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Economics Multiple Choice Questions Exam

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Question;Mr. Smart still has money in pocket to spend. If only two products are available to him, apple (A) and beef (B), the current marginal utility (MU) and unit price (P) are as the following: MUA=3, MUB=10, PA=$1, PB=$4. In order to maximize his total utility, Mr. Smart should purchase more beef because its marginal utility is greater than apple?s. purchase more apples because the marginal utility per dollar is greater than beef?s. purchase more beef because he likes it. purchase more apples because the price is very low.?I like ice cream, but after eating homemade ice cream last night, I want to have something else for desert today.? This statement most clearly reflects the law of demand. the law of diminishing returns. the law of diminishing marginal utility. the law of increasing costs.Consider the following linear demand function where QD = quantity demanded, P = selling price, M= disposable income, PR= price of related good: QD = 60 ? 4P Assume that the current market price is P=10. In order to increase the total revenue, the sales manager should _______ the price. raise maintain cut freezeA market demand curve is the horizontal summation of the demand curves of all consumers in the market. is the sum of the prices consumers are willing to pay at each quantity. is more unpredictable compared with a consumer?s individual demand. Both a and cEconomic profit is defined as the difference between total revenue and ________________. explicit cost total economic cost implicit cost shareholder wealthWhich of the following is the correct procedure order to obtain a better linear regression function for estimation after Excel operation? Check r2 (Good fit or not)? F test? t test F test? t test? Check r2 (Good fit or not) Check r2 (Good fit or not)? t test? F test t test? F test? Check r2 (Good fit or not)Consider the following linear demand function where QD = quantity demanded, P = selling price. QD = 60 ? 4P The price elasticity of demand associated with P=10 ?4.00 ?2.00 ?1.33 ?0.67If the current price elasticity of demand for product X is?1.2, a 10% price cut will result in 12% decrease of quantity demanded. 0.8% increase of total revenue. 12% increase of total revenue. 0.8% increase of quantity demanded. Assume a country?s personal annual income is estimated by the following regression equation: Y= 33,000 + 1,200X? 4,000DG, where X = Working Experience (Years), DG=1, if male, DG=0, if female. Which of the following statement is incorrect? DG is a dummy variable for gender. A female with 10 years working experience is supposed to earn $45,000 per year. A male with 10 years working experience is supposed to earn $41,000 per year. The regression equation indicates that male dominates in personal annual income.Which of the following are likely to increase the value of the firm, based on the shareholders wealth-maximization model? The interest rate increases substantially. A previously nonunion workforce votes to unionize. The government implements strict pollution control requirements. A technological breakthrough allows the firm to reduce its cost of production.Assume that a product has the market demand function QD = 10? P and the market supply function QS = 2 + P. If a price ceiling (i.e. maximum price) is set at $5, then you will predict which of the following would as a result? Nothing will happen. There will be a surplus. There will be a shortage. Quantity demanded will be zero.Which of the following is NOT the factor affecting how elastic a demand is? Time of adjustment Availability of close substitutes Share in budget Price of the good A price elasticity (ED) of ?0.50 indicates that for a ____________ increase in price, quantity demanded will ____________ by ______________. one percent, increase, 0.50 units one unit, increase, 0.50 units one percent, decrease, 0.50 percent one unit, decrease, 0.50 percent Which of the following would increase the supply of corn? An increase in the price of pesticides. A decrease in the demand for corn. A fall in the price of corn. A decrease in the price of wheat.Which of the following is an example of an implicit cost for a firm? The value of time worked by the owner. Any wages and salaries paid to employed. Rent on property not owned by firm. Both b and c.In general, which of the following methods is the most costly and risky in estimating market demand? Consumer surveys Market experiments Statistical demand analysis Consumer focus groupYour demand on the 10th edition textbook in this course is quite price-inelastic because it has no close substitute. it is expensive. it is not important. it takes a whole semester to consume.A simple linear regression function, Y = 20? 0.05X, where Y denotes the sales of gas (x 1,000 gallons) and X denotes the gas price ($ per gallon). We can estimate that one-dollar increases in gas price will decrease the sales by 5,000 gallons 50 gallons 0.05 gallons 15,000 gallonsThe next 2 questions (19~20) refer to the following:Assume that an individual consumes two goods X and Y. The total utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X and Y are, respectively, $2 and $4.Units of the Good Total Utility of X Total Utility of Y12345678 20 38 54 68 80 90 98104 32 60 84104120132140144 If the consumer buys the fourth unit of X, the marginal utility of the fourth unit is 68 units of satisfaction. the marginal utility per dollar spent on X is 39. the marginal utility per dollar spent on X is 7. the total utility from X is 180.Assume that an individual consumes two goods X and Y. The total utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X and Y are, respectively, $2 and $4.Units of the Good Total Utility of X Total Utility of Y12345678 20 38 54 68 80 90 98104 32 60 84104120132140144If the consumer has $22 to spend on Xand Y, the utility-maximizing bundle is 3X and 4Y. 5X and 3Y. 7X and 2Y. 1X and 5Y.When we construct a regression function of demand on a product, which of the following should not be considered as an appropriate independent variable? Unit production cost Consumers? income Price of substitutes Price of the productHonda Accord and Toyota Camryare substitutes. If Toyota Camry?s price rises, then Honda Accord?s market equilibrium price will be likely to ____ and market equilibrium quantity will be likely to ____. increase, increase increase, decrease decrease, decrease decrease, increase Suppose a company incurs the following costs: Labor $9,000 Equipment (Capital) $6,000 Materials $7,000 The company owns the building, so it doesn?t have to pay the usual $2,000 in rent. The total economic cost is ______, the total accounting cost is _______. $17,000, $15,000 $24,000, $17,000 $24,000, $22,000 $17,000, $22,000When the accounting profit equals the implicit costs, the firm earns a normal profit. a positive economic profit. a zero accounting profit. a negative accounting profit. The next 4 questions (25~28) refer to the following:The estimated regression function of demand for a good is Q = 20? 0.5P + 0.02M? 0.1PR where Q is the quantity demanded of the good, P is the price of the good, M is income, PR is the price of related good.The coefficient of P implies that the function violates the law of demand. the price elasticity of demand is? 0.5. if the good?s price increases by 1 then quantity demanded will decrease by 0.5. the good is an inferior good.The estimated regression function of demand for a good is Q = 20? 0.5P + 0.02M? 0.1PR where Q is the quantity demanded of the good, P is the price of the good, M is income, PR is the price of related good. The coefficient of M implies that the income elasticity is 0.02. the good is a normal good. income is not an important determinant for demand. if income declines by 1 then quantity demanded will increase by 0.02.The estimated regression function of demand for a good is Q = 20? 0.5P + 0.02M? 0.1PR where Q is the quantity demanded of the good, P is the price of the good, M is income, PR is the price of related good. The coefficient of PRimplies that the good is an inferior good. the good and the related good are substitutes. the good and the related good are complements. the demand on the related good is inelastic.The estimated regression function of demand for a good is Q = 20? 0.5P + 0.02M? 0.1PR where Q is the quantity demanded of the good, P is the price of the good, M is income, PR is the price of related good. The price elasticity of demand, given P=10, M=100, PR =20, should be ?1.33. ?0.66. ?0.50. ?0.33.For a firm?s decision-making, the principal-agent problem arises when the principal and the agent have different objectives. the agent cannot enforce the principal to manage well. there are too many principals but only few agents. the agent considers to maximize the firm?s wealth.Which of the following is most unlikely to be an appropriate independent variable to construct the market demand on DVD movie rental? Movie theater box office ticket price. Number of movie theaters. Household income level. Population of movie goers Moving along a downward sloping linear demand curve from top to bottom, the point elasticity of demand is constant everywhere. becomes more inelastic. becomes more elastic. changes randomly.A simple linear regression model has the coefficient of determination, r2 =0.81. We can conclude that the model is not a good fit. only 19% variation of the dependent variable are determined by other factors not considered in the model. about 81% of the independent variables can determine the dependent variable. the independent variable and the dependent variable are not related.The ABC Company developed the following quarterly sales forecasting model: Yt = 5.8 + 0.03t where Yt = predicted sales ($million) in quarter t, t = 1 (First quarter of 2005), 2 (Second quarter of 2005), 3 (Third quarter of 2005), and so on. Given the model, the sales for the fourth quarter of 2012 are forecasted as. $6.76 million. $7.00 million. $14.20 million. $15.40 millionWhich of the following will never be negative in economic theory? Cross-price elasticity Marginal utility Income elasticity of demand Marginal costWhen the price of Washington apples increases, which of the following change is most unlikely, if all the other factors remain? Quantity demanded of Washington apples decreases. Demand on Fuji apples increases. Supply on apple juice increases. Quantity supplied of Washington apple increases.The next 3 questions (36~38) refer to the following:The linear regression equation, Y = a + bX, was estimated. The following computer printout was obtained:when Xis zero, Y is 7.85. when Xis zero, Y is 3.19. when Yis zero, X is 0.36. when Yis zero, X is 6.88.The linear regression equation, Y = a + bX, was estimated. The following computer printout wasobtained:The parameter estimate of b indicates Xincreases by 0.36 units when Y increases by one unit. Xdecreases by 1 units when Y increases by 0.36 units. a 10-unit decrease in X results in a 3.6 units decrease in Y. a 10-unit increase in X results in a 78.5 units increase in Y.The linear regression equation, Y = a + bX, was estimated. The following computer printout wasobtained:DEPENDENT VARIABLE: Y R-SQUARE F-RATIO P-VALUE ON FOBSERVATIONS: 21 0.8662 6.1798 0.0274 VARIABLE PARAMETERESTIMATE STANDARDERROR RATIO P-VALUE INTERCEPT 7.85 3.19 2.94 0.0008 X 0.36 6.88 -2.46 0.0274Assume the default level of significance is at 0.05. The regression equation is considered as ______ for sample and (but) ______ applied significantly for population estimation. a good fit, can be not a good fit, can be a good fit, cannot be not a good fit, cannot be In the cost-benefit analysis, the maximum net benefit (NB) occurs in which the total benefit (TB) is maximized. the marginal cost (MC) is minimized. the marginal benefit (MB) and the marginal cost (MC) are equal. the total cost (TC) is minimized.If consumers foresee the price of electric car will drop significantly in the near future, then the current market _______ of electric car will _______. demand, increase demand, decrease supply, decrease price, increase If both demand and supply were to increase, then the market equilibrium quantity would fall and price might rise or fall. quantity would rise and price might fall or rise. price would fall and quantity might rise or fall. price would be unchanged and quantity might fall. The following figure shows two demand curves at price = P*. Which of the following is most likely to explain the shapes of demand curve correctly? Demand on A is more elastic.. If both A and B represent the same product, then A is for short-run demand and B is for long-run demand A has more substitutes. B has a smaller share in consumers? expenditure (budget).Diamonds are more expensive than water because diamonds yield higher total utility. market does not really reflect water?s value. diamonds are rare. diamonds yield higher marginal utility. Assume that the following log-linear regression model represents the demand on vacation travel in the United States lnQ = 2.05?1.64 lnP + 1.13 lnY,where (Q) is the annual household vacation travel mileage, (P) is the price per mile, (Y) is the disposable household annual income. Which of the following statements for vacation travel is incorrect? The price elasticity of demand is?1.64. It is a necessity because the income elasticity is positive. It is a luxury good because the income elasticity is greater than 1. The demand is elastic.The next 2 questions (45~46) refer to the following:Level of Activity Total Benefit TotalCost Marginal Benefit Marginal Cost NetBenefit0123 075__________ 060__________ xx_____65_____ xx__________70 0_____2510The marginal benefit for the 3rd activity should be 70. 65. 60. 55. Level of Activity Total Benefit TotalCost Marginal Benefit Marginal Cost NetBenefit0123 075__________ 060__________ xx_____65_____ xx__________70 0_____2510 The optimal level of activity should be 0. 1. 2. 3.

 

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