34. Combination of capital (K) and labor (L) lies to the right of the firm’s cost line. It means that the combination is

A: Insufficient, given the budget

B: Undesirable

C: Inferior to the points within the contrast in terms of production

D: Unattachable, given the budget

E: Efficient, given the budget

 

35. Every point that lies to the right of the consumer’s budget constraint is

A: Unattainable, given the current income

B: Undesirable

C: Inefficient, given current income

D: Inferior to the points within the constraint in terms of utility

E: Insufficient, given current production

 

36. Which of the following does not cause a shift in the demand curve.

A: Changes in the price of related goods

B: Changes in the consumer patterns

C: Changes in the price of the goods

D: Changes in the personal preferences

E: Changes in the income of buyers

 

37. Market equilibrium occurs when

A: Quantity demanded equals quantity supplied

B: The price which sellers ask for goods is less than the price consumers pay for those goods

C: A shortage exists

D: Demand is greater than supply

E: Demand is less than supply

 

38. One of the reasons for the existence of natural monopoly is

A: Economies of scale

B: Lower fixed cost requirement

C: Diminishing marginal rate of productivity

D: Formation of cartels

E: Downward sloping demand curve

 

39. All the major airlines have been experiencing declining sales revenues as fares are increased. From these, it can be inferred that

A: The demand for air travel is perfectly inelastic

B: The demand for air travel is relatively inelastic

C: The demand for air travel is relatively price elastic

D: The demand for air travel is unitary price elastic

E: Air travel is an inferior good

 

40. Debtweight loss refers to

A: The transfer of resources from buyers to sellers

B: The increase in producer surplus that results from a tax

C: The decrease in consumer surplus that results from a tax

D: The decrease in government revenue that occurs when a tax rate is increased beyond its optimum

E: The decrease in total surplus that result from a tax

 

41. An entrepreneur wants to maximize profits without affecting his price. He must produce an output where

A: Marginal cost is equal to the average variable cost

B: Average variable cost is minimum

C: Average fixed cost is minimum

D: Average cost is minimum

E: Marginal cost is minimum

 

42. Which of the following industries most closely approximates to the perfect competitive model

A: Cigarettes

B: News paper

C: Home appliances

D: Automobile

E: Wheat forming

 

43. Binica, a brand of tooth paste, which was declining in sales decided to undertake advertising expenses. The advertising expenses are indicated by the shift in

A: MC curve to the left

B: MR curve to the left

C: MR curve to the right

D: AC curve to the left

E: MC curve to the right

 

44. In economics it is generally assumed that the MAIN objective of firm is to

A: Maximize the company share price on the stock market

B: Employ more workers

C: Reduce price and satisfy as many consumers as possible

D: Maximize total profits

 

45. The demand for a product will tend to be elastic when

A: It is quickly consumed

B: It has few close substitutes

C: It is subjected to a habitual consumption

D: The purchase of the product takes up a high proportion of a consumer’s budget

 

46. A consumer can maximize his total utility if he allocates his money income so that

A: Elasticity of demand is the same for all the products purchased

B: Gain in marginal utility from the last rupee spent on each product purchased is the same

C: Total utility gained from each product consumed is the same

D: Marginal utility of each product consumed is zero

E: Marginal utility of each product consumed is equal

 

47. the subject matter of micro economics includes the study of

A: Particular market for a given commodity

B: An individual consumer

C: Operation of a firm

D: All of the above

 

48. Which of the following costs should not be considered while making decisions in the short run

A: Implicit costs

B: Marginal costs

C: Opportunity costs

D: Variable costs

E: Sunk costs

 

49. the cross price elasticity of demand for the products reko and veko is 8. It implies that reko and veko are

A: Independent

B: Inferior goods

C: Compliments

D: Substitutes

E: Luxury goods

 

50. if the price elasticity of demand for a butter is 2, a 1% decrease in the price of butter will

A: increase the quantity demanded by 2%

B: increase the quantity demanded by 0.5%

C: reduce the quantity demanded by half

D: double the quantity demanded

 

51. when a competitive firm is in equilibrium in the long run, its output is such that

A: total sales are maximum

B: total profits are maximum

C: costs of unit of output are minimum

D: total costs are minimum

E: profit per unit of output is maximum

 

52. a normal good can be distinguished from an inferior good because a normal good has

A: a negative income elasticity of demand

B: a positive income elasticity of demand

C: a positive cross price elasticity of demand

D: a positive price elasticity of demand

 

53. the demand curve facing a monopoly firm is A/an

A: Rectangular hyperbota

B: Upward sloping

C: downward sloping

D: intermediate

E: horizontal straight line

 

54. the policy of charging different slab rates for power consumption for different purposes by a power distribution company describes

A: product differentiation

B: differential elasticity of supply

C: price discrimination

D: inelastic demand of consumers

E: differential cross elasticity of demand

 

55. an industry’s supply curve is more likely to be elastic if

A: Producers have low levels of stocks

B: new firms are unable to enter the market

C: there are shortages of skilled labor needed by the firm to increase production

D: firms are operating at below full capacity

 

56. the opportunity cost to society of constructing a new motor way would be

A: the other goods and services which labor employed constructing the road

B: the financial cost of the road

C: the other goods and services that would be produced if the motor way were not billed

D: the loss of farm land and natural habitat used in order to build the road

E: reduce price and satisfy as many consumers as possible

 

57. economics is primarily concerned with the study of

A: how new wants and economic resources are produced

B: allocating scarce resources to satisfy unlimited wants

C: determining how the government should allocate resources

D: how to make more effective use of resources through reducing wants

 

58. you can buy any amount of rice at Rs.15 per kg in the local market. The supply curve for rice is

A: downward sloping

B: horizontal

C: data insufficient

D: upward sloping

E: vertical

 

59. when a proportionate change in input combination causes the same proportionate change in output, the returns of scale is said to exhibit

A: increasing returns

B: constant returns

C: decreasing returns

D: infinity returns

E: negative returns

 

60. marginal revenue is always positive when elasticity of demand is

A: unity

B: zero

C: greater than 1

D: less than 1

E: infinity

 

61. which of the following is a benefit of first degree price discrimination by a monopolist

A: a lower marginal cost than that incurred by a single price monopolist

B: a larger output than a single price monopolist

C: a larger consumer surplus than under single price monopoly

D: smaller profits than those earned by the single price monopolist

E: zero economic profits in the long run

 

62. for rohan, both coke and pepsi are perfect substitutes. The price of each bottle of coke and pepsi is Rs.10. which of the following is true is pepsi increases price to Rs.20 per bottle

A: rohan will buy only coke

B: rohan will buy twice as much pepsi as coke

C: rohan will buy twice as much coke as pepsi

D: no conclusion can be drawn unless utility function of rohan is known

E: rohan will buy equal amounts of pepsi and coke

 

63. a kinked demand curve occurs in an oligopoly when a firm

A: increases its price and others follow it

B: increases its price and others do not follow it

C: decreases its price and others follow it

D: decreases its prices and others do not follow it

E: both B and C of the above

 

64. a firm will shut down its operations in the short run if

A: total revenue falls short of total costs

B: total fixed costs exceed its total variable costs

C: it incurs losses

D: fixed costs exceed its revenue

E: variable cost exceed its revenue

 

65. which of the following reasons does not lead to a monopoly

A: ownership of a strategic raw material

B: existence of numerous buyers

C: technological advantages

D: possession of patent rights for a product

E: government licensing

 

66. expansion and contraction of demand are referred to as the

A: variation in demand

B: change in demand

C: both of the above

D: none of the above

 

67. which of the following is not a feature of a monopolistically competitive market

A: relative freedom of entry and exit of firms

B: non price competition

C: product of a firm is not a perfect substitute to that of another firm

D: homogeneous product

E: relatively large number of firms

 

68. which of the following curves is called planning curve

A: long run average variable cost curve

B: long run average total cost curve

C: long run total cost curve

D: long run marginal cost curve

E: long run average fixed cost curve

 

69. which of the following will most likely increase the demand for a particular good

A: a decrease in income

B: a decrease in the number of consumers purchasing substitute products

C: a fall in the price of substitute goods

D: an increase in time required to purchase complimentary goods

E: a decrease in the price of complimentary goods

 

70. utility is expressed as

A: the power of commodity to satisfy wants

B: the quality of a commodity

C: the quantity of a commodity

D: the durability of a commodity

E: the desire for a commodity

 

71. the production of a tile manufacturing firm is at the minimum point of its average cost curve. The firm is

A: operating at constant costs

B: operating under diminishing costs

C: making optimum use of its capacity

D: operating under excess capacity

E: operating under increasing costs

 

72. which of the following situation does not lead to price discrimination

A: differences in elasticity of demand

B: difference in elasticity of supply

C: distance

D: nature of the good

E: preference of the buyer

 

73. a firm realizes least cost in production, if it substitutes the factors until their

A: prices are equal

B: marginal physical product to the factor price ratio is equal for all factor inputs

C: marginal physical products are equal to zero

D: marginal physical products are equal

E: marginal physical products are equal to their factor prices

 

74. the market demand curve for overseas cruises will not shift when there is a

A: increase in the price of land based package holidays (a substitute for cruises)

B: successful advertising campaign

C: price in consumer’s real income

D: fall in the price of a cruise in the brochures

 

75. according to the law of supply

A: if the price is low any firm will sell the product

B: anything that is supplied will be purchased by consumers

C: the higher the price, the lower the quantity supplied

D: the higher the price, the larger the quantity supplied

 

76. in 2001, export prices of coffee in ethiopea fell by half – from 79 cents per pound in 2000 to 39 cents. If the demand for ethiopean coffee is assumed to be price inelastic, the fall in price will cause

A: no change in total revenue

B: a rise in the total revenue of coffee growers

C: an increase in the profitability of growing coffee in ethiopea

D: a fall in the total revenue of coffee growers

 

77. which of the following is true with respect to marginal cost

A: cost that varies with the output level

B: total fixed cost per unit of output

C: change in the total cost on account of an additional unit of output

D: cost of all inputs

E: total variable cost of an output

 

78. an entrepreneur wants to maximize profits without affecting his price. He must produce and output where

A: marginal cost is equal to the average variable cost

B: average variable cost is minimum

C: average fixed cost is minimum

D: average cost is minimum

E: marginal cost is minimum

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