Department of Agricultural Economics

2015 E.C GC students Model Exam

Theme I (Economics)
1. As an economist, economies of scale occur when,
A. Increasing production with decrease in marginal cost
B. Increasing production with increasing total cost
C. Increasing production with decrease in average cost
D. Increasing production with decrease in cost
ANSWER: C
2. Which one of the following is not true about the relationship between production curves
and cost curves?
A. When average product curve raises upward, average cost curve falls downward.
B. When average product curve attains its maximum, average cost attains its minimum.
C. When marginal product is rising upward; average product curve falls downward.
D. When marginal product curve is rising upward; marginal cost is decreasing.
ANSWER: A
3. Which of the following is the cost of producing one additional unit of output?
A. Average cost.
B. Fixed cost.
C. Variable cost.
D. Marginal cost.
ANSWER: D
4. What is resource utilization in economics?
A. Maximizing the availability of resources
B. Minimizing the efficiency of resource allocation
C. Optimizing the use of resources
D. Eliminating the need for resource allocation
ANSWER: C
5. All of the following statements are correct, Except,
A. Average fixed cost curve slopes downward continuously from left to right.
B. If there are no economies or diseconomies of scale the LRAC curve is horizontal.
C. Total cost is greater than total variable cost in long run
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2015 E.C GC students Model Exam

D. If marginal cost is below average total cost, the average total cost curves slope
downward
ANSWER: B
6. How do economic theories contribute to optimum resource allocation?
A. By reducing the availability of resources
B. By increasing production costs
C. By maximizing resource inefficiency
D. By providing guidelines for efficient resource allocation and utilization
ANSWER: D
7. Which of the following is an example of an implicit cost?
A. Purchase of raw materials
B. Payment of wages to employees
C. Sacrificing a wage that could have been earned in another use
D. Rent payment for the use of a production facility
ANSWER: C
8. Which one of the following is correct?
A. The value of elasticity of substitution = 0, for Cobb-Douglas production function
B. The value of elasticity of substitution = 1, for fixed proportion production function
C. Larger value of elasticity of substitution indicates the greater substitutability
between inputs
D. L-shaped iso-quant indicates factors are perfect substitute.
ANSWER: C
9. When dose social optimality occur?
A. MSC=MSB
B. MEB=MPC
C. MEB=MEC
D. MPB=MPC
ANSWER: A
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2015 E.C GC students Model Exam

10. Goods characterized by both privetness and externalities are called?

A. Mixed goods
B. Merit goods
C. Private goods
D. Public good
ANSWER: A
11. Which one of the following is correct about pure public good?
A. Characterized by increasing AC.
B. Characterized by zero MC.
C. Benefits can be priced
D. Characterized by divisibility
ANSWER: B
12. Which one of the following is correct about positive externality?
A. Over production
B. MPB > MSB
C. Under production
D. MPB = MSB
ANSWER: C
13. Suppose Q = L0.5 K 0.5. Then what will be elasticity of factor substitution
A. 2
B. 1
1
C.
2
−1
D.
2
ANSWER: B
14. Suppose Q = L K0.5. Then what will be MRTSLK?
L
A.
K
K
B.
L
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2015 E.C GC students Model Exam

0.5 L
C.
K
2K
D.
L
ANSWER: D
15. Suppose that aggregate demand has recently increased. This has taken output above the
potential level and it has also increased the price level. The government is keen to avoid any
further increases in the price level. Which of the following options should it avoid?
A. Simply wait for the labour market to return output to the potential level.
B. Apply a contractionary fiscal policy.
C. Announce a credible zero target for inflation.
D. Apply a supply-side policy to shift LAS to the right?
ANSWER: A
16. Which of the following views is not characteristic of the monetarist approach to policies
regarding unemployment and inflation?
A. To secure generally stable prices, governments should aim to keep the money
stock stable over time.
B. Government efforts to reduce unemployment have lags, so when they take effect,
it may be too late.
C. Government efforts to hold unemployment below the natural rate will lead to
accelerating inflation if people form adaptive expectations about the inflation rate.
D. If the unemployment rate exceeds the natural rate, wage flexibility will return the
rate to the natural rate quite quickly.
ANSWER: A
17. Which of the following statements about rational expectations is false?
A. They assume that people take account of all information.
B. They assume that, on average, people's forecasts are correct.
C. They imply that expected changes in demand have no effects on unemployment or
the price level.
D. They imply that unexpected changes in demand have long-lasting effects on both
unemployment and the price level.
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2015 E.C GC students Model Exam

ANSWER: D
18. Suppose inflation over the next year is expected to be 5%, and assume there are no supply
shocks. What rate of inflation will the short-run Phillips curve show at the natural rate of
unemployment?
A. 0%
B. Between 0% and 5%
C. 5%
D. Over 5%
ANSWER: C
19. An increase in the nominal GDP by 6% can correspond to
A. A decrease of real GDP by 4% and an increase of prices by 10%.
B. An increase of real GDP by 9% and an increase of prices by 3%.
C. An increase of real GDP by 5% and a decrease of prices by 1%.
D. A decrease in real GDP by 3% and an increase of prices by 3%.
ANSWER: A
20. Which of the following is NOT a leakage from the circular flow of income and expenditure
A. Imports
B. Government purchases
C. Taxes net of government transfers
D. Saving
ANSWER: A
21. Which of the following does NOT enter GDP?
A. Public service C. Life expectancy
B. Public education D. National defense
ANSWER: C
22. Suppose that the economy is on the LM curve but not on the IS curve, then we know that
A. The good market is in equilibrium, but not the money market
B. The money market and bond markets are in equilibrium, but not the goods market.
C. The money market and goods market are in equilibrium, but not the bond market
D. The money, bond and goods markets are all in equilibrium;
ANSWER: B
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2015 E.C GC students Model Exam

23. Suppose that investment spending depends only on the interest rate, and not on output, then
a decrease in the budget deficit
A. Will cause investment spending to decrease
B. Will cause investment spending to increase
C. May cause investment spending to increase, but only if investment is not very sensitive to
interest rate changes
D. Will cause investment spending to rise or fall, depending on the reason for the drop in the
budget deficit
ANSWER: A
24. After a monetary expansion, which of the following is a complete list of the variables that
must increase?
A. Consumption, output and the interest rate
B. Consumption, output, interest rate investment
C. Consumption and output only
D. Consumption, output and investment
ANSWER: D
25. Consider two economies that are identical, with the exception that one has a high marginal
propensity to consume (MPC) and one has a low MPC. If the money supply is increased by
the same amount in each economy, the high MPC economy will experience IS model
A. A smaller increase in output and a smaller decrease in the interest rate
B. A larger increase in output and a larger decrease in the interest rate
C. A larger increase in output and a smaller decrease in the interest rate
D. A smaller increase in output and a larger decrease in the interest rate
ANSWER: C
26. Suppose that investment (I) in the goods market is not responsive to the interest rate (that is,
investment (I) do not depend on the interest rate at all). Then
A. The IS curve is a vertical line and monetary policy is very effective in raising output.
B. The IS curve is a horizontal line and monetary policy is very effective in raising output
C. The IS curve is a vertical line and monetary policy does not affect output in the IS-LM
model
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2015 E.C GC students Model Exam

D. The IS curve is a horizontal line and monetary policy does not affect output in the IS-LM
model.
ANSWER: C
27. Consider the following is showing the IS-LM Model under closed economy with desired
consumption, desired investment, and government spending in a closed economy as follows;
C d = 360 − 200r + 0.1Y
I d = 120 − 400r
G = 120
Then what an equation is for desired national saving, S d in terms of output Y and the real
interest rate r (if it is not at equilibrium)
A) −380 + 0.9Y + 400r
B) −480 - 0.8Y + 400r
C) −480 + 0.9Y + 200r
D) −380 + 0.7Y + 200r
ANSWER: C
28. We have an IS-LM Model:
C = 200 + 0.25YD T = 200
I = 150 + 0.25Y – 1000i (M / P) d = 2Y – 8000i
G = 250 M / P = 1600
Then the equation of IS and LM relations will be
A. IS: Y = 100 – 200i and LM: i = Y/400 – 0.5
B. IS: Y = 100 – 2000i and LM: i = Y/4000 – 0.2
C. IS: Y = 1100 + 2000i and LM: i = Y/4000 -0.5
D. IS: Y = 1100 – 2000i LM: i = Y/4000 – 0.2
ANSWER: D
29. One of the following can be taken as the maximum amount that the individual would be
willing to pay in order to enjoy the new situation
A. Contingent Valuation
B. Consumer surplus
C. Equivalent variation
D. Compensating variation
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2015 E.C GC students Model Exam

E. Replacement cost
ANSWER: D
30. One of the following statements is not true about travel cost method?
A. It is expensive and easy to interpret the result
B. Substitute site can affect the result
C. Single person cannot came for single purpose
ANSWER: A
31. How can you relate the renewable resource to the concept of fund pollutant?
A. Regenerative capacity to non-renewable resource and absorptive capacity to fund
pollutant.
B. Both are treated in dynamic framework.
C. For sustainability growth greater or Equal to harvest to renewable resource and
absorptive capacity greater or Equal waste from the economic activity to fund
pollutant.
ANSWER: C
32. Which of the following is an example of common pool resource ?
A. A privately owned farm
B. A public park
C. A fishery
D. Shopping mall
ANSWER: C
33. Which of the following is an Example of negative externality?
A. A company planting trees to offset their carbon emission
B. A family installing solar panels on their roof
C. A factory polluting near by the river
D. A community garden providing fresh produce to local residents
ANSWER: C
34. Which of the following is not a fundamental issue in environmental economics?
A. Market failure
B. Externalities
C. Sustainable development
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2015 E.C GC students Model Exam

D. Social inequality
ANSWER: D
35. Which of the following is an Example of non-market valuation method?
A. The cost benefit analysis of building new high way
B. The willingness to pay for a new bike lane
C. The market price of organic produce
D. The GDP of a country
ANSWER: B
36. Development economics must have a scope wider than traditional economics because
A. Values and attitudes play little role in the pace of development.
B. People in developing societies do less utility-maximizing.
C. Transformation of social institutions is necessary for development.
ANSWER: C
37. How does social dualism affect the development strategies and policies of Ethiopia?
A. It creates a gap between the urban and rural sectors
B. It fosters a sense of national identity and solidarity
C. It promotes a balanced and inclusive growth
D. It reduces the dependence on foreign aid
ANSWER: A
38. What is the main implication of the Harrod-Domar model for developing countries?
A. They need to increase their saving rate and/or reduce their capital-output ratio to achieve
higher growth.
B. They need to decrease their saving rate and/or increase their capital-output ratio to achieve
higher growth.
C. They need to balance their saving rate and their capital-output ratio to achieve stable growth.
D. They need to diversify their saving and their capital-output ratio to achieve sustainable
growth.
ANSWER: A
39. Surplus labor theories assume that;
A. LDCs are overpopulated.
B. Labor contributes nothing to output in LDCs.
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2015 E.C GC students Model Exam

C. The marginal product of labor is close to zero in LDCs.

D. Urban unemployment is high in LDCs.
ANSWER: C
40. The emigration of highly-skilled people from the developing countries is known as
A. The brain drain.
B. Human capital deterioration.
C. Productivity.
D. Labor degradation.
ANSWER: A
41. One of the following is not the assumption of Marxian economic theory of growth
A. Labor is homogenous and perfectly mobile
B. National income is distributed in terms of wages and profits.
C. Labor productivity depends on the stock of employed capitals and techniques
D. Labor is the main source of value generation
ANSWER: C
42. What is the main implication of the Harrod-Domar model for developing countries?
A) They need to increase their saving rate and/or reduce their capital-output ratio to achieve
higher growth.
B) They need to decrease their saving rate and/or increase their capital-output ratio to achieve
higher growth.
C) They need to balance their saving rate and their capital-output ratio to achieve stable growth.
D) They need to diversify their saving and their capital-output ratio to achieve sustainable
growth.
ANSWER: A

Theme II (Research)
43. Which of the following doesn’t make econometrics unique from other discipline?
A. It provides numerical value between dependent and exogenous variables.
B. Econometrics can test hypothesis between variables
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2015 E.C GC students Model Exam

C. Econometrics can check the existence of multicollinearity and heteroscedasticity

D. It provides the degree of relationship existing between independent and dependent variables
ANSWER: D
44. Which of the following is the most important and difficult stage of econometric research?
A. Estimation of the model
B. Specification of the model
C. Evaluation of the estimates
D. Evaluation of the forecasting power of the estimated model
ANSWER: B
45. In the model not each and every factor or variable can be included in the function due to;
A. Some of the factors may be statistically measured
B. Some of the factors may even be known by a person
C. Some of the factors are random appearing in predictable way and time
D. Some of the factors have very small influence on the dependent variable
ANSWER: D
46. _____Is used to test the overall significance of regression model
A. F-test C. Z-test
B. t-test D. Chi-square test
ANSWER: A
47. The coefficients of the dummy variables are called ________
A. Intercept
B. Mean value
C. Differential intercept coefficients
D. Coefficient of the intercept
ANSWER: C

48. Which of the following regression is linear?

A. OLS C. Logit
B. Tobit D. Probit
ANSWER: A
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2015 E.C GC students Model Exam

49. A study was conducted to know the relationship between sowing method and yield of
wheat. Data was taken from 100 wheat producers and the result shows that;
Y^ =4+12.5D1, where Y^ represents the estimated yield of wheat in quintal and D 1 =1 which
represents the farmers who sow wheat in row planting and 0 otherwise (broadcasting). From this
result, which of the following is false?
A. The yield of wheat which is planted in row is greater by 12.5 quintal as we compare with
broadcasting
B. The yield of wheat which is planted in broadcasting is less than by 12.5 quintal as we
compare with broadcasting
C. The yield of wheat which is planted in broadcasting is 4 quintal.
D. The total yield of wheat from row planting is 16.5 quintal
ANSWER: B
50. In the regression model Yi = β0 + β1Xi + β2Di + β3(Xi × Di) + ui, where X is a continuous
variable and D is a binary variable, β3
A. Is the difference in means in Y between the two categories.
B. Indicates the difference in the intercepts of the two regression lines.
C. Is usually positive.
D. Indicates the difference in the slopes of the two regression lines.
ANSWER: D
51. Suppose a researcher is using data for a sample of 200 employees to investigate the
relationship between hourly wage rates Yi (measured in birr per hour) and the firm’s year of
operation or tenure Xi (measured in years). Preliminary analysis of the sample data
produces the following sample information;
N N N N N N

∑ Y i= 1945, ∑ X i= 1774, ∑ X 2i = 30608, ∑ x 2i = 19122, ∑ yi2 = 4726, ∑ X i Y i = 16040,

i=1 i=1 i=1 i=1 i=1 i=1

N N N

∑ Y 2i = 18536, ∑ x i y i = 3446 and ∑ Û 2i = 4105

i=1 i=1 i=1

Then depending on the above data the value of variance of the slope coefficient and t-value
(calculated) are;
A. 20.33 and 5.53
B. 0.1802 and 0.00108
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2015 E.C GC students Model Exam

C. 0.03286 and 0.1802

D. 0.00108 and 5.48
ANSWER: D
52. Divisibility assumption in linear programming implies:
A. Resource can be divided among producers
B. Products can be divided among customers
C. Decision variables may not take on integral value
D. Decision variables may take fractional value
ANSWER: D
53. Which of the following seeks to simultaneously take into account several objectives which
are concern of a decision maker?
A. Linear programming C. Goal programming
B. Nonlinear programming D. Integer programming
ANSWER: C
54. Which of the following statement is true about solving linear programming problem using
simplex?
A. If there is a tie between a decision variable and a slack variable to enter to basic variable one
can select either decision variable or slack variable arbitrarily.
B. If an artificial variable is part of the solution mix of final simplex table of a given linear
programming problem one can say the solution is unbounded.
C. Degeneracy may happen due to number of constraints are less than the number of variables
in the objective function and the Problem can be solved by trial and error method.
D. Degeneracy may happen due to number of constraints are less than the number of variables
in the objective function and the Problem can be solved by inserting dummy variable.
ANSWER: C
55. The following table shows the final simplex table of a given linear programming problem.
What are values of second and third resources in the dual problem?
Cj 60 50 0 0 0
CB BV X1 X2 S1 S2 S3 Xb
0 S2 0 0 1 6 -16/3 24
60 X1 1 0 0 1 -1/3 9
50 X2 0 1 0 -1 2/3 4
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2015 E.C GC students Model Exam

Zj 60 50 0 10 40/3 740
Cj – Zj 0 0 0 -10 -40/3

A. 10 and 40/3
B. -10 and -40/3
C. 0 and 0
D. 9 and 4
ANSWER: A
56. A cottage industry manufactures pedestal lamps and wooden shades, each requiring the use
of a grinding machine and a sprayer. It takes 2 hours on grinding machine and 3 hours on
the sprayer to manufacture a pedestal lamp. It takes 1 hour on the grinding machine and 2
hours on the sprayer to manufacture a shade. On any day, the sprayer is available for at most
25 hours and the grinding machine for at the most 12 hours. The profit from the sale of a
lamp is Birr 5 and that from a shade is Birr 3. Based on the solution of this linear
programming problem;
A. The available time for grinding machine is fully utilized
B. The available time for sprayer is fully utilized
C. The available time for sprayer is not fully utilized
D. The available time for both grinding machine and sprayer is not fully utilized
ANSWER: C
57. Which one of the following is not true about Vogel’s Approximation method of
transportation problem solution?
A. The allocations are made depending on the opportunity cost of the cell.
B. The allocations are made depending on the cost of the cell from available costs.
C. The basic feasible solution obtained using this method will be very nearer to optimal
solution.
D. It takes more time than other methods for getting basic feasible solution.
ANSWER: B
58. Which of the following is not true about software packages of operational research?
A. POM_QM packages assume the variables must be non-negative but not Excel’s
Solver.
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2015 E.C GC students Model Exam

B. POM_QM packages can solve linear programing, duality and integer programing
and transportation problems.
C. Excel’s Solver can solve both linear and nonlinear programming problems.
D. Excel’s Solver can solve linear but not nonlinear programming problems.
ANSWER: D
59. Which one of the following is an example of quantitative data?
A. Satisfaction
B. Inventory
C. Religious beliefs
D. Perception
ANSWER: B
60. Which of the following is the most important factor to consider when evaluating the
effectiveness of a sampling method for quantitative research?
A. The representativeness of the sample
B. The size of the sample
C. The diversity of the sample
D. The randomness of the sample
ANSWER: A
61. The measure of the extent to which responses vary from the mean is called
A. The variance C. The normal distribution
B. The mode D. The standard deviation
ANSWER: D
62. Which of the following data collection methods results in more accurate and in-depth
information?
A. Self-Administered Survey
B. Telephone Interview
C. Personal Interview
D. Electronic Survey
ANSWER: C
63. All of the following are characteristics of good sample design, Except
A. Sample design should result in small sampling error
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2015 E.C GC students Model Exam

B. Sample may or may not represent the population

C. Sample size should be adequate
D. Sampling is the only process possible if the population is infinite
ANSWER: B
64. All of the following is a limitation of qualitative research? ,Except
A. It is time-consuming
B. It is difficult to generalize the findings to a larger population
C. It is subjective and can be biased
D. It can provide rich insights into people's experiences and generate new theories
ANSWER: D
65. Which of the following is the most important factor to consider when evaluating the
effectiveness of a sampling method for qualitative research?

A. The size of the sample

B. The diversity of the sample
C. The willingness of the participants to participate
D. The quality of the data collected
ANSWER: C

Theme III (Marketing)

66. Suppose that ABC company have incurred the average variable cost per unit is 2.4 birr and
the price per unit is 3.6 birr. If the total fixed cost is 10,000 Birr, then the break-even output
of the company will be:
A. 4166
B. 1612
C. 8333
D. 2777
ANSWER: C
67. Which of the following are false about marketing margin, cost and channels?
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2015 E.C GC students Model Exam

A. Marketing channels for agricultural product are varying from product to product.
B. The proportion of the consumer expense that goes to the food marketing firms is marketing
margin.
C. Marketing cost is important to compare the price paid by the consumer with the price
received by the producer.
D. The proportions of marketing margin in different marketing participants are the same.
ANSWER: D
68. If the rate of markup based on the cost price is 20% and the selling price is 750 birr, then
what is the cost price?
A. 625birr
B. 150birr
C. 600 birr
D. 550 birr
ANSWER: A
69. The utility created for your product by storing during excess surplus and moving into trade
channels during the period of scarcity are very important to increase the profitable of most
of the Agricultural products in the world . Therefore Agricultural products are mostly
seasonal in our country’s condition because it is surplus in December and deficit in May.
Thus storing the products are adds utility which is more desirable and useful to get high
profit margins in the channels .so that which types of utility is more appropriate to describes
the case study?
A. Place utility
B. Time utility
C. Possession utility
D. Form utility
ANSWER: B
70. The following factors are important to the growth of Agricultural Marketing, Except;
A. Urbanization
B. Specialization
C. Transportation and communication
D. Food Marketing
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2015 E.C GC students Model Exam

ANSWER: D
71. How do you differentiate your product to gain competitive advantage?
A. Through repetitive advertising of your product
B. Providing special offerings to your customers on holidays
C. By offering customers what is no one else providing them.
D. By appointing good sales staff members
ANSWER: C
72. Suppose that the price of maize market channel is given in the following market chain actors
and their selling price through the channels.
Market chain participants Selling price
Producers’ price 32.6br/kg
Local assemblers price 45br/kg
Wholesalers’ price 50br/kg
Retailers’ price 60br/kg
Consumers’ price 60br/kg
Based on the given above market chain participant how much share in % Gross marketing
margin of producers (GMMp);

A. 21%
B. 54%
C. 46%
D. 17%
ANSWER: B
73. The following figure shows factor intensities for commodities X and Y in Nations 1 and 2,
then which one is false?
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2015 E.C GC students Model Exam

A. Nation 1 can produce 1 unit of X using 1K-4L, and 2X using 2K-8L

B. For Y, K/L=4 in Nation 2 but K/L=1 in Nation 1
C. Y is the K-intensive commodity, and X is the L-intensive in Nation 2
D. Y is K-intensive relative to X in both nations
E. For Y, K/L=1 in Nation 2 but K/L=1/4 in Nation 1
ANSWER: E
74. Refer the following diagram, where Sd and Dd are the domestic supply and demand for a
product and Pc is the world price of that product. If the economy is opened to free trade, the
price and quantity sold of this product would be:

A) Pc and v B) Pa and z
C) Pt and y D) Pc and z
ANSWER: D
75. Which one of the following is false about economic growth and trade?
A. Growth of the domestic economy is expected to have a favorable impact on
exports
B. Growth of the domestic economy increases the exportable surplus of the
country
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2015 E.C GC students Model Exam

C. The demand growth abroad can also mean an increase in the demand for exports
of the home country
D. Growth of foreign economies cannot be expected to be good for the domestic
economy
E. Economic conditions abroad can affect trade prospects of a nation
ANSWER: D
76. A government could pursue a "laissez faire" policy with respect to trade and thus impose no
regulation whatsoever that would impede voluntary exchange of goods between nations
which is termed as;
A. National autarky
B. Trade liberalization
C. Free trade
D. Balance Of Trade
ANSWER: C
77. Which one is not arguments against protection
A. Reduced export competitiveness
B. Creation of Monopolies
C. Uneconomic Use of Resources
D. Danger of retaliation and “trade wars”
E. Deter unfair competition
ANSWER: E

78. Blocking imports means

A. Increases the availability of raw materials
B. Increases the availability of products sold in the home market
C. Reduces the availability of products sold in the home market
D. Decreases the cost of products sold in the home market
ANSWER: C
79. The weakest form of economic integration
A. Preferential Trade Agreement
B. Common market
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2015 E.C GC students Model Exam

C. Economic Union
D. Customs Union
ANSWER: A
Theme IV (Agriculture and policy)
80. Adama industrial park is considering an investment opportunity that requires an investment
of Br 1,000,000 today and will provide Br 250,000 one year from now, Br 450,000 two
years from now, and Br 650,000 three years from now. If the appropriate interest rate is
10%, then what is the NPV of this investment opportunity?
A. Br81,828.17
B. Br97,928.17
C. Br77,528.17
D. Br87,528.17
ANSWER: D
81. Which one of the following is false about Credit transactions under identifying project costs
and benefits?
A. Major form of direct transfer payments in project
B. Receipt of loan decreases production resources
C. Repayment of principal and Payment of interest are costs to the owner
D. In economic analysis it is cost only when the loan is spent
ANSWER: B
82. Which project aspect analysis seeks to determine whether the prerequisites for the
successful commissioning of the project have been considered and reasonably good choices
have been made with respect to location, size, process etc.?
A. Demand and Market Aspects
B. Institutional-Organizational-Managerial Aspects
C. Technical Aspects
D. Environmental aspect analysis
ANSWER: C
83. If two or more projects may all have a positive NPV, IRR that exceeds the discount rate,
both financial and economic discount rates, and a benefit-cost ratio of greater than one
ranking could be made using__________
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2015 E.C GC students Model Exam

A. Net present value

B. Benefit - investment ratio
C. Internal rate of return
D. Benefit-cost ratio
ANSWER: B
84. Arise in the relative cost of an item implies:
A. Its potential contribution to national income has risen
B. Its productivity elsewhere in the society has decreased
C. Its productivity elsewhere in the society has unchanged
D. Its potential contribution to national income has fallen
ANSWER: A
85. Consider two mutually exclusive projects, A and B which have the following net cash flow
streams
Year Project A project B
0 -300,000 -300,000
1 60,000 130,000
2 100,000 100,000
3 120,000 80,000
4 150,000 60,000
Depending on the above information which project is going to be chosen if the discount rate is
10% using the NPV criteria?
A. Project B having NPV 1912.4374
B. Project A having NPV 1912.4374
C. Project B having NPV 29799.877
D. Project A having NPV 29799.877
ANSWER: D
86. What is the benefit-cost ratio (BCR) of the project from the following table?
Year 0 1 2 3
Capital cost 10000 0 0 0
Operating cost 0 4000 4000 4000
Total cost 10000 4000 4000 4000
Discount rate 8%
PV(Costs)
Total benefits 0 8000 8000 8000
 Department of Agricultural Economics
2015 E.C GC students Model Exam

Discount rate 8%
PV (Benefits)

A. 2.25
B. 1.5
C. 1.05
D. 2.5
ANSWER: C
87. One of the following is not true about complete budgeting and partial budgeting?
A. Complete budgeting accounts for drastic changes in the organization and operation of the
farm, while partial budgeting treats minor changes only.
B. All the available alternatives are considered in complete budgeting, whereas partial budget
considers two or a few alternatives only.

C. Complete budgeting is used for estimating the results of entire organization and operation of
a farm, while partial budget helps only to study the net effects in terms of costs and returns
of relatively minor changes.

D. Both complete budgeting and partial budgeting shows an estimate of all income and
expenses associated with a specific enterprise and an estimate of its profitability.
ANSWER: D
88. Which one of the following is true about diminishing marginal return?
A. An increase in labor applied in the cultivation of land causes in general less than
proportionate increase in the amount of wheat produced.
B. Every subsequent increase in the use of capital in the production process of wheat can
replace less and less of the labor.
C. Each unit increase in the output of wheat is accompanied by each additional units of labor.
D. Each unit increase in the output of wheat is accompanied by a sacrifice of barley production.
ANSWER: A
89. A farm manager wants to select optimum combination of enterprises Y1 and Y2 to produce
on 50 hectare of land. Price of Y1 is Birr10000 and the price Y2 is Birr5000 Quintal. Use the
 Department of Agricultural Economics
2015 E.C GC students Model Exam

following additional information and recommend which combination of Y1 and Y2 provide

maximum profit?
Y1 (Qt) 0 8 16 24 32 40 48 56
Y2 (Qt) 98 92 82 70 56 40 22 0

A. 32 and 56

B. 48 and 22

C. 40 and 40

D. 24 and 70
ANSWER: C
90. Fixed equipment costs birr 1000 & expected to last for 5 years. The salvage value after 5
years is birr 100. What is the total anticipated depreciation using strait line method?
A. 180
B. 900

C. 280
D. 100
ANSWER: B
91. A farm manager has observed that the expected wheat price for the coming year appears to
be somewhat more favorable than the projected maize price. Based on this information, the
farmer is considering decreasing his maize production by 40ha & increases his wheat
production by the same amount. Use the following additional information and identify
which plan is profitable?
 The farmer needs to use 3Q of wheat & 5Q of maize seed per ha.
 The farmer can produce 14Q of wheat & 18Q of maize per ha.
 The farmer needs to hire 41 & 47 hours of labor per ha for wheat & maize
respectively.
 The price of wheat & maize per quintal is birr 170 & birr 140 respectively.
 The cost of wheat seed & maize seed per quintal is birr 182.2 & 146.8
respectively.
 Department of Agricultural Economics
2015 E.C GC students Model Exam

 The cost of labor per hour is birr 4.25 for wheat & maize production.
A. Base plan
B. Proposed plan
C. Both proposed plan and base plan but proposed plan is better
D. Both proposed plan and base plan but base plan is better
ANSWER: B
92. Why producers are not advised to operate in production stage III even if the resources are
available at free of cost.
A. Because marginal physical product is decreasing.
B. Because the total physical product increases but at a decreasing rate.
C. Because the technical efficiency of variable resource is increasing indicated by average
physical product.
D. Because producer will incur double loss, that is, reduced production and
unnecessary additional cost of inputs.
ANSWER: D
93. Given the following barley yield/hectare data collected from farm households, identify the
yield that will be selected using the most likely method of forming expectation?
Possible yield (in Probability
q/ha)
24 0.1
38 0.1
28 0.4
30 0.3
26 0.1
A. 30
B. 28
C. 29
D. 38
ANSWER: B
94. Which of the following statements about sustainable livelihoods is false?
A. Resilient in the face of external shocks and stresses
B. Dependent upon external support
 Department of Agricultural Economics
2015 E.C GC students Model Exam

C. Maintain the long-term productivity of natural resources

D. Compromise the livelihood options open to, others
ANSWER: B
95. A kind of livelihood intervention that is typically employed during periods of high stress
brought on by natural disasters or complicated events is known as ---
A. Livelihood protection
B. Livelihood promotion
C. Livelihood provision
D. Early warning systems
ANSWER: C
96. Which of the following claims is not a result of a farming system approach?
A. A shift from decision making support to technology transfer model
B. Recognizing new researchable issues
C. Building up of new partnerships and new relationships between partners
D. Viewing the same reality from different perspectives
ANSWER: A
97. The diagnosis phase of a farming system analysis may not involve one of the following
tasks:
A. Understanding the skills and knowledge of farm households
B. Designing on-farm experiments
C. Identifying factors that research should focus on.
D. The definition of recommendation domains
ANSWER: B
98. Which step accurately represents the procedure for farming system research and
development?
A. Diffusion => Design => Diagnosis => Experimentation
B. Design => Diagnosis => Experimentation => Diffusion
C. Diagnosis => Experimentation => Design => Diffusion
D. Diagnosis => Design => Experimentation => Diffusion
ANSWER: D
 Department of Agricultural Economics
2015 E.C GC students Model Exam

99. Which of the following statements is true?

A. Livelihood stresses are predictable and cumulative
B. Population pressure and decline of real wage rate are livelihood shocks
C. War, civil violence, drought, floods, and storms are types of livelihood stresses
D. Loss of jobs, death of a family members and epidemics are livelihood stresses
ANSWER: A
100. One of the subsequent mechanisms could not be effective in enabling households to cope
with stresses and shocks.
A. Seeking new sources of food, including wild foods
B. Diversifying jobs and sources of income
C. Shift to lower quality foods
D. Increasing current consumption
ANSWER: D