MIDTERM test exam

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MIDTERM test exam
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1. Scarce resources are ultimately allocate
towards the production of goods most wanted by
society because of the a) goal of firms to
maximize profits. b) fact that they are most
efficiently utilized in these
areas. c) demand of consumers for inexpensive
goods and services. d) benevolence of managers
of firms.

• If the interest rate is 7, the present value of
  1,000
• received 1 year from now would be
• a) 1,007
• b) 1,070
• c) 934.58
• d) 930

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• A firm will have constant profits of 10 per year
• at the end of each year for the next two years
• and zero profits thereafter.
• If the interest rate is 6, what is the value of
  the firm?
• a) 18.33
• b) 20.00
• c) 40.00
• d) 34.65

• To maximize net benefits, a manager should
  continue
• to increase the managerial control variable
  until
• a) total benefits equal total costs.
• b) net benefits are zero.
• c) marginal benefits equal marginal costs.
• d) average cost equals average benefits.

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• When marginal net benefits of Q are positive,
• it is profitable
• a) to increase Q.
• b) to decrease Q.
• c) to stay at that level of Q.
• d) all of the above.

• If good Y is a substitute for good X, then a
• rise in the price of good X will result in
• a) a decrease in the demand for good Y.
• b) a decrease in the demand for good X and good
  Y.
• c) an increase in the demand for good X
• d) an increase in the demand for good Y

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7. A decline in an input price will cause
the supply curve to a. shift to the
left. b. shift to the right. c.
intersect demand at a higher price. d.
rotate counter clockwise.

• The maximum legal price that can be charged
• in a market is
• a) a price ceiling.
• b) the full economic price.
• c) the producer surplus.
• d) a price floor.

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9. If comic books are inferior goods, what
would happen to price and quantity during
an economic boom? a) price would increase
and quantity decrease. b) price and quantity
would both increase. c) price and quantity would
both decrease. d) price would decrease and
quantity increase.
The reasoning Due to the economic boom, prices
and income will rise. As books are inferior goods
the raise in income will lead to a decrease in
quantity demanded. (option a)
But one can also reason differently The economic
boom causes that the income of consumer will
rise. As comic books are inferior goods the
demand line will shift to the left (income is a
demand shifter). With a given (and unchanged)
supply line both price and quantity will
decrease. (option c)
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• 10. Which of the following is not a demand
  shifter?
• a) the price of substitutes.
• consumer income.
• the level of advertising.
• the price of complements.
• e) the price of the good.

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• If the demand for a product is ln Qxd 10 5
  ln Px ,
• product X is
• a) elastic.
• b) inelastic.
• c) unitary elastic.
• d) cannot be determined without more
  information.

• Demand is more elastic in the long-term because
• consumers
• a) are patient.
• b) have more time to seek out available
  substitutes.
• c) spent a larger share of their budget in the
  short-term.
• d) none of the above.

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• A positive income elasticity tells us that
• the good is
• a) a normal good.
• b) a substitute good.
• c) an inferior good.
• d) an inelastic good.

• The elasticity of variable G with respect to
• variable S measures
• a) the slope of G.
• b) the slope of S.
• c) the percentage change in G that will
  result
• from a given percentage change in S.
• d) the change in variable G that results
  from
• a given change in variable S.

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• When for good X the own price elasticity
• of demand is 1
• a) demand for good X is inelastic.
• b) total revenue falls when the price of
  good X rises.
• c) total revenue rises when the price of
  good X rises.
• d) none of the above.

• A decrease in the price of good X will have
  what
• effect on the budget line on a normal X-Y
  graph?
• a) parallel outward shift of the line.
• b) increase the vertical intercept.
• c) decrease the horizontal intercept
• d) none of the above.

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17. If the prices of both good X and good Y
double the consumer would reduce his/her
consumption of good X if it is a) a
normal good. b) an inferior good.
c) a substitute for good Y. d) a
complement for Y.

• Along the same indifference curve, the
  marginal
• rate of substitution (MRS) is
• a) constant as more of good Y is consumed.
• b) increases as more of good X is consumed.
• c) diminishes as more of good X is consumed.
• d) diminishes as more of good Y is consumed.

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19. The absolute value of the slope of the
indifference curve represents a)
the marginal rate of substitution. b)
the market rate of substitution. c)
the budget rate of substitution. d)
the opportunity rate of substitution.

• When the price of a good falls with other
  things
• unchanged, the real income of the
  consumer
• a) is unchanged.
• b) increases.
• c) decreases.
• d) may rise or fall, depending on whether
• the good is normal or inferior.