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Exam Answer Key for Microeconomics
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Exam Answer Key for Microeconomics
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MICROECONOMICS FOR FINANCIAL STUDIES(19BSA020) EXAM ANSWERS
January 2020 2 hours
Answer ALL questions in SECTION A, which is COMPULSORY.
Answer ALL questions in SECTION B, which is COMPULSORY.
Answer ONE question in SECTION C, which is COMPULSORY.
Answers to SECTION A should be written on the OMR answer sheet provided.
Answers to SECTIONS B and C should be written in the answer booklet.
Candidates may use any approved calculator.
SECTION A
Questions 1 – 15 are multiple choice. Three marks will be given for each correct answer. No
marks for an incorrect answer. This section is worth 45 marks.
1. Rational decision makers trade-off ______________ cost and benefit.
a. sunk
b. average
c. variable
d. marginal
2. Along a linear demand curve, a price increase increases revenue if_______
a. the price elasticity of demand is > 1
b. the income elasticity of demand is >-1 and <0
c. the price elasticity of demand is 0
d. answers b and c.
3. Markets allocate resources using the following mechanism:
a. Lottery
b. Price
c. Queuing
d. Government decision
4. Suppose that cars are normal goods. If income increases, you predict that in the market
for cars
a. Both equilibrium price and quantity will rise
b. Both equilibrium price and quantity will fall
c. Equilibrium price will rise and quantity will decrease
d. Equilibrium price will fall but quantity will increase
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, 5. A _____________ in the price of _____________ will cause a decrease in demand for
labour.
a. Rise; a substitute input
b. Fall; labour
c. Rise; a complementary input
d. Rise; a substitute input
6. A firm currently produces 2 units of output at a total cost of 8. Demand is perfectly elastic
and output price is 4/unit. Producing one extra unit of output would increase total cost by
2. To maximize output the firm should
a. increase output
b. decrease output
c. not change output
d. cannot tell
7. You make free use of your uncles’ car to work for Uber. In a given week your revenue is
£20 and fuel cost are £5. Other drivers would pay £10/week to rent the car. Does your
business make
a. an economic and accounting profit
b. an accounting loss and economic profit
c. an accounting profit and economic loss
d. zero economic profit
8. The formula for marginal cost is (Δ indicates change)
a. Δ Total variable cost / quantity
b. Δ Average cost / Δ quantity
c. Δ Total cost / quantity
d. Δ Total cost / Δ quantity
9. A firm maximizes profit when,
a. the marginal rate of technical substitution equals the input price ratio
b. the marginal rate of technical substitution equals the output price ratio
c. the marginal rate of technical substitution equals one
d. the marginal rate of technical substitution equals the returns to scale
10. A consumer’s Marginal Rate of Substitution for goods X and Y is MUX/MUY is 3 (absolute
value). The price of good X is 9 and the price of good Y is 3. Should she
a. Consume more of X
b. Consume less of X
c. Consume less of Y
d. Do not change consumption
11. Managers not acting in the interest of shareholders is an example for
a. An externality
b. Government failure
c. Moral hazard
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