ECON101 - PAST PAPER MCQs

[2024] What will happen to the equilibrium price and quantity if both demand and supply increase simultaneously?

Equilibrium quantity will increase, price may increase or decrease.

[2024] How does a price ceiling impact the market when set below the equilibrium price?

It causes a shortage of goods.

[2024] When a consumer is at a point on the budget constraint and maximising utility, what can you say about the marginal utility per £ spent on each good?

It is equal for all goods.

[2024] Which of the following applies if the demand is perfectly inelastic?

The quantity demanded remains constant regardless of price changes.

[2024] If the cross-price elasticity of demand for two goods is negative, what kind of goods are they?

Complementary goods.

[2024] In a market for a particular product, the demand and supply equations are as follows: Demand: Qd = 100 - 2P, Supply: Qs = 20 + 3P. A specific tax of £5 per unit is imposed on producers. The equilibrium quantity after the tax is imposed is:

None of the above.

[2024] Goods x and y have income elasticities of 0.6 and 1.8, respectively. Which good is a luxury good?

y.

[2024] The quantity demanded for a good decreases by 15% in response to a 10% increase in price. What is the own price elasticity of demand?

1.5.

[2024] In a cost minimisation problem, what does the isoquant represent graphically?

Combinations of inputs that produce the same level of output.

[2024] If the production function is Q = 7K^0.5 L^0.5 and the price of capital K is 16 and the price of labor L is 8, what is the cost-minimising combination of inputs if the firm wants to produce 600 units of output?

K=10, L=20.

[2024] Suppose that the market price is P=50, and Short Run Total Cost is 10 + 2Q^2. Suppose that a perfectly competitive firm is producing an output of 20 units. As a result:

The firm's profit is 190.

[2024] For a monopoly, the relationship between marginal revenue and the price elasticity of demand is:

MR = P(1 + 1/E).

[2024] In a monopolistically competitive market, when short-run equilibrium price is above average total cost, short-run equilibrium economic profits are:

positive.

[2024] Comparing a Cournot model with two firms with a Cournot model with three firms:

Total output will be higher with three firms than with two firms.

[2024] Suppose that the inverse demand curve of labour is given by W = 600 - Q/2 and the inverse supply curve is W = 100 + Q/2. The government imposes a minimum wage of £400. The level of unemployment which results is:

200.

[2024] According to evidence from the United States:

The rich are paying lower average tax rates now than they were in the past.

[2024] Consider a diagram with good x on the horizontal axis and good y on the vertical axis. The opportunity cost of good y is:

The inverse of the slope of the Production Possibilities Frontier.

[2024] Street lighting is an example of a:

public good.

[2024] Consider a market where the inverse demand curve is P = 50 - Qd, the inverse supply curve is P = Qs, and the marginal external cost is MEC = 5. The socially optimal quantity of the good is:

22.5.

[2024] According to the Coase Theorem:

Government intervention is not needed to solve the problem of externalities.

[2024] Gross domestic product measures:

Income and expenditures.

[2024] GDP per person tells us the income and expenditure of the:

Average person in the economy.

[2024] The good that receives the most weight in the CPI is the good that:

Consumers spend the largest fraction of their income on.

[2024] If a production function exhibits constant returns to scale, doubling all of the inputs:

doubles output.

[2024] Which price index measures the average price of things purchased by the typical family?

Consumer price index.

[2024] The four categories of expenditures that make up GDP are consumption, investment,:

Net exports, and government purchases.

[2024] Labour productivity, measuring the output per worker,:

increases with increases in technology.

[2024] The Keynesian multiplier implies that:

changes in autonomous spending will lead to an increase in national income which is greater than the initial increase in spending.

[2024] The slope of the IS curve is dependent upon:

the responsiveness of consumption and investment to changes in interest rates.

[2024] Assume that the economy is in equilibrium at an interest rate and level of national income where the IS curve cuts the LM curve. A large cut in government spending would be expected to:

reduce interest rates and the level of national income.

[2024] If a country has a high savings rate relative to other countries, all else being equal, then:

the supply of loanable funds is larger.

[2024] Which of the following factors contributed to the occurrence of the 2007-2009 financial crises?

financial deregulation and less prudent behavior of financial institutions.

[2024] When house prices increased before the financial crisis:

Banks were more willing to issue new credits, borrowing became easier.

[2024] Suppose the same basket of goods costs €600 in Spain and $750 in the U.S.A. According to PPP, if the prices do not change, what will be the exchange rate?

0.8 euro / dollar.

[2024] In response to an import quota:

Imports and exports are both reduced but net exports are unchanged.

[2024] Which inflation level can be consistent with output below the natural level?

All of the options.

[2024] The Keynesian multiplier implies that:

changes in government spending will lead to an increase in national income which is greater than the initial increase in spending.

[2024] Which statement below is correct?

Both quantitative easing and the lower interest rate policy can increase bond prices and lower bond yields.

[2024] In order to finance budget deficits:

The debt can be monetized by the central bank, which may not increase inflation in the short run.

[2024] Which of the following is true about austerity policies?

Austerity policies comprise significant cuts in public spending, tax rises, and structural reforms.

[2025] The slope of the budget constraint represents:

the opportunity cost of one good in terms of the other.

[2025] The cost-minimization condition for two inputs is satisfied when:

MPL/MPK = PL/PK.

[2025] An Engel curve represents the relationship between:

quantity demanded and income.

[2025] When two goods are perfect substitutes, their indifference curves:

are downward-sloping straight lines.

[2025] If good X is a normal good, an increase in income will:

increase its demand.

[2025] When two goods are substitutes, an increase in the price of one will:

increase the demand for the other.

[2025] An increase in income will cause the budget constraint to:

shift outward without changing its slope.

[2025] Which of the following is an example of a price cap?

Rent control that regulates rent below the market equilibrium price.

[2025] A decrease in the cost of production for a good will:

shift the supply curve to the right.

[2025] When inputs are perfect complements, the isoquants are:

L-shaped.

[2025] Suppose that the market price is P=60, and Short Run Total Cost is 100 + 2Q^2. Suppose that a perfectly competitive firm is producing an output of 20 units. As a result:

The firm's profit is 300.

[2025] Suppose that demand is Qd = 100 - 4P. The marginal revenue of a monopoly is:

25 - Q/2.

[2025] In a monopolistically competitive market, when short-run equilibrium price is below average total cost, short-run equilibrium economic profits are:

negative.

[2025] Consider a Cournot duopoly with two firms, A and B. Suppose the demand curve is Q = 24 - P and MC = 8. Let qA be the output of firm A, and qB be the output of firm B. The reaction function for Firm A is:

2qA + qB = 16.

[2025] Suppose that the inverse demand curve of labour is given by W = 600 - Q/2 and the inverse supply curve is W = 100 + Q/2. The government imposes a minimum wage of 300. The level of unemployment which results is:

0.

[2025] According to the libertarian political philosophy:

The government should not redistribute income.

[2025] Consider a diagram with good x on the horizontal axis and good y on the vertical axis. The opportunity cost of good y is:

The inverse of the slope of the Production Possibilities Frontier.

[2025] Street lighting is an example of a:

public good.

[2025] Consider a market where the inverse demand curve is P = 60 - Qd, the inverse supply curve is P = 10 + Qs, and the marginal external benefit is MEB = 6. The socially optimal quantity of the good is:

28.

[2025] According to the Coase Theorem:

Government intervention is not needed to solve the problem of externalities.

[2025] The value of plant and equipment worn out in the process of manufacturing goods and services is measured by:

depreciation.

[2025] Gross Domestic Product can be measured as the sum of:

consumption, investment, government purchases, and net exports.

[2025] Which of the following is a reason why the Consumer Price Index (CPI) is not calculated as a simple average of all prices?

Goods differ in their importance in the average consumer's budget.

[2025] Inward-oriented policies hold back economic growth because:

they do not allow a country to take advantage of the gains from trade.

[2025] Substitution bias:

Involves consumer behaviour that helps explain why the CPI overestimates the inflation rate.

[2025] The opportunity cost of growth is:

a reduction in current consumption.

[2025] If the government increases investment tax credits and reduces taxes on the return to saving at the same time, the:

impact on the real interest rate is indeterminate.

[2025] An example of fiat money is:

paper euros.

[2025] Which of the following statements about economic fluctuations is true?

Most macroeconomic variables that measure income, spending or production move together.

[2025] Assume a central bank has been charged with maintaining inflation at 2 per cent. The government increases spending on infrastructure. If the central bank wishes to maintain interest rates (and inflation) at a stable rate what should it do?

Reduce the money supply by an equal amount to counteract the increase in government spending.

[2025] Many countries enforced strict lockdowns in response to the COVID-19 pandemic. Which policy response will likely have the smallest direct impact on economic recovery from a supply-side lockdown?

Central bank purchases government bonds to inject liquidity.

[2025] High inflation has become a global concern due to factors like supply chain disruptions. Which of the following is correct?

If inflation rises and nominal interest rates remain constant, the real value of savings decreases, benefiting borrowers.

[2025] What makes sustained inflation particularly harmful to the economy?

All the reasons above contribute to economic challenges.

[2025] A government significantly lowers tax rates to stimulate an economy. How would this likely affect aggregate demand and the Phillips Curve in the short run?

Shift aggregate demand right, moving up along the Phillips Curve.

[2025] What is likely to happen if a country with a closed economy increases government spending during a crisis?

Countries with closed economies saw more direct effects on domestic output.

[2025] If China increases its investments in U.S. assets, which of the following is most likely to occur?

Increased Chinese investment in U.S. assets would widen the U.S. trade deficit with China.

[2025] Rising interest rates increase loan defaults, raising concerns over the banking sector's stability. Which of the following best describes the likely response in this situation?

Central banks lowered rates to boost the asset side of banks' balance sheets.

[2025] Which statement below accurately describes financial market characteristics?

Financial market imperfections result in a counter-cyclical risk premium, where risk increases during economic downturns.

[2025] What combination of policy measures effectively addresses structural and cyclical deficits?

Apply contractionary policies for structural deficits and expansionary ones for cyclical deficits.

[2025] In the aftermath of the pandemic, rising national debts have led to debates over government budgets. Which of the following justifies the need for budget discipline?

Increasing debt could negatively impact future living standards.

[2023] One observes that the equilibrium price of T-shirts increases and the equilibrium quantity falls. Which of the following best fits the observed data?

A decrease in supply with demand constant.

[2023] Suppose we estimate the income elasticity of demand for ramen noodles to be -1.2. If incomes decrease then, according to our estimate, we should expect:

Demand for ramen noodles to increase, and the price to increase.

[2023] You have one hour to catch a flight to Madrid for spring break. It takes 45 minutes to drive to the airport. Your car is almost out of gas. To you, the price elasticity of demand for gas is likely to be:

More inelastic.

[2023] Which of the following will NOT cause a shift in the demand curve for iPhones?

A decrease in the price of iPhones.

[2023] At his current consumption level Cameron get 3 times more marginal utility from an additional game of pinball than from an additional game of Spiderman. If the price of Spiderman games is £0.50, then Cameron is maximizing utility if the price of a pinball game is:

£1.50.

[2023] Which of the following is NOT true of a perfectly competitive firm?

It seeks to maximize revenue.

[2023] Which of the following would shift demand for an inferior good to the left?

An increase in income.

[2023] For perfectly competitive firms price ___ marginal revenue, and for monopolists price ___ marginal revenue.

Equals; is greater than.

[2023] A monopolist faces the demand curve: P(Q) = 21 - 2Q, and marginal cost curve: MC(Q) = 3. The profit-maximizing quantity is ___ and the profit-maximizing price is ___:

Less than 5; greater than 10.

[2023] Stefanie is looking to sell a painting; her cost of producing this painting is £300. Dave is looking to buy a painting; his willingness to pay is £500. If a transaction takes place, the total amount of economic surplus generated is:

Is equal to £200.

[2023] Suppose that demand is P = 144 - 2Qd, and Short Run Total Cost is 40 + Q^2. The monopoly's profit-maximising output and price are:

P=96, Q=24.

[2023] For a perfectly competitive firm, when MR < MC, the firm should:

decrease output to increase profit.

[2023] Under monopolistic competition, in the long run:

price is equal to average total cost.

[2023] Consider a Cournot duopoly with two firms, A and B. Suppose the demand curve is Q = 48 - (1/2)P and MC = 6. The reaction function for Firm A is:

2qA + qB = 45.

[2023] According to the libertarian political philosophy:

the government should not redistribute income.

[2023] The two main competing companies producing processors for laptop computers are:

AMD and Intel.

[2023] Consider a public good. There are two consumers. Consumer A's demand curve is P = 12 - Qa and consumer B's demand curve is P = 12 - Qb. The total demand curve for this good is:

P = 24 - 2Q.

[2023] Fish in the ocean is an example of:

A common resource.

[2023] Suppose that the demand of a good is Q = 80 - P and the supply of the good is Q = P - 10. The world price of the good is 36. We know that:

Imports are equal to 18.

[2023] The market price for widgets is 20 per widget. Marginal cost is given by 0.4q. Marginal social cost is 0.5q. The amount of government-imposed tax per unit that brings about a socially optimal level of production is:

4.00.