# Quiz No 1 ECO 402. Quiz # 1 ECO402 (Microeconomics) Semester spring 2008 Total Marks 10

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1 Quiz # 1 ECO402 (Microeconomics) Semester spring 2008 Total Marks 10 Instructions: 1. This quiz covers Lesson Last date for submission of quiz is 03/05/ Upload your quiz with in due date and time. 4. No quiz will be accepted after due date and time. 5. In MCQs, write only one option in the answer sheet which you think is correct. More than one answer will be marked zero. 6. No quiz will be accepted through Please submit your solution files (a word document) as illustrated on the next page.

2 Answer Sheet Draw this table in a word document and solve your quiz. In the selected option column, write the option number (A, B, C, D) which you think is the correct option for MCQs. Upload only the answer sheet on LMS. Don t upload the whole quiz. Q no. Selected option

3 1. The difference between price consumption curve and income consumption curve is: a. There is no difference since both represent a set of utility maximizing baskets. b. The slope of price consumption curve is higher. c. Both represent a set of utility maximizing baskets. However in price consumption curve, the price varies and the income varies in income consumption curve. d. None of the above. 2. Income elasticity of demand for a normal good: a. Is always positive since the consumption decreases with increase in income. b. Is sometimes positive since the consumption may increase with increase in income. c. Is always negative since the consumption increases with increase in income. d. Is always positive since the consumption increases with increase in income 3. Consumer surplus is: a. The surplus income available with a consumer after purchasing all the goods. b. The difference between the maximum amount a consumer is willing to pay for a good and the actual amount paid at the time of purchasing the good. c. The surplus amount left after purchasing all normal goods. d. The surplus amount left after purchasing all the inferior goods. 4. Which of the following statements is an example of positive network externality? a. People eat hotdogs because they like the taste and hotdogs are filling. b. As soon as B discovered that everyone else was buying hotdogs, he stopped buying them. c. A wouldn't think of buying hotdogs until she realized that all her friends were eating them. d. When personal income grew by 10%, hotdog sales fell

4 5. The substitution effect refers to: a. The change in quantity demanded when the price of a substitute changes. b. The change in quantity demanded resulting from a change in total satisfaction, holding relative prices constant. c. The change in quantity demanded resulting from a change in relative prices, holding the level of satisfaction constant. d. None of the given. 6. The arc elasticity formula is used to estimate elasticity when: a. The product is thought to be inelastic. b. The product is thought to be elastic. c. The demand function is known. d. There are two observations of price and quantity. 7. An elasticity coefficient of -1 means that: a. The demand curve is perfectly inelastic. b. The demand curve is perfectly elastic. c. The relative changes in price and quantity are equal. d. Expenditures on the good would increase if prices were reduced. 8. The income elasticity of an inferior good is: a. Negative because as people get richer they increase their purchases of the good by smaller and smaller amounts. b. Because the increased income offsets the desire to consume less of the good because it is inferior. c. Greater than 1 because the richer you get, the less you consume of the good. d. Negative because higher income leads to a reduction in the amount consumed of the product.

5 9. If an Engel curve has a positive slope: a. Both goods are normal. b. The good on the horizontal axis is normal. c. As the price of the good on the horizontal axis increases, more of both goods in consumed. d. As the price of the good on the vertical axis increases, more of the good on the horizontal axis is consumed. 10. What does it mean when the consumer price index CPI is higher this year than last? a. The rate of inflation has increased. b. There has been inflation since last year. c. Real prices have increased. d. Real prices have decreased.