Microeconomics MCQs | ECO402 MCQs | Set 2
Microeconomics MCQs | ECO402 MCQs | Set 2
MCQs (Multiple Choice Questions)
1) The concept of a risk premium applies to a person that is:
a) Risk averse
b) Risk neutral
c) Risk loving
d) All of the given options
Correct Answer:
The correct answer is 'a'.
Explanation:
A risk premium is the additional return or compensation that an individual would demand in exchange for taking on higher risk compared to a risk-free investment. Risk-averse individuals are more cautious and generally prefer lower risk and are willing to accept it only if there's a potential for a higher return. They require a risk premium to compensate for the additional risk they are taking on.
______________________________
2) The risk premium is the amount of money that a risk-averse person would pay to avoid taking a risk. Technological improvement:
a) Can hide the presence of diminishing returns.
b) Can be shown as a shift in the total product curve.
c) Allows more output to be produced with the same combination of inputs.
d) All of the given options are true.
Correct Answer:
The correct answer is 'd'.
Explanation:
______________________________
3) Suppose that the prices of good A and good B were to suddenly double. If good A is plotted along the horizontal axis:
b) The budget line will become flatter.
c) The slope of the budget line will not change.
d) The slope of the budget line will change, but in an indeterminate way.
Correct Answer:
The correct answer is 'a'.
Explanation:
When the prices of both goods in a two-good economy double and good A is on the horizontal axis, this change affects the slope of the budget line. The budget line's slope is determined by the relative prices of the two goods. A steeper budget line indicates a change in the relative price of good A in terms of good B, demonstrating the increased opportunity cost of acquiring good A.
______________________________
4) Good A is a normal good. The demand curve for good A:
a) Slopes downward.
b) Usually slopes downward, but could slope upward.
c) Slopes upward.
d) Usually slopes upward, but could slope downward.
Correct Answer:
The correct answer is 'a'.
Explanation:
Normal goods have a negative or downward-sloping demand curve. As the price of the good decreases, the quantity demanded increases, and as the price increases, the quantity demanded decreases, illustrating an inverse or negative relationship between price and quantity demanded.
______________________________
5) Recently, Pakistan has experienced a large growth in population. As a result, the demand curve for telephone service in Pakistan:
a) Has shifted to the right.
b) Has shifted to the left.
c) Has shifted down.
d) None of the given options.
Correct Answer:
The correct answer is 'a'.
Explanation:
An increase in population generally leads to an increase in the demand for goods and services, shifting the demand curve to the right, indicating a higher quantity demanded at each price level.
______________________________
6) The change in the quantity demanded of a good resulting from a change in relative price with the level of satisfaction held constant is called the ____________ effect.
a) Giffen
b) Real price
c) Income
d) Substitution
Correct Answer:
The correct answer is 'd'.
Explanation:
The substitution effect illustrates how consumers may switch from one product to another due to a change in the relative prices of those goods, assuming that the consumer's satisfaction or utility remains the same.
______________________________
7) The magnitude of the slope of an indifference curve is:
a) Called the marginal rate of substitution.
b) Equal to the ratio of the total utility of the goods.
c) Always equal to the ratio of the prices of the goods.
d) All of the given options.
Correct Answer:
The correct answer is 'a'.
Explanation:
The marginal rate of substitution (MRS) represents the rate at which a consumer is willing to give up some amount of one good in exchange for an additional unit of another good while maintaining the same level of satisfaction or utility. It's measured as the absolute value of the slope of the indifference curve. The MRS is not necessarily always equal to the ratio of the prices of the goods or the ratio of the total utility of the goods.
______________________________
8) Boeing Corporation and Airbus Industries are the only two producers of long- range commercial aircraft. This market is not perfectly competitive because:
a) Each company has annual sales over $10 billion.
b) Each company can significantly affect prices.
c) Airbus cannot sell aircraft to the United States government.
d) All of the given options.
Correct Answer:
The correct answer is 'b'.
Explanation:
In a perfectly competitive market, no single producer has the power to influence the market price due to the presence of many buyers and sellers, homogeneous products, and free entry and exit from the market. However, in the case of Boeing and Airbus, being the only two major producers of long-range commercial aircraft, they possess the ability to affect prices through their market dominance, product differentiation, and control over a significant portion of the market share. This situation deviates from the characteristics of perfect competition.
______________________________
9) Which of the following is NOT a factor of production?
a) Labour
b) Land
c) Capital
d) Demand
Correct Answer:
The correct answer is 'd'.
Explanation:
Factors of production refer to the resources or inputs used in the production process to create goods and services. Labor, land, and capital are traditional factors of production. Demand, however, is not a factor of production; rather, it represents the quantity of a good or service that consumers are willing and able to buy at various prices during a specific period.
______________________________
10) Indifference curves are convex to the origin because of:
a) Transitivity of consumer preferences.
b) The assumption of a diminishing marginal rate of substitution.
c) The assumption that more is preferred to less.
d) The assumption of completeness.
Correct Answer:
The correct answer is 'b'.
Explanation:
The convex shape of indifference curves illustrates the diminishing marginal rate of substitution. This means that as a consumer moves along the indifference curve, they are willing to give up successively smaller amounts of one good in exchange for more units of the other good, reflecting a decreasing rate at which the consumer is willing to substitute between the two goods while maintaining the same level of satisfaction.
______________________________
No comments