## Economics quizzes 1- 7 ....Doubts

vinita1703
Posts: 3
Joined: Fri Sep 14, 2012 4:40 pm

### Economics quizzes 1- 7 ....Doubts

test 1 :
9 A marketing survey shows that gate receipts would increase if the price of tickets to a summer rock concert increased, even though the number of tickets sold would fall. What does this imply about the price elasticity of demand for concert tickets?
Choose one answer.
a. Demand is inelastic
b. Demand is elastic
c. Demand is unit elastic
The correct answer is Demand is inelastic.

Why A ?? goods receipt increase if the price increase this means its elastic ?

Question 15 :Fred divides his purchases between beer and pizzas. Suppose Fred's budget constraint is graphed with beer on the horizontal axis and pizzas on the vertical axis. If the price of beer is \$1.50 per pint, the price of pizzas is \$2 each, and Fred's income is \$30 per week, then the budget constrain has a slope equal to:
Choose one answer.
a. -1.33
b. -2
c. -0.75
The correct answer is -0.75.

[b]Why .75 ...slope is e y/x which since pizza is on y it should be 2/1.5 = 1.33 [/b]

Question 17 :
The rate at which a firm can substitute one factor for another while still producing the same level of output is known as the:
Choose one answer.
a. Degree of returns to scale
b. Marginal rate of substitution
c. Marginal rate of technical substitution
The correct answer is Marginal rate of technical substitution.

Why not MRS ? it should ne answer B ? whats the differnce b.w b and c

Question 20 Refer to the figure below. Consider the isoquant for an output level of 300 units. The firm's amount of capital is fixed at 100 units in the short run. The user cost of capital is \$200 per day, and the wage rate is is \$80 per day per worker. The short run total cost of producing 300 units is equal to:

Choose one answer.
a. \$20,000 per day
b. \$36,000 per day
c. \$16,000 per day
The correct answer is \$16,000 per day.

why is only labor considered when it says the capital 100 units is also fixed in short run ?

TEST 2 :
question 13 is not shown ? there is a diagram which is not visible ?

TEST 3 :
Question 3 ,4 ,5 with diagrams not visible ?

Question 20 :
The Laffer curve shows that an increase in the tax rate:
Choose one answer.
a. Will not change total tax revenue.
b. Will increase total tax revenue.
c. Can either increase or decrease total tax revenue
The correct answer is Can either increase or decrease total tax revenue.

Please can some one let me know which Study session and which LOS is this from ?

Test 4 :
9 Comparing the four-firm concentration ratio and the Herfindahl-Hirschman Index, which is most likely to be associated with a perfectly competitive industry, respectively?
Choose one answer.
a. 25; 100.
b. 125; 1,000.
c. 90; 2,000.
The correct answer is 25; 100.

(The four-firm concentration ratio can range from zero to 100%. The Herfindahl-Hirschman Index has a theoretical range of near zero to 10,000.

Why it cant be C ??

10 What would be the economic profit of a Monopoly firm at the output quantity of 250. the firm has demand curve with a price (P) of \$50, a marginal cost (MC) and marginal revenue (MR) equal to \$20, and an average total cost (ATC) equal to \$10.
Choose one answer.
a. \$9,500.
b. \$12,500.
c. \$10,000.
The correct answer is \$10,000.

Economic profit = Total revenue – total cost, where total revenue = PQ and total cost = ATC × Q. So, Economic profit = (\$50)(250) – (\$10)(250).

Why are we using ATC for calcuations here and why not MC ??

13 What would be the impact of an unanticipated increase in aggregate demand on the following
An economy’s rate of unemployment,
rate of inflation, and
The short-run Phillips curve (SRPC)
a. Unemployment: Decrease; Inflation: Decrease; SRPC: Downward shift of curve
b. Unemployment: Decrease; Inflation: Increase ; SRPC: Upward movement along curve
c. Unemployment: Increase; Inflation: Increase; SRPC: Downward movement along curve
The correct answer is Unemployment: Decrease; Inflation: Increase ; SRPC: Upward movement along curve.

What is philip curve is it in our course ?? If yes which Study sessin and which LOS ?

Also , is interst rate equal to the discount rate ??

18 When there is an increase in lump-sum taxes, the consumption function
Choose one answer.
a. Shifts upward by the increase in taxes,ceteris paribus,
b. Shifts downward by the increase in taxes,ceteris paribus,
c. Shifts upward by the MPC times the increase in taxes,ceteris paribus,
The correct answer is Shifts upward by the MPC times the increase in taxes,ceteris paribus.

Can some one please explain to me this and if it is in the course ??

Test 5 :
9 Due to upswing in business in Lustyland there is a shift in demand curve of wheat. Therefore price of wheat in equilibrium stage approach 22 units/ kg (from 18units/kg). Opportunistic traders’ from neighboring states start supplying their stock to lustyland therefore equilibrium quantity supplied see an uprise to increases from 1000 kg to 1600 kg per week. Find out elasticity of the supply of wheat if supply curve has not shifted
Choose one answer.
a. 0.92
b. 0.231
c. 0.923
The correct answer is 0.923.

Answer is incorrect t comes out to be 2.3 which is not in the option please check the answer and iptions again ?

13 Find out marginal output of workers when increase in persons employed is 100 to 110 and output is 200 kg to 250kg everyday
Choose one answer.
a. Data insufficient
b. 2.5 kg/day/person
c. 2.7 kg/day/person
The correct answer is 2.5 kg/day/person.

Answer is wrong again ?? should be 5 .... 50 / 10

14.Which of the following is true
Choose one answer.
a. GNP = GDP
b. GNP = GDP+ income from citizens abroad – salary paid to foreigners
c. GDP = GNP+ income from citizens abroad – salary paid to foreigners
The correct answer is GNP = GDP+ income from citizens abroad – salary paid to foreigners.

what is the full form of GNP ? is this from our course ??

17 The total revenue test is a method of estimating the price elasticity of demand by observing the change in total revenue that result from a change in the price, when all other influences on the quantity sold remain the same. Conclude from following result in total revenue test when cut in price decreases total revenue.
Choose one answer.
a. Demand is unit elastic
b. Demand is elastic
c. Demand is inelastic
The correct answer is Demand is inelastic.

Please explain this in a little more detail .. if price dec and revenue / qty increases .. this means it is inelastic correct .. ?
Also what is unit elastic ?

19 All else equal, if the elasticity of demand and the elasticity of supply both decrease, consumer surplus and producer surplus respectively will most likely
a. Consumer Surplus: Decrease, Producer Surplus: Decrease
b. Consumer Surplus: Increase, Producer Surplus: Increase
c. Consumer Surplus: Increase, Producer Surplus: Decrease
The correct answer is Consumer Surplus: Increase, Producer Surplus: Increase.

why .. it was taught that .. if elasticity dec that is when producer / consumer become more inelastic ... consumer and producer surplus decreases ... hence answer should be a ?

Test 6 :
5 According to laffer curve , U.S. is on which side of the curve –
Choose one answer.
a. Right side
b. Left side
c. Cannot say anything
The correct answer is Right side.

Is this a part of the course ??

6 In an industry, four firm concentration ratio is 35% and HHI index is 1150, then which of the following is correct?
Choose one answer.
a. Market is competitive as per four firm concentration ratio, moderately competitive as per HHI
b. Market is not competitive as per four firm concentration ratio, competitive as per HHI
c. Market is competitive as per four firm concentration ratio, Oligopolistic as per HHI
The correct answer is Market is competitive as per four firm concentration ratio, moderately competitive as per HHI.

How is this determined please elaborate ?

TEst 7 :

1 Proprietorship has following potential disadvantages associated with it
Choose one answer.
a. Double taxation
b. Principal-agent problem
c. None of the above
The correct answer is None of the above.

Which study session which LOS ??
5. Question 5 not able to see

9 Assuming the economy is operating at full employment, what is the most likely long run effect of an increase in government spending on the price level and real GDP?
Choose one answer.
a. Price Level: Increase Real GDP: Increase
b. Price Level: Increase, Real GDP: No change
c. Price Level: No Change, Real GDP: Increase
The correct answer is Price Level: Increase, Real GDP: No change.

Why not a why c ??

10. If the inflation rate is greater than anticipated, are workers and lenders least likely to gain or lose relative to employers and borrowers, respectively?
Choose one answer.
a. Workers: Lose, Lenders: Lose
b. Workers: Gain, Lenders: Gain
c. Workers: Lose, Lenders: Gain
The correct answer is Workers: Gain, Lenders: Gain.

Are lenders = borrowers ?? so they should losr in inflation ??

11 David Smith an economist states the following statements in a conference -

Statement 1: The short run Phillips curve shows the tradeoff between inflation and unemployment when the expected inflation rate and the natural rate of unemployment are constant.
Statement 2: The long run Phillips curve which is vertical shows that when the actual inflation rate equals the expected inflation rate, the unemployment rate is less than the natural rate of unemployment.
Choose one answer.
a. Statement 1 is correct but Statement 2 is incorrect
b. Statement 1 is incorrect but Statement 2 is correct
c. Both statements are correct
The correct answer is Statement 1 is correct but Statement 2 is incorrect.

is this a part of our course which study session and which LOS ??

13 Drawback of the policy based on the McCallum rule is -
Choose one answer.
a. Fluctuation in demand for money can cause variations in interest rate that lead to fluctuations in aggregate demand
b. Inflation causes the currency to depreciate in value Incorrect
c. Velocity of money is very difficult to control
The correct answer is Fluctuation in demand for money can cause variations in interest rate that lead to fluctuations in aggregate demand.

is this a part of our course which study session and which LOS ??

14 Find the increase in bank reserve (M1) provided \$1 million increase in monetary base. Required reserve ratio is 0.08, Currency to deposits = 0.51.
Choose one answer.
a. \$2 million
b. \$1. million
c. \$2.56 million
The correct answer is \$2.56 million.

r = 0.08, c=0.51, Increase in bank reserve = [(1+c)/(r+c)]*B = [1.51/.59]*\$1 million =\$2.56 million.

what formula is this ..is this a part of our course which study session and which LOS ??

16 What are the main differences between McCallum rule and rule?
Choose one answer.
a. McCallum rule pursues its basic goal of price stability and pays a lot of attention to the current state of the business cycles, whereas Taylor rule focuses on the goal of price stability only and downplays the role of monetary policy in stabilizing the business cycles.
b. McCallum rule focuses almost exclusively on the goal of price stability and downplays the role of monetary policy in stabilizing the business cycles while the Taylor rule pursues its basic goal of price stability but pays a lot of attention to the current state of the business cycles.
c. There is no fundamental difference between McCallum rule and Taylor rule both tells similar story about inflation and Fed can follow either of the rule to combat inflation
The correct answer is McCallum rule focuses almost exclusively on the goal of price stability and downplays the role of monetary policy in stabilizing the business cycles while the Taylor rule pursues its basic goal of price stability but pays a lot of attention to the current state of the business cycles.

Is this a part of our course which study session and which LOS ??

17 Long run Phillips Curve is -
Choose one answer.
a. Vertical at the natural employment rate
b. Vertical at the natural unemployment rate
c. Horizontal at natural unemployment rate
The correct answer is Vertical at the natural unemployment rate.

Is this a part of our course which study session and which LOS ??

19 Not able to see the diagram in Question 19 please check and update the diagram .

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content.pristine
Finance Junkie
Posts: 356
Joined: Wed Apr 11, 2012 11:26 am

### Re: Economics quizzes 1- 7 ....Doubts

Hi Vinita,

I apologize that the existing quiz is not up to the current syllabus.
I really appreciate you letting us know that so many questions are out of course
My team is currently uploading a few new quizzes which are relevant to your syllabus.

15. Consider \$6. This \$6 can buy 4 beers or 3 pizzas. The resultant line passes through 20 beers 0 pizzas (on y axis) and 0 beers 15 pizzas (on x axis). The resultant line has a slope of y/x = 3/4 = 0.75)

Test 4(9)
B is impossible since the 4 firm concentration <=100
Consider C: Looking at 4 firm, the industry looks concentrated.
Therefore, its Competition is not perfect.
Hence A is the answer.

5.9) 2.3 is the correct answer

13. 5 is the correct answer

14. GNP - Gross National Product (Out of Syllabus)

17. Inelastic means if we change the price – the quantity demanded does not change much
Elastic means, if we change the price – the quantity demanded changes a lot.
Unit Elasticity – Delta Q/Q * P/Delta P =1 (unit = 1)

Several concepts such as Laffer Curve, Philips Curve, and many more are not in your syllabus

We will upload the new quiz shortly.. I will post on the forum when it is ready.

Return to “CFA Level I”

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