+92 307 41 51 71 8 vuassassins@gmail.com ## ECO402 – Microeconomics

In ECO402 Microeconomics we have you covered with Digitized Past Papers From Fall of Mid Term and Final Term.

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FINAL TERM
MID TERM
##### POSTED DATE: 04-02-2019                    GDB IDEA SOLUTION
1. DEMAND AND SUPPLY ANALYSIS
2. The law of demand states that consumers will purchase more of a good at lower prices and less of a good at higher prices.
3. The law of supply states that producers will sell less of a good at lower prices and more of a good at higher prices.
4. Equilibrium exits when there is no reason for a situation to change.
5. When equilibrium exits, the quantity people plan to buy is equal to the quantity that producers plan to sell.
6. The laws of demand and supply cause the market to move to equilibrium.

Other Demand Factors
1. Changes in demand factors other than price of the good will result in a change in demand.
2. An increase in demand is depicted as a rightward shift of the demand curve.
3. An increase in demand means that consumers plan to purchase more of the good at each possible price.
4. A decrease in demand is depicted as a leftward shift of the demand curve
5. A decrease in demand means that consumers plan to purchase less of the good at each possible price.
6. The price of related goods is one of the other factors affecting demand.
7. Related goods are classified as either substitutes or complements.
8. Substitutes are goods that satisfy a similar need or desire.
9. An increase in the price of a good will increase demand for its substitute, while a decrease in the price of a good will decrease demand for its substitute.
10. Complements are goods that are used jointly.
11. An increase in the price of a good will decrease demand for its complement while a decrease in the price of a good will increase demand for its complement.
12. Income is another factor that can affect demand.
13. If a good is a normal good, increases in income will result in an increase in demand while decreases in income will decrease demand.
14. If a good is an inferior good, increases in income will result in a decreasein demand while decreases in income will increase demand.

Other Supply Factors
1. Changes in other supply factors will result in a change in supply.
2. An increase in supply is depicted as a rightward shift of the supply curve.
3. An increase in supply means that producers plan to sell more of the good at each possible price.
4. A decrease in supply is depicted as a leftward shift of the supply curve.
5. A decrease in supply means that producers plan to sell less of the good at each possible price.
6. Other factors affecting supply include technology, the prices of inputs, and the prices of alternative goods that could be produced.

# 1 Comment

1. 47. The rate at which one input can be reduced per additional unit of the other input,
while holding output constant, is measured by the:
Select correct option:
Marginal rate of substitution.
Marginal rate of technical substitution.
Slope of the isocost curve.
Average product of the input.
48. Which of the following is NOT a factor of production?
Labor
Land
Capital
Demand
49. Oscar consumes only two goods, X and Y. Assume that Oscar is not at a corner
solution, but he is maximizing utility. Which of the following is NOT necessarily true?
MRSxy = Px/Py.
MUx/MUy = Px/Py.
Px/Py = money income.
Px/Py = slope of the indifference curve at the optimal choice.
50. The object of diversification is:
To reduce risk and fluctuations in income.
To reduce risk, but not to reduce fluctuations in income. To
reduce fluctuations in income, but not to reduce risk.
Neither to reduce risk, nor to reduce fluctuations in income.
51. Due to capacity constraints, the price elasticity of supply for most products
is: The same in the long run and the short run.
Greater in the long run than the short run.
Greater in the short run than in the long run.
Too uncertain to be estimated.
61. If X and Y are perfect substitutes, which of the following assumptions about indifference
curves is not satisfied?
Completeness.
Transitivity.
More is preferred to less.
Diminishing marginal rate of substitution.
62. The endpoints (horizontal and vertical intercepts) of the budget
line: Measure its slope.
Measure the rate at which one good can be substituted for another.
Measure the rate at which a consumer is willing to trade one good for another.
Represent the quantity of each good that could be purchased if all of the budget
were allocated to that good.
Any risk-averse individual would always:
Select correct option:
Take a 10% chance at \$100 rather than a sure \$10.
Take a 50% chance at \$4 and a 50% chance at \$1 rather than a sure \$1.
Take a sure \$10 rather than a 10% chance at \$100.
Suppose that the prices of good A and good B were to suddenly double. If good A is plotted
along the horizontal axis:
The function which shows combinations of inputs that yield the same output is called
a(n): Select correct option:
Isoquant curve.
Isocost curve.
Production function. Production
possibilities frontier.
The magnitude of the slope of an indifference curve is:
Select correct option:
Called the marginal rate of substitution.
Equal to the ratio of the total utility of the goods.
Always equal to the ratio of the prices of the goods.
All of the given options.
Boeing Corporation and Airbus Industries are the only two producers of long-range
commercial aircraft. This market is not perfectly competitive because:

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