Download FINA251 TEST BANK

FINA251
TEST BANK
==================================
Multiple Choice Questions
Q.
The price elasticity of demand refers - and how is it measured?
a. the responsiveness of the demand to changes in price.
b. the responsiveness of the quantity demanded to changes in price. √
c. the responsiveness of the supply to changes in price.
d. the responsiveness of the quantity supplied to changes in price.
Q.
The calculation formula of price elasticity of demand is a. the percentage change in quantity demanded divide by the percentage change in
price. √
b. the percentage change in price divide by the percentage change in quantity
demanded.
c. the percentage change in quantity demanded multiply by the percentage change in
price.
d. none of the above.
Q.
In formula
ED  %%QP , %Q can calculate byd
d
New Qd + Old Qd
a. ---------------------------- X 100
Old Qd
New Qd – Old Qd
b. ---------------------------- X 100 √
Old Qd
New Qd
c. ---------------------------- X 100
Old Qd
Old Qd
d. ---------------------------- X 100
New Qd
Q.
In formula
ED  %%QP , %P can calculate byd
New P - Old P
a. ---------------------------- X 100 √
Old P
New P + Old P
b. ---------------------------- X 100
Old P
New P
c. ---------------------------- X 100
Old P
Old P
d. ---------------------------- X 100
New P
Q.
The sign of calculated Price elasticity of demand a. is always positive (+)
b. is always negative (-)√
c. could be positive or negative
d. none of the above
Q.
Demand for a good will be elastic if the price elasticity of demand (ED) isa. less than 1 (ED<1).
b. more than 1(ED>1). √
c. equal 1(ED=1).
d. none of the above.
Q.
Demand for a good will be inelastic if the price elasticity of demand (ED) isa.
b.
c.
d.
Q.
less than 1 (ED<1). √
more than 1(ED>1).
equal 1(ED=1).
none of the above.
Demand for a good will be unit elastic if the price elasticity of demand (ED) isa. less than 1 (ED<1).
b. more than 1(ED>1).
c. equal 1(ED=1). √
d. none of the above.
Q.
Demand for a good will be perfectly elastic if the price elasticity of demand (ED)
isa. less than 1 (ED<1).
b. more than 1(ED>1).
c. equal 1(ED=1).
d. equal ∞ (ED=∞).√
Q.
Demand for a good will be perfectly inelastic if the price elasticity of demand
(ED) isa. less than 1 (ED<1).
b. more than 1(ED>1).
c. equal 1(ED=1).
d. equal 0 (ED=0). √
Q.
If the percentage change in quantity demanded ( %Qd ) is greater than the
percentage change in price ( %P ), Then the demand is –
a.
b.
c.
d.
Q.
elastic√
unit elastic
inelastic
none of the above
If the percentage change in quantity demanded ( %Qd ) is less than the percentage
change in price ( %P ), Then the demand is –
a. elastic
b. unit elastic
c. inelastic√
d. none of the above
Q.
If the percentage change in quantity demanded ( %Qd ) is equal to the percentage
change in price ( %P ), Then the demand is –
a. elastic
b. unit elastic√
c. inelastic
d. none of the above
Q.
Refer to the above graphs, which graph best shows the unit elastic demand for a
good?
a. Graph A
b. Graph B√
c. Graph C
d. Graph D
Q.
Refer to the above graphs, which graph best shows the perfectly elastic demand
for a good?
a. Graph A√
b. Graph B
c. Graph C
d. Graph D
Q.
Refer to the above graphs, which graph best shows the perfectly
demand for a good?
a. Graph A
b. Graph B
inelastic
c. Graph C√
d. Graph D
Q.
The value of elasticity of demand at the midpoint of a linear demand curve is
always a.
b.
c.
d.
Q.
1(one) √
>1 (more than 1)
<1 (less than 1)
0 (zero)
The value of elasticity of demand at the upper part of a linear demand curve is
always a.
b.
c.
d.
1(one)
>1 (more than 1) √
<1 (less than 1)
0 (zero)
Q.
The value of elasticity of demand at the lower part of a linear demand curve is
always a.
b.
c.
d.
Q.
The cross elasticity of demand between goods A and B is positive refers that
goods A and B are a.
b.
c.
d.
Q.
complementary goods
substitute goods√
irrelevant goods
none of the above
The cross elasticity of demand between goods A and B is negative refers that
goods A and B are a.
b.
c.
d.
Q.
1(one)
>1 (more than 1)
<1 (less than 1) √
0 (zero)
complementary goods√
substitute goods
irrelevant goods
none of the above
When the price of chicken rises 2 percent (%P), the quantity demanded of AlBaik falls 4 percent (%Qd). The price elasticity of demand of Al-Baik is –
(Hints: formula
ED

% Qd
% P
)
a. -2√
b. 2
c. 8
d. -8
Q.
Utility means –
a. the dissatisfaction (unhappiness) that a person receives from consuming a good or
service
b. the additional satisfaction (happiness) that a person receives from consuming an
additional good or service
c. the satisfaction (happiness) that a person receives from consuming a good or
service√
d. the additional dissatisfaction (unhappiness) that a person receives
consuming an additional good or service
from
Q.
Marginal utility means –
a. the dissatisfaction (unhappiness) that a person receives from consuming a good or
service
b. the additional satisfaction (happiness) that a person receives from consuming an
additional good or service√
c. the satisfaction (happiness) that a person receives from consuming a good or
service
d. the additional dissatisfaction (unhappiness) that a person receives from
consuming an additional good or service
Q.
Diminishing marginal utility refers a.
b.
c.
d.
a decrease in marginal utility as the quantity consumed increases. √
an increase in marginal utility as the quantity consumed increases.
marginal utility does not change as the quantity consumed increases.
none of the above
Al-Baik
Khalid's total
(Units per week) utility (TU)
0
0
1
10
2
16
3
20
Q.
In the above table, the marginal utility from the 3rd unit of Al-Baik is –
(hints: Marginal utility from the 3rd unit of Al-Baik (MU3) = TU3 – TU2)
a. 20
b. 4√
c. 6.67
d. none of the above
Q.
In the above table, the total utility from 3 units of Al-Baik is –
(hints: TU3)
a.
b.
c.
d.
Q.
20√
4
6.67
none of the above
In the above table, the marginal utility from the 2nd unit of Al-Baik is –
(hints: Marginal utility from the 2nd unit of Al-Baik (MU2) = TU2 – TU1)
a. 16
b. 6√
c. 8
d. none of the above
Al-Baik
(Units per
week)
1
2
3
4
5
Q.
Quantity of
Pizza
1
2
3
4
5
Price of
Pizza
(P pizza = $4)
Marginal
utility from
Pizza
(MUpizza)
40
28
20
12
8
Given the data in the above table, income of $40 per week, a price of $8 for an
Al-Baik and $4.00 for a Pizza. The per dollar marginal utilities (MU/P) on the 5th
Al-Baik is – [Hints: Per dollar marginal utility for 5th Al-Baik = MU5(Al-Baik)/P(price of
Al-baik)]
a.
b.
c.
d.
Q.
Price of
Al-Baik
(P al-baik = $8)
Marginal
utility from
Al-Baik
(MUal-baik)
56
32
24
18
12
1.5 utils√
12 utils
2.4
none of the above
Given the data in the above table, income of $40 per week, a price of $8 for an
Al-Baik and $4.00 for a Pizza. The per dollar marginal utilities (MU/P) on the 5th
Pizza is – [Hints: Per dollar marginal utility for 5th Al-Baik = MU5(pizza)/P(price of pizza)]
a. 8 utils
b. 1.6 utils
c. 2√
d. none of the above
Marginal
Marginal
Quantity
of
utility from
Al-Baik
utility from
(MUpizza/Ppizza)
Pizza
Pizza
(Units per
Al-Baik
(MUpizza)
week)
(MUal-baik) (MUal-baik/Pal-Baik)
1
7
1
10
56
40
2
4
2
7
32
28
3
3
3
5
24
20
4
2.25
4
3
18
12
12
8
5
1.5
5
2
Q.
Given the data in the above table, income of $40 per week, a price of $8 for an
Al-Baik and $4.00 for a Pizza. The utility maximization combinations of Al-Baik
and Pizza is – [Hints: Income must spent completely and (MUAl-Baik/PAl-Baik) =
(MUPizza/PPizza)]
a. 1 Al-Baik and 2 Pizza
b. 3 Al-Baik and 4 Pizza√
c. 5 Al-Baik and 5 Pizza
d. none of the above
Q.
Economic costs is equal to –
a. explicit costs – implicit costs
b. explicit costs + implicit costs√
c. explicit costs/implicit costs
d. implicit costs/explicit costs
Q.
Explicit costs refers –
a. to the firm’s actual cash payments for resources owned by others. √
b. to the firm’s self-owned, self-employed resources.
c. to the firm’s costs for resources whether those resources are owned by others or
by the firm
d. none of the above.
Q.
Implicit costs refers –
a. to the firm’s actual cash payments for resources owned by others.
b. to the firm’s self-owned, self-employed resources. √
c. to the firm’s costs for resources whether those resources are owned by others or
by the firm
d. none of the above.
Q.
Total revenue refers –
a. the amount paid for buying of the product.
b. the amount difference between received and payment of the product.
c. the amount received from the sale of the product. √
d. none of the above.
Q.
Q.
Total revenue (TR) is equal to –
a. the price per unit of product multiply the quantity of the products that sold (P x Q)√
b. the price per unit of product divided the quantity of the products that sold (P/Q).
c. the quantity of the products that sold divided the price per unit of product (Q/P)
d. none of the above.
Khalid pays SR25000 rent per year for his shop. This cost is –
a. implicit cost
b. explicit cost. √
c. economic cost.
d. none of the above.
Q.
Khalid pays SR36000 per year for his workers. This cost is –
a. implicit cost
b. explicit cost. √
c. economic cost.
d. none of the above.
Q.
Khalid got an offer from Samba Bank to work for them and offered salary is
SR50,000 per year. But he reject it and started his own business. This SR50,000
that he sacrificed for his own business is his business –
a. implicit cost√
b. explicit cost.
c. economic cost.
d. none of the above.
Q.
Khalid using his own building for his business that could have rent SR25000 per
year for his shop. This cost is –
a. implicit cost√
b. explicit cost.
c. economic cost.
none of the above.
True/False Questions: Correct the Underlined Part if it is False
Q.
If the cross elasticity of demand between goods X and Y is positive, these goods are
substitute goods. √ (TRUE)
Q.
If the percentage change in quantity demanded ( %Qd ) is equal to the percentage
change in price ( %P ), then the demand is elastic. X (FALSE: unit elastic)
Q.
The total revenue is maximum for the unit elastic demand. √ (TRUE)
Q.
The sign of calculated price elasticity of demand will be always + (positive). X
(FALSE:  negative)
Q.
The principle of diminishing marginal utility implies an increase in marginal utility
as the quantity consumed increases. X (FALSE: a decrease)
Q.
The satisfaction that a person receives from consuming a good or service is called
demand. X (FALSE: utility)
Q.
The satisfaction that a person receives from consuming a good or service is called
utility. √ (TRUE)
Q.
A consumer's total utility is maximized when the marginal utility per dollar (the
marginal utility from a good divided by its price) for all goods are equal. √ (TRUE)
Q.
The price elasticity of demand measures the responsiveness of the quantity demanded
to changes in income. X (FALSE: price)
Q.
The cross elasticity of demand for a substitute is negative and for a complement is
positive. X (FALSE: positive, negative)
Q.
If the change in price is smaller than the change in quantity demanded, then the price
elasticity of demand is more than one and the good has elastic demand. √ (TRUE)
Q.
In the lower part of a linear demand curve, the price elasticity of demand is always
more than 1. X (FALSE: less than).
Short Answer Questions
Q.
The price elasticity of demand for Al-Baik is 8. If the price of an Al-Baik
increased by 4 percent, Calculate the quantity demanded for Al-Baik. Explain
the result.
Answer:
Here %P = 4, price elasticity of demand for Al-Baik ED = - 8
We know price elasticity of demand
ED

% Qd
% P
- 8 = %4Qd
%Qd = -8 x 4 = -32
So,
Quantity demanded of Al-Baik will be decreased by 32 percent with the 4 percent in
price.
Q.
If the price of Al Baik increases from $6 to $8 per box and quantity demanded
decreases from 1000 boxes to 900 boxes. What is the price elasticity of demand
for Al-Baik?
Answer:
We know price elasticity of demand
ED

% Qd
% P
New Qd – Old Qd
900 – 1000
-100
%Qd = ------------------------ X 100 = --------------------X100 = ------ X 100 = -10.52
(New Qd + Old Qd)
(900 +1000)
950
---------------------------------------2
2
(Here, New Qd = 900, Old Qd = 1000)
New P – Old P
8–6
2
%P = ------------------------ X 100 = --------- X 100 = ----------X100 = 28.57
(New P + Old P)
8+6
7
------------------------------2
2
(Here, New P = $8, Old P = $6)
So the price elasticity of demand
Q.
ED

What is total revenue? How to calculate it?
Answer:
Total revenue is the amount of money that company receive by selling their products.
We can calculate total revenue by the following formula:
TR = P(per unit) X Q(quantity that sold)
Quantity sold
5
6
7
Q.
%Qd 10.52

 0.368
%P
28.57
Price
$15
$15
$15
In the above table, if the firm sells 6 units of output, how much its total revenue
is?
Answer:
Formula, TR (Total Revenue) = P (per unit) x Q (that sold) = $15 x 6 = $90
Q.
Dr. Islam operates a small glossary shop. He hires one assistant at SR36,000 per
year, pays annual rent of SR20,000 for his shop, an invested SR20,000 from his
savings on materials that could have earn him SR1000 per year as interest rate.
He had been offered SR100,000 per year to work as an associate professor at
KAU but rejected to run his own business. He estimates his entrepreneurial
talent which is worth SR3000 per year. Total annual revenue from furniture
sales is SR200,000.
a. Find and list the explicit costs of Dr. Islam’s business.
Answer:
Explicit costs are as follows:
1. Pays for assistant-SR36,000
2. Rent-SR20,000
3. Investment on materials-SR20,000
b. Find and list the implicit costs of Dr. Islam’s business.
Answer:
Explicit costs are as follows:
1. Interest that could have earn-SR1000
2. Offered salary that rejected-SR100,000
3. entrepreneurial talent-SR3000
c. Calculate the total costs of Dr. Islam’s business per year.
Answer:
Total costs
= explicit costs + implicit costs
= 36000+20000+20000+1000+100000+3000
= 180000
d. Calculate profits of Dr. Islam’s business per year.
Answer:
Profit = Total Revenue - Total costs = 200000 – 180000 = 20,000SR