A. Whether total revenue (expenditure) increases or decreases as price changes

EXAM IN MICROECONOMICS

(April, 2009)

MOCK

VARIANT 1

SOLUTIONS

Section 1. Multiple choice questions

You have 70 minutes to do this part of the exam.

Marking scheme: 1 point for a correct answer, -0.25 for a wrong answer, 0 if the answer has not been given.

1. By the term “demand curve” economists mean the curve describing the relationship between price and quantity demanded. The focus on price means that

A. Economists believe price is the only factor that influences quantity demanded.

B. Price is the only factor that influences quantity demanded.

C. Economists are assuming that other influences on quantity demanded are constant so that the effect of price can be isolated.

D. The model's predictive power is of little value.

E. Economists are inappropriately overlooking other influences on quantity demanded.

2. Which of the following is correct? As price rises, quantity supplied rises along an individual firm’s supply curve because

I. The higher price encourages the firm to offer more units of the good for sale.

II. As the price rises, new firms enter the market.

A. Both I and II apply

B. Neither I nor II applies

C. Either I or II can apply, but not simultaneously

D. Only II applies

E. Only I applies

3. If supply and demand both decrease simultaneously, which of the following will happen?

A. Price will definitely rise

B. Quantity sold will definitely rise

C. Price will definitely fall

D. Quantity sold will definitely decrease

E. Depends on the relative change in demand and supply

4. The increase in demand would cause supply to:

A. Decrease (shift to the left)

B. Increase (shift to the right)

C. First increase due to substitution effect, then decrease due income effect

D. Either rise or fall, depending on the magnitude of the change in demand

E. Neither rise nor fall, although quantity supplied would increase

5. Which of the following would not produce a shift in the demand curve for apple juice?

A. An increase in the price of orange juice which is a substitute for apple juice

B. A decrease in the price of biscuits which are a complement for apple juice

C. An increase in the income of apple juice consumers

D. A decrease in the price of apples which are used in juice production

E. All of the above would produce a shift in the demand curve for apple juice

6. The price elasticity of demand is equal to - 4. It means that

A. If the price of a commodity increases by 0.25%, the quantity demanded will fall by 1%.

B. If the price of a commodity decreases by 1%, the quantity demanded will increase by 0.25%.

C. If the price of a commodity increases by 0.25%, the quantity demanded will increase by 1%.

D. If the price of a commodity decreases by 0.25%, the quantity demanded will fall by 1%.

E. If the price of a commodity increases by 1%, the quantity demanded will fall by 0.25%.

7. A horizontal demand curve has a price elasticity (in absolute value) of

A. Zero

B. Different in different points

C. One

D. Between one and infinity

E. Infinity

8. If the slope of the demand curve is -0.167, price is $8 and quantity demanded 12 units, then demand for this good is

A. Perfectly elastic

B. Elastic

C. Unit elastic

D. Inelastic

E. Perfectly inelastic

9. You can figure out whether demand is elastic or inelastic by observing

A. Whether total revenue (expenditure) increases or decreases as price changes

B. Whether quantity demanded increases or decreases as price changes

C. Whether price goes up or down as the supply curve shifts outward

D. Either (A) or (C)

E. How close the shape of the demand curve to the straight line

10. The burden of the tax is most likely to fall on the seller when the:

A. Demand is inelastic and supply is elastic

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