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Free Economics Revision questions & answers

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ATD 3

Free Principles of Economics revision questions & answers-ATD 3

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Category: ATD 3-Principles of Economics

1. TRUE OR FALSE: The marginal cost curve always intersects the average total cost curve at its lowest point because the marginal cost of making the next unit of output will always affect the average total cost.

A. True

B. False

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Category: ATD 3-Principles of Economics

2. In a monopolistic firm, the marginal revenue (MR) curve lies below the average revenue arc) curve at all units of output because__________.

A. In order to increase revenue, the firm must sell more units.

B. In order to sell an additional unit, the firm must reduce its price.

C. In order to increase profits, the firms must reduce its costs.

D. In order to reduce costs, the firm must reduce the increase the price of an additional unit.

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Category: ATD 3-Principles of Economics

3. Juno has a monthly income of kshs 72,000 which he plans to spend on shoes and clothes in the ratio of 1:1. The unit price of the shoes and clothes is shs 500 and kshs 600 respectively. Juno is satisfied with various combination of the two services/goods, but prefers equal proportions of each.

Required
a. Calculate the optimal point for shoes and clothes and the X intercepts
b. Juno’s income reduced by 60%. Calculate the new optimum point and X intercept.
c. Calculate the marginal rate of substitution when the consumer spends the new income in the purchase of 15 units of each goods.

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Category: ATD 3-Principles of Economics

4. (a)________measures the additional revenue a company earns by selling one additional unit of its good or service, whereas (b)________measures the consumer's benefit of consuming an additional unit of a good or service.

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Category: ATD 3-Principles of Economics

5. The law of diminishing marginal utility says that _______

A. The marginal utility from each additional unit declines as consumption increase.

B. The consumers will choose a combination of goods to maximize their total utility.

C. Buyers and sellers are free to exchange goods and services in a marketplace.

D. Firms should examine the additional benefits of an activity compared to the additional costs incurred by that same activity before deciding.

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Category: ATD 3-Principles of Economics

6. Rightward shift in supply is caused by (a)_________in supply, whereas leftward shift in supply is caused by (b)_________in supply

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Category: ATD 3-Principles of Economics

7. Ordinal utility states that________

A. The satisfaction derived by the consumers from the consumption of good or service can be measured numerically.

B. The satisfaction which a consumer derives from the consumption of product or service cannot be measured numerically.

C. The satisfaction which a consumer derives from the consumption of product or service can me measured quantitatively

D. The satisfaction which a consumer derives from the consumption of product or service can be measured quantitatively or qualitatively.

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Category: ATD 3-Principles of Economics

8. TRUE OR FALSE: For a price ceiling to be effective, it must be less than the free-market equilibrium price.

A. True

B. False

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Category: ATD 3-Principles of Economics

9. TRUE OR FALSE: According to Laissex-faire principle, the less the government is involved in the economy, the better off business will be, and by extension, society as a whole.

A. True

B. False

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Category: ATD 3-Principles of Economics

10. The following are differences between inflationary gap and deflationary gap. Which is not true?

A. Inflationary gap increases wages and price level in the economy, whereas deflationary gap decreases wages and price level in the economy.

B. Some of the causes of deflationary gap are rise in tax rate or fall in money supply, whereas inflationary gap may be caused by a fall in tax rate or rise in money supply.

C. Inflationary gap refers to excess of aggregate demand above the level that is required to maintain full employment level of equilibrium is termed as inflationary gap, whereas deflationary gap refers to the shortfall of aggregate demand below the level that is required to maintain full employment level of equilibrium is termed as a deflationary gap.

D. Some of the causes of inflationary gap are rise in tax rate or fall in money supply, whereas deflationary gap may be a fall in tax rate or rise in money supply.

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Category: ATD 3-Principles of Economics

11. The _____________states that if a person has a thing which can be put to several uses, he/she will distribute it among these uses in such a way that it has the same marginal utility in all.

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Category: ATD 3-Principles of Economics

12. The theory of the firm is a microeconomic concept that states that _________

A. Individuals who have unrestricted access to a resource are likely to act within their own self-interest and, through collective action, may deplete the resource in its entirety.

B. Money supply is a determinant of employment, inflation and production rates.

C. A firm exists and make decisions to maximize profits.

D. Consumers seek to maximize their overall utility.

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Category: ATD 3-Principles of Economics

13. ________refers to the ease with which productive factors like labor, capital, land, natural resources and so on can be reallocated across sectors within the domestic economy .

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Category: ATD 3-Principles of Economics

14. Economic development can be defined as __________

A. The increase in the production of economic goods and services, compared from one period of time to another

B. Improvement in the quality of life and living standards, e.g. measures of literacy, life-expectancy and health care.

C. An economic program speculated for the development of the regional economic system

D. Responsible way of improving wealth, by preserving the environment, so that natural sources and resources might still ensure the possibility of wealth for many and many people for a long time.

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Category: ATD 3-Principles of Economics

15. TRUE OR FALSE: Only the goods produced in the home country are included in the GDP, regardless of the nationality status of the company owners

A. True

B. False

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