Faculty of Commerce

EMBA

Course Title: Essentials of Economics First Term October 2017

Exam duration: 2 hours Lecturer: Dr. Shereen Nosier
Question One (30 Marks)

Multiple Choices: Choose the one alternative that best completes the statement:
1. Scarcity is a situation in which:
a) People cannot satisfy all their wants.
b) People can satisfy all their wants.
c) Some people can get all they want and some cannot.
d) Most people can get only bare necessities.

2. Which of the following statements is false?

a) An increase in demand causes equilibrium price and quantity to rise.
b) A decrease in supply causes equilibrium price to rise and quantity to rise.
c) A decrease in demand causes equilibrium price and quantity to fall.
d) An increase in supply causes equilibrium price to fall and quantity to rise.

3. A rightward shift to the supply curve for computers could be caused by:
a) A decrease in computers’ cost of production.
b) Change in households’ preferences and income.
c) Reduction in computers’ prices.
d) An increase in computers’ prices.

4. Which of the following is the correct way to describe equilibrium in a market?

a) At equilibrium, demand equals supply.
b) At equilibrium, quantity demanded equals quantity supplied.
c) At equilibrium, the number of buyers is exactly equal the number of sellers.
d) At equilibrium, scarcity is eliminated.

5. Which of the following goods would have the most inelastic demand?
a) Bread b) Ski vacations c) Big screen TVs d) Luxury cars

6. The price elasticity of demand for ice cream is -4. Suppose you're told that following a
price increase, quantity demanded fell by 10 percent. What was the percentage change in
price that brought about this change in quantity demanded?
a) 40 percent b) 2.5 percent c) 25 percent d) 0.4 percent

7. Which of the following will shift the demand curve for a good?
(a) An increase in the price of the good.
(b) A decrease in the price of a complementary good.
(c) A change in the technology used to produce the good.
(d) A decrease in the price of the good.

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 Price
. ($)

D S
$3

$2

1$

Quantity
35 40 45

8. The figure above illustrates the potatoes market. What is the equilibrium quantity and
equilibrium price for potatoes?
a) 35 kilos, $3 per kilo. b) 45 kilos, $1 per kilo.
c) 40 kilos, $2 per kilo. d) None of the above.

9. The figure above illustrates the potatoes market. What is the total revenue of producers at
the equilibrium price?
a) $800. b) $45.
c) $80. d) None of the above.

10. The figure above illustrates the potatoes market. Which of the following statements is
correct?
a) With a price floor of $3 per kilo, there is a shortage of potatoes equals 10.
b) With a price of $3 per kilo, the quantity demanded is greater than the quantity supplied.
c) With a price floor of $1 per kilo, the policy has no effect.
d) Answers A and C are correct.

11. The figure above illustrates the potatoes market. Which of the following statements is
correct?
a) With a price ceiling of $1per kilo, the quantity demanded is greater than the quantity
supplied. b) With a price of $3 per kilo, there is a shortage.
c) With no government intervention, the equilibrium price of potatoes is $2.
d) Only answers A and C are correct.

12. The production possibilities frontier (PPF) illustrates the

a) amount of each good that people want to buy.
b) goods and services that people want.
c) limits to people's wants.
d) maximum combinations of goods and services that can be produced.

13- Microeconomics deals with:

a) the working of the entire economy or large sectors of it.
b) economic growth.

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 c) gross domestic product.
d) individual decision makers in the economy.

14- Which of the following would cause both the equilibrium price and equilibrium quantity
of cotton to decrease?
a) unusually good weather that results in a bumper crop of cotton.
b) an increase in price of corn.
c) a decrease in consumer income.
d) a drought that sharply reduces cotton output.

15. The law of demand refers to the fact, all other things remaining the same, when the price
of a good rises,
a) the demand curve shifts leftwards.
b) the demand curve shifts rightwards.
c) there is a movement up along the demand curve to a smaller quantity demanded.
d) there is a movement up along the demand curve to a larger quantity demanded.

Question Two (30 Marks)

Agree or disagree with each of the following statements and correct the wrong statements
using graph:

1. If an increase in the price of clip from $0.75 to $0.90 increases the quantity supplied
from 8,000 units to 10,000 units. The supply for clip is inelastic.
Wrong, the supply curve is elastic (PES=1.25).
2. The production possibility curve is always negatively sloping straight line.
Wrong, the production possibility curve is always negatively sloping concave toward
the origin.
3. To raise more revenue, the producer would increase the price of his product if the
demand for his good is elastic.
Wrong, to raise more revenue, the producer would decrease the price of his product if
the demand for his good is elastic.
4. A movement along the demand curve for good (X) is caused by a change in its price.
true
5. If the government imposes a price floor, a black market is expected to take place.
Wrong, if the government imposes a price ceiling, a black market is expected to take
place.
6. A decrease in wage rate of construction workers is expected to shift the demand curve
of houses to the left.
Wrong, a decrease in wage rate of construction workers is expected to shift the supply
curve of houses to the right.
7. If the demand for potatoes decreases as income increases, potatoes are an inferior
good.
True
8. In response to a surplus the market price of a good will fall; as the price falls, the
quantity demanded will increase and quantity supplied will decrease until equilibrium
is reached.
True

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9. Economic growth in country X will make a movement upward along its PPF.
Wrong, Economic growth in country X will make a shift upward to a higher PPF.

10. As the price of cars increases, demand for cars decreases and shifts leftward and the
demand for gasoline increases and shifts rightward.
Wrong, as the price of cars increases, quantity demanded for cars decreases and we
move upward along the same demand curve and the demand for gasoline decreases and
shifts leftward.

GOOD LUCK