ELIEvaluation Test (Economics)

Prasad N. Edirisooriya01.09.2013

The discipline “Microeconomics” can be most accurately be defined as,

a. A Social science that is concerned with scarcity of resources compared to limited wants of

human beings.

b. A Social science that is concerned with scarcity of resources compared to limited needs &

wants of human beings.

c. A social science that is concerned with scarcity of resources compared to unlimited wants of

human beings.

d. A social science that is concerned with scarcity of resources compared to unlimited needs &

wants of human beings.

Q1 :

The main subject of macroeconomics deals with;

a. The factors that influence the production of particular products, and the behaviors of individual industries

b. Household income and the determination of individual prices

c. The sum of individual decisions, or the aggregate behavior of consumers, firms & the economy, as a whole.

d. All of the above

Q2:

The appropriate definition for PPC is,

a. All minimum possible outputs for 2 goods with a given set of inputs.

b. All minimum possible inputs for 2 goods with a given set of inputs.

c. All maximum possible outputs for 2 goods with a given set of inputs

d. All maximum possible inputs for 2 goods with a given set of inputs.

Q3:

Q 4 : Super Normal Profits are earned when ;

a) AR = AC

b) MR > MC

c) MR = AC

d) AR > AC

Q 5 : Opportunity Cost is ;

a) The imbalance between desires & means of satisfying themb) The cost incurred to operate a businessc) The cost which does not depend on the level of outputd) None of the above

Q 6 :When the price of an elastic product increases ;

a) The demand decreases along the demand curveb) The demand curve shifts leftc) The demand increases along the demand curved) The demand does not change

An increase in the price of an inelastic product would,

a. Increase the demand

b. Decrease the revenue

c. Will not affect to the revenue

d. Increase the revenue

Q7:

Q 8: When the price of an inelastic product increases;

a) The demand decreases along the demand curveb) The demand curve shifts leftc) The demand increases along the demand curved) The demand does not change

The science of economics stem from the fact that;

a. The production possibilities curve is bowed inward to the origin.

b. Resources are scarce relative to people’s demand for goods and services

c. Individuals and institutions behave only in their self-interest

d. Historically the production possibilities curve has been shifting towards the origin

Q9:

Q 10: A leftward shift of a product supply curve might be caused by;

a) An improvement in the relevant technique of productionb) A decline in the prices of needed inputc) An increase in consumer incomesd) Some firms leaving an industry

Q 11: With a down-sloping demand curve and an up-sloping supply curve for a product, a decrease in resource price will;

a) Increase equilibrium price and quantityb) Decrease equilibrium price and quantityc) Decrease equilibrium price and increase equilibrium quantityd) Increase equilibrium price and decrease equilibrium quantity

Q 12 : All of the following are determinants ofPrice Elasticity of Demand, except;

a) Availability of substitutesb) Timec) Factor Mobilityd) Force of habit

Q 13:When the price of an inelastic product increases;

a) The demand decreases along the demand curveb) The demand curve shifts leftc) The demand increases along the demand curved) The demand does not change

Q 14 : When income increases, the demand for the inferior goods ;

a) Increases proportionatelyb) Decreases c) Increases more than proportionatelyd) None of the above

Q 15 : If two goods are complementary, then ;

a) The cross price elasticity of demand is negative

b) The cross price elasticity of demand is zero

c) The cross price elasticity of demand is positive

d) The cross price elasticity of demand is infinity

Q 16 : When the income increases, if the demand for a particular product increases less than proportionately;

a) Luxury Goodsb) Inferior Goodsc) Essential Goodsd) Semi-luxury Goods

The variable cost of a business;

a. Are dependant upon the travel of fixed cost in the long run

b. Are always equal to the company’s total AC in the long run

c. Decrease as production increases

d. Are determined by quantity of output produced by a firm

Q17:

If Average Cost is at a minimum, then;

a. It is equal to Marginal Cost.

b. Total Cost is also at a minimum.

c. Profit is at a maximum.

d. All of the above are true.

Q18:

What describes a situation of NORMAL profit?

a. AR<AC

b. AR>AC

c. AR=AC

d. 0>AC

Q19:

Q 20: Economic Profit is ;

a) The difference between revenue & variable costb) The difference between Marginal Revenue & Marginal Costc) Another term for Accounting Profitd) The difference between Revenue & its Opportunity Cost

1. Banana Republic is an island in Atlantic ocean. The country’s productions are only Bread & Butter. Productions options are given below.

i. 10,000 Units of bread, and 00 Kg of Butter.ii. 7,500 Units of bread, and 100 Kg of Butter.iii. 5,000 Units of bread, and 200 Kg of Butter.iv. 2,500 Units of bread, and 300 Kg of Butterv. 00 Units of bread, and 400 Kg of Butter

a) Draw the PPC for the Banana Republic’s economy.

b) Assuming the current bread production is 6,500 units, calculate the butter production?

c) If the country’s economic policy makers decide to produce, 7,500 units of bread, what

is the opportunity cost?

d) Show followings on the PPC.

i) Inefficiency ii) Unemployment iii) Expansion of the agricultural sector

e) What are the assumptions of developing a production possibility frontier?

2. i) What are the main socio, economic factors that create a major impact on the demand of

a typical product?

Explain your answer with the relationship of each factor to the demand of the

product, and suitable illustrations/ graphs.

ii) “Determinants of demand & Determinants of demand elasticity are same”

Do you agree? Explain.

3. A 10% rise of rice price has a major impact on the society, where as 30% rise of sofa price has no such impact.

i) What is price elasticity of demand (PED)?

ii) Explain the changes in TR of above products, with hypothetical figures.

iii) Explain : a) Income inelasticityb) Negative income elasticity.c) Negative cross elasticity

4. i) Compare & contrast the ‘Short-run & Long-run’?

ii) Illustrate properly the AC, MC curves, and the profit maximizing situation of the following firm, in a perfectly competitive market.

Price = Rs.100/- Supernormal Profit = Rs.20/-Profit maximizing Q = 200 units

iii) What is ‘diminishing marginal returns’?