1.Economists usually do not agree on economic issues because

Select one:

a.Of different in values

b.Different economists hold different normative views.

c.Different economists have different self-interests.

d.Of differences in scientific judgments

e.Different economists prescribe to different schools of thought

f.Differences in scientific findings

2. Which of the following is not relevant to theory of consumer choice?

Select one:

a.Purchasing decisions of individuals

b.Law of demand holds for goods

c.Demand curves are downward sloping

d.Higher wages could increase or decrease quantity of labor supplied

e.Consumer always negotiate for low prices in the markets

f.Interest rates could increase or decrease savings.

3. In a realistic circular-flow model,

Select one:

a.There is no government sector

b.There are no resources

c.Factor income flows back to the households

d.There is no foreign sector

e.There are no taxes

f.There are no trade flows

4. Which of the following statement is incorrect?

Select one:

a.Microeconomics helps understand why some markets are not competitive

b.Microeconomics helps understand public policy decisions are made by the government

c.Microeconomics helps economists understand how general price level of goods and services are determined.

d.Microeconomics helps understand consumption choices of individuals.

e.Microeconomics helps better understand functioning of markets

f.Microeconomics focusses more choices made by firms and consumers.

5. If more firms enter the industry in the long run and market prices falls, then we know that a competitive firm will

Select one:

a.make economic profit if some more works are hired to increase production.

b.make economic loss given lower market prices.

c.make economic profit if average cost is equal to market price.

d.make economic profit if average cost is still lower than market price.

e.make economic loss as firm cannot lower price on a sustained basis.

f.make economic loss if average cost is less than marginal cost.

6. Economic profit is computed as

Select one:

a.Total revenue minus total explicit costs.

b.Total revenue minus total opportunity costs.

c.Total revenue minus total fixed costs.

d.Total revenue minus total implicit costs.

e.Total revenue minus total cost, including explicit and implicit costs.

f.Total revenue minus total average cost.

7. Which of the following statement is most correct about incentives?

Select one:

a.Incentives are useful for public policy official to reduce government expenditure.

b.Incentives are not always successful

c.Incentives are not meant to influence behavior of business firms

d.None the above statements are correct

e.Incentives can be used to encourage but not discourage certain behavior of economic agents.

f.Incentives should always be monetary in nature.

8. Which of the following is not a reason for market failure?

Select one:

a.Presence of market power

b.Private goods

c.Incomplete information

d.Public goods

e.Negative externalities

f.Positive externalities

9. Which of the following is true about a tax system?

Select one:

a.Sales imposed on firms are borne by firms themselves

b.There is minimum trade-off between equity and efficiency

c.Tax revenue depends on equity

d.There is always some level of deadweight loss.

e.Tax revenue depends on economic efficiency

f.Taxpayers are main priority

10. Economic models

Select one:

a.Always makes correct predictions

b.Used to describe real world events or behavior

c.Are based on certain assumptions

d.Are simplifications of reality

e.Can only explain how the economy is organized

f.Can be modified to make it more useful.

11. Taxes will

Select one:

a.Encourage workers to work hard

b.Encourage savings.

c.Encourage economic growth

d.Improve economic efficiency

e.Discourage people from working hard

f.Increase household income

12. If price is below the average cost in a competitive market, then we know that

Select one:

a.Economic profit will be made by existing firms

b.New firms won't enter due to barrier to entry.

c.New firms will enter the industry

d.Existing firms will not leave the industry

e.Existing firms will not remain in the industry

f.Existing firms will make normal profit.

13. Which of the following is not an attribute of positive statements?

Select one:

a.Positive statements do not rely on value judgments

b.Positive statements are about how the world ought to be

c.Positive statements can be refuted

d.Positive statements are influenced by ethics

e.Positive statements can be evaluated using relevant data

f.Positive statements are descriptive

14. If marginal rate of substitution is equal to relative prices, we know that

Select one:

a.Consumer saves much of the income

b.Consumer is able to maximize utility subject to the income constraint.

c.Consumer is able to maximize utility subject to the budget constraint.

d.Utility is maximized at lower prices of goods

e.Consumer is able to minimize utility subject to the income constraint

f.Consumer is able to minimize utility subject to the budget constraint.

15. Diseconomies of scale arises due to

Select one:

a.Use of modern technology

b.Specialization

c.Lower productivity

d.Mismanagement due to high costs

e.Difficulty in managing a large team

f.Better coordination

16. Which of the following statements about economic profit and accounting profit is correct?

Select one:

a.Accounting profit will be equal to economic if explicit cost is zero

b.Accounting profit will be equal to economic if explicit cost exceeds implicit costs

c.Economic profit is equal to accounting profit

d.Economic profit is always greater than accounting profit

e.The difference between accounting and economic profit is due to explicit costs only.

f.The difference between accounting and economic profit is implicit costs.

17. If a competitive firm makes normal profit in the short run, then this implies that

Select one:

a.Price is equal to average cost

b.Price is greater than average variable cost

c.Price is less than marginal cost

d.Price is equal to average variable cost

e.Price is equal to marginal cost

f.Price is less than average variable cost

18. Surplus in the market for apples implies

Select one:

a.Price will fall until firms and consumers agree

b.Price will increase temporarily

c.Price will remain same as supply is high

d.Price will fall only if supply increases

e.Price control is needed to avoid wastage

f.Price will increase until firms and consumers agree

19. Which of the following is a reason for a rise in consumer surplus following a decline in price?

Select one:

a.Decline in price drives out competitors

b.New buyers enter the market

c.Existing consumers pay less taxes

d.Firms are able to reduce their cost of production

e.Buyers have more choice in the market

f.Buyers maximize utility due to lower price

20. Which of the following statement is correct about markets?

Select one:

a.Markets will not fail there is correct policy intervention

b.Markets necessarily require buyers and sellers to meet face-to-face to trade goods and services

c.Demand-side conditions in the market will influence the price.

d.Markets are strictly physical location where buyers and sellers meet.

e.Price in the market will decide which goods and services will be produced.

f.Supply-side conditions in the market will determine the price.

21. Assume you are told that total cost of producing a bag is $20. The total cost increases to $25 when firm produce 2 bags and $30 when firm produces 3 bags. The cost of hiring labor is $5. Based on this information, we know that

Select one:

a.Total cost is $75

b.Marginal cost is $25

c.Average cost is $10

d.Average variable cost is $20

e.Average fixed cost is $3

f.Fixed cost is $15

22. Which of the following is a possible reason that price elasticity of demand for medicine is inelastic?

Select one

a.Definition of market

b.Poor technology

c.Poor taste

d.Few alternatives

e.Luxuries

f.Less preference

23. Which of the following is not correct about a perfectly competitive firm?

Select one:

a.Each firm sells a unique product

b.Price charged by the firm is determined by the market demand and supply

c.Each firm produces and supplies a small amount of output relative to market supply

d.Sale of additional unit of good generates same level of marginal revenue

e.Each firm is a price taker

f.Average revenue is constant regardless of the output level.

24. Which of the following is not correct about tax laws?

Select one:

a.Tax laws involves administration burden

b.Complying with tax laws involves a deadweight loss.

c.Tax laws by governments do not have loopholes

d.Special lobby groups can influence tax laws

e.Loopholes in the tax laws are often used to reduce taxes

f.Changing tax laws are politically difficult

25. Which of the following is not an attribute of a competitive market?

Select one:

a.Firms have market power

b.Firms can freely enter the industry

c.Firms sell identical products

d.There are many buyers and sellers

e.All firms are price takers

f.Individual firms do not determine market prices.

26. Which of the following statements about public policy is incorrect?

Select one:

a.Political process does impact public policy

b.Politicians are not always fully-informed about impact of public policy

c.Politicians always improve market outcomes through public policy

d.Public policy does not always correct market failure

e.Public policy often involves trade-off between efficiency and equity

f.Public policy is partially influenced by teams of public sector economists.

27. Which of the following statements is incorrect about budget constraint?

Select one:

a.The position of the budget constraint is not solely determined by the income of consumer

b.Higher budget constraint does not indicate higher level of utility for consumer

c.The position of the budget constraint is determined by the income of consumer and prices of two goods in the market

d.Budget constraint helps us identify consumption bundles which are unaffordable

e.All possible combination of two goods on the budget constraint gives the consumer same level of utility

f.If the consumer picks a consumption bundle that falls on the budget constraint, then savings will be zero

30. If a competitive market is in equilibrium, then which of the following statements will be not correct?

Select one:

a.Resources are allocated and used efficiently

b.There is no shortage

c.Goods will be equally distributed amongst all members of the society

d.Efficient level of output will be produced

e.There is no deadweight loss

f.Producers and consumers are happy with the price.

31. Which of the following statements about Economics is Scale is incorrect?

Select one:

a.Economic of scale arises due to specialization

b.Economic of scale occurs when average cost in minimized at certain output level

c.Economic of scale does not occur due to rise in marginal cost as output increases

d.Economic of scale explains the downward sloping portion of the long run average cost curve

e.Economic of scale arises as firms better utilize their factor inputs.

f.Economic of scale occurs as average cost falls when firms produce more output.

32. In a regressive tax system,

Select one:

a.Low-income earners pay a smaller fraction of their income as taxes

b.All taxpayers pay same fraction of income as taxes

c.Low-income earners pay a large fraction of their income as taxes

d.High-income earners pay a smaller fraction of their income as taxes

e.Middle-income earners pay a large fraction of their income as taxes

f.High-income earners pay a large fraction of their income as taxes