Economics Quiz - Past Paper PDF

# Economics Quiz ## 1. Multiple Choice **1 point** Which of the following statements is true? - Market equilibrium is determined by the size of the mismatch of the supply and demand quantities. - At the equilibrium price, the quantity demanded exceeds the quantity supplied. - **The demand curve...

# Economics Quiz ## 1. Multiple Choice **1 point** Which of the following statements is true? - Market equilibrium is determined by the size of the mismatch of the supply and demand quantities. - At the equilibrium price, the quantity demanded exceeds the quantity supplied. - **The demand curve shows how the quantity of a good depends upon the preferences and budget of the consumer.** - The behaviour of buyers and sellers naturally drives markets toward their disequilibrium. ## 2. Multiple Choice **1 point** The price of milk has increased from 0.60 euros to 1.20 euros, causing demand to fall from 8 to 4 units of milk. Which of the two graphs below correctly represents this event and why? - the left graph, as the event is driven by the change in quantity demanded and this is associated with movement along the demand curve - **the right graph, as the event is driven by the change in price and this is associated with a shift of the demand curve** - the left graph, as the event is driven by the change in price and this is associated with a movement along the demand curve - the right graph, as the event is driven by the change in quantity demanded and this is associated with a shift of the demand curve ## 3. Multiple Choice **1 point** Look at the following individual supply schedules for Richard and Megan. What is the market supply at price 0.3 euros? | Price of milk per litre (€) | Richard | Megan | |---|---|---| | 0 | 0 | 0 | | 0.1 | 0 | 1 | | 0.2 | 4 | 3 | | 0.3 | 5 | 7 | - The market supply at 0.3 is (0 + 1 + 3 + 7) = 11 units, since Megan is the bigger producer who will takeover the market. - The market supply at 0.3 is (0 + 0 + 4 + 5) = 9 for Richard plus the (0 + 1 + 3 + 7) = 11 for Megan, in total 20 units of milk. - The market supply at 0.3 is 7 units of milk, since Megan is the bigger producer who will take over the market. - **The market supply at 0.3 is 5 for Richard plus 7 for Megan, in total 12 units of milk.** ## 4. Multiple Choice **1 point** Examine the supply and demand representation below and explain what is NOT denoted as area Z: *Image of supply and demand graph with area Z being the section between the intersection of the supply and demand curve, and the x-axis.* - Z denotes the surplus on the market, where 10 units of milk are supplied. - Z denotes the surplus on the market, where only 4 units of milk are demanded. - Z denotes the surplus on the market, which is equivalent to 7 units of milk that represent a disequilibrium point of the demand and supply. - **Z denotes the surplus on the market, while 7 units of milk correspond to the equilibrium point of the demand and supply.** ## 5. Multiple Choice **1 point** Which of the two goods shown below has a less elastic demand and why? *Image of two demand curves for good A and good B. The demand curve for good A is steeper than the demand curve for good B.* - good A, because the corresponding change in quantity demanded is larger for the same change in price. - good B, because the corresponding change in quantity demanded is larger for the same change in price. - **good A, because the demand curve for this good is steeper.** - good A, because the quantity demanded after the change of price is higher. ## 6. Multiple Choice **1 point** Which of the following statements is NOT true? - The consumer's indifference curves represent her preferences. - Indifference curves for the same individual do not cross. - **The slope of an indifference curve at some points is different than the consumer's marginal rate of substitution.** - The consumer optimizes by choosing the point on her budget constraint that lies on the highest indifference curve. ## 7. Multiple Choice **1 point** Examine the graph below and determine why the slope of the new budget line is different from the slope of the old budget line: *Image of graph with cheese on the y-axis and wine on the x-axis. Two budget lines are shown, one old and one new. The new budget line has a steeper slope than the old budget line.* - the quantity of wine demanded has increased and therefore the ratio between price for cheese and price for wine has changed - **the price of wine has increased and therefore the ratio between price of cheese and price of wine has changed** - the quantity of cheese demanded has increased and therefore the ratio between price for cheese and price for wine has changed - the price of cheese has increased and therefore the ratio between price of cheese and price of wine has changed ## 8. Multiple Choice **1 point** Which of the following is NOT true: *Image of an indifference curve map with indifference curves I1, I2, I3, and four points A, B, C and E. Point E is on the lowest Indifference curve I1, point D is on the highest indifference curve I3, point C is on the indifference curve I3, point B is on the indifference curve I2.* - Points A, B and C are more desirable than point E. - Point E is less desirable than point D. - Point B is equally desirable as point C. - **Point D is equally desirable as points C and E.** ## 9. Multiple Choice **1 point** Your income has been reduced in half. The graph below shows how your budget line has shifted due to this. Examine the relevant changes shown in the graph below and determine what type of good cheese is: *Image of graph with cheese on the y-axis and wine on the x-axis. two budget lines are shown showing an initial point with higher income and consumption and a final point after income reduction, with the final point showing a decrease in consumption of both cheese and wine.* - the change in quantity demanded for cheese shows that cheese is demanded somewhat less when less income is available, therefore cheese is a normal good - the change in the price of cheese shows that cheese is demanded somewhat less when less income is available, therefore cheese is a normal good - **the change in quantity demanded for cheese shows that cheese is demanded somewhat less when less income is available, therefore cheese is an inferior good** - the change in the price of cheese shows that cheese is demanded more when less income is available, therefore cheese is an inferior good ## 10. Multiple Choice **1 point** What does the following graph does NOT show: *Image of a graph with price of a good on the y-axis and quantity of a good on the x-axis. Multiple price-consumption curves are shown, each with a different initial price and consumption point. They all intersect at a unique point, which forms a demand curve.* - **How different points of the demand curve are derived.** - Pivoting of the budget line due to change in price. - Shift of the demand curve due to change in income. - Derivation of the demand curve from the optimal points of consumption for different price levels. ## 11. Multiple Choice **1 point** Which of the following statements is NOT true for a perfectly competitive market? - The price of the good equals both the firm's average revenue and its marginal revenue (MR). - To maximize profit, a firm chooses the quantity of output such that MR equals marginal cost (MC). - The quantity of output such that MR equals MC is also the quantity at which price equals MC. - **The firm's marginal cost curve intersects the supply curve below the average total cost (ATC).** ## 12. Multiple Choice **1 point** Which of these curves is the Average Total Cost curve and why is it shaped like this: *Image of a graph with cost on the y-axis and quantity of output on the x-axis. Four curves are shown, one for each quantity of output for a lemonade stand. The curves labeled 1, 2 and 4 are decreasing and then increasing, and the curve labeled 3 remains above the curve labeled 2, is increasing and below the curve labeled 1.* - curve 1, which shows how the average total costs increase with an ever-increasing pace. - **curve 2, which shows how the average total costs first decrease due to fixed costs distribution over larger number of units of production, but then start to increase due to the increasing variable costs.** - curve 3, which shows how average total costs increase with an ever-increasing pace but remain always below the marginal cost curve. - curve 4, which shows how average total costs decrease with an ever-decreasing pace. ## 13. Multiple Choice **1 point** Why is the Total Cost curve starting not from zero? *Image of a graph showing Total Cost on the y-axis and Quantity of Bagels on the x-axis. The total cost curve starts above zero.* - because you need to hire people in order to start production of bagels - because you need to pay equal wage to every next employee necessary for the increase of production - **because you have fixed costs to pay even before starting to hire personnel and producing the bagels** - because you have costs associated with researching the competition between the other firms on the market for bagels. ## 14. Multiple Choice **1 point** You have a company and you receive all profits from it as your own income plus you pay yourself a £48,000-a-year salary. You turned down a job with a standing salary offer of £65,000 a year if you agreed to work for a large corporation. If you had invested your capital in a friend's company instead, you estimate that would have returned £122,000 profit a year. Last year, your accounting profit was £150,000. What was your economic profit? - By not taking the alternative job, you lose £17,000 (£65,000 - £48,000). The opportunity cost of keeping your capital tied up in your company is £122,000. The economic profit is therefore: £150,000 - £17,000 - £122,000 = £11,000. - By not taking the alternative job, you lose £65,000. The opportunity cost of keeping your capital tied up in your company is £122,000. The economic profit is therefore: £150,000 - £65,000 - £122,000 = - £37,000. You have actually an economic loss. - The alternative jobs do not count against your economic profit. The opportunity cost of keeping your capital tied up in your company is £122,000. The economic profit is therefore: £150,000 - £122,000 = £28,000. - **Not taking the alternative job does not count against your economic profit, but you pay your salary from your own accounting profit so you lose £48,000. The opportunity cost of keeping your capital tied up in your company is £122,000. The economic profit is therefore: £150,000 - £48,000 - £122,000 = - £20,000. You have actually an economic loss.** ## 15. Multiple Choice **1 point** If a firm's mode of operation on the market is presented with the graph below, what is the type of market and will the firm be willing to supply its product on the market? *Image of a graph with cost on the y-axis and quantity on the x-axis. The Marginal Cost curve intersects the Average Revenue curve at a point that is above the Average Total Cost curve.* - this is a perfectly competitive market, as price is equal to average revenue and marginal revenue; the firm will not be willing to provide on the market since the average total cost curve (ATC) is below the intersection point of the marginal costs curve (MC) and the marginal revenue curve (MR). - **this is a perfectly competitive market, as price is equal to average revenue and marginal revenue; the firm will be willing to provide on the market since the average total cost curve (ATC) is below the intersection point of the marginal costs curve (MC) and the marginal revenue curve (MR).** - this is an imperfectly competitive market, as there is an opportunity for profit and marginal revenue; the firm will not be willing to provide on the market since the average total cost curve (ATC) is below the intersection point of the marginal cost curve (MC) and the marginal revenue curve (MR). - this is an imperfectly competitive market, as there is an opportunity for profit and marginal revenue; the firm will be willing to provide on the market since the average total cost curve (ATC) is below the intersection point of the marginal costs curve (MC) and the marginal revenue curve (MR).