.

q1

Supply curves tend to be: perfectly inelastic in the long run, because the law of scarcity imposes absolute limits upon production. more elastic in the long run, because there is time for firms to enter or leave the industry. perfectly elastic in the long run, because consumer demand will have sufficient time to adjust fully to changes in supply. less elastic in the long run, because there is time for firms to enter or leave an industry.

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Q2. The concept of opportunity cost is best represented by the: movement along a production possibilities curve from one point to another. movement from point on a production possibilities curve to a point inside the same curve. shift of a production possibilities curve outwards. shift of a production possibilities curve inwards. 4. The vertical distance between ATC and AVC reflects: the average fixed cost at each level of output. marginal cost at each level of output. implicit costs. the presence of economies of scale. 3. The basic characteristic of the short run is that:
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barriers to entry' prevent new firms from entering the industry. the firm does not have sufficient time to change the amounts of any of the resources it employs. the firm does not have sufficient time to change the size of its plant. the firm does not have sufficient time to cut its rate of output to zero. 5. In which of the following cases will total revenue increase?
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Price rises and demand is elastic. Price falls and supply is elastic. Price rises and demand is inelastic. Price falls and demand is inelastic. 6. Suppose that a 20% increase in the price of normal good Y causes a 10% decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is:
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negative, and therefore, these goods are substitutes. positive, and therefore, these goods are substitutes. negative, and therefore, these goods are complements. positive, and therefore, these goods are complements. . If there is a shortage of product X, we can predict that:
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fewer resources will be allocated to the production of this good.

the supply curve will shift to the left and the demand curve to the right, thereby eliminating the shortage. the price of the product will decline. the price of the product will rise. Economic profits are calculated by subtracting:
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explicit and implicit costs from total revenue. implicit costs from normal profits. implicit costs from total revenue. explicit costs from total revenue. 9. The law of demand states that:
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consumers will buy more of a given product at high prices than they will at low prices. the larger the number of buyers in a market, the lower the product price. price and quantity demanded are inversely related. price and quantity demanded are directly related. 10. If the supply of product X is perfectly elastic, an increase in the demand for it will increase:
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both equilibrium quantity and equilibrium price. equilibrium quantity, but reduce equilibrium price. equilibrium quantity, but equilibrium price will be unchanged. equilibrium price, but reduce equilibrium quantity. 11. The production possibilities curve is bowed outward if:
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resources are not perfectly adaptable to different alternative uses. the amount of resources increases. the level of technology increases. both B and C are correct. 12. A given leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
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more inelastic the demand for the product. more elastic the demand for the product. larger the elasticity of demand coefficient. more elastic the supply curve. 13. When government imposes price ceilings and floors in a market: efficiency in the market is increased. price no longer serves as a rationing device. shortages and surpluses are eliminated. buyers and sellers are both better off.
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14. Refer to the data given below. ABCD E F Production possibilities (options) Capital goods 5 4 3 2 1 0 Consumer goods 0 5 9 12 14 15 If the economy is producing at production option C, the opportunity cost of the tenth unit of consumer goods will be:
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1/3 of a unit of capital goods 3 units of capital goods 4 units of capital goods 2 units of capital goods
1302224385952 290,70,500,570,2

15. Two goods are complements if a decrease in the price of one good:
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reduces the demand for the other good. reduces the quantity demanded of the other good. increases the quantity demanded of the other good. raises the demand for the other good. 16. The cost of any output is minimised when:
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none of the above. the marginal product of each resource used is the same. the price of each resource used is the same. the marginal product per dollar's worth of each resource used is the same. 17. There are very few, if any, good substitutes for motor oil. Therefore:
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the supply of motor oil would tend to be price elastic. the demand for motor oil would tend to be price elastic. the demand for motor oil would tend to be price inelastic. the demand for motor oil would tend to be income elastic. 18. Assume that the demand and supply curves for cars are elastic. If the government imposed a $500 sales tax on each car, we can assume that the:
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equilibrium price of a car would increase by less than $500. price of a car would increase by exactly $500. price of a car would increase by more than $500. price of a car would not change if both curves were elastic. 19. The following is the total output and cost data for a firm. Total OutputTotal Cost($) 0 24 1 33

3 3 4 5 6

41 48 54 61 69

Refer to the above cost data. The average total cost of producing 3 units of output:
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is $13.50. is $16.00. is $14.00. cannot be determined from the information given.

290,70,500,570,2 1302224385952

20.

Black markets' are associated with: ceiling prices and the resulting product shortages. price floors and the resulting product shortages. ceiling prices and the resulting product surpluses. price floors and the resulting product surpluses.

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21. Any point inside the production possibilities curve indicates that:
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least-cost production has been realised. as the production of one good increases, larger and larger sacrifices of other goods will be required. more output could be produced with available resources. the resources of an economy are fully employed, and productive efficiency is achieved. Which of the following will not cause the demand for product K to change?
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A change in consumer tastes. A change in the price of K. An increase in consumer incomes. A change in the price of close-substitute product J. 23. If a sales tax is imposed on a market with inelastic demand and elastic supply:
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the burden of the tax will be shared equally between buyers and sellers. buyers will bear most of the burden of the tax. sellers will bear most of the burden of the tax. it is impossible to determine how the burden of the tax will be shared. The scarcity problem:
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persists only because countries have failed to achieve continuous full employment. has been eliminated in affluent societies such as Australia. has been solved in all industrialised nations. persists because material wants exceed available productive resources.

Which of the following statements concerning the relationships between total product (TP), average product (AP) and marginal product (MP) is not correct?
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TP reaches a maximum when the MP of the variable input becomes zero. AP reaches a maximum before TP reaches a maximum. AP continues to rise so long as TP is rising. MP cuts AP at the maximum AP. 26. You produce jewellery boxes. If the demand for jewellery boxes is elastic and you want to increase your total revenue, you should:
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not change the price of your jewellery boxes. decrease the price of your jewellery boxes. None of the above answers are correct. increase the price of your jewellery boxes. 27. Economies and diseconomies of scale explain:
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why the firm's long-run average cost curve is U-shaped. the distinction between fixed and variable costs. why the firm's short-run marginal cost curve cuts the short-run average variable cost curve at its minimum point. the profit-maximising level of production. 28. The main determinant of elasticity of supply is the:
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number of uses for the product. number of close substitutes for the product available to consumers. urgency of consumer wants for the product. amount of time the producer has to adjust inputs in response to a price change. 29. If a technological advance reduces the amount of variable resources needed to produce any given level of output, this will cause:
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the ATC curve to shift downward. the MC curve to shift downward. the AVC curve to shift downward. all of the above. 30. If the income elasticity of demand for lard is 3.00, this means that:
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lard is an inferior good. lard is a substitute for butter. lard is a normal good. more lard will be purchased when its price falls. 31. The following is the total and marginal product for a firm. Number of workersTotal productMarginal product 0 0

1 2 3 4 5 6

8 25 30

8 10

3 34

Refer to the above information. When two workers are employed:

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total product cannot be determined from the information given. average product is 10. total product is 20. total product is 18.
290,70,500,570,2 1302224385952

32. The production possibilities curve illustrates the basic principle that:
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if all the resources of an economy are in use, more of one good can be produced if less of another good is produced. the larger production of a particular good, in time, will require smaller and smaller sacrifices from other goods. an economy has the capacity to produce increases in proportion to its population size. an economy will automatically seek a level of output so that all of its resources are employed. 34. A market:
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35.

reflects positively sloping demand and negatively sloping supply curves entails the exchange of goods, but not services is an institution that brings together buyers and sellers always entails face-to-face contact between buyer and seller Assume the demand for a product is perfectly inelastic. If government establishes a price floor which is $2 above the equilibrium price, the resulting:
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shortage will be greater, the more elastic the supply. surplus will be greater, the less elastic the supply. shortage will be greater, the less elastic the supply. surplus will be greater, the more elastic the supply 36. An effective price floor on wheat will:
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force otherwise profitable farmers out of business. clear the market for wheat. result in a shortage of wheat. result in a surplus of wheat. 37. Assume that in the short run, a firm which is producing 100 units of output has average total costs of $200 and average variable costs of $150. The firm's total fixed costs are:
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$0.50. $500. $50. $5000. 38. When the price of a product increases, a consumer is able to buy less of it with a given money income. This describes:
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the substitution effect. the income effect. the inflationary effect. the cost effect. 39. Because of unseasonably cold weather, the supply of oranges has substantially decreased.' This statement indicates that:
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the equilibrium quantity of oranges will rise. the amount of oranges that will be available at various prices has declined. consumers will be willing and able to buy fewer oranges at each possible price. the price of oranges will fall. 40. A tax on the sellers of TVs:
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leads sellers to supply a larger quantity at every price. leads buyers to demand a smaller quantity at every price. leads sellers to supply a smaller quantity at every price. causes the supply curve to shift to the right. 41. A $2.00 tax placed on the sellers of mailboxes will shift the supply curve:
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right (downward) by exactly $2.00. left (upward) by exactly $2.00. left (upward) by less than $2.00. right (downward) by less than $2.00. 42. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. From this we can conclude that the demand for X in this price range:
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is inelastic. is elastic. has declined. is of unit elasticity.

43.

When a production possibilities curve shifts outward, it is demonstrating the concept of: tradeoffs. efficiency. opportunity cost.

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economic growth. The economising problem is essentially one of deciding how to make the best use of: virtually unlimited resources, to satisfy virtually unlimited wants. limited resources, to satisfy limited wants. limited resources, to satisfy virtually unlimited wants. unlimited resources, to satisfy limited wants. 45. Other things being the same, the shortage associated with a price ceiling will be greater, the: greater the elasticity of supply and the smaller the elasticity of demand. smaller the elasticity of both demand and supply. greater the elasticity of both demand and supply. greater the elasticity of demand and the smaller the elasticity of supply. 46. The law of diminishing returns indicates that:
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the demand for goods produced by purely competitive industries is down sloping. because of economies and diseconomies of scale, a competitive firm's long-run average cost curve will be U-shaped. beyond some point, the extra utility derived from additional units of a product will yield for the consumer smaller and smaller extra amounts of satisfaction. as extra units of a variable resource are added to a fixed resource, the extra or marginal product will decline beyond some point. 47. An economy will experience underemployment of resources when:
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productive efficiency has not been achieved. allocative efficiency has not been achieved. full employment has not been achieved. increasing opportunity cost exists. 48. The following is the total output and cost data for a firm. Total OutputTotal Cost($) 0 24 1 33 3 41 3 48 4 54 5 61 6 69 Refer to the above cost data. The marginal cost of producing the sixth unit of output:
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is $16. cannot be determined from the information given. is $8. is $24. 49. In which of the following instances will the effect upon equilibrium price be indeterminate; that is, dependent on the magnitude of the given shifts in supply and demand?
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Supply rises and demand falls. Demand rises and supply rises. Supply falls and demand remains constant. Demand rises and supply falls. 50. The following is output data for a firm. Assume that the amounts of all non-labour resources are fixed. Number of workersUnits of output 0 0 1 40 2 90 3 126 4 150 5 165 6 180 Refer to the above information. Diminishing returns become evident with the addition of:
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the fourth worker. the second worker. the third worker. the first worker. 51. A tax placed on the seller of a good:
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lowers both the price buyers pay and the price sellers receive. raises the price buyers pay and lowers the price sellers receive. lowers the price buyers pay and raises the price sellers receive. raises both the price buyers pay and the price sellers receive.

52. The supply of a good is negatively related to the:

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amount of profit a firm can expect to receive from sale of the good. price of the good itself. demand for the good by consumers. price of inputs used to make the good. 53. Refer to the data given below. ABCD E F Production possibilities (options) Capital goods 5 4 3 2 1 0 Consumer goods 0 5 9 12 14 15 In this illustration, the law of increasing opportunity costs is reflected in the fact that:
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human wants in the aggregate are insatiable and all the combinations of consumer goods and capital goods the economy can produce are finite amounts the production possibilities data would graph as a straight, down-sloping line the amount of consumer goods that must be sacrificed to get more capital goods diminishes beyond

a point larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods 54. Economies of scale' refers to:
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the fact that large producers may be able to use more efficient technologies. the notion that small firms are less bureaucratic and, therefore, more efficient than corporations. public investments in highways, schools, utilities etc. the reallocation of labour from less productive to more productive uses. 55. Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price:
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and quantity will both decrease. will increase, but equilibrium quantity will decline. will increase, but equilibrium quantity will be unchanged. will decrease, but equilibrium quantity will increase. 56. Demand for a good would tend to be more inelastic the:
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more the good is considered a luxury good. longer the time period considered. more narrowly defined the market is. fewer the available substitutes. 58. If an effective legal ceiling is imposed upon credit card interest rates, we would expect:
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the product prices of retailers, who issue credit cards, to rise. annual credit card fees would rise. such credit would be less readily available. that all of the above might possibly occur. 57. If X is a normal good, a rise in money income will shift the:
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supply curve for X to the right. demand curve for X to the right. supply curve for X to the left. demand curve for X to the left. . You love peanut butter. You hear on the news that 50% of the peanut crop in the South has been wiped out, which will cause the price to double by the end of the year. As a result:
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your demand for peanut butter will increase by the end of the year. your demand for peanut butter falls as you look for a substitute good. you decide to give up peanut butter completely. your demand for peanut butter increases today. 60. Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11 and 0.29 for products W, X, Y and Z respectively. A 1% decrease in price will result in an increase in total revenue in the case of:

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X and Z. Z and W. Y and Z. W and Y.