MCQ IN ECONOMICS - 1

Question 1

The resources in an economy:

a) Are always fixed

b) Can never decrease

c) Always increase over time

d) Are limited at any moment in time

Question 2

Human wants are:

a) Always fixed

b) Limited

c) Unlimited

d) Likely to decrease over time

Question 3

The sacrifice involved when you choose a particular course of action is called the:

a) Alternative

b) Opportunity cost

c) Consumer cost

d) Producer cost

Question 4

Which one of the following is not one of the basic economic questions?

a) What to produce

b) Who to produce for

c) How to produce

d) How to minimize economic growth

Question 5

The basic economic problems will not be solved by:

a) Market forces

b) Government intervention

c) A mixture of government intervention and the free market

d) The creation of unlimited resources

Question 6

The free market involves:

a) The free provision of products

b) The subsidising of products by the government

c) Market forces of supply and demand

d) All trade via barter

Question 7

A mixed economy:

a) Allocates resources via supply but not demand

b) Allocates resources via demand but not supply

c) Allocates resources via supply and demand

d) Allocates resources via market forces and government intervention

Question 8

Which of the following is NOT likely to be true in a command economy?

a) Businesses may pursue social objectives

b) The profits of a business belong to the government

c) Resources are allocated by government directives

d) Market forces determine what is produced and who receives the products

Question 9

The public sector includes:

a) Investors owning companies

b) Government ownership of assets

c) Market forces of supply and demand

d) Private enterprise

Question 10

Which of the following is a normative statement in economics?

a) More spending by the government reduces poverty

b) Higher taxes lead to less desire to work

c) The UK economy is growing fast relative to other European Union members

d) The government should concentrate on reducing unemployment

Question 1

If an economy is productively efficient:

a) Everyone is wealthy

b) Resources are unemployed

c) More of one product can only be produced if less of another product is produced

d) The distribution of income is equal

Question 2

Economic growth can be shown by:

a) An inward shift of the production possibility frontier

b) A movement along the production possibility frontier

c) An outward shift of the production possibility frontier

d) A decision by the government to produce inside the production possibility frontier

Question 3

As resources are shifted from one industry to another this can be shown by:

a) An inward shift of the production possibility frontier

b) A movement along the production possibility frontier

c) An outward shift of the production possibility frontier

d) The pivoting of the production possibility frontier

Question 4

In a free market the combination of products produced will be determined by:

a) Market forces of supply and demand

b) The government

c) The law

d) The public sector

Question 5

If an economy moves from producing 10 units of A and 4 units of B to producing 7 As and 5Bs, the opportunity cost of the 5th B is:

a) 7As

b) 10As

c) 3As

d) 1A

Question 6

An economy may operate outside the Production Possibility Frontier if:

a) It is not utilizing its resources fully

b) It is being productively efficient

c) It is a mixed economy

d) It is trading with other economies

Question 7

The resources in the economy do not include:

a) Demand

b) Land

c) Labour

d) Capital

Question 8

The resources in an economy are:

a) Constantly increasing

b) Fixed at any moment

c) Constantly decreasing

d) Able to be transferred easily between industries

Question 9

Any combination of products inside the production possibility frontier is:

a) Allocatively inefficient

b) X inefficient

c) Consumer inefficient

d) Productively inefficient

Question 10

An outward shift of the production possibility frontier may be caused by:

a) An increase in demand

b) More government spending

c) Better training of employees

d) Productive inefficiency

Question 1

Which best describes a demand curve?

a) The quantity consumers would like to buy in an ideal world

b) The quantity consumers are willing to sell

c) The quantity consumers are willing and able to buy at each and every income all other things unchanged

d) The quantity consumers are willing and able to buy at each and every price all other things unchanged

Question 2

A fall in price:

a) Will cause an inward shift of demand

b) Will cause an outward shift of supply

c) Leads to a movement along a demand curve

d) Leads to a higher level of production

Question 3

Demand for a normal product may shift outwards if:

a) Price decreases

b) The price of a substitute rises

c) The price of a complement rises

d) Income falls

Question 4

According to the law of diminishing marginal utility:

a) Utility is at a maximum with the first unit

b) Increasing units of consumption increase the marginal utility

c) Marginal product will fall as more units are consumed

d) Total utility will rise at a falling rate as more units are consumed

Question 5

If marginal utility is zero:

a) Total utility is zero

b) An additional unit of consumption will decrease total utility

c) An additional unit of consumption will increase total utility

d) Total utility is maximized

Question 6

A decrease in income should:

a) Shift demand for an inferior product inwards

b) Shift demand for an inferior product outwards

c) Shift supply for an inferior product outwards

d) Shift supply for an inferior product inwards

Question 7

An increase in the price of a complement for product A would:

a) Shift demand for product A outwards

b) Shift demand for product A inwards

c) Shift supply for product A outwards

d) Shift supply for product A inwards

Question 8

An increase in price, all other things unchanged, leads to:

a) Shift demand outwards

b) Shift demand inwards

c) A contraction of demand

d) An extension of demand

Question 9

If a product is a Veblen good:

a) Demand is inversely related to income

b) Demand is inversely related to price

c) Demand is directly related to price

d) Demand is inversely related to the price of substitutes

Question 10

If a product is an inferior good:

a) Demand is inversely related to income

b) Demand is inversely related to price

c) Demand is directly related to price

d) Demand is directly related to the price of substitutes

Question 1

Average income increases from £20,000 p.a. to £22,000 p.a. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?

a) Demand is price inelastic

b) The good is inferior

c) Income elasticity is -2

d) The product is normal

Question 2

The price decreases from £2,000 to £1,800. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?

a) The price elasticity of demand is -2

b) The good is inferior

c) Income elasticity is + 0.5

d) Income elasticity is + 2

Question 3

If the price elasticity of demand is unit then a fall in price:

a) Reduces revenue

b) Leaves revenue unchanged

c) Increases revenue

d) Reduces costs

Question 4

If the cross elasticity of demand is -2:

a) The products are substitutes and demand is cross price elastic

b) The products are substitutes and demand is cross price inelastic

c) The products are complements and demand is cross price elastic

d) The products are complements and demand is cross price inelastic

Question 5

The income elasticity is +2 and income increases by 20%. Sales were 5000 units, what will they be now?

a) 3000

b) 7000

c) 5500

d) 4500

Question 6

The price elasticity of demand is a negative number this means:

a) Demand is price elastic

b) Demand is price inelastic

c) The demand curve is downward sloping

d) An increase in income will reduce the quantity demanded

Question 7

Price increases from 10 to 12 pence and the price elasticity of demand is -0.5. The quantity demanded was 500 units. What will it be now?

a) 550 units

b) 500 units

c) 450 units

d) 490 units

Question 8

If demand is price inelastic:

a) An increase in price must raise profits

b) An increase in price decreases revenue

c) An increase in price increases revenue

d) A decrease in price reduces sales

Question 9

For an inferior good:

a) The price elasticity of demand is negative; the income elasticity of demand is negative.

b) The price elasticity of demand is positive; the income elasticity of demand is negative.

c) The price elasticity of demand is negative; the income elasticity of demand is positive.

d) The price elasticity of demand is positive; the income elasticity of demand is positive.

Question 10

For a normal good:

a) The price elasticity of demand is negative; the income elasticity of demand is negative.

b) The price elasticity of demand is positive; the income elasticity of demand is negative.

c) The price elasticity of demand is negative; the income elasticity of demand is positive.

d) The price elasticity of demand is positive; the income elasticity of demand is positive.

Question 1

Which best describes a supply curve?

a) The quantity consumers would like to buy in an ideal world

b) The quantity producers are willing and able to sell at each and every price all other things unchanged

c) The quantity producers are willing and able to sell at each and every income all other things unchanged

d) The quantity producers are willing and able to sell at each and every point in time all other things unchanged

Question 2

If a 4% increase in price leads to a increase in the quantity supplied of 8%:

a) Supply is price elastic

b) Supply is income elastic

c) Price elasticity of demand is -2

d) Price elasticity of supply is -2

Question 3

Supply is likely to be more price elastic:

a) In the short run rather than the long run

b) If factors of production are relatively immobile between industries

c) If there are very few producers

d) If it is easy to expand output

Question 4

A supply curve that starts at the origin has:

a) A price elasticity of supply greater than one

b) A price elasticity of supply equal to one

c) A price elasticity of supply less than one

d) A positive price elasticity of supply

Question 5

A contraction in supply occurs when:

a) Demand shifts outwards

b) The supply curve shifts inwards

c) The quantity supplied falls when the price falls

d) The supply curve shifts outwards

Question 6

An increase in the costs of production will:

a) Shift demand outwards

b) Shift demand inwards

c) Shift supply outwards so more is supplied at each and every price, all other things unchanged

d) Shift supply inwards

Question 7

An increase in price, all other things unchanged, leads to:

a) A shift in supply outwards

b) A shift in supply inwards

c) A contraction of supply

d) An extension of supply

Question 8

An increase in productivity should:

a) Lead to a contraction of supply

b) Lead to an expansion of supply

c) Lead to a shift in supply outwards (i.e. more supplied at each and every price)

d) Lead to an inward shift in supply

Question 9

An increase in price from 25 pence to 30 pence leads to an increase in the quantity supplied from 40 units to 44 units. The price elasticity of supply is:

a) + 2

b) + 0.5

c) - 2

d) - 0.5

Question 10

The price elasticity of supply is +4. The price increases by 15%. Sales were originally 200 units. What will they be now?

a) 80 units

b) 320 units

c) 60 units

d) 120 units

Question 1

If demand increases in a market this will usually lead to:

a) A higher equilibrium price and output

b) A lower equilibrium price and higher output

c) A lower equilibrium price and output

d) A higher equilibrium price and lower output

Question 2

An increase in income will:

a) Lead to a movement along the demand curve

b) Shift the supply curve

c) Shift the demand curve

d) Lead to an extension of demand

Question 3

A reduction in the costs of production will:

a) Lead to a movement along the supply curve

b) Shift the demand curve

c) Shift the supply curve

d) Lead to an extension of supply

Question 4

A shift in supply will have a bigger effect on price than output if demand is:

a) Income elastic

b) Income inelastic

c) Price elastic

d) Price inelastic

Question 5

Assuming a downward sloping demand curve and upward sloping supply curve, a higher equilibrium price may be caused by:

a) A fall in demand

b) An increase in supply

c) Improvements in production technology

d) An increase in demand

Question 6

If the price was fixed below the equilibrium price there would be:

a) Excess supply

b) Excess demand

c) Equilibrium

d) Downward pressure on prices

Question 7

A movement along the demand curve may be caused by:

a) A change in income

b) A change in the number of buyers

c) A change in advertising

d) A shift in supply

Question 8

A subsidy paid to producers:

a) Shifts the supply curve

b) Shifts the demand curve

c) Leads to a contraction in supply

d) Leads to an extension of supply

Question 9

A movement along the supply curve may be caused by:

a) A change in technology

b) A change in the number of producers

c) A shift in demand

d) A change in costs

Question 10

The price mechanism cannot:

a) Act as a signal

b) Act as an incentive

c) Act as a rationing device

d) Shift the demand curve

Question 1

Which best describes consumer surplus?

a) The price consumers are willing to pay for a unit

b) The cost of providing a unit

c) The profits made by a firm

d) The difference the price a consumer pays for an item and the price he/she is willing to pay

Question 2

In the free market the price mechanism:

a) Acts as a signal to producers

b) Can provide an incentive to reallocate resources

c) Acts as a rationing device

d) Is set by the governmentf

Question 3

Community surplus equals:

a) Producer surplus minus consumer surplus

b) Profits plus utility

c) Total utility minus plus profit

d) Consumer surplus plus producer surplus

Question 4

Monopoly power:

a) Is likely to increase consumer surplus

b) Is likely to increase community surplus

c) Is likely to lead to higher producer surplus

d) Is likely to lead to lower prices and lower output

Question 5

A negative production externality means

a) The social marginal cost is greater than the private marginal cost

b) The social marginal benefit is greater than the private marginal cost

c) The social marginal cost is greater than the private marginal benefit

d) The social marginal cost is less than the private marginal cost

Question 6

A positive externality occurs when:

a) The social marginal cost is greater than the private marginal cost

b) The social marginal benefit is greater than the private marginal benefit

c) The social marginal cost is greater than the private marginal benefit

d) The social marginal cost is less than the private marginal cost

Question 7

A merit good

a) Is a public good

b) Involves a negative externality

c) Is overprovided in the free market

d) Is under provided in the free market

Question 8

A demerit good

a) Is a public good

b) Involves a positive externality

c) Is overprovided in the free market

d) Is under provided in the free market

Question 9

A public good will probably:

a) Be underprovided in the free market

b) Be overprovided in the free market

c) Not be provided in the free market

d) Has no opportunity cost

Question 10

Asymmetric information occurs when

a) Information is free

b) Buyers and sellers have access to different information

c) Community surplus is maximized

d) Community surplus is minimized

Question 1

If the price in a market is fixed by the government below equilibrium:

a) There is excess equilibrium

b) There is excess supply

c) There is excess demand

d) There is equilibrium

Question 2

If the price in a market is fixed by the government above equilibrium:

a) There is excess equilibrium

b) There is excess supply

c) There is excess demand

d) There is equilibrium

Question 3

Merit goods are:

a) Not provided in the free market economy

b) Under provided in the free market economy

c) Over provided in the free market economy

d) Provided free

Question 4

Agricultural prices tend to be unstable because:

a) Supply is price elastic

b) Demand is price elastic

c) Supply is stable

d) Demand and supply are price inelastic

Question 5

When supply increases in an agricultural market farmer's earnings might fall because:

a) Supply is price elastic

b) Demand is price inelastic

c) The government buys up all the excess production

d) All output must be sold at a maximum price

Question 6

Which of the following is the government most likely to subsidize?

a) Negative externalities

b) Positive externalities

c) Monopolies

d) Oligopolies

Question 7

With a positive externality:

a) There is under-consumption in the free market

b) There is over consumption in the free market

c) The government may tax to decrease production

d) Society could be made off if less was produced

Question 8

A public good:

a) Is provided by the government

b) Is free

c) Has the properties of being non-excludable and non-diminishable

d) Has external costs

Question 9

Nationalization occurs when:

a) The government sells assets to a the private sector

b) The government bans a product

c) The government takes ownership of a business

d) The government taxes a product to a raise its price

Question 10

If a maximum price is set above equilibrium there will be:

a) A price fall

b) A price increase

c) Excess supply

d) Excess demand

Question 1

Which one of the following statements is true?

a) If the marginal cost is greater than the average cost the average cost falls

b) If the marginal cost is greater than the average cost the average cost increases

c) If the marginal cost is positive total costs are maximized

d) If the marginal cost is negative total costs increase at a decreasing rate if output increases

Question 2

According to the law of diminishing returns:

a) The marginal product eventually falls as more units of a variable factor are added to a fixed factor

b) Marginal utility falls as more units of a product are consumed

c) The total product falls as more units of a variable factor are added to a fixed factor

d) The marginal product eventually increases as more units of a variable factor are added to a fixed factor

Question 3

The law of diminishing returns assumes:

a) There are no fixed factors of production

b) There are no variable factors of production

c) Utility is maximized when marginal product falls

d) Some factors of production are fixed

Question 4

When internal economies of scale occur:

a) Total costs fall

b) Marginal costs increase

c) Average costs fall

d) Revenue falls

Question 5

The first level of output at which the long run average costs are minimized is called:

a) The Minimum Efficient Scale

b) The Minimum External Scale

c) The Maximum External Scale

d) The Maximum Effective Scale

Question 6

The average variable cost curve:

a) Is derived from the average fixed costs

b) Converges with the average cost as output increases

c) Equals the total costs divided by the output

d) Equals revenue minus profits

Question 7

If marginal cost is positive and falling:

a) Total cost is falling

b) Total cost is increasing at a falling rate

c) Total cost is falling at a falling rate

d) Total cost is increasing at an increasing rate

Question 8

Total increases from £500 to £600 when output increases from 20 to 30 units. Fixed costs are £200. Which of the following is true?

a) Marginal cost is £20

b) Average cost falls

c) Variable cost rises by £100

d) Average fixed cost is £100

Question 9

Total increases from £500 to £600 when output increases from 20 to 30 units. Fixed costs are £200. Which of the following is true?

a) Marginal cost is £20

b) Average cost rises

c) Variable cost rises by £200

d) Fixed costs rise

Question 10

If marginal product is below average product:

a) The total product will fall

b) The average product will fall

c) Average variable costs will fall

d) Total revenue will fall

Question 1

If the marginal revenue is less than the marginal cost then to profit maximize a firm should:

a) Reduce output

b) Increase output

c) Leave output where it is

d) Increase costs

Question 2

If the price is less than the average costs but higher than the average variable costs:

a) The firm is making a loss and will shutdown in the short term

b) The firm is making a profit

c) The firm is making a loss but will continue to produce in the short term

d) The firm is making a loss and is making a negative contribution to fixed costs

Question 3

If firms earn normal profits:

a) They will aim to leave the industry

b) Other firms will join the industry

c) The total revenue equals total costs

d) No profit is made in accounting terms

Question 4

In the long term a firm will produce provided the revenue covers:

a) Fixed costs

b) Variable costs

c) Total costs

d) Sales

Question 5

In the short term a firm will produce provided the revenue:

a) Covers fixed costs

b) Covers variable costs

c) Covers total costs

d) Covers sales

Question 6

The profit per sale is a measure of:

a) Cash flow

b) Profitability

c) Feasibility

d) Liquidity

Question 7

The total costs are £200 and 10 units are produced. The marginal cost of an 11th unit is £130. Which of the following is true?

a) The average cost increases from £20 to £30

b) The total costs for 11 units are £70

c) The average cost for 10 units is £130

d) The average cost for 11 units is £130

Question 8

Total revenue equals:

a) Price plus the quantity

b) Price multiplied by the quantity sold

c) Price divided by the quantity sold

d) Price minus the quantity sold

Question 9

If marginal revenue equals marginal cost:

a) No profit is being made

b) Total revenue equals total cost

c) Profits are maximized

d) Producing another unit would increase profits

Question 10

Price equals:

a) Total revenue - quantity

b) Total revenue / quantity sold

c) Total quantity sold * quantity sold

d) Total revenue / total cost