Multiple Choice Questions Exam Econ 205 Pascal Courty MOCK MIDTERM

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1 Multiple Choice Questions Exam Econ 205 Pascal Courty MOCK MIDTERM Instructions: This is a closed-book exam. There are 30 questions and you have 45 minutes. Each question has only one correct answer. A correct answer is worth 5 points and no answer or a wrong answer is worth 0 points. Use the Answer Sheet provided to answer the questions and do not forget to write your name/student number. 1. Economic models are deliberately unrealistic a. In order to focus on the relevant issue; b. Because completely realistic models would be too complicated; c. Owing to limitations in the current state of the art in research. 2. Suppose that a detergent manufacturer were to acquire its supplier of basic chemicals. This would be a change of a. Vertical boundaries; b. Horizontal boundaries; c. None of the above. 3. All markets are global; no firm can avoid international competition. a. True; b. False. 4. The demand curve of an individual person shows. a. The quantity that she would buy at every possible price; b. The price that she would pay for any possible quantity; 5. If the buyer s income increases, her demand curve for an inferior product will. a. Shift to the left; b. Not change; c. Shift to the right; 6. An increase in the price of laser printers would the demand for laser printer cartridges. a. Increase; b. Reduce; c. Not affect. 7. The own-price elasticity of the market demand for U.S.-made compact cars is 3.4, while that for imported compact cars is 4.0. The demand for domestic compact cars is price elastic. a. More, b. Less, c. Equally.

2 8. If the person who chooses a product is separate from the person why pays, the demand will be price-elastic. a. Less, b. More, c. Equally. 9. Suppose that the own-price elasticity of the market demand for cigarettes is 0.4. If the price falls by 5%, the quantity demanded will change by: a. 2%, b. +2%, c. 0.8%, d. +0.8%. 10. The short run is a time horizon in which the seller. a. Cannot adjust one or more inputs; b. Must work within the constraints of past commitments; 11. Fixed costs. a. Do not change with the scale of operations; b. Are the same at all production levels; 12. A perfectly competitive business maximizes profit by producing at a rate where. a. Marginal cost equals price; b. Average cost is minimized; c. Total cost is minimized. 13. Which of the following is a condition for a market to be perfectly competitive? a. Products are homogeneous; b. There are many buyers, each purchasing a small quantity; c. There are many sellers, each supplying a small quantity; d. All of the above are conditions for perfect competition. 14. Markets where there are differences in information among buyers, among sellers, or between buyers and sellers, are competitive than those where all buyers and sellers have equal information. a. less; b. no less or more; c. more. 15. If a market experiences excess demand, the price will tend to: a. Fall; b. Remain unchanged; c. Rise. 16. If some supplier is operating at a lower marginal cost than others, it should production so that the use of resources will be economically efficient. a. Reduce,

3 b. Not change, c. Raise. 17. The Invisible Hand will: a. Achieve economic efficiency; b. Allocate resources so that marginal benefit equals marginal cost; 18. The objective of transfer pricing is to within an organization. a. Minimize cost; b. Achieve economic efficiency; c. Maximize benefit. 19. An industry where businesses have scale economies tends to be. a. Fragmented; b. Concentrated; c. Highly competitive; d. Specialized. 20. The average cost of production if there are scale economies, and if there are scale diseconomies. a. Does not change; does not change; b. Decreases; increases; c. Does not change; increases; d. Decreases; does not change. 21. If there are economies of scope across two businesses, most providers will. a. Be specialized; b. Be small and competitive; c. Sell both products. 22. The compressor is a key component in manufacturing both refrigerators and air-conditioners. This illustrates. a. Economies of scale; b. Economies of scope; c. Economies of scale and scope. 23. A monopoly has the entire market demand, but the demand may be elastic or inelastic. a. True; b. False. 24. A monopoly is selling at a rate where marginal revenue is less than marginal cost. It should. a. Reduce sales; b. Raise sales; c. Reduce or raise sales, depending on the circumstances. 25. If a monopoly experiences an increase in fixed cost,

4 a. The profit-maximizing price will change; b. The marginal revenue curve will also shift; c. The marginal cost curve will remain unchanged; d. None of the above. 26. With uniform pricing, if demand is more elastic, a seller should set a. a. Lower price; b. Higher price c. Lower incremental margin percentage; d. Higher incremental margin percentage. 27. The marginal cost of laundry service is $1 per item. The price-elasticity of demand is 4. The profit-maximizing uniform price is. a. $0.75; b. $1; c. $1.33; d. $ Complete price discrimination achieves higher profit than uniform pricing by. a. Extracting the entire buyer surplus for every unit; b. Selling the economically efficient quantity; 29. Direct segment discrimination may be based on. a. Buyer s age; b. Buyer s nationality; c. Buyer s location; d. Any of the above. 30. Madagascar is one of the world s main producers of vanilla. A report suggested that Madagascar s vanilla crop next year would be 2,200 tonnes compared to 2,900 tonnes this year. Assuming that the world vanilla market is perfectly competitive, it is reasonable to predict, ceteris paribus, that next year the price of vanilla a. will increase b. will stay constant c. will decrease d. will increase or decrease depending on the elasticity of demand

5 Answer Sheet Student #: Name: A B C D Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Question 8 Question 9 Question 10 Question 11 Question 12 Question 13 Question 14 Question 15 Question 16 Question 17 Question 18 Question 19 Question 20 Question 21 Question 22

6 Question 23 Question 24 Question 25 Question 26 Question 27 Question 28 Question 29 Question 30 DO NOT FORGET TO WRITE YOUR NAME and Good luck!

7 Problem Consider a market with two types of buyers and two types of sellers. There is a large number of each type and the propoportions of each type are equal. Buyer A is willing to pay 100 for 3 units and 50 for 2 more units. Buyer B is willing to pay 80 for 3 units and 60 for more 4 units. Seller C can produce 4 units at 20 and any additional units at 60. Seller D can produce 2 units at 40 and any additional units at Graph the demand of Buyer A. 2-Compute the suppy of Seller C. 3-Derive the equiplibrium price. 4-Assume the valuations of all buyers go down by 30. How does the equilibrium price change?

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