7. When total revenue is less than total variable cost, a frm in a competitive market will
(A) shut down.
(B) continue to operate as long as average revenue exceeds marginal cost.
(C) continue to operate as long as average revenue exceeds average fixed costs.
(D) always exit the industry.

3. When a tax is levied on sellers of tea, buyers of a good bear the larger share of the tax burden when the (i) supply is more elastic than the demand for the product. (ii) demand in more elastic than the supply for the product. (iii) tax is placed on the sellers of the product. (iv) tax is placed on the buyers of the product. (A) (i) only (B) (i) only (C) (i) and (iii) only (D) (i) and (iv) only

4. The substitution eflect of an increase in the interest rate will result in an increase in (A) consumption when young and increase in savings when young. (B) consumption when old and an increase in savings when young. (C) consumption when young and an increase in savings when old. (D) savings when old and an increase in consumption when old.

5. Assume that goods X and Y are not Giffen goods. If the price of good X falls, a consumer will definitely (A) consume more of good X because her budget constraint has rotated outward. (B) consume more of good X because her budget constraint has shifted outward. (C) consume more of good Y because her budget constraint has rotated outward. (D) consume more of good Y because her budget constraint has shifted outward.

6. Thirsty Thelma owns and operates a small lemonade stand, When Thelma is producing a small quantity of lemonade she has few workers and her equipment is not being fully utilized. Because she can easily put her idle resources to use, (A) the marginal cost of an extra worker is large. (B) the marginal product of an extra worker is small. (C) The marginal cost of one more glass of lemonade is small. (D) Her lemonade stand is likely to be crowded with workers.

8. In a competitive market, a firm's supply curve dictates the amount it will supply. In a monopoly market (A) the same is true. (B) the decision about how much to supply is impossible to separate from the demand curve it faces. (C) the supply curve conceptually makes sense, but in practice is never used. (D) the supply curve will have limited predictive capacity.

9. Equilibrium quantity in markets characterized by oligopoly are (A) lower than in monopoly markets and higher than in perfectly competitive markets. (B) lower than in monopoly markets and lower than in perfectly competitive markets. (C) higher than in monopoly markets and higher than in perfectly competitive markets. (D) higher than in monopoly markets and lower than in perfectly competitive markets.

10. In the long run, a proft-maximizing firm in a monopolistically competitive market operates at(A) efficient scale. (B) the point where demand equals marginal cost. (C) the point where revenue is also maximized. (D) some point along the downward sloping portion of its average total cost curve.

11. Which of the following statements is correct if a country has adopted fixed exchange rate regime? (A) If the currency is overvalued with respect to the fixed parity, the central bank has to intervene e.g. by increasing the interest rate. (B) The central bank has to offiset the effects of capital outfow on the exchange rate e.g. by buying domestic currency and paying with foreign reserves. (C) If, in order to reduce excess supply of the domestic currency, the central bank buys domestic currency at the target exchange rate, this will necessarily cause infation in the home country. (D) Measures taken by the central bank to keep the exchange rate fixed will not affect the domestic interest rate.

12. Take a graph with the unemployment rate on the horizontal axis and the infation rate on the vertical axis. Which of the following will shift the Phillips curve towards the northeast? (A) A positive aggregate demand shock (B) Contractionary monetary policy (C) A negative aggregate supply shock (D) A decrease in expected inflation

13. Which of the following statements is necessarily false； (A) Monetary policy can be conducted through open market operations, setting the minimum reserve requirement and through changing the refinancing rate at which banks can borrow money from the central bank. (B) In the short run, an increase in money supply causes a proportional increase in prices. Over time the latter decrease again. (C) Unemployment benefits are automatic stabilizers. (D) The positive effect of expansionary fiscal policy on production is reduced by crowding out.