Managerial Economics Quiz Exam!
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Questions and Answers
- 1.
Opportunity cost is not zero ______________
- A.
During general unemployment
- B.
Sunk costs
- C.
Free goods
- D.
When a machine has multiple uses
- E.
Full employement
Correct Answer
D. When a machine has multiple usesExplanation
Opportunity cost refers to the value of the next best alternative that is forgone when making a decision. In the context of a machine with multiple uses, the opportunity cost is not zero because choosing one particular use for the machine means giving up the opportunity to use it for another purpose. Therefore, there is a trade-off involved and an opportunity cost associated with each decision made regarding the use of the machine.Rate this question:
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- 2.
PPC curve is convex to the orgin:
- A.
Decreasing marginal rate of substitution
- B.
Constant marginal rate of substitution
- C.
Increasing marginal rate of substitution
- D.
Because of specialised resources
- E.
Maximum quantity produced at increasing cost
Correct Answer
A. Decreasing marginal rate of substitutionExplanation
The correct answer is decreasing marginal rate of substitution. This is because a convex PPC curve indicates that the opportunity cost of producing one good increases as more of it is produced, which implies a decreasing marginal rate of substitution between the two goods. In other words, as an economy moves from producing more of one good to producing more of the other, it needs to give up increasingly larger amounts of the first good in order to gain additional units of the second good. This reflects the idea that resources are not equally suited for producing both goods and that specialization is necessary for efficient production.Rate this question:
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- 3.
Reservation price refers to?
- A.
Maximum price
- B.
Minimum price
- C.
Price floor
- D.
Price ceiling
- E.
Seller's price
Correct Answer
A. Maximum priceExplanation
Reservation price refers to the maximum price that a buyer is willing to pay for a product or service. It is the highest price that a buyer is willing to accept in order to make a purchase. The reservation price represents the buyer's willingness to pay and is often used in negotiations to determine the final price of a transaction.Rate this question:
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- 4.
Price floor
- A.
Meant for buyers
- B.
Meant for sellers
- C.
Both buyers and sellers
- D.
Set by the government
- E.
Set on the floor
Correct Answer
B. Meant for sellersExplanation
A price floor is a minimum price set by the government to prevent the market price from falling below a certain level. It is meant for sellers because it ensures that they receive a fair price for their goods or services. By setting a price floor, the government aims to protect the interests of sellers and maintain the stability of the market. This policy can be implemented in various industries, such as agriculture, to support farmers and prevent them from selling their products at extremely low prices.Rate this question:
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- 5.
Excess supply happens when there is:
- A.
Price floor
- B.
Rent control
- C.
Consumer surplus
- D.
Due to govt subsidies
- E.
Due to govt taxes
Correct Answer
A. Price floorExplanation
Excess supply occurs when there is a price floor, which is a minimum price set by the government for a particular good or service. This means that the price cannot fall below this floor, leading to a situation where the quantity supplied exceeds the quantity demanded at that price level. As a result, there is an excess of unsold goods or services in the market, causing a surplus.Rate this question:
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- 6.
When income of the consumer increases the demand for Giffen good:
- A.
Goes up
- B.
Goes down
- C.
Depends up on the price of the good
- D.
Constant
- E.
It goes up certain level then remain constant
Correct Answer
A. Goes upExplanation
When the income of a consumer increases, the demand for a Giffen good goes up. This is because a Giffen good is an inferior good with no close substitutes, meaning that as the consumer's income increases, they are more likely to switch to higher-quality substitutes. However, in the case of a Giffen good, the income effect outweighs the substitution effect, leading to an increase in demand as income rises.Rate this question:
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- 7.
The deadweight loss refers to:
- A.
Loss of social welfare
- B.
Loss of sellers
- C.
Loss of buyers
- D.
Excess demand
- E.
Excess supply
Correct Answer
A. Loss of social welfareExplanation
The deadweight loss refers to the inefficiency in an economy where the total social welfare is not maximized. It occurs when the quantity of a good or service produced and consumed is not at the equilibrium level, resulting in a loss of overall welfare. This loss can be attributed to various factors such as taxes, subsidies, price controls, or market distortions. The deadweight loss represents the gap between the maximum potential welfare and the actual welfare achieved in a market.Rate this question:
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- 8.
Which of the following are not determinants of supply?
- A.
Income of the consumer
- B.
Price of substitues
- C.
Infrastructure
- D.
Cost of inputs
- E.
Price of complements
Correct Answer
A. Income of the consumerExplanation
The income of the consumer is not a determinant of supply. Supply is determined by factors such as the price of substitutes, infrastructure, cost of inputs, and price of complements. The income of the consumer, on the other hand, is a determinant of demand. As the income of consumers increases, their ability to purchase goods and services increases, leading to an increase in demand.Rate this question:
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- 9.
If the price of the commodity tends to high then it enjoys:
- A.
Elastic demand
- B.
Inelastic demand
- C.
Unit elastic
- D.
Perfectly inelastic demand
- E.
Perfectly elastic demand
Correct Answer
A. Elastic demandExplanation
When the price of a commodity tends to be high, it leads to elastic demand. This means that as the price increases, the quantity demanded by consumers decreases significantly. In other words, consumers are highly responsive to price changes and are willing to reduce their consumption when the price is high. Elastic demand indicates that the demand for the commodity is sensitive to price fluctuations, and consumers are more likely to switch to alternative products or reduce their overall consumption when the price increases.Rate this question:
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- 10.
Which of the following statement is false?
- A.
Price line is required to draw consumer's equilibrium under IC analysis
- B.
The consumer is hooked to highest possible IC under equilibrium
- C.
Under price ceiling hoarding and black marketing take place
- D.
Wider the substitute for a good higher elasticity of demand for a good
- E.
The MU of money cannot remain constant
Correct Answer
C. Under price ceiling hoarding and black marketing take placeExplanation
The statement "Under price ceiling hoarding and black marketing take place" is false. Price ceilings are government-imposed maximum prices that can be charged for goods and services. They are usually set below the equilibrium price in order to make the product more affordable for consumers. However, when a price ceiling is set below the equilibrium price, it can create a shortage of the good or service. While hoarding and black marketing can occur during shortages, they are not a direct result of price ceilings. Price ceilings can lead to other negative consequences such as reduced supply and quality, but hoarding and black marketing are not inherent to price ceilings.Rate this question:
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