78b8a Indian Economics

Microsoft Word - Economics MCQs.docx

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1. The fundamental economic problem faced by all societies is:

a. unemploymentb. inequality c. povertyd. scarcity

2. "Capitalism" refers to:

a. the use of marketsb. government ownership of capital goodsc. private ownership of capital goodsd. private ownership of homes & cars

3. There are three fundamental questions every society must answer. Which of the following is/are one of these questions?

a. What goods and services are to be produced?b. How are the goods and services to be produced?c. Who will get the goods and services that are produced?d. All of the above

4. If you were working full-time now, you could earn $20,000 per year. Instead, you are working part-time while going to school. In your current part-time job, you earn $5,000 per year. At your school, the annual cost of tuition, books, and other fees is $2,000. The opportunity cost of completing your education is:

a. $2,000b. $5,000 c. $17,000 d. $20,000 e. $22,000

5. The bowed shape of the production possibilities curve illustrates:

a. the law of increasing marginal costb. that production is inefficientc. that production is unattainabled. the demand is relatively inelastic

6. You have taken this quiz and received a grade of 3 out of a possible 10 points (F). You are allowed to take a second version of this quiz. If you score 7 or more, you can raise your score to a 7 (C). You will need to study for the second version. In making a rational decision as to whether or not to retake the test, you should

a. always retake the quizb. consider only the marginal benefits from of retaking the quiz (four extra points) c. consider only the marginal opportunity costs from taking the quiz (the time spent studying and taking the quiz)d. consider both the marginal benefits and the marginal opportunity costs of retaking the quiz

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7. The law of demand states that:a. as the quantity demanded rises, the price risesb.as the price rises, the quantity demanded risesc.as the price rises, the quantity demanded fallsd. as supply rises, the demand rises

8. The price elasticity of demand is the:

a. percentage change in quantity demanded divided by the percentage change in priceb. percentage change in price divided by the percentage change in quantity demanded c. dollar change in quantity demanded divided by the dollar change in priced. percentage change in quantity demanded divided by the percentage change in quantity supplied

9. Community Colleges desired to increase revenues. They decided to raise fees paid by students with Bachelors degrees to $50 per unit because they believed this would result in greater revenues. But in reality, total revenues fell. Therefore, the demand for Community College courses by people with Bachelors degrees must have actually been:

a. relatively inelasticb. unit elasticc. relatively elastic d. perfectly elastic

10. The demand for a product would be more inelastic:

a. the greater is the time under considerationb. the greater is the number of substitutes available to buyers c. the less expensive is the product in relation to incomesd. all of the above

Answers: D C D C A D C A C C1. In the case of agriculture,

a. the demand has shifted to the right more than the supply has shifted to the rightb. the demand has shifted to the right less than the supply has shifted to the right c. the demand has shifted to the left more than the supply has shifted to the leftd. the demand has shifted to the left less than the supply has shifted to the left

2. The agricultural price support program is an example of

a. a price ceilingb. a price floorc. equilibrium pricing

3. If there is a price floor, there will be

a. shortagesb. surplusesc. equilibrium

4. If there is a price ceiling, there will be

a. shortagesb. surplusesc. equilibrium

5. If there is a price ceiling, which of the following is NOT likely to occur?

a. rationing by first-come, first-servedb. black markets c. gray marketsd. sellers providing goods for free that were formerly not free

6. The goal of a pure market economy is to best meet the desires of

a. consumersb. companies c. workersd. the government

7. In a pure market economy, which of the following is a function of the price?

I. provide information to sellers and buyers , II. provide incentives to sellers and buyersa. I onlyb. II onlyc. both I and IId. neither I nor II

8. In a market system, sellers act in interest , but this leads to behaviors in interest.

a. self; selfb. self; societysc. societys; societys d. societys; self

9. The law of diminishing (marginal) returns states that as more of a variable factor is added to a certain amount of a fixed factor, beyond some point:

a. Total physical product begins to fallb. The marginal physical product rises c. The marginal physical product falls d. The average physical product falls

10. Why is the law of diminishing marginal returns true?

a. specialization and division of laborb. spreading the average fixed cost c. limited capitald. all factors being variable in the long-run

Answers: B B B A D A C B C C

1. Which of the following is a characteristic of pure monopoly?a. one seller of the productb. low barriers to entryc. close substitute products d. perfect information

2. In pure monopoly, what is the relation between the price and the marginal revenue?a. the price is greater than the marginal revenueb. the price is less than the marginal revenue c. there is no relationd. they are equal

3. In order to maximize profits, a monopoly company will produce that quantity at which the:a. marginal revenue equals average total costb. price equals marginal revenuec. marginal revenue equals marginal cost d. total revenue equals total cost

4. QuantityPriceTotal Cost

1$100$ 60

295130

390210

485300

580400

This monopolist should produce:a. 1b. 2 c. 3 d. 4 e. 5

5. Compared to the case of perfect competition, a monopolist is more likely to:a. charge a higher priceb. produce a lower quantity of the productc. make a greater amount of economic profit d. all of the above

6. Which of the following is necessary for a natural monopoly?a. economies of scaleb. a high proportion of the total cost is the cost of capital goods c. the market is very smalld. all of the above

7. Which of the following is true about the way by which SDG&E has been regulated by thePUC?a. SDG&E has been allowed to earn very high economic profitsb. The profits of SDG&E are calculated as a percent of the value of the capital goods c. When the demand for electricity would fall, the price of electricity would also fall d. All of the above

8. Which of the following best defines price discrimination?a. charging different prices on the basis of raceb. charging different prices for goods with different costs of production c. charging different prices based on cost-of-service differencesd. selling a certain product of given quality and cost per unit at different prices to different buyers

9. In order to practice price discrimination, which of the following is needed?

a. some degree of monopoly powerb. an ability to separate the market c. an ability to prevent resellingd. all of the above

10. In price discrimination, which section of the market is charged the higher price?

a. the section with the richest peopleb. the section with the oldest peoplec. the section with the most inelastic demand d. the section with the most elastic demand

Answers: A A C C D D B D D C

1. Which of the following concepts represents the extra revenue a firm receives from the services of an additional unit of a factor of production?a. total revenueb. marginal physical product c. marginal revenus product d. marginal revenue

2. WorkersQuantity Produced

115

228

339

448

555

660

This company is a profit-maximizing firm selling in a competitive product market and

hiring in a competitive labor market. It uses semi-skilled labor to produce dampers used in office building ventilation systems. Assume that the current market price per damper is$50 and that the prevailing weekly salary per semi-skilled worker is $550. This company should employ workers.a. 2b. 3 c. 4 d. 5 e. 6

3. The demand for labor is the same as thea. marginal revenue productb. marginal physical product c. marginal costd. wage

4. The demand for labor slopes down and to the right because ofa. the law of demandb. the iron law of wagesc. the law of diminishing marginal returns d. economies of scale

5. The demand for labor will be more elastic if:a. there are few substitutes for laborb. there is a short time under considerationc. labor is a large percent of the total cost of production d. the demand for the product is relatively inelastice. all of the above

6. Skills that can be transferred to other employers are called:a. general skillsb. specific skillsc. non-pecuniary skills d. all of the above

7. Which skills are most likely to be paid for by the employer?a. General skillsb. Specific skillsc. Educational skills

8. If worker A earns more in wages than worker B, it could be because:a. The product made by worker A sells for a higher price than that made by worker Bb. Worker A uses more capital per worker than worker Bc. Worker A has more natural ability than worker Bd. All of the above

9. Skills that embodied in a person are calleda. Human capitalb. Embodied skills c. Physical capitald. Experience skills

10. Treating an individual as typical of a group is the definition ofa. pure discriminationb. statistical discrimination c. human capitald. specific skills

Answers: C B A C C A B D A B

1. If there are 50 firms in a industry, each selling 2% of the total sales, the concentration ratio is:a. 50%b. 2% c. 100% d. 8%

2. When Daimler Benz, maker of the Mercedes, bought Chrysler, the merger wasa. horizontalb. verticalc. conglomerate

Questions 3 through 10 involve the functions of the government in a world of laissez faire. The functions are the following:A. Create and Enforce the "Rules" B. Promote or Maintain Competition C. Provide InformationD. Provide Public GoodsE. Reduce Negative Externalities (External Costs) through regulations or through taxesF. Subsidize Positive Externalities (External Benefits) G. Provide Merit GoodsH. Redistribute Income on the Basis of Need

For each of the following, choose the letter that best describes the function of government.

3. The government provides anti-trust laws.

4. The government subsidizes the building of new stadiums and arenas.

5. The government provides for military defense.

6. The government has a program of social security to provide a pension for the elderly.

7. The government requires that all gasoline stations post their prices in signs large enough to be seen by a reasonable person from the street.

8. The government requires people to have a smog control device in their cars.

9. The government makes the beach free for everyone

10. The government makes laws that determine certain behaviors that a corporation must engage in and other behaviors that a corporation cannot engage in.

Answers: D A B F D H C E G A

1. The largest source of tax revenue for the federal government is:a. the personal income taxb. the social security tax c. the property taxd. the sales tax

2. When my income was $100,000, I paid $10,000 in taxes. When my income became$200,000, I paid $40,000 in taxes. My marginal tax rate is:a. 10%b. 20% c. 30% d. 40%

3. The tax is question #2 is:a. progressiveb. regressivec. proportional

4. Which of the following taxes is regressive?a. the federal income taxb. the state income tax c. the sales taxd. the Medicare tax

5. Assume that there are two goods, A and B. In 1996, Americans produced 10 units of A at a price of $10 and 20 units of B at a price of $20. In 2002, Americans produced 20 units ofA at a price of $20 and 30 units of B at a price of $30. The Nominal GDP for 2002 is:a. $100b. $400 c. $500

d. $900 e. $1300

6. Using the numbers in question 5, the Real GDP for 2002 is:a. $400 b. $500 c. $800d. $900 e. $1,300

7. Which of the following statements is/are true?a. Business Investment Spending occurs when individuals buy stock in the stock marketb. Productivity is the United States grew very slowly between 1973 and 1996 c. Because of discouraged workers, the official unemployment rate is too high d. Full employment occurs when there is no frictional unemployment

8. Immediately after a trough, we would expect to have a/ana. peakb. recession c. recoveryd. another trough

9. Last week, Martha spent one day cleaning a house. For this, she was paid $50. The rest of the week, she spent looking for a job. Martha would be classified asa. employedb. unemployedc. not in the labor force

10. John lost his accounting job when Montgomery Wards closed its stores in San Diego. He looked for a similar job for ten months before finding an accounting job at Sears. During the month John was unemployed, he wasa. frictionally unemployedb. seasonally unemployed c. cyclically unemployedd. structurally unemployed

Answers: A C A C E C B C A D

1. Assume that there are only two goods: A and B In the base year, Quantity PriceA 10 $1B 10 $4In the current year, Quantity PriceA 20 $ 5B 25 $20The Consumer Price Index (CPI) for the current year is:

a. 50b. 10c. 200 d. 500 e. 600

2. Which of the following groups is most hurt by unexpected inflation?

a. workers with cost of living adjustments in their labor contractsb. homeownersc. people with large debts to pay for their homes and carsd. people with large retirement savings held in savings accounts

3. If the nominal interest rate is 5% and the inflation rate is 2%, the real interest rate is:

a. 2%b. 3% c. 5% d. 7%e. 2 %

4. For which of the following reasons might inflation cause Real GDP to grow slower than it otherwise would?

a. Inflation makes everyone poorerb. Inflation reduces the value of consumer debtc. Inflation increases business investment spending d. Inflation decreases savings in financial form

5. Disposable Income is equal to:

a. National Income c. National Income Minus Taxesb. Real GDPc. National Income Minus Taxesd. National Income Minus Taxes Plus Transfers

6. Assume that Potential Real GDP equals $10,000. National Income is therefore $10,000. Of this, consumers will pay $2,000 in taxes, save $1,000, and spend $7,000 on consumer goods. Business Investment spending is $2000. In order to avoid recessions and inflation (to have equilibrium), the government should have a:

a. balanced budgetb. budget deficit of $1000 c. budget surplus of $1000 d. budget deficit of $2000

7. According to Keynes, when the Great Depression started, the government should have:

a. done nothingb. decreased the money supplyc. had a large increase in government spendingd. enacted high tariffs, such as the Smoot-Hawley Tariff

8. If the government lowers taxes by $10 billion, the Real GDP will rise by

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a. more than $10 billion b. less than $10 billion c. exactly $10 billion

9. Which of the following is an automatic stabilizer?

a. unemployment benefitsb. spending on education c. defense spendingd. net interest

10. Crowding out means that

a. a government budget deficit lowers interest rates and causes investment spending to riseb. an increase in marginal tax rates lowers productionc. a government budget deficit raises interest rates and causes investment spending to fall d. a government budget deficit raises American exports and lowers American imports

Answers: D D B D D C C A A C

1. Which of the following IS a function of money?

a. medium of exchange b. store of valuec. unit of accounting d. all of the above

2. Which of the following is a component of M-1?

a. savings deposits b. credit cardc. checkable depositsd. gold

3. Which of the following is a NOT component of M-2?

a. small time depositsb. money market mutual funds c. stocksd. checkable deposits

4. Which of the following is true about the Federal Reserve System (Fed)?

a. it is a system of 12 central banksb. its Board of Governors is elected by a vote of the people c. its main policy-making body is the FDICd. it accepts deposits from the public and makes loans to businesses

e. all of the above

5. An IOU of the Federal Reserve Bank of San Francisco to Bank of America is called:

a. discountsb. federal funds c. reservesd. collateral

6. Which of the following is the most liquid?

a. a savings account b. a 6 month CDc. a home d. water

7. The monetary base is composed of:

a. gold and silver b. currency onlyc. currency and reservesd. currency and checkable deposits

8. If the monetary base is increased by $1,000 and the reserve requirement is 10% (1/10), by how much will the money supply be increased?

a. $100b. $1,000 c. $5,000 d. $10,000

9. If the Federal Reserve wishes to increase the money supply, it should:

a. raise the reserve requirement b. raise the discount ratec. buy Treasury securities in the open market d. all of the above

10. An increase in the money supply will cause interest rates toa. rise b. fallc. remain unchanged

Answers: D C C A C A C D C B

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 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 maximise economic growth

Question 1

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) Has supply but not demand b) Has demand but not supply c) Has supply and demandd) Has market forces and government intervention

Question 8

In a command (planned) economy:

a) The price mechanism acts as an incentive

b) Resources are allocated by market forces

c) Individual firms make decisions for themselves about what to produce and how to produce it

d) The The public sector is large

Question 9

The public sector includes:

a) Investors owning companies

b) Government ownership of assets


d) All trade via barter

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

Resources in an economy:

Correct Answer:

d) Are limited at any moment in time

Feedback:

Remember that resources are inputs into the production process.

Question 2

Human wants are:

Correct Answer: c) Unlimited Feedback:Unlimited - we all want as much as we can get. Its resources that are limited.

Question 3

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

Correct Answer: b) Opportunity cost Feedback:The sacrifice involved when you choose a particular course of action is called the opportunity cost.

Question 4

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

Correct Answer:

d) How to maximise economic growth

Feedback:

The economic questions focus on what to produce, how, and for whom.

Question 5

The basic economic problems will not be solved by:

Correct Answer:

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d) The creation of unlimited resources

Feedback:

This is impossible!

Question 6

The free market involves:

Correct Answer:


Feedback:

The free market involves market forces of supply and demand and the price mechanism.

Question 7

A mixed economy:

Correct Answer:

d) Has market forces and government intervention

Feedback:

A mixed economy involves the private sector and the public sector; the free market provides some items and the government provides and regulates others.

Question 8

In a command (planned) economy:

Correct Answer:

d) The public sector is large

Feedback:

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In a command or planned economy the government allocates resources so the public sector is large.

Question 9

The public sector includes:

Correct Answer:

b) Government ownership of assets

Feedback:

The public sector involves organisations owned by the government.

Question 10

Which of the following is a normative statement in economics?

Correct Answer:

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 down the production possibility frontier

c) An outward shift of the production possibility frontier

d) A movement up 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) A outward shift in the demand curve for the products

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 utilising 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 decreasingd) 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

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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 inefficiencyQuestion 1

If an economy is productively efficient:

Correct Answer:

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

Feedback:

If an economy is productively efficient more of one product can only be produced if less of another product is produced.

Question 2

Economic growth can be shown by:

Correct Answer:

c) An outward shift of the production possibility frontier

Feedback:

Economic growth can be shown by an outward shift of the production possibility frontier; this shows more products can be produced.

Question 3

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

Correct Answer:23

Feedback:

As resources are shifted from one industry to another this can be shown by a movement along the production possibility frontier.

Question 4

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

Correct Answer:

a) Market forces of supply and demand

Feedback:

In a free market the combination of products produced will be determined by market forces of supply and demand.

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:

Correct Answer:

c) 3As

Feedback:

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 3As.

Question 6

An economy may operate outside the Production Possibility Frontier if:

b) A movement along the production possibility frontier

Feedback:

An economy may operate outside the Production Possibility Frontier if it is trading with other economies.

Question 7

The resources in the economy do not include:

Correct Answer: a) Demand Feedback:Demand is not a resource.

Question 8

The resources in an economy are:

Correct Answer:

b) Fixed at any moment

Feedback:

The resources in an economy are fixed at any moment but can change over time.

Question 9

Any combination of products inside the production possibility frontier is:

Correct Answer:

d) Productively inefficient

Feedback:

d) It is trading with other economies

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Any combination of products inside the production possibility frontier is productively inefficient because more could be produced.

Question 10

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

Correct Answer:

c) Better training of employees

Feedback:

An outward shift of the production possibility frontier may be caused by better training of employees because this will make them more productive.

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) May be caused by a fall in demandd) 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 falls

c) The price of a complement rises

d) Income falls

Question 4

According to the law of diminishing 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 maximised

Question 6

An increase in income should:

a) Shift demand for an inferior product outwards b) Shift demand for an inferior product inwards 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:


b) Demand is inversely related to price


d) Demand is inversely related to the price of substitutes

Question 1

Which best describes a demand curve?

Correct Answer:

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

Feedback:

Remember effective demand shows what consumers want and what they can afford at each price all other things unchanged.

Question 2

A fall in price:

Correct Answer:

c) May be caused by a fall in demand

Feedback:

Remember a movement along a demand curve is due to price changes; changes in other factors shift the curve.

Question 3

Demand for a normal product may shift outwards if:

Correct Answer:

b) The price of a substitute falls

Feedback:

Remember a movement along a demand curve is due to price changes; changes in other factors shift the curve.

Question 4

According to the law of diminishing utility:

Correct Answer:

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

Feedback:

The extra satisfaction from consuming a unit will generally fall as more units are consumed.

Question 5

If marginal utility is zero:

Correct Answer:

d) Total utility is maximised

Feedback:

This means there is no extra utility from consuming another unit.

Question 6

An increase in income should:

Correct Answer:

b) Shift demand for an inferior product inwards

Feedback:

Remember consumers will buy less of an inferior good when they have more income as they switch to

more luxurious products.

Question 7

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

Correct Answer:

b) Shift demand for product A inwards

Feedback:

Remember that complements are purchased together.

Question 8


Correct Answer:

c) A contraction of demand

Feedback:

This is a movement along the demand curve and leads to a fall in the quantity demanded.

Question 9

If a product is a Veblen good:

Correct Answer:


Feedback:

Remember Veblen goods are products of conspicuous consumption.

Question 10

If a product is an inferior good:

Correct Answer:


Feedback:

With inferior goods less is bought when income increases.

Question 1

Average income increases from &pound20,000 p.a. to &pound22,000 p.a. Quantity demanded per year increases 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 &pound2,000 to &pound1,800. Quantity demanded per year increases 5000 to6000 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

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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

Average income increases from &pound20,000 p.a. to &pound22,000 p.a. Quantity demanded per year increases 5000 to 6000 units. Which of the following is correct?

Correct Answer:

d) The product is normal

Feedback:

The percentage change in demand is +20%; the percentage change in income is +10%. This means the product is normal and has an income elasticity of 2.

Question 2

The price decreases from &pound2,000 to &pound1,800. Quantity demanded per year increases 5000 to6000 units. Which of the following is correct?

Correct Answer:


Feedback:

The percentage change in demand is +20%; the percentage change in price is -10% so the price elasticity of demand is -2.

Question 3

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

Correct Answer:

b) Leaves revenue unchanged

Feedback:

This means the percentage change in quantity demanded equals the percentage change in price so price

changes will not alter the revenue.

Question 4

If the cross elasticity of demand is -2:

Correct Answer:

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

Feedback:

This means that e.g. a 10% increase in the price of one product reduces the quantity demanded of another product by 20%; if the products are complements and the cross price elasticity is elastic.

Question 5

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

Correct Answer:

b) 7000

Feedback:

This means that a percentage increase in income will lead to an increase in quantity demanded that is twice as great; this means sales will increase by 40% to 7000 units.

Question 6

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

Correct Answer:

c) The demand curve is downward sloping

Feedback:

This means that an increase in price leads to a fall in quantity demanded; this means the demand curve is downward sloping.

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?

Correct Answer: c) 450 units Feedback:This means that any given percentage fall in price leads to an increase in quantity demanded that is half as much; a 20% price increase will reduce the quantity demanded by 10%. This means the quantity demanded will be 450 units.

Question 8

If demand is price inelastic:

Correct Answer:

c) An increase in price increases revenue

Feedback:

This means that the percentage change in quantity demanded is less than the percentage change in price;this means a price increase will increase revenue.

Question 9

For an inferior good:

Correct Answer:

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

Feedback:

For an inferior good demand falls as income increases; the quantity demanded falls as price increases;this means the income elasticity and the price elasticity will both be negative.

Question 10

For a normal good:

Correct Answer:

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

Feedback:

For a normal good demand increases as income increases and the quantity demanded falls a price increases.

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

41

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

d) Shift supply inwards

Question 7


a) A shift in supply outwards b) A shift in supply inwards c) A contraction of supplyd) 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 a higher equilibrium and lower equilibrium quantity

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 unitsQuestion 1

Which best describes a supply curve?

Correct Answer:

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

Feedback:

A supply curve shows the quantity supplied at each and every price all other things unchanged.

Question 2

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

Correct Answer:


Feedback:

This means the quantity supplied changes twice as much as price.

Question 3

Supply is likely to be more price elastic:

Correct Answer:

Feedback:

Supply will be more price elastic the bigger the quantity supplied relative to the price change.

Question 4

A supply curve that starts at the origin has:

Correct Answer:

b) A price elasticity of supply equal to one

Feedback:

This means the supply curve has a unit price elastic.

Question 5

A contraction in supply occurs when:

Correct Answer:

c) The quantity supplied falls when the price falls

Feedback:

This occurs when quantity supplied falls with a price fall.

Question 6

An increase in the costs of production will:

Correct Answer:

d) Shift supply inwards

d) If it is easy to expand output

58

This will reduce the quantity supplied at each and every price all other things unchanged.

Question 7


Correct Answer:

d) An extension of supply

Feedback:

An increase in price should lead to an increase in the quantity supplied (an extension of supply).

Question 8

An increase in productivity should:

Correct Answer:

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

Feedback:

An increase in productivity should increase the quantity supplied at each and every price all other things unchanged.

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:

Correct Answer:

b) + 0.5

Feedback:

Quantity supplied increases 10%; price increases 20%; this means the price elasticity of supply is +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?

Correct Answer: b) 320 units Feedback:The change in quantity supplied will be 4*15%=60%; this means the quantity supplied increases by 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 outputd) 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 curvec) 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 curvec) 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 elasticd) Price inelastic

Question 5

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

a) An 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 advertisingd) A shift in supply

Question 8

A subsidy paid to producers:

a) Shifts the supply curve b) Shifts the demand curvec) 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 demandd) 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 curveQuestion 1

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

Correct Answer:

a) A higher equilibrium price and output

Feedback:

An outward shift in demand will lead to a higher price and output.

Question 2

An increase in income will:

Correct Answer:

c) Shift the demand curve

Feedback:

Changes in income shift the demand curve.

Question 3

A reduction in the costs of production will:

Correct Answer:

c) Shift the supply curve

A change in cost conditions will affect the supply curve.

Question 4

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

Correct Answer: d) Price inelastic Feedback:A shift in supply will affect the equilibrium price more than the quantity if demand is steep i.e. price inelastic.

Question 5

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

Correct Answer:

d) An increase in demand

Feedback:

Assuming a downward sloping demand curve and upward sloping supply curve, a higher equilibrium price may be caused by an increase in demand.

Question 6

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

Correct Answer:

b) Excess demand

Feedback:

If the price was fixed too low there would be excess demand.

Question 7

A movement along the demand curve may be caused by:

Correct Answer:

d) A shift in supply

Feedback:

A movement along the demand curve may be caused by a shift in supply.

Question 8

A subsidy paid to producers:

Correct Answer:

a) Shifts the supply curve

Feedback:

A subsidy to producers will reduce their costs and shift the supply curve.

Question 9

A movement along the supply curve may be caused by:

Correct Answer:

c) A shift in demand

Feedback:

A change in demand conditions changes the equilibrium price and leads to a movement along the

Question 10

The price mechanism cannot:

Correct Answer:

d) Shift the demand curve

Feedback:

The price mechanism is a signal, incentive and rationing device; changes in price lead to a movement along the demand curve not a shift in it.

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

The price mechanism does not act as a:

a) Signal

b) Incentive

c) Rationing device

d) Indicator of income

Question 3

A shift in demand will have more effect on price than quantity if:

supply curve.

a) The price elasticity of supply is price inelastic

b) The price elasticity of supply is price elastic

c) The price elasticity of supply is perfectly elastic

d) The price elasticity of supply is infinity

Question 4


a) The price elasticity of supply is + 3

b) The price elasticity of supply is + 0.2

c) The price elasticity of supply is + 2

d) The price elasticity of supply is infinity

Question 5

A shift in supply will have more effect on price than quantity if:


b) The price elasticity of demand is -0.2

c) The price elasticity of demand is -2

d) The price elasticity of demand is infinity

Question 6

A decrease in demand for a product should:

a) Increase equilibrium price and quantity

b) Decrease equilibrium price and quantity

c) Increase equilibrium price and decrease quantity

d) Decrease equilibrium price and increase quantity

Question 7

An increase in demand for a product should:



c) Increase equilibrium price and decrease quantity

d) Decrease equilibrium price and increase quantity

Question 8

"Income inequality can be high in the free market and should be reduced." This is an example of what?

a) Judicial economic statement

b) Positive economic statement

c) Formative economic statement

d) Normative economic statement

Question 9

A public good will:

a) Be underprovided in the free market b) Be overprovided in the free market c) Not be provided in the free marketd) Has no opportunity cost

Question 10

A positive externality occurs when:

a) The social marginal costs are higher than the private marginal costs

b) A product is not provided in the free market

c) The social marginal cost equals the social marginal benefit

68

d) The social marginal benefits are higher than the private marginal benefits

Question 1

Which best describes consumer surplus?

Correct Answer:

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

Feedback:

Consumer surplus is the difference the price a consumer pays for an item and the price he/she is willing to pay.

Question 2

The price mechanism does not act as a:

Correct Answer:

d) Indicator of income

Feedback:

The price mechanism does not act as a indicator of income.

Question 3


Correct Answer:

a) The price elasticity of supply is price inelastic

Feedback:

A shift in demand will have more effect on price than quantity if the price elasticity of supply is price

inelastic.

Question 4


Correct Answer:

b) The price elasticity of supply is + 0.2

Feedback:

A shift in demand will have more effect on price than quantity if supply is price inelastic e.g. the price elasticity of supply is + 0.2.

Question 5

A shift in supply will have more effect on price than quantity if:

Correct Answer:

b) The price elasticity of demand is -0.2

Feedback:

A shift in supply will have more effect on price than quantity if the price elasticity of demand is price inelastic e.g. the price elasticity of demand is -0.2.

Question 6

A decrease in demand for a product should:

Correct Answer:


Feedback:

Question 7

An increase in demand for a product should:

Correct Answer:


Feedback:

An increase in demand for a product should increase equilibrium price and quantity.

Question 8

"Income inequality can be high in the free market and should be reduced." This is an example of what?

Correct Answer:

d) Normative economic statement

Feedback:

"Income inequality can be high in the free market and should be reduced." This is an example of a normative economic statement.

Question 9

A public good will:

Correct Answer:

c) Not be provided in the free market

Feedback:

A public good will not be provided in the free market because it is non-excludable and non-

A decrease in demand for a product should decrease equilibrium price and quantity.

Question 10

A positive externality occurs when:

Correct Answer:

d) The social marginal benefits are higher than the private marginal benefits

Feedback:

A positive externality occurs when the social marginal benefits of a product are higher than the private marginal benefits

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:

diminishable.

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 stabled) Demand and supply are price inelastic

Question 5

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



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 subsidise?

a) Negative externalities b) Positive externalities c) Monopoliesd) 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

Nationalisation occurs when:

a) The government sells assets to a the private sector

b) The government bans a product

c) The government takes control of an industry

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

Question 10

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

a) A price fall

b) A price increase c) Excess supply

d) Excess demand

Question 1

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

Correct Answer:

c) There is excess demand

Feedback:

The quantity demanded will be greater than the quantity supplied.

Question 2

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

Correct Answer:

b) There is excess supply

Feedback:

The quantity supplied will be greater than the quantity demanded.

Question 3

Merit goods are:

Correct Answer:

b) Under provided in the free market economy

Feedback:

These are products that the government thinks we should have more of.

Question 4

Agricultural prices tend to be unstable because:

Correct Answer:

d) Demand and supply are price inelastic

Feedback:

Supply tends to shift a lot with agricultural products and because both supply and demand are price inelastic will mean the effect is mainly on price.

Question 5

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

Correct Answer:


Feedback:

If demand is price inelastic a price fall will reduce total spending and income.

Question 6

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

Correct Answer:

b) Positive externalities

Feedback:

The government is likely to subsidise positive externalities because the benefits to society exceed the private benefits.

Question 7

With a positive externality:

Correct Answer:

a) There is under-consumption in the free market

Feedback:

The private benefits are less than the social so the free market tends to lead to under-production.

Question 8

A public good:

Correct Answer:

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

Feedback:

A public good is non diminishable and non excludable and so has to be provided by the government.

Question 9

Nationalisation occurs when:

Correct Answer:

c) The government takes control of an industry

Feedback:

This occurs when the public sector gets bigger.

Question 10

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

Correct Answer: d) Excess demand Feedback:This means the quantity demanded will be higher than the quantity supplied because the price is too low.

Question 1

Which of the following 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 maximised

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

Question 2

According the law of diminishing returns:

a) The marginal product 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 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 maximised when marginal product falls

d) Some factors of production are fixed

61

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 minimised 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

77

c) Total cost is falling at a falling rate

d) Total cost is increasing at an increasing rate

Question 8

Total increases from &pound500 to &pound600 when output increases from 20 to 30 units. Fixed costs are &pound200. Which of the following is true?

a) Marginal cost is &pound20

b) Average cost falls

c) Variable cost rises by &pound100

d) Average fixed cost is &pound10

Question 9


a) Marginal cost is &pound20

b) Average cost rises


d) Average fixed cost was &pound10 originally

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

Which of the following is true?

Correct Answer:

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

Feedback:

The marginal cost measures the extra cost of producing another unit; the average cost measures the cost per unit. If the marginal cost is greater than the average cost the average cost increases.

Question 2

According the law of diminishing returns:

Correct Answer:

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

Feedback:

This occurs when variable factors are added to fixed factors. According to the law of diminishing returns the marginal product falls as more units of a variable factor are added to a fixed factor.

Question 3

The law of diminishing returns assumes:

Correct Answer:

d) Some factors of production are fixed

Feedback:

This occurs when variable factors are added to fixed factors. It assumes some factors of production are fixed.

Question 4

When internal economies of scale occur:

Correct Answer:

c) Average costs fall

Feedback:

These occur when the unit cost (average costs) falls as the scale of production increases.

Question 5

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

Correct Answer:

a) The Minimum Efficient Scale

Feedback:

This is the Minimum Efficient Scale.

Question 6

The average variable cost curve:

Correct Answer:

b) Converges with the average cost as output increases

Feedback:

This is the variable cost per unit; when added to the fixed cost per unit this leads to the total cost per unit. As output increases the average fixed cost falls so the average variable cost and average cost converge.

Question 7

If marginal cost is positive and falling:

Correct Answer:

b) Total cost is increasing at a falling rate

Feedback:

This means the extra cost of a unit is falling; total cost will increase at a decreasing rate.

Question 8


Correct Answer:


Feedback:

The variable costs were &pound300 and rise to &pound400.

Question 9


Correct Answer:

d) Average fixed cost was &pound10 originally

Feedback:

The average costs were &pound2.50 and rise to &pound3.

Question 10

If marginal product is below average product:

Correct Answer:

b) The average product will fall

Feedback:

The marginal product is the extra output per factor (e.g. employee); the average product is the output per factor (e.g. per employee). If marginal product is below average product, the average product will fall.

Question 1

If the marginal revenue is less than the marginal cost then to profit maximise 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 shut down 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 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) Revenue

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 revenue

Question 6

The profit per sale is a measure of:

a) Profit

b) Profitability

c) Feasibility

d) Realism

Question 7

The total costs are &pound2000 and 10 units are produced. The marginal cost of an 11th unit is&pound1300. Which of the following is true?

a) The average cost increases from &pound20 to &pound30

b) The total costs for 11 units are &pound700

c) The average cost for 10 units is &pound1300

d) The average cost for 11 units is &pound1300

Question 8

Total revenue equals:

a) Price plus quantity

b) Price multiplied by quantity sold c) Price divided by the quantity sold d) Price minus 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 maximisedd) 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

Question 1

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

Correct Answer: a) Reduce output Feedback:If the marginal revenue is less than the marginal cost then to profit maximise a firm should reduce output.

Question 2

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

Correct Answer:

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

Feedback:

If the price is less than the average costs but higher than the average variable costs the firm is making a loss but will continue to produce in the short term because a contribution is being made to the fixed costs.

Question 3

If firms earn normal profits:

Correct Answer:

c) The revenue equals total costs

Feedback:

If firms earn normal profits the revenue equals total costs.

Question 4

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

Correct Answer: c) Total costs Feedback:In the long term a firm will produce provided the revenue covers total costs.

Question 5

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

Correct Answer:

b) Covers variable costs

Feedback:

In the short term a firm will produce provided the revenue covers variable costs.

Question 6

The profit per sale is a measure of:

Correct Answer: b) Profitability Feedback:The profit per sale is a measure of profitability.

Question 7

The total costs are &pound2000 and 10 units are produced. The marginal cost of an 11th unit is

75

&pound1300. Which of the following is true?

Correct Answer:

a) The average cost increases from &pound20 to &pound30

Feedback:

The total costs are &pound2000 and 10 units are produced. The marginal cost of an 11th unit is&pound1300. This means the average cost increases from &pound20 to &pound30.

Question 8

Total revenue equals:

Correct Answer:

c) Price divided by the quantity sold

Feedback:

Total revenue equals price multiplied by quantity sold.

Question 9

If marginal revenue equals marginal cost:

Correct Answer:

c) Profits are maximised

Feedback:

If marginal revenue equals marginal cost profits are maximised because there is no extra profit to be made.

Question 10

Price equals:

Correct Answer:

b) Total revenue / quantity sold

Feedback:

Price equals (total revenue / quantity sold).

Question 1

Firms in perfect competition face a:

a) Perfectly elastic demand curve

b) Perfectly inelastic demand curve

c) Perfectly elastic supply curve

d) Perfectly inelastic supply curve

Question 2

In perfect competition:

a) The price equals the marginal revenue

b) The price equals the average variable cost

c) The fixed cost equals the variable costs

d) The price equals the total costs

Question 3

A profit maximising firm in perfect competition produces where:

a) Total revenue is maximised

b) Marginal revenue equals zero

c) Marginal revenue equals marginal cost

d) Marginal revenue equals average cost

Question 4


a) The products firm offer are very similar

b) Products are heavily differentiated

c) A few firms dominate the market

d) Consumers have limited information

Question 5

In the long run in perfect competition:

a) The price equals the total revenue b) Firms are allocatively inefficient c) Firms are productively efficientd) The price equals total cost

Question 6


a) Short run abnormal profits are competed away by firms leaving the industry b) Short run abnormal profits are competed away by firms entering the industry c) Short run abnormal profits are competed away by the governmentd) Short run abnormal profits are competed away by greater advertising

Question 7


a) A few firms dominate the industry

77

b) Firms are price makers

c) There are many buyers but few sellers

d) There are many buyers and sellers

Question 8

In the short run firms in perfect competition will still produce provided:

a) The price covers average variable cost

b) The price covers variable cost

c) The price covers average fixed cost

d) The price covers fixed costs

Question 9


a) Price = average cost = marginal cost

b) Price = average cost = total cost

c) Price = marginal revenue = total cost

d) Total revenue = total variable cost

Question 10

For a perfectly competitive firm:

a) Price equals marginal revenue

b) Price is greater than marginal revenue c) Price equals total revenued) Price equals total cost

Question 1

Firms in perfect competition face a:

Correct Answer:

a) Perfectly elastic demand curve

Feedback:

Firms in perfect competition face a perfectly elastic demand curve.

Question 2


Correct Answer:

a) The price equals the marginal revenue

Feedback:

In perfect competition the price equals the marginal revenue (because the firm does not need to lower the price to sell more).

Question 3

A profit maximising firm in perfect competition produces where:

Correct Answer:

c) Marginal revenue equals marginal cost

Feedback:

A profit maximising firm in perfect competition produces where marginal revenue equals marginal cost(this means no extra profit can be made).

Question 4


Correct Answer:

a) The products firm offer are very similar

Feedback:

In perfect competition the products firm offer are very similar.

Question 5


Correct Answer:

c) Firms are productively efficient

Feedback:

In the long run in perfect competition firms are productively efficient.

Question 6


Correct Answer:

b) Short run abnormal profits are competed away by firms entering the industry

Feedback:

In perfect competition short run abnormal profits are competed away by firms entering the industry.

Question 7


Correct Answer:

d) There are many buyers and sellers

Feedback:

In perfect competition there are many buyers and sellers.

Question 8

In the short run firms in perfect competition will still produce provided:

Correct Answer:

a) The price covers average variable cost

Feedback:

In the short run firms in perfect competition will still produce provided the price covers average variable cost. This means a contribution will be made towards fixed costs.

Question 9


Correct Answer:

a) Price = average cost = marginal cost

Feedback:

In the long run in perfect competition price = average cost= marginal cost

Question 10

For a perfectly competitive firm:

Correct Answer:

Feedback:

For a perfectly competitive firm price equals marginal revenue.

Question 1

X inefficiency occurs when:

a) The price is greater than the marginal cost

b) The price is greater than the average cost

c) Costs are higher than they could be due to a lack of competitive pressure

d) There are external costs

Question 2

The marginal revenue curve in monopoly:

a) Equals the demand curve

b) Is parallel with the demand curve

c) Lies below and converges with the demand curve

d) Lies below and diverges from the demand curve

Question 3

In monopoly when abnormal profits are made:

a) The price set is greater than the marginal cost

b) The price is less than the average cost

c) The average revenue equals the marginal cost

d) Revenue equals total cost

Question 4

a) Price equals marginal revenue

a) The firm is productively efficient

b) The firm is allocatively inefficient

c) The firm produces where marginal cost is less than marginal revenue

d) The firm produces at the socially optimal level

Question 5

Barriers to entry do not include

a) Patents

b) Internal economies of scale

c) Mobility of resources

d) High investment costs

Question 6

In a monopoly which of the following is not true?

a) Products are differentiated

b) There is freedom of entry and exit into the industry in the long run

c) The firm is a price taker

d) There is one main seller

Question 7

In monopoly which of the following is true?

a) There are many buyers and sellers

b) There is one main buyer

c) There is one main seller

d) The actions of one firm do not affect the market price and quantity

In monopoly in long run equilibrium:

Question 8

According to Schumpeter:

a) Monopolies are inefficient

b) Monopoly profits act as an incentive for innovation

c) Monopolies are alocatively efficient

d) Monopolies are productively efficient

Question 9

A welfare loss occurs in monopoly where:


b) The price is greater than the marginal benefit c) The price is greater than the average revenue d) The price is greater than the marginal revenue

Question 10

In the UK the government:

a) Bans monopolies

b) Fines all monopolies

c) Prevents firms acquiring more than 25% of the market

d) Has the right to investigate monopolies and will assess each one on its own merits

Question 1

X inefficiency occurs when:

Correct Answer:

c) Costs are higher than they could be due to a lack of competitive pressure

97

Feedback:

X inefficiency occurs when costs are higher than they could be due to a lack of competitive pressure.

Question 2

The marginal revenue curve in monopoly:

Correct Answer:

d) Lies below and diverges from the demand curve

Feedback:

The marginal revenue curve in monopoly lies below and diverges from the demand curve.

Question 3

In monopoly when abnormal profits are made:

Correct Answer:

a) The price set is greater than the marginal cost

Feedback:

In monopoly when abnormal profits are made the price set is greater than the marginal cost.

Question 4

In monopoly in long run equilibrium:

Correct Answer:

b) The firm is allocatively inefficient

Feedback:

Question 5

Barriers to entry do not include

Correct Answer:

c) Mobility of resources

Feedback:

Barriers to entry do not include mobility of resources.

Question 6

In a monopoly which of the following is not true?

Correct Answer:

b) There is freedom of entry and exit into the industry in the long run

Feedback:

In a monopoly there is not freedom of entry and exit into the industry in the long run.

Question 7

In monopoly which of the following is true?

Correct Answer:

c) There is one main seller

Feedback:

In monopoly there is one main seller.

Question 8

In monopoly in long run equilibrium the firm is allocatively inefficient.

According to Schumpeter:

Correct Answer:

b) Monopoly profits act as an incentive for innovation

Feedback:

According to Schumpeter monopoly profits act as an incentive for innovation.

Question 9

A welfare loss occurs in monopoly where:

Correct Answer:


Feedback:

A welfare loss occurs in monopoly where the price is greater than the marginal cost.

Question 10

In the UK the government:

Correct Answer:

d) Has the right to investigate monopolies and will assess each one on its own merits

Feedback:

In the UK the government has the right to investigate monopolies and will assess each one on its own merits.

Question 1

If a few firms dominate an industry the market is known as:

a) Monopolistic competition

b) Competitively monopolistic

c) Duopoly

d) Oligopoly

Question 2

In a cartel member firms may be given a fixed amount to produce. This is called a:

a) Limit b) Factor c) Quotad) Quotient

Question 3

In the Kinked Demand Curve theory it is assumed that:

a) An increase in price by the firm is not followed by others

b) An increase in price by the firm is followed by others c) A decrease in price by the firm is followed by others d) Firms collude to fix the price

Question 4

The Kinked Demand Curve theory assumes:

a) Firms cooperate

b) Firms act as part of a cartel

c) Firms are competitive

d) Firms are not profit maximisers

Question 5

In Game Theory:

a) Firms are assumed to act independently

b) Firms are assumed to cooperate with each other

c) Firms collude as part of a cartel

d) Firms consider the actions of others before deciding what to do

Question 6

In the kinked demand curve theory:

a) There is a kink in the marginal cost curve


c) Demand is price elastic

d) Non price competition is likely

Question 7

Firms in oligopoly are likely to:

a) Invest heavily in branding

b) Act independently of other firms

c) Try to differentiate its products

d) Try to be a price maker

Question 8

A model of Game Theory of oligopoly is known as the:

a) Prisoner's Dilemma

b) Monopoly Cell

c) Jailhouse Sentence

d) Jury Box

Question 9

In cartels:

a) Each individual firm profit maximises

b) There may be an incentive to cheat

c) The industry as a whole is loss making

d) There is no need to police agreements

Question 10

In a cartel:

a) Firms compete against each other

b) Price wars are common

c) Firms use price to win market share from competitors

d) Firms collude

Question 1

If a few firms dominate an industry the market is known as:

Correct Answer: d) Oligopoly Feedback:This is an oligopoly.

Question 2

In a cartel member firms may be given a fixed amount to produce. This is called a:

Correct Answer: c) Quota Feedback:This is called a quota.

Question 3

In the Kinked Demand Curve theory it is assumed that:

Correct Answer:

c) A decrease in price by the firm is followed by others

Feedback:

In the Kinked Demand Curve model a price cut by one firm is followed by others; a price increase is not followed.

Question 4

The Kinked Demand Curve theory assumes:

Correct Answer:

c) Firms are competitive

Feedback:

In the Kinked Demand Curve model a price cut by one firm is followed by others; a price increase is not followed i.e. the firms are competing against each other and nor cooperating.

Question 5

In Game Theory:

Correct Answer:

d) Firms consider the actions of others before deciding what to do

Feedback:

Game theory takes account of the fact that firms are interdependent.

Question 6

In the kinked demand curve theory:

Correct Answer:

d) Non price competition is likely

Feedback:

In the kinked demand curve theory non price competition is likely.

Question 7

Firms in oligopoly are likely to:

Correct Answer:

a) Invest heavily in branding

Feedback:

Oligopolists often compete using non-price competition.

Question 8

A model of Game Theory of oligopoly is known as the:

Correct Answer:

a) Prisoner's Dilemma

Feedback:

One model is known as the Prisoner's Dilemma.

Question 9

In cartels:

Correct Answer:

b) There may be an incentive to cheat

Feedback:

Firms are given quotas and set a price; some firms may want to cheat to increase their own profits at the expense of other firms.

Question 10

In a cartel:

Correct Answer: d) Firms collude Feedback:A cartel occurs when firms collude.

Question 1

In monopolistic competition:

a) Firms face a perfectly elastic demand curve

b) All products are homogeneous

c) Firms make normal profits in the long run

d) There are barriers to entry to prevent entry

Question 2


a) Demand is perfectly elastic b) Products are homogeneous c) Marginal revenue = priced) The marginal revenue is below the demand curve and diverges

Question 3

In monopolistic competition firms profit maximise where:

a) Marginal revenue = Average revenue

b) Marginal revenue = Marginal cost c) Marginal revenue = Average cost d) Marginal revenue = Total cost

Question 4

Which of the following is not one of the four Ps in marketing?

a) Product

b) Price

c) Place

d) Presence

Question 5

Effective branding will tend to make:

a) Demand more price inelastic

109

b) Supply more price inelastic

c) Demand more income elastic

d) Supply more income elastic

Question 6

In monopolistic competition if firms are making abnormal profit other firms will enter and:

a) The marginal cost will shift outwards

b) The demand curve will shift inwards

c) The average cost will shift downwards

d) The average variable cost will increase

Question 7

In Porter's five forces model conditions are more favourable for firms within an industry if:

a) Buyer power is high

b) Supplier power is high

c) Entry threat is low

d) Substitute threat is high

Question 8

If a firm takes over a competitor then, according to Porter's 5 forces model,:

a) Buyer power is higher

b) Supplier power is higher c) Substitute threat is higher d) Rivalry is lower

Question 9

In marketing "USP" stands for:

a) Unique Selling Proposition

b) Underlying Sales Pitch

c) Unit Sales Point

d) Under Sales Procedure

Question 10


a) There are few sellers b) There are few buyers c) There is one sellerd) There are many sellers

Question 1


Correct Answer:

c) Firms make normal profits in the long run

Feedback:

Firms will make normal profits in the long run due to the entry and exit of other firms.

Question 2


Correct Answer:

d) The marginal revenue is below the demand curve and diverges

Marginal revenue diverges from demand; to sell more the price is lowered on the last unit and all the ones before.

Question 3

In monopolistic competition firms profit maximise where:

Correct Answer:

b) Marginal revenue = Marginal cost

Feedback:

All profit maximisers produce where marginal revenue = marginal cost i.e. no extra profit can be made.

Question 4

Which of the following is not one of the four Ps in marketing?

Correct Answer: d) Presence Feedback:The four Ps are price, place, product and promotion.

Question 5

Effective branding will tend to make:

Correct Answer:

a) Demand more price inelastic

Feedback:

Feedback:

Question 6

In monopolistic competition if firms are making abnormal profit other firms will enter and:

Correct Answer:

b) The demand curve will shift inwards

Feedback:

This will shift each firm's demand curve inwards until only normal profits are made.

Question 7

In Porter's five forces model conditions are more favourable for firms within an industry if:

Correct Answer:

c) Entry threat is low

Feedback:

A low entry threat means existing firms are protected from competition.

Question 8

If a firm takes over a competitor then, according to Porter's 5 forces model,:

Correct Answer: d) Rivalry is lower Feedback:Rivalry is lower as one has been taken over.

Question 9

Effective branding should make demand less sensitive to price.

In marketing "USP" stands for:

Correct Answer:

a) Unique Selling Proposition

Feedback:

A Unique Selling Proposition differentiates one product from another.

Question 10


Correct Answer:

d) There are many sellers

Feedback:

There are many sellers with differentiated products.

Question 1

Barriers to entry:

a) Do not exist in monopoly b) Cannot exist in oligopolyc) Do not exist in monopolistic competition d) Do exist in perfect competition

Question 2

Which best describes price discrimination?

a) Charging different prices for different products

b) Charging the same prices for different products c) Charging the same prices for the same products d) Charging different prices for the same products

Question 3

For a firm operating in two markets and price discriminating the profit maximising condition is:

a) Marginal revenue in A = Price B

b) Marginal revenue in A = Marginal revenue B = Price A = Price B

c) Marginal revenue in A = Marginal revenue B = Marginal cost

d) Marginal revenue in A = Marginal revenue B = Average cost

Question 4

If the price elasticity of demand for a product in market A is -0.2 and in market B is -3 a price discriminator will charge:

a) The higher price in market A

b) The higher price in market B

c) The same price in both markets

d) Cannot tell which price will be higher

Question 5

In perfect price discrimination:

a) Consumer surplus is maximised

b) Produce surplus is zero

c) Community surplus is maximised

78b8a Indian Economics

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