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PGDM 2014-16

IIM Ranchi

QUIZ #1

INDIAN INSTITUTE OF MANAGEMENT RANCHI
MICROECONOMICS
Term I, AY 2014-15
QUIZ #1
Total Marks: 20

Time: 15 minutes

Instructions (read carefully!)





This is a closed-book examination.
Please circle the best alternative.
Mark your answers with a pen.
There shall be no clarification of doubts. Please do not approach the invigilators for clarification. If you feel
the question is incorrect, use your own assumption and answer the question.
There is negative marking. Each correct answer carries 1 mark. For each incorrect answer, 0.5 marks shall
be deducted.
If you violate examination rules, including using unfair means and practices, your quiz paper shall be
cancelled, and you shall have to face disciplinary action.

MULTIPLE CHOICE QUESTIONS
Circle the best alternative
1. Which of the following is a positive statement?
a. driving speeds should be lowered so that fewer accidents will occur
b. when per capita income falls, fewer meals are consumed at restaurants
c. the minimum wage is too low; college students deserve a raise
d. cigarette sales should be made illegal in order to reduce the incidence of cancer
2. Which of the following is (are) true?
a. Accounting costs generally understate economic costs
b. Accounting profits generally overstate economic profits
c. In the absence of any opportunity costs, accounting profits equal economic profits
d. All of the statements associated with this question are correct
3. Sudhir is considering attending a concert with a ticket price of Rs. 350. He estimates that the cost of driving
to the concert and parking there will total an additional Rs. 200. In order to attend the concert, Sudhir will have
to take time off from his part-time job. He estimates that he will lose 5 hours at work, at a wage of Rs. 60 per
hour. Sudhir's opportunity cost of attending the concert equals
a. Rs. 350
b. Rs. 550
c. Rs. 300
d. Rs. 650
e. Rs. 850
4. P&G is a major soap producer. All of the following, except one, would shift its supply curve of liquid soap
inward. Which is the exception?
a. an increase in the price of bar soap
b. an increase in the price of a key ingredient of liquid soap
c. environmental regulations force P&G to use a more costly technology to produce liquid soap
d. a decrease in the price of liquid soap
e. an increase in the wage rate for factory workers who produce liquid soap

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buy four times as many pairs of running shoes as warm-up suits c. therefore. lower than the free-market price d. or even an unchanged quantity of good A demanded. decreases in income lead to an increase in demand for the good b. increases in price lead to a decrease in demand for the good 6.PGDM 2014-16 IIM Ranchi QUIZ #1 5. decreases in income lead to a decrease in demand for the good c. will rotate about its original point of intersection with the horizontal axis e. b. buy four times as many warm-up suits as pairs of running shoes b. because the combination of unchanged money income and lower price raises that consumer's real income or purchasing power b. Then. increases in income lead to a decrease in demand for the good d. every buyer and seller in the market benefits. If the price of good X (measured on the horizontal axis of a budget line diagram) increases at the same time that the price of good Y (measured on the vertical axis) decreases. may lead to a larger. increases in price lead to a decrease in the quantity demanded of the good e. in order to maximize total utility. will shift outward. some buyers will not be able to buy any amount of the good. will become steeper c. every buyer in the market benefits. Under a price ceiling. causes a parallel outward shift of the budget line. A good is said to be a normal good when a. enabling the consumer to buy more of all goods than before 9. the full economic price is a. the opportunity cost of not being able to buy a good when a consumer needs it c. Sudhir should a. The price of a warm-up suit is four times as large as the price per pair of shoes. it all depends on the nature of the good itself d. The income effect of a lower price for good A a. buy both items until the marginal utility of a warm-up suit is four times the marginal utility of a pair of running shoes 8. buy both items until the marginal utility of a pair of running shoes is four times the marginal utility of a warmup suit e. but only if he waits in long lines. depending on the sizes of the price changes d. causes the consumer to substitute good A in place of other goods e. 2 . will become flatter b. Sudhir spends all of his income on warm-up suits and running shoes. smaller. higher than the free-market price 7. invariably leads a consumer to buy less of good A because the combination of unchanged money income and lower price encourages that consumer to buy more of other goods c. every buyer who wants to buy the good will be able to do so. divide his income equally between warm-up suits and running shoes d. invariably leads a consumer to buy more of good A. c. but not in a parallel fashion 10. the budget line a. the dollar price paid to the firm b. creates a change in the good's relative price and. d. could become either steeper or flatter. When a binding price ceiling is imposed on a market to benefit buyers a.

ii. II is true. d. 2. The total market demand curve for this product will be a a.000 . is the same as in the long run. 1.000 . e. This evidence suggested i. 0. b. 1 only. General Motors estimates that domestic demand for its newest product will be: Qdomestic = 30. the price elasticity of supply is about a. If a consumer is always indifferent between an additional one grapefruit or an additional two oranges. If every corn farmerʹs harvesting technologies become more efficient. kinked line with the kink at P = 50.0. A manufacturer produces 400 units when the market price of $10 per unit and produces 600 units when the market price is $12 per unit. c. Suppose that the demand for corn is highly price inelastic. d. I and II are false. In a 1956 Supreme Court case in the United States. b.0. 2. Use the following statements to answer this question: i. will be right angles whose corners occur on a ray from the origin with a slope of +2. c. DuPont’s control of cellophane could not be construed as being monopolistic because the other goods in question were strong substitutes and therefore in competition with each other. and II is false. and I is false. I and II are true. d. c. e. c. e. d. will be straight lines with a slope of +1/2. ii. straight line with a slope of -1. 12. a.000. Using the midpoint method.5. will be straight lines with a slope of -1/2. then when oranges are on the horizontal axis the indifference curves a. straight line with a slope of -0. b. DuPont (an American chemical company) discovered that the cross price elasticity between its cellophane and the prices of similar wrapping materials was large and positive. a. economists for E. iii. for this range of prices. does not depend on the fact that ice cream can be frozen. 16.I. 2 and 3 only. The demand of cellophane was price elastic. d. is higher than in the long run.0. I is true. Even though people need water to survive. the price of water is less than the price of diamonds because water is in greater supply than diamonds. 15. none of the above 14. kinked line with the kink at Q = 25. b.45. b.000.5P. will be straight lines with a slope of -1. none of the above 3 . 2 only. and 3.2. Cellophane was an inferior good. 1 and 2 only.PGDM 2014-16 IIM Ranchi QUIZ #1 11. 200. c.5P. 2. Ice cream can be frozen. In the short run the magnitude of the own price elasticity of demand for ice cream a. b.0. the total revenue received by all corn farmers would fall. d. c. 13. Export demand will be Qexport = 25. is lower than in the short run.

50 d.511 d. c. 10%.e. higher. Before the price cut U. $400.S. You could charge both groups of buyers the same price for the machinery.. lower. Suppose your manufacturing firm is not a price-taking seller (i.. 4. higher. higher d. Microsoft wants to calculate the effect of a worldwide 5% price cut on its sales of Excel to clients in different countries. Then the cross-price elasticity between goods x and y is a.816 b. but you know that you could increase total sales revenue by charging the domestic buyers a __________ price and charging the foreign customers a __________ price. what is the present value these future profits? a. 15%.PGDM 2014-16 IIM Ranchi QUIZ #1 17.25 0.25 c.000 d 0. If the price of elasticity of demand in the U.S. lower 19.5 0.000 per year for the next four years and the interest rate is six percent. 25%. 0. 8. A firm will have constant profits of $100. Microsoft sells Excel at different prices in U.. Japan and Europe are -3.741 c. lower. a. has some control over your product price) and sells machinery to domestic buyers as well as foreign buyers.S. 0. higher b.33 4 . Japan and Europe. $346. The domestic demand for your product is inelastic but the foreign demand is elastic. $325. Assuming these profits are realized at the end of each year. sales were twice sales in Japan and Europe. d. and the machinery is bulky so that the high transport costs prevent resale among the buyers. and -2 respectively. -4. Suppose the demand function is given by Qx = 8Px Py M H where the notations have their usual connotations.00 b. e. 20%. $376. b. the worldwide sales rise by a.12 20. lower c. none of the above 18.