From practise test

Question 1

Can indifference curves intersect?

Answer 1

Only in special circumstances

Question 2

Consumers prefer averages to extremes, this is according to the (x) axiom

Answer 2

convexity

Question 3

If a consumer spends income on pizza and beer, and beer increases in price, then what happens to the budget constraint?

Answer 3

It tilts inwards towards the origin

Question 4

If goods on an indifference curve diagram are normal, the income-consumption line:

Answer 4

Slopes upwards

Question 5

In Bertrand’s model of oligopoly, if firm B is believed to set a price higher than the monopoly price, what is firm A’s best response?

Answer 5

Set the monopoly price

Question 6

In a perfectly competitive labour market, a profit maximising firm should employ labour up to the point where wage is:

Answer 6

P * MPPL

Question 7

In a monopsonistic labour market, the resulting equilibrium is:

Answer 7

Lower employment and lower wages than a perfectly competitive labour market

Question 8

In a monopsonist labour market, if a monopoly union is introduced, then this can result in…

Answer 8

• Wages will rise above current equilibrium
• Employment can rise above the equilibrium level of the monopsonist
• The deadweight loss of a monopsonist can fall

Question 9

A price taking firm can:

Answer 9

Sell as much as it wants for a given price

Question 10

A profit maximising firm should NOT shut down in the long run if:

Answer 10

Price is above ATC