ECON1001 MCQExam FinalVERSIONJAN2015

ECON1001/ECON1001A
MULTIPLE CHOICE EXAMINATION, JANUARY 2015
ECON1001/1001A: ECONOMICS
TIME ALLOWANCE: 1 HOUR
Answer ALL of the questions below.
Each question below has THREE answer options. More than one (or none) of these may be
correct. For each answer option decide whether it is TRUE or FALSE. If you don’t know, then
choose DON’T KNOW. Please note that at least ONE of these options needs to be selected for
each answer option.
If your choice is correct you will receive ONE mark. If your choice is wrong, ONE mark will be
subtracted from your score for this question. If you choose DON’T KNOW, you receive ZERO
marks. The maximum score for each question is +3 and the minimum score per question is -3.
The minimum overall mark for this exam is set to ZERO.
Please note that you are not allowed to remove this question paper from the examination venue.
You may use the blank pages in this question paper for rough work.
Q1. Consider a 2-person economy, where the owner of a firm pays 20% of the total output to the
worker. What is the Gini coefficient in this economy?
A) 1/5
B) 2/5
C) 3/5
Q2. Which of the following characterise capitalism as an economic system?

A) Those producing goods and services are compensated using wages.
B) Production is undertaken for the purposes of making a profit.
C) Owners do not manage their firms; this is done by managers.
Q3. If unemployment benefits increase:

A) A worker’s effort increases because the employment rent increases.
B) Effort decreases because the disutility of effort decreases.
C) The employment rent will fall unless the firm raises the wage.
Q4. As the hourly wage rises, the worker’s best response function (with effort on the vertical axis
and wages on the horizontal axis) becomes flatter because:
A) The disutility of work at the level chosen by the worker increases.
B) The worker’s goodwill towards the employer increases.
C) The marginal effect of effort on production is diminishing.
TURN OVER
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ECON1001/ECON1001A
PAGE FOR ROUGH WORK
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ECON1001/ECON1001A
Q5. In the ultimatum game, offers by the proposer are often rejected by the responder
A) if they are less than a quarter of the pie.
B) because the responder is driving a hard bargain in the hope of a better offer later.
C) because the responder’s norm of fair treatment is violated by low offers.
Q6. A U-shaped average cost function implies that the following are possible:
A) Average cost is higher than the marginal cost.
B) Marginal costs increase but average costs decrease.
C) Average cost is lower than the marginal cost.
Q7. If a perfectly competitive market is in equilibrium:

A) Average costs cannot be higher than the marginal cost for the firms selling the product.
B) Prices have to be higher than the marginal product, or the firms will exit the market.
C) In the short-run firms can make zero economic profits; but unless they increase profits in
the long-run, firms will go bankrupt.
Q8. Suppose that a perfectly competitive market is in equilibrium, and marginal costs are strictly
increasing for all firms. If the willingness to pay at a given quantity doubles, then at the new
equilibrium:
A) The equilibrium price will double.
B) The equilibrium price will increase more than the quantity supplied.
C) The marginal cost at equilibrium will be larger than the original one.
Q9. If the IBEX stock market index was 9500 in 2009 and it is 10450 on the same day in 2014,
then its compound annual growth rate (CAGR) is
A) Above 4%.
B) Below 1%.
C) Between 1% and 4%
Q10. Consider an iso-cost curve with labour on the horizontal axis and energy on the vertical
axis. Assume that wages increase.
A) Then the iso-cost curve becomes steeper but the intercept on the vertical axis remains the
same.
B) If inputs are imperfect substitutes and the optimal allocation (prior to the wage increase)
used both labour and energy, then the initial output level can only be reached at a higher
cost.
C) The increase in wage will increase the use of energy if labour and energy are perfect
complements.
CONTINUED
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ECON1001/ECON1001A
PAGE FOR ROUGH WORK
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ECON1001/ECON1001A
Q11. Innovation rents are:

A) The increased land rent that landlords can charge when agricultural productivity
increases.
B) The profits made by being among the first to adopt a cost reducing technology.
C) Subsidies paid to inventors and other innovators by the government to overcome the
externality associated with innovation.
Q12. After finishing university, Rani has three choices, listed in order of preference: (1) study for
a MSc at UCL, (2) work at Barclays, or (3) take a gap year. Her opportunity cost of studying at
UCL includes which of the following:
A) The income she would have earned on her gap year.
B) The cost of a gap year.
C) The income she would have earned at Barclays.
Q13. The Ultimatum Game and the interaction between Angela the farmer and Bart the
landowner are similar because:
A) like the Proposer in the Ultimatum Game, Bart has more bargaining power.
B) as in the Ultimatum Game if Bart's offer to Angela is refused, both Bart and Angela end
up with nothing.
C) as in the Ultimatum Game where the presence of more than a single responder results in
the proposer getting more, Bart will get more if there are many farmers in a situation
similar to Angela.
Q14. Which of the following statements are true for a competitive market in which all firms have
upward-sloping marginal cost curves?
A) If more firms enter the market, the market price will fall, and so will profits.
B) The marginal cost is always equal to price.
C) The average cost is always equal to the price.
TURN OVER
5
ECON1001/ECON1001A
Q15. The table below shows how the payoffs to the Singhs and Kapurs depend on their choice of
cars. The first entry in each box is the payoff to the Singhs.
Kapurs
Large petrol hungry Small environment-friendly
Large petrol hungry 2,2 3.5, 0.5
Singhs Small environment-friendly 0.5, 3.5 3,3
Consider the following proposed remedies for the positional externality. Which of these would
induce both families to choose small environmentally friendly cars?
A) A tax of 1.75 on large petrol hungry cars.

B) A legally binding agreement that if they buy different types of cars, the family which
buys the large car will pay 1.0 to the other family.
C) A subsidy of 1.75 on small environment-friendly cars.
END OF EXAM

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ECON1001/ECON1001A

MULTIPLE CHOICE EXAMINATION, JANUARY 2015

TIME ALLOWANCE: 1 HOUR

Answer ALL of the questions below.

Q2. Which of the following characterise capitalism as an economic system?

Q3. If unemployment benefits increase:

PAGE FOR ROUGH WORK

Q7. If a perfectly competitive market is in equilibrium:

PAGE FOR ROUGH WORK

Q11. Innovation rents are:

A) A tax of 1.75 on large petrol hungry cars.

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