RAYA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF economics
Test One Of Micro Economics For Accounting And Finance 1 St Year
Regular Students
I. Date: 17/10/2011 E.C
II. No of instructions: 3
III. No of items: 12
IV. Total Weight: 15
V. Time allowed: 45.

Name: ______________________________________ Sec.________ID No: _______________

General Instructions

 Attempt all questions carefully and put your answers clearly on the space provided.
 Make sure your mobile phone is switched off.
 You are not permitted to take any handout and electronic materials.
 Bear in mind that besides of copying is a cheating, it also valued you for a zero mark.

Prepared by: Berihu K.

Teka M.

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 I. Write ‘True’ if the statement is correct and ‘False’ if otherwise (one mark each)
1. Total utility (TU) is at its minimum when marginal utility (MU) becomes zero.
2. When the income of the consumer falls, normally the budget line shifts outward.
3. Ceteris Paribus, the Engle curve is down ward slopping for the case of normal goods.
4. Income expansion curve is a locus of points representing various combinations of the two
commodities purchased by the consumer at different levels of price, Caters Paribus.
5. The substitution effect may be defined as the change in the quantity demanded of a
commodity exclusively associated with a change in real income.
I. Each of the following questions has four alternatives. Choose the best answer from the
given alternatives (one mark each).
6. Normally indifference curve has convex shape to the origin. This could be due to:
A. The consumption level of one commodity can be increased only by reducing the
consumption level of the other
B. Constant marginal rate of substitution
C. Diminishing marginal rate of substitution
D. Increasing marginal rate of substitution
7. If MUX < PX, the consumer can:
A. Increases her/his utility by purchasing more quantities of x.
B. Increases her/his utility by purchasing less quantities of x.
C. Attains her/his equilibrium and indicates total utility is at its maximum.
D. Increase her/his utility by purchasing more quantities of Y.
8. Assume the demand for a commodity is price-elastic. As a result, an increase in price of the
commodity leads to:
A. An increase in total revenue (TR) C. No change in total revenue (TR)
B. A decrease in total revenue (TR) D. Indeterminate total revenue (TR)

9. Suppose monthly income of Sara rises from Birr 3000 to Birr 3200, and consequently her
purchase of the good X increases from 250 units per month to 300 units. Calculate her
income elasticity of demand and accordingly which type of good is for her?

A. 4.8, Inferior good C. 4.8, Necessity good

B. 3, Normal good D. 3, Luxury good

II. Workout questions ( show all necessary steps) (Two mark each)
1. Consider demand curve: Qd=40-3.5P. Then Calculate price elasticity of demand when
P=10.
2. Find the MRSxy if a consumer’s utility function is given by U = 10X0.2 Y0.8
3. A consumer consuming two commodities X &Y with a utility function U= 120X1/2Y1/2. If
price of the two commodities are birr 4 and 6 respectively and his/her budget is birr 40.
A. Find the quantity of good x and y which will maximize utility?
B. Find the MRSxy at optimum?

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 Answer sheet
True/False
1_______ 2_______ 3_______ 4________ 5________
Choice
6____ 7_____8_____ 9_____

Work out

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