Test MCQ Flashcards
(36 cards)
1
Q
- If price elasticity of demand for a good is 2, this implies that consumers would
(a) buy twice as much of the good if price falls by 10%.
(b) require a 2% cut in price to raise quantity demanded of the good by 1%.
(c) buy 2% more of the good in response to a 1% cut in price.
(d) require at least a £2 increase in price before showing any response to the price increase.
A
(c)
2
Q
- Consumers in Timbuktu like to consume soda and popcorn together; moreover, consumers tend to buy more of both goods when they are wealthier. In Timbuktu, the cross-price elasticity of demand between soda and popcorn is ______, while the income elasticity of demand for popcorn and soda is _______.
(a) positive; negative
(b) positive; positive
(c) negative; negative
(d) negative; positive
A
(d)
3
Q
- If a drought destroyed half of the French garlic crop at a time when the health benefits of garlic were being well publicized, economists would expect that in the market for garlic:
(a) quantity exchanged would rise but the change in price is uncertain without further information.
(b) price would rise but the change in quantity exchanged is uncertain without further information.
(c) both price and quantity exchanged would rise.
(d) price would rise, and quantity exchanged would fall.
A
(b)
4
Q
- In Lancaster, the supply for cheeseburgers is P = 3 + 4Q, while demand is P = 17 – 3Q, where P is the market price of burgers, and Q is the quantity of burgers in thousands. In equilibrium, the market price is:
(a) less than 8.
(b) between 8 and 10.
(c) between 10 and 12.
(d) greater than 12.
A
(c)
5
Q
- Continuing with question 4. In equilibrium, consumer surplus is:
(a) less than 7,000.
(b) between 7,000 and 9,000.
(c) between 9,000 and 11,000.
(d) greater than 11,000.
A
(a)
6
Q
- Roy divides his income between Morrissey CDs and posters of Kim Kardashian. At his current level of consumption, Roy is willing to trade off CDs for posters at the rate of 1 CD for 3 posters. If Roy is maximizing his utility subject to his budget constraint, then:
(a) the price of a CD must be 3 times greater than the price of a poster.
(b) the price of a CD must be 1/3 of the price of a poster.
(c) at the optimal bundle, the marginal utility of CDs must be 3.
(d) at the optimal bundle, the marginal utility of CDs must be 1/3.
A
(a)
7
Q
- Tim spends his £36 income on goods x and y. The marginal rate of substitution between goods x and y is MRSxy = 2. The unit price of good x is 2 and the unit price of good y is 3. The consumption bundle that maximizes Tim’s income subject to his budget constraint consists of ____ units of good x and ____ units of good y.
(a) 4; 12
(b) 3; 10
(c) 8; 20/3
(d) None of the above
A
(d)
8
Q
- Sheila is searching for a new flat in Lancaster. There are many flats available that rent for the same price, but they differ in quality. Sheila is risk-neutral and values a high-quality flat at £600; she values a low-quality flat at £500. 1/4 of the flats are high quality, and 3/4 are low quality, but Sheila can only determine the quality by visiting. The first flat she visits is low quality. Sheila should visit the second flat so long as the opportunity cost of doing so is:
(a) less than £20.
(b) less than £25.
(c) less than £30.
(d) less than £35.
A
(b)
9
Q
- Christine divides her income between ramen noodles and filet mignon steak. For Christine, ramen noodles are an inferior good, while steak is a normal good. Following a decrease in the price of ramen noodles, the income effect drives Christine to consume _____ ramen noodles, and the substitution effect leads her to consume ______ ramen noodles.
(a) more; more
(b) more; less
(c) less; more
(d) less; less
A
(c)
10
Q
- The manufacturing process for doo-dads releases a significant amount of pollution. If left alone, the market for doo-dads will likely lead to _______ of doo-dads, relative to the socially optimal level. In such circumstances, a _____ could help lead the market towards the socially efficient level of production.
(a) overproduction; tax on production of doo-dads
(b) underproduction; tax on production of doo-dads
(c) overproduction; subsidy for consumption of doo-dads
(d) underproduction; subsidy for production of doo-dads
A
(a)
11
Q
- Consider the production function Y = K½L½ where Y denotes output, K is capital stock and L is labour input. The 10-unit isoquant passes through the point where:
(a) K=4 and L=20
(b) K=5 and L=20
(c) K=3 and L=20
(d) None of the above
A
(b)
12
Q
- Monopolies impose a welfare loss because:
(a) at the profit maximizing output level, the firm chooses not to sell to some potential customers who are willing to pay more than the marginal cost of production
(b) at the profit maximizing output level, the firm chooses not to sell to some potential customers who are willing to pay more than the average revenue
(c) the gain in consumer surplus is offset by a reduction in producer surplus
(d) they do not produce as much as perfectly competitive firms, so workers become unemployed and receive welfare payments
A
(a)
13
Q
- A profit-maximizing price-discriminating monopolist selling output to two distinct markets chooses prices in each market so that:
(a) the demand curve is the same in both markets
(b) average cost is the same in both markets
(c) average revenue is the same in both markets
(d) marginal revenue is the same in both markets
A
(d)
14
Q
- Under monopolistic competition, long run equilibrium occurs where:
(a) average revenue is tangent to the marginal cost curve
(b) marginal revenue is tangent to the marginal cost curve
(c) average revenue is tangent to the average cost curve
(d) marginal revenue is tangent to the average cost curve
A
(c)
15
Q
- In Cournot-Nash equilibrium:
(a) each player recognizes that no unique solution exists
(b) each player maximizes their own payoff given other players’ actions
(c) each player maximizes the joint payoff of all players in the game
(d) there must be a prisoners’ dilemma
A
(b)
16
Q
- If dy/dx = 8, then:
(a) y = x^2
(b) y = -x
(c) y = -4
(d) None of the above
A
(a)
17
Q
- Simplify log10(10000) - log10(100):
(a) 1
(b) 2
(c) 3
(d) 4
A
(b)
18
Q
- If log_e(y) = -4 and y = e^(-x^2)*e^-4x, then:
(a) x = 2
(b) x = -2 or 2
(c) x = -2
(d) None of the above
A
(a)
19
Q
- If ln(y) = ln(x) - e^x, then:
(a) y = x
(b) y = x - e^x
(c) y = x * e^(-x)
(d) y = 1 - e^x
A
(c)
20
Q
- The demand equation for employment is given by Nd = 600 - 3w whereas the supply of labour is given by Ns = 100 + 2w. The terms Nd, Ns, and w represent labour demand, labour supply, and wages, respectively. What is the equilibrium level of employment and wages in this economy?
(a) w=100 and N=300.
(b) w=150 and N=200.
(c) w=100 and N=370.
(d) None of the above.
A
(a)
21
Q
“24. Which of the following is not classed as a stabilization policy?
(a) Finance minister cutting the rate of income tax to promote employment.
(b) The U.K negotiating its trade policies with the EU following Brexit.
(c) Central bank lowering interest rates to stimulate the economy.
(d) The government deficit increases as the economy moves into recession.
A
b
22
Q
For an economy characterized by: C=1800+0.60(Y-T), I=800, G=1,500, NX=100, T=1,500,
what is the equilibrium level of output (Y)?
(a) 8000.
(b) 8250.
(c) 8500.
(d) 8750.
A
b
23
Q
If living standards in a country, as measured by output per person, increase, then total
output must have:
(a) increased more rapidly than the population increase.
(b) increased at the same rate of the population increase.
(c) increased more slowly than the population increase.
(d) decreased more rapidly than the population decrease.
A
a
24
Q
Compound interest is:
(a) the payment of interest on the original deposit.
(b) the interest rate adjusted for the rate of inflation.
(c) the real rate of interest compounded by the rate of inflation.
(d) the payment of interest on the original deposit and all accumulated interests.
A
d
25
28. In the long run, increases in output per person arise primarily from:
(a) increases in male labour force participation.
(b) an increasing proportion of the population retiring.
(c) a decreasing proportion of the population retiring.
(d) increases in average labour productivity.
d
26
29. Increasing the capital available to the workforce, holding other factors constant, tends to
______ total output at a(n) ______ rate.
(a) decrease; increasing
(b) increase; decreasing
(c) decrease; decreasing
(d) increase; constant
b
27
30. The real rate of interest measures the ______ of capital investment.
(a) equilibrium quantity
(b) opportunity cost
(c) relative price
(d) marginal benefit
b
28
In the AD-AS model, an increase in the money supply and a rise in autonomous
consumption will:
(a) increase the level of output.
(b) reduce the level of output.
(c) increase the interest rate.
(d) result in no changes.
a
29
Monetary policy will be more effective when ______.
(a) Money demand is more responsive to interest rate changes
(b) Money demand is less responsive to interest rate changes
(c) The economy is in a liquidity trap
(d) Prices react frequently to interest rate changes
a
30
If a government decides to lower its deficit by limiting funds to the National Health Service
(NHS), then:
(a) The planned aggregate expenditure (PAE) function will shift upwards
(b) Investments will be lower.
(c) Interest rates will be lower.
(d) none of the above.
c
31
34. If changes in the money supply do not change the rate of interest, we can say there is
________.
(a) a lot of scope for monetary policy.
(b) a recessionary gap.
(c) an expansionary gap.
(d) a liquidity trap
d
32
If government spending increase, the AD-AS equilibrium in the long-run will_____. (Note
that Y refers to output and P to inflation)
(a) yield a higher Y and P
(b) yield a lower Y and P
(c) yield no change in Y but a higher P.
(d) yield no change in P but a lower Y
c
33
36. In presenting the expectations-augmented Phillips curve, Milton Friedman assumed that
(a) trade union activity is the exogenous variable, that causes variations in unemployment
(b) monetary policy is the exogenous variable, that causes variations in unemployment
(c) unemployment is the exogenous variable, that causes variations in inflation
(d) monetary policy is the exogenous variable, used to counter variations in unemployment
c
34
38. With quantitative easing a central bank
(a) purchases long-term interest-bearing bonds
(b) causes bond prices to rise
(c) increases the volume of base money
(d) all of the above
d
34
39. Milton Friedman’s monetarism is a theory of
(a) aggregate demand management
(b) the demand to hold money
(c) the money supply
(d) none of the above
b
35
40. A repurchase agreement requires a commercial bank to
(a) repurchase bonds, previously sold to the central bank.
(b) resell bonds, previously bought from the central bank.
(c) extend loans to customers, against collateral purchases
(d) extend loans to customers, against collateral sales
a
