Adigrat University

College of Business and Economics

Department of Economics
Course Title: introduction to economics Semester: II time allowed: 2:15
Corse Code: ECON 1063 Credit Hours: 3
Final exam for department of electrical and mechanical engineering 40 Marks
Name: __________________________________________ID# _____________Section______
General Instructions

 Switch off your cell phone until the end of the exam and you can use your own non
programmable calculator for numerical calculation (if necessary). However, sharing calculator
with your neighbor is forbidden;
 Write your Name, ID No, and Section on top of each page of your booklet and append your
signature in the attendance sheet;
 Check whether your booklet contains 10 pages including the cover page and four instructions
(parts). If not inform your invigilator so as to get the right booklet;
 Any form of cheating case and caught shall be subjected to penalty as prescribed in the rule of
the university;
 Put your answers on the space provided only; try to cover all the questions neatly based on the
given instruction, and not obeying the instruction on each part of the exam will lead you to get
zero out of the assigned weight; and
 Do not turn this page until you are told to do so; stop writing when the time allotted is up and
return your booklet to the invigilator before leaving the exam hall.

Approved by; _____________________________________________

_____________________________________________

_____________________________________________

1
Part I: choose the best alternatives among the given alternatives (1 pt each).

1) Which one of the following is true regarding the relationship between total revenue and price
elasticity of demand?
A) When total is increasing demand becomes elastic.
B) When total revenue reaches maximum demand is perfectly elastic.
C) When total revenue is decreasing demand become elastic.
D) When total revenue is increasing demand becomes perfectly in elastic.
2) Which one of the following determinant of demand is odd?

A) Price of own commodity B) price of substitutes

C) Taste and preference D) income of the consumer

E) NONE

3) One can increase his/her total revenue by raising the price of the product, under
_______________ consumer

A) Elastic B) Inelastic C) Unitary elastic D Perfectly inelastic

E) B&D

4) Which one of the following is true concerning product and cost curves?
A) When AVC curve is above SMC curve, MPL will rise.
B) When SMC curve is below AVC curve, APL will decline.
C) When APL=MPL, MC will at its minimum.
D) When SMC curve intersects AVC , MPL will reaches its maximum
5) Which one of the following different?
A) Chalk and marker B) Green and blue pen C) Pen and paper D) radio and TV
6) An increase in price of complements leads to
A) Rightward shift in both demand and supply
B) Rightward shift in demand but leftward shift in supply.
C) Leftward shift in both demand and supply.
D) Leftward shift in demand but rightward shift in supply.
7) If demand decreases by a greater amount than the increment in supply of a commodity, then
you can observe that
A) A rise in price equilibrium but quantity equilibrium will remain constant.
B) A reduction in price equilibrium and quantity equilibrium.
C) A rise in quantity equilibrium but constant price equilibrium.
D) A reduction in quantity equilibrium but rise price equilibrium.
8) The cross elasticity of demand of a commodity with change in price of its close substitute
good is?
A) Elastic and positive C) Elastic and negative
B) Inelastic and positive D) Inelastic and negative

2
9) One is wrong about implicit cost
A) It refers to the costs of self-owned and self-employed input.
B) It is the difference between economic cost and explicit cost.
C) It is simply the normal profit that firms earn.
D) It is the difference between explicit cost and accounting cost.

10) Total fixed cost is?

A) A cost that varies as output varies. C) An implicit cost.
B) A cost incurred in fixed inputs. D) None
11) Which one of the following is untrue concerning elasticity?
A) It measures the responsiveness of buyers to changes in income, price of related goods,
and price of own commodity.
B) It measures the reaction of buyer and sellers to various changes in determinant of
supply and demand.
C) The greater the degree of responsiveness is the larger the size of elasticity.
D) Price elasticity of demanded measures the responsiveness of seller to change in price
of the commodity.
12) Which one of the following is true about price elasticity of demand?
A) Demand is price elastic if a drop in price leads to high quantity demanded.
B) If percentage change in price is greater than the percentage change in quantity
demanded, the demand is price elastic.
C) If quantity demand is not changed due to change in price demand is perfectly elastic.
D) Knowing the concept of price elasticity of demand is hardly important to a business
man who wants to maximize the firm’s sale revenue.
13) Which one is wrong concerning opposite shift in demand and supply?
A) If supply decreases but demand is increases, equilibrium quantity is ambiguous , but
price definitely rises.
B) If the increment in demand is greater than the decline in supply, equilibrium quantity
rises.
C) If supply increases but demand decline equilibrium price is undetermined.
D) If the increment in supply is greater than the decline in demand, equilibrium quantity
rises.
14) Suppose you find a farmer selling eggs in meydaagame and you know that the demand for
egg is elastic what do you advice this guys?
A) To increase the price of egg. C) To decrease the price of egg.
B) Not to change the price of egg. D) To eat his eggs with his families.
15) A rightward shift in the demand curve indicates that
A) More demand at lower price
B) More demand at the same price
C) Less demand at higher price
D) Less demand at the same price

3
 16) Which one of the following is true about determinant of price elasticity of demand?
A) The demand for commodity that has no close substitutes is more elastic than the
commodity have more substitutes.

B) The demand for luxuries is less price elastic than that of necessities.
C) Demand is price elastic for goods on which the proportion of income spent is small.
D) Demand is relatively inelastic in the short-run but more elastic in the long run.
17) Which one of the following is valid statement concerning gross domestic product (GDP)?
A) GDP is the sum of final goods and services produced within the boundaries of
a country for a given period of time.
B) GDP may includes sometimes includes goods and services produced in
previous year.
C) GDP is the single most widely used and perfect measure of the output of an
economy.
D) The value of goods and services produced by Eritrean currently living in
Ethiopia is part of Ethiopian GDP.
18) A reduction in price of substitutes leads to__________
A) Increases both equilibrium quantity and equilibrium price.
B) Equilibrium price rises but equilibrium quantity falls.
C) Equilibrium quantity rises but equilibrium price is ambiguous.
D) Equilibrium price falls but equilibrium quantity is ambiguous.
19) Which one of the following is wrong about the effect of government policy onEquilibrium?
A) Price floor brings excess supply and higher price to commodities.
B) Price ceiling leads to decrease quantity supply and increase quantity demanded.
C) Increase in tax leads to increase price above the equilibrium and to decrease
quantity supply below the market equilibrium.
D) When the government falls to subsidize the producer’s price and quantity
supply will rise above the market equilibrium.
20) If the marginal cost and average variable cost of a firm are 20&30 respectively then firm is
producing in stage__________________.
A) I B) II C) III D) it can’t be determine

4
Part II: say true if the statement is correct and false if the statement is wrong (1 pt each).

1. Suppliers will be more elastic when they haven’t warehouse than when they have warehouse.
2. The nominal GDP of one nation can increase only when the total output of the nation
increases.

3. Ethiopian citizens living in USA can contribute something to the GDP of Ethiopia.
4. Price discrimination is the act of selling different products to different buyers at different
price which isn’t based on cost difference.

5. Total cost is equal to total variable cost at zero level of output.

Part III: workout the following questions briefly following the necessary steps.

1) Suppose the price of a certain product increases from 100 to 200 birr as a result the
quantity demand for the another product falls from 300 to 200,then calculate cross
elasticity of the products using point method, interpret the result and how the two
products are related? (3pt.)
2) Suppose the cost of a monopolist firm is given by TC= 1000-150Q+10Q2 and Price is
given by P=150-5Q, Then find
A) Profit maximization level of output?(1pt.)
B) Profit maximization level of price?(1pt.)
C) Profit of the firm at profit maximizing level of output?(1pt.)
3) If the AVC of producing the 9th output is 140 and the MC of the 10th output is 50, then
what is the AVC of the 10th output?(2pt.)
4) Given the slope of supply curve is 4, then calculate price elasticity of supply at P=20,and
Q=40 and interpret it?(2pt)
5) Show mathematically average variable cost(AVC) and Average product of labor are
inversely related.(2pt)
6) Discuss the relationship between MR& price elasticity of demand graphically.(1pt)
7) Given an individual demand function of DX = 12 –2pX ,determine the level of price in which
demand becomes unitary elastic.(2pt)

5
 Answer key
Part I: match part II: true/false

No. Answer No. Answer No. answer

1 11 1

2 12 2

3 13 3

4 14 4

5 15 5

6 16

7 17

8 18

9 19

10 20

6
Work out

7
8
9
10
11