1 Which of the following statement is FALSE:

A. Islam recognizes the role of the market in allocating resources in the economy.

B. Islamic economic system rejects all forms of self-interest pursuit by individuals.

C. The role of al-Hisbah in an Islamic economic system is to ensure that the market is free from any elements of exploitation, unfair competition and injustice.

D. In an Islamic economic system, both private and public property ownerships are acknowledged.

2 A possible advantage of a planned economy is that:

A. Resources are allocated via the price mechanism

B. There is greater consumer choice of products

C. Central planning results in more efficient use of resources compared to market mechanism

D. The state can better allocate resources to produce goods and services for collective interests

3 "Pepper prices are rising, thanks to poor rains in the major producing nations of India

and Indonesia, industry experts have warned. The price of the product is being further supported by growing consumption in India." Source: The Independent, 6 December 2002.

Which one of the following best explains the reasons behind the changing price of pepper outlined in the passage above?

A. The market demand for pepper has shifted leftwards and the market supply of pepper has shifted leftwards

B. The market demand for pepper has shifted rightwards and the market supply of pepper has shifted rightwards

C. The market demand for pepper has shifted rightwards and the market supply of pepper has shifted leftwards

D. The market demand for pepper has remained the same and the market supply of pepper has shifted leftwards

4 An advertising campaign aimed at differentiating a product from its only substitute was successful. What is likely to have happened to the price elasticity of demand for the product and the cross price elasticity of demand of the substitute?

A. Price elasticity of demand increases and cross elasticity of demand increases

B. Price elasticity of demand increases and cross elasticity of demand decreases

C. Price elasticity of demand decreases and cross elasticity of demand increases

D. Price elasticity of demand decreases and cross elasticity of demand decreases

5 In 2001, prices of coffee in Ethiopia fell by half - from 79 cents per kilogram in 2000 to 39 cents. If the demand for Ethiopian coffee is assumed to be price inelastic, the fall in price will cause:

A. A rise in the total revenue of coffee growers

B. A fall in the total revenue of coffee growers

C. No change in total revenue

D. An increase in the profitability of growing coffee in Ethiopia

6 In a free-market economy, an increase in the market price of a good will

A. Always lead to more resources being allocated to production of the good

B. Always lead to a fall in the output of the good

C. Provide information which will influence the production and consumption decisions of producers and consumers

D. Make it less likely that new suppliers will enter the industry

If the government wishes to increase economic welfare by introducing policies that create external benefits as well as internal ones, it should:

A. Raise the price of unleaded fuel

B. Increase the highest rates of income tax

C. Increase the school - leaving age

D. Impose higher taxes on polluting producers

7 Which of the following is a case of market failure in the context of the provision of pure public goods?

A. Consumers pay higher prices for a good following a shortage of supply

B. A government decides to supplement the private sector provision of a good

C. A government finds it necessary to provide a range of goods not offered by the private sector

D. A government's financial support for an industry leads to over-supply and a loss of efficiency

8 The government wants to increase taxes on selected products to increase tax revenues. This higher tax would only increase tax revenues if the price elasticity of demand for the products are:

A. Unit elastic

B. Elastic

C. Inelastic

D. Perfectly elastic

9 The benefit of an increase in a government subsidy to milk producers will go mainly to consumers in the form of a lower price when:

A. Demand for milk is price elastic

B. Supply of milk is perfectly inelastic

C. Demand for milk is price inelastic

D. Demand for milk is income elastic

10 Which of the following is True about the effect of a government-imposed price floor when the price floor being set is above the market equilibrium price?

A. Consumer surplus will increase

B. All firms will gain

C. There will be a product shortage

D. Consumer surplus will decrease

11 A consumer is making purchases of products A and B such that MUa / Pa=1.5 and MUb / Pb=3. The utility-maximizing rule suggests that this consumer should:

A. buy more of product A and less of product B.

B. buy more of product B and less of product A.

C. not make any change in the purchase decision.

D. None of the above

12 Information about a firm's production costs at a particular output level are given below:

Total variable costs $ 7200

Average fixed costs $ 20

Average total costs $ 100

What is the firm's output?

A. 60 units

B. 72 units

C. 90 units

D. It cannot be computed based on the information provided

13 In which of the following market structures do individual firms exert no control over product price?

A.oligopoly

B.pure monopoly

C.monopolistic competition

D.pure competition

14 Suppose that a competitive firm has MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will:

A.realize a profit of $4 per unit of output.

B.maximize its profit by producing in the short run.

C.minimize its losses by producing in the short run.

D.shut down in the short run.

15 A pure monopolist can sell 20 toys per day for $8.00 each. To sell 21 toys per day, the price must be cut to $7.00. The marginal revenue of the 21st toy is:

A.-$10

B.-$13

C.-$18

D.-$21

16 Monopolistic competition and oligopoly are alike in that:

A.the number of firms is approximately the same in both cases.

B.the kinked-demand analysis is applicable in both instances.

C.strong mutual interdependence exists among firms in both market models.

D.non-price competition is common to both.

17 Which of the following situations may improve the degree of allocative and productive efficiency conditions of oligopoly markets?

A.Less foreign competition stimulates more price competition among local oligopoly firms

B.Oligopolies are less technologically competitive so they lose market share

C.Oligopolies may purposely keep prices below profit-maximizing levels (to create barriers for other firms to enter the industry)

D.The more collusive practices of oligopolies lead to more profit-sharing among firms in the industry

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