Name: ID: Date:
East West UNIVERSITY
Managerial Economics, Section-2
Final, Marks 30, Time 90 Minutes
Answer all Questions
Short Answer (5x4=20)
Q1. Answer the following questions based on the table. A consumer is able to consume the
following bundles of rice and beans when the price of rice is $1 and the price of beans is $1.50.
RICE BEANS
12 0
6 4
0 8
a. How much is this consumer's income?
b. Draw a budget constraint given this information. Label it as B.
c. Construct a new budget constraint showing the change if the price of rice declines to $0.50.
Label this C.
d. Given the original prices for rice ($1) and beans ($1.50), construct a new budget constraint if
this consumer's income increased to $24. Label this D.
Q2. a. What are the differences between GDP and GNP?
b. Explain how would you get GNP from 'disposable personal income'?
Q3. a. What is money and what are the functions of money?
b. Why people need money?
c. Define M0, M1, M2 and M3.
Q4. Explain Monetary Policy and Fiscal Policy of Bangladesh.
Multiple Choice (10x1=10)
Identify the letter of the choice that best completes the statement or answers the question.
____ Q5. A budget constraint
a. represents the bundles of consumption that makes a consumer equally happy.
b. shows the consumption bundles that a consumer can afford.
c. reflects the desire by consumers to increase their income.
d. shows the prices that a consumer chooses to pay for products he consumes.
1
Name: ID: Date:
Graph 21-1
____ Q6. Refer to Graph 21-1. A consumer that chooses to spend all of her income will be
at point(s)
a. C.
b. E.
c. C or E.
d. A, B, or C.
____ Q7. The slope of the budget constraint is NOT
a. the rate at which a consumer can trade one good for another.
b. the relative price of two goods.
c. constant.
d. equal to the slope of the highest indifference curve.
Graph 21-3
____ Q8. Refer to Graph 21-3. Assume that a consumer faces both budget constraints in
panel A and panel B on two different occasions. If her income has remained constant,
what has happened to prices?
a. The price of Y in panel A is higher than the price of Y in panel B.
b. The prices of both X and Y are lower in panel A.
c. The price of X in panel A is higher than the price of X in panel B.
d. None of the above are true.
2
Name: ID: Date:
____ Q9. The rate at which a consumer is willing to exchange one good for another, and
maintain a constant level of satisfaction, is called
a. the marginal rate of substitution.
b. the relative price ratio.
c. the relative expenditure ratio.
d. the value of marginal product.
____ Q10. A consumer's set of indifference curves provides
a. a complete ranking of all possible consumption bundles.
b. a ranking of the set of bundles that happen to fall on indifference curves.
c. a framework for evaluating market equilibriums.
d. a relative ranking of bundles that provide more of all goods.
____ Q11. When two goods are perfect substitutes, the marginal rate of substitution
a. increases as the abundance of one good increases.
b. increases as the scarcity of one good increases.
c. decreases as the scarcity of one good increases.
d. is constant.
____ Q12. A consumer that finds herself on the highest indifference curve possible is
likely to have maximized her
a. income.
b. preferences.
c. marginal rate of substitution.
d. utility.
____ Q13. An optimizing consumer will select a consumption bundle in which the
a. marginal rate of substitution is equal to income.
b. marginal rate of substitution is equal to the relative price.
c. ratio of expenditure shares equals the marginal rate of substitution.
d. utility exceeds price.
____ Q14. Assume that a college student purchases only Coke and Snickers. If Coke is an
inferior good and Snickers are normal goods, the income effect associated with an
increase in the price of Snickers will result in
a. an increase in the consumption of Snickers and an increase in the consumption of
Coke.
b. an increase in the consumption of Snickers and a decrease in the consumption of
Coke.
c. a decrease in the consumption of Snickers and a decrease in the consumption of
Coke.
d. a decrease in the consumption of Snickers and an increase in the consumption of
Coke.
3
Name: ID: Date:
