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1) Suppose some firms exit an industry characterized by monopolistic competition. We
would expect the demand curve of a firm already in the industry to:
A.Shift to the left
B.Shift to the right
C.Become less elastic
D.Remain the same since entering firms serve other customers in the market
2) The larger the Herfindahl index, the:
A.Less the degree of import competition in an industry
B.Greater the degree of import competition in an industry
C.Less the degree of market power in an industry
D.Greater the degree of market power in an industry
3) Answer the question on the basis of the following table showing market shares of
firms in hypothetical industries. Assume these are distinct industries with no
buyer-seller relationships or competition among them.
Refer to the table. The Herfindahl index for Cappa is:
A.2,500
B.100
C.100,000
D.5,000
4) Use the below graph to show what happens to total revenue when: (a) price falls
from P1 to P2; (b) price rises from P3 to P2. Explain your answer in terms of areas of
total revenue gained or lost using the alphabetical letters representing different areas on
the graph. (c) Is demand elastic or inelastic? How do you know?
5) Assume the price of capital falls relative to the price of labor and, as a result, the
demand for labor increases. Therefore:
A.capital is very highly substitutable for labor.
B.the output effect is greater than the substitution effect.
C.the income effect is greater than the output effect.
D.the substitution effect is greater than the output effect.
6) The long-run supply curve would be perfectly elastic when:
A.An increase in demand does not cause a change in product price
B.An increase in demand causes an increase in product price
C.A decrease in demand causes an increase in short-run supply
D.A decrease in demand causes an increase in product price
7) Answer the question on the basis of the following four tax schedules for the given
base of taxable income.
Which of the above tax schedules is a proportional tax schedule throughout?
A.A
B.B
C.C
D.D
8) Industrially advanced countries can best help DVCs by:
A.Directing requests from DVCs for aid to the World Bank
B.Using the International Monetary Fund to determine exchange rates in DVCs
C.Increasing management control over development projects
D.Adopting policies that expand trade with DVCs
9) If production is occurring where marginal cost exceeds price, the purely competitive
firm will:
A.maximize profit, but resources will be underallocated to the product.
B.maximize profit, but resources will be overallocated to the product.
C.fail to maximize profit and resources will be overallocated to the product.
D.fail to maximize profit and resources will be underallocated to the product.
10) The exercise of market power by suppliers in resource markets tends to:
A.reduce income inequality ensuring that all workers receive fair wages.
B.have little impact on the distribution of income.
C.increase income inequality by raising incomes of those able to "rig the market."
D.increase income inequality but is offset by the exercise of market power in product
markets.
