-
as the consumer’s nominal income increased, he or she purchased more of both goods
-
as the price of apples increased, the consumer purchased relatively more of them
-
As the price of oranges decreased, the consumer consumed more oranges
-
as the price of apples decreased, the consumer purchased more of them and still had sufficient income left over to increase the purchase of oranges as well
-
both (B) and (D)
The budget line can change this way if price of oranges falls while income and price of apples are unchanged. That is why the cause of the change in consumption is the fall in the price of oranges
32. When a good is a Giffen good
A) Its demand curve is upward sloping.
B) Its demand curve may be downward sloping.
C) It is also an inferior good.
D) It may be a normal good.
E) More than one answer is correct.
A and C are correct
A) When price of a Giffen good goes up the consumption of that good increases so the demand curve has upward slope.
C) If price of a good increases then substitution effect decreases consumption of that good. Given that real income falls the income effect can compensate the substitution effect only if the good is inferior.
33. Which of the following would cause the demand curve of a normal good X to shift to the left:
I. A drop in the price of X.
II. An increase in the price of its substitute.
III. A decrease in consumer’s income.
A) Only I is correct.
B) Only II is correct.
C) II and III are correct.
D) I, II and III are correct.
E) Only III is correct.
I) This reflects the movement along the demand curve
II) An increase in the price of a substitute will lead to the increase in the demand for X and consequently shift the demand curve to the right
III) Decrease in income will lead to the decrease in the quantity demanded at any price => demand falls => demand curve shifts to the left
34. Suppose an individual consumes just two goods, i and j. The price of one of the good (good i) falls. Each of the following statements regarding the effect of the price change on the quantity demanded is correct except:
A) If the good i is normal, then the income effect and substitution effect are both positive.
B) If the good j is a normal good, then the substitution effect is negative, and the income effect is positive, and so the overall effect is ambiguous.
C) If the good j is inferior good, then the substitution effect and the income effect are both negative.
D) If the good i is inferior, but not a Giffen good, then the income effect is negative, but the substitution effect is positive, and the total effect is ambiguous.
E) none of the above, all statements are correct.
If the good is not a Giffen good then fall in the price of that good must result in the increase of consumption of that good
35. When a consumer receives a transfer in kind of one of the two consumption goods, his consumption of the other good:
A) necessarily increases.
B) necessarily decreases.
C) increases only if there is a tangency of an indifference curves and the new budget line at the new equilibrium point.
D) may increase or decrease.
E) none of the above.
36. Suppose the supply curve for oats slopes up and the demand curve slopes down. If medical researchers announce that eating oats reduces the risk of cancer and at the same time the frost destroys a major portion of the oat crop, than we know for sure that:
A) The price of oats increases.
B) The price of oats decreases.
C) The quantity of oats sold increases.
D) The quantity of oats sold decreases.
E) More than one answer above is correct.
37. Suppose a person has a full time job earning is $30’000 per year. He also has $100’000 on his bank deposit and interest rate 5%. He has two options: change his job (at new job he will earn $40’000 per year) or use all money from his bank deposit to open own business with annual profit $42’000. The opportunity costs of opening business equal to (annually):
A) $30’000
B) $35’000
C) $40’000
D) $45’000
E) None of the answers is correct
38. Which of the following statements are FALSE?
I. If economic profit is maximized then accounting profit is maximized as well
II. If MC>AVC then MC must be increasing as well as AVC
III. If in the short run for certain level of output AC is at minimum then in the long run AC for this level of output can not be further decreased.
A) II
B) II and III
C) III only
D) I and III
E) I, II and III
{ Falling MC in the situation when MC>AVC is quite an exotic case, so both answers for II was acceptable }
39. For a certain level of output of a firm, MC<P<AC. This necessarily means that the firm should:
A) Cease production immediately
B) Keep output constant
C) Increase its output
D) Decrease its output
E) None of the above
40. If a firm has only fixed costs (variable costs equal zero). Then the firm should:
A) Maximize its output
B) Set output such that difference between price and average costs is maximized
C) Produce at a level of output where MR = 0
D) Produce at a level of output where P = 0
E) None of the above
41. If a firm has constant returns to scale:
A) Long run average cost curve is horizontal
B) Long run marginal cost curve is horizontal
C) Short-run average cost curve can be upward sloping
D) All of the above
E) Only (A) and (B) are correct
42. A possible explanation for increasing returns to scale is:
I. The ability to specialize for big firms;
II. Managerial problems with control;
III. Cheaper inputs on volume orders.
A) Only I is correct.
B) Only II is correct.
C) I and III is correct.
D) I and II is correct.
E) None of the above.
{ Increasing returns to scale refers to the properties of the production function, Economies of scale – to costs. Cheaper inputs influence the economy of scale, but not the returns to scale. However this aspect was not discussed in lectures and seminars and thus III was omitted }
Use the data below for the firm ABC to answer the following question:
|
Quantity |
1 |
2 |
3 |
4 |
5 |
6 |
|
Long-run Average total cost |
100 |
90 |
100 |
120 |
150 |
160 |
43. ABC experiences:
A) Decreasing marginal returns at low levels of output and increasing marginal returns at higher levels of output.
B) Increasing marginal returns at low levels of output and decreasing marginal returns at higher levels of output.
C) Diseconomies of scale at low levels of output and economies of scale at higher levels of output.
D) Economies of scale at low levels of output and diseconomies of scale at higher levels of output.
E) More than one answer is correct.
If average cost is decreasing then the firm experiences economies of scale: more units need less factors to
44. Under which of the following circumstances is a firm experiences economies of scale:
A) The firm increases only its labour input, and output increases.
B) The firm doubles all its inputs, and output triples.
C) The firm builds a new plant, and the average cost of production increases.
D) The product price increases, and the firm increases its output.
E) More than one answer above is correct.
Economies of scale means that the output rises at higher rate than the increase of factors’ employment
45. Optimal production decision of a producer requires that the marginal revenue equals:
A) Average revenue
B) Average cost
C) Zero
D) Marginal cost
E) More than one answer may be correct
Straight forward:
46. Optimal production decision of a producer requires that the marginal cost:
A) is less than the average fixed cost;
B) is greater than the average variable cost;
C) is equal to the average variable cost;
D) is equal to the average fixed cost;
E) none of the above.
{ Requirement B is valid for a perfect competition, in case of monopoly requirement B can be violated }