

(d)Price of substitute good increases and price of complementary good falls.

(ix) Which one of the following does not cause movement along the Demand curve?

(a) Fall in price of a commodity.(b) Increase in population.

(x) Demand for new car will increase if:

(a) Consumer income increases and price of old car decreases.

(b) Price of old car and petrol increases.

(d) Price of petrol falls while price of old car increases.

4Supply

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i)An increase in the supply of wool would not lead to a change in the price of wool if the demand for:

(a)Lamb were perfectly price elastic.(b) Wool were perfectly price elastic.

(ii)New technology makes it possible to produce more of a good at every given price. What effect will this have on equilibrium price and output in a competitative industry?

(a)Price decreases and output decreases.

(b)Price decreases and output increases.

(c)Price increases and output decreases.

(d)Price increases and output increases.

(iii)Which of the following would cause the leftwards shift of the supply curve of an economic good:

(a)An improvement in technology.

(b)An increase in demand for good.

(c)A reduction in general sales tax.

(d)The removal of subsidy paid to the producers.

(iv) Long-run supply curve is:

(a) Perfectly inelastic.(b) Negatively sloped elastic supply.

(v) Supply of hides will reduce if:

(a) Price of meat falls.(b) Demand for shoes increases.

(vi) Which one of the following does notcause rightwards shift in supply.

(a) Grant of subsidy by the government.(b) Increase in population.

(vii) To draw a supply for rice, all but which one of the following are held constant:

(a) Price of inputs.(b) Technology.

(viii) Ceteris paribus, a rise in price of a commodity causes:

(a) Increase in supply.(b) Increase in quantity supplied.

5Price Mechanism

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i)The price ceiling on a good creates:

(a)Shortage of the good.(b) Surplus of the good.

(ii) Producer surplus will be zero when:

(a)Demand is perfectly inelastic.(b) Demand is perfectly elastic.

(iii) The Market equilibrium is determined by:

(a) A point at which the budget line is tangent to the indifference curve.

(b)A point on the next highest indifference curve.

(c)A point on the indifference curve that indicates consumer’s satisfaction.

(d)The equality of supply and demand of the product in the market.

(iv) Price floor is the price set by the government which benefits the:

(a) Producer.(b) Government.

(v) Which area in the following diagram shows the Consumer’s Surplus?

(a)OPEQ(b) OBEQ

6Elasticity Of Demand & Supply

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) If 25% fall in price of commodity decreases total revenue of the producer by 25%, the demand would be:

(a) perfectly inelastic. (b) inelastic

(ii) If the price elasticity of demand for petrol is Rs. 0.50, a------Percent increase in the price of petrol will be required to reduce the quantity demanded of petrol by 1 percent.

(a) 1%(b) 0.5%

(iii) The demand for a good is price inelastic if:

(a)Ed>1.(b) Ed<1.

(c)Ed=1.(d) Ed=0.

(iv) Devaluation of currency will not be helpful in rectifying balance of payments of a country if price elasticity of demand for imports and exports is:

(a) Greater than one.(b) inelastic

(v) If income elasticity of demand is greater than 1, the commodity is:

(a) a basic need. (b) a luxury.

(vi) If quantity of two goods purchased both increase or decrease when the price of one changes, the cross elasticity of demand between them is:

(a) positive. (b) negative.

(vii) If quantity of one good purchased increases while quantity of other good decreases when the price of one changes, the cross elasticity of demand between them is:

(a) positive. (b) negative.

(viii) Income elasticity of demand is negative for:

(a) independent goods. (b) Complementary goods.

(ix) Which of the following products is likely to have the lowest price elasticity of demand?

(a) salt (b) cars

(x)A demand Curve that is an equilateral hyperbola is:

(a)Perfectly elastic.(b)Unit elastic.

(c)Relatively elastic.(d) Perfectly inelastic.

(xi)If a 20% increase in the tuition fee of a college leads to a 10% fall in admission, the price elasticity of demand will be:

(a)2.0(b)0.3

(xii) In the case of a unit elastic demand curve, the curve:

(a) Is a parabola.(b) Originates from the origin.

7Utility analysis

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) Which of the following best defines marginal utility?

(a) the satisfaction of a want that results from consuming a good or service

(b) the change in total utility as a result of consuming an additional unit of a product

(d) the decrease in satisfaction that results from consuming an additional unit of a product

(ii)A basic assumption of the theory of consumer choice is that:

(a)The consumer tries to get on the highest indifference curve.

(b)The consumer tries to get the most of good Y.

(c)The budget line is concave.

(d)All of the above.

(iii) If marginal utility of last unit of good X is half of the marginal utility of last unit of good Y, the consumer is in equilibrium only when:

(a) The price of X is double than price of Y.

(b) The price of X is equal to the price of Y.

(d) The price of X is half than price of Y.

(iv) A consumer will go on purchasing additional units of good X and good Y until:

(a) Marginal utility of good X and Y becomes zero.

(b) Marginal utility of good X and Y becomes negative.

(d) Marginal utility of good X and Y is increasing and positive.

8Indifference curves

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) Which statement is true, in respect of every point on an indifference curve?

(a) the price of each good is the same.(b) all of these statements are true.

(ii) The following diagram shows change in consumer equilibrium of a price reduction for a giffen good. The income effect is:

(a) X1X2(b) X1X3

(iii) The substitution effect must always be:

(a) Positive (b) Negative

(iv) A budget set consists of all the bundles of goods that the consumer can afford at given:

(a)Consumer’s Budget (b) Elasticity of Demand

(c)Prices and Costs.(d) Prices and Income.

(v)The consumer’s equilibrium is determined by:

(a)The equality of supply and demand of the product in the market.

(b)A point on the next highest indifference curve.

(c)A point on the indifference curve that indicates consumer’s satisfaction.

(d)A point at which the budget line is tangent to the indifference curve.

(vi) The following diagram shows price effect (P.E), income effect (I.E) and Substitution effect (S.E) when price of good X falls. The good X is a:

(a) Luxury good.(b) Giffen good.

9Factors of production

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) Which of the following is a measure of income earned by a factor of production?

(a) indirect taxes (b) depreciation

(ii) Economic rent is the:

(a)Rent of an agricultural land.(b) Rent of a house.

(b)Reward above the transfer earnings.(d) All of the above.

(iii) An employer employs 10 units of labour at a wage rate of Rs.560 per day. To attract one more unit of labour, he raises the wage rate to Rs.570 per day. The marginal cost of employing an additional unit of labour is:

(a) Rs. 10(b) Rs. 670

(iv) The greater will be the economic rent, the more:

(a)Inelastic demand curve for labour.(b) Elastic demand curve for labour.

(v) If APL is falling, MPL may be:

(a) Falling.(b) Zero

(vi) The more elastic the supply of labour, greater will be the:

(a) Consumer surplus.(b) Economic rent.

10Production, cost & revenue

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) Which of the following is NOT included in the explicit costs of a firm?

(a) wages paid to labour (b) interest paid for borrowed capital

(ii) In the long-run, price is determined by:

(a) cost of production (b) number of consumers

(iii) Which of these is NOT a component of cost function of a product?

(a) market price of the product (b) operating technology of the plant

(iv) A firm will hire a factor of production until the point at which:

(a) MC > MR(b) AC > AR

(v) Which of the following cost has to be covered by a firm to continue in the short run?

(a)Fixed Cost(b) Total Cost

(c)Marginal Cost(d)Average variable Cost

(vi) Which of the following concept is used to show operation of the Laws of Returns?

(a)Marginal Product(b) Marginal rate of substitution

(c)Marginal Revenue(d)Average Product

(vii)If firm’s fixed costs are doubled, Marginal cost will:

(a)remain unchanged (b)double

(c)more than double (d)increase by 50%

(viii)Which of the following forms of profit economists regard as normal:

(a)Gross(b)Undistributed

(c)Net(d)Transfer earning

(ix) If marginal cost is less than average cost then with increased outputs, the average cost of production will tend to:

(a)rise.(b) remain the same.

(c)drop.(d)None of the above.

(x) MC is given by:

(a) the slope of the TFC curve,

(b) the slope of the TVC curve but not by the slope of the TC curve,

(d) either the slope of the TVC curve or the slope of the TC curve.

(xi) The following curves are U-shaped except:

(a)The AVC curve.(b)The AFC curve.

(b)The AC curve.(d)The MC curve.

(xii) The total profit is maximized where:

(a) TR equals TC

(b) the TR curve and TC curve are parallel

(d) the TR curve and TC curve are parallel and TR exceeds TC.

11Market structure (Perfect competition & Monopoly)

Select appropriate answer of each of the following Multiple Choice Question (MCQ).

(i) Under perfect market conditions, the supply curve of a firm is the same as:

(a) MC curve (b) MR curve

(ii) In a perfectly competitive market ______is/are the price maker(s):

(a) the individual firm(b) the industry

(iii) Monopoly power may be based on:

(a) economies of large scale production (b) patents

(iv) The following is not the condition of perfect competition.

(a)MC is below AC(b) AVC is rising

(c)AFC is falling(d)MR is below AR

(v) Which one of the following statement is NOT true of a Monopoly?

(a)A single firm produces the entire market supply.