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Choose the correct answer.

1. What is unlikely to be a feature of a large firm in a monopoly position in a market.

A. It achieves economics of scale.
B. It will attract the government attention.
C. It charges high prices.
D. It experiences intense competition in that market,
2. It has been observed that prices tend to be lower in a competitive industry than in
monopoly. Why it is so?
A. A monopoly has less influence on market
B. Competitive industry has more economies of scale.
C. New firms are free to enter the competitive industry
D. Profits are high in a monopoly.
3. How does a firm guarantee that it makes the maximum profit?
A. By maximizing number of goods that it sells.
B. By maximizing the difference between total revenue and total cost.
C. By minimizing the amount of goods that it keeps in stock.
D. By minimizing the difference between average revenue and average cost.
4. Which effect is an external benefit when a new motorway is built through the out
skirts of a town?
A. Increased air pollution
B. Reduced accidental level
C. Reduction in property values
D. The profit of construction company
5. In a company fixed costs are a high proportion of the total costs. What will result in
the short run if production is increased by 50%.
A. Average cost will rise
B. Fixed costs will fall
C. Total costs will remain constant
D. Variable cost will rise
6. The variable cost of a firm is given in the table, while the fixed cost is $20. What
happens to AC over output?

Out put 10 20 30 40
TVC 40 60 80 100

A. It falls continuously
B. It rises than fall
C. It falls than rises
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D. It rises continuously
7. The total cost of a firm is shown in the table and the firm sells the units for $4 each
unit. How many units will the firm produce to maximize profits?

Quantity 5 6 7 8
sold
Total cost 17 18 20 23

A. 5
B. 6
C. 7
D. 8
8. Which cost will be reduced if a factory decreases the amount of pollution it causes to
the environment:
A. Average cost
B. External cost
C. Fixed cost
D. Variable cost
9. A bus company knows that demand for travel before 9.00 pm is inelastic and that
after 9.00 am hours it is elastic. How is the company certain to increase total
revenue?
A. By increasing all fares
B. By increasing fares before 9.00pm
C. By reducing all fares
D. By reducing fares before 9.00 pm
10. For what would price elasticity of demand be used?
A. Calculation current disposable income
B. Calculation the rate of price inflation
C. Estimating changes in a company’s cost
D. Identifying changes in consumer spending patterns
11. The market of a good was in equilibrium. A change occurred which resulted in a new
equilibrium with a higher price for the good & a lower quantity traded.
A. The supply curve moved to the left
B. The supply curve moved to the right
C. The demand curve moved to the left
D. The demand curve moved to the right
12. It was reported that a company producing designer clothes had increased its
revenue by 20% at a time when it decreased its prices. What does this suggests
about the demand for these goods at that time.
A. It was perfectly price elastic
B. It was perfectly price inelastic
C. It was price elastic
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D. It was price inelastic

13. Farah lived in a rural area of Sindh & made baskets to to sell to the tourists. The
local Govt; gave her loan to buy a car to take the baskets to the city market.
Recognize which factor of production increased?
A. Capital
B. Enterprise
C. Labour
D. Land
14. Which is diseconomy of scale?
A. Bulk buying reduces cost
B. Communications deteriorate
C. Employees are more motivated
D. Technological improvements t take place
15. What is not an advantage of specialization & and division of labour?
A. A products is manufactured in separate stages, making it easier to use machinery
B. Some workers become more dependent on other workers.
C. Workers complete a limited range of tasks and become more efficient at them
D. Workers spend less time moving from one task to another
16. An unemployed worker accepts a job which of t he following is the opportunity cost
of t his decision?
A. The cost of travel to work
B. The income from new job
C. The leisure time cost
D. The training in new job
17. A hospital cannot treat all the people that need treatment. This an example of
A. Excess supply
B. Limited wants
C. Scarcity
D. Unlimited resources
18. The table shows the price of, demand for and supply of X per week.

Price $ Demand( tonnes) Supply (tonnes)

20 16 10
30 12 12
40 10 14
What will be the effect if the Govt: imposes the minimum price of $40 per tonns?
A. A fall in the price of X
B. A shortage of X
C. A surplus of X
D. A waiting list for X
19. What would be the opportunity cost to the society if commercial companies are
cutting down tropical rainforest for hard wood timber?
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A. Tax revenue from the sale of timber

B. The environment that is destroyed
C. The products make from the timber
D. The profits of the companies
20. In the case of a positive externality, social marginal cost will

A.      exceed private marginal cost.

B.       be equal to private marginal cost.

C.    fall short of private marginal cost.

D.     have no specific relation to private marginal cost.

21. With reference to the characteristics of 'non-excludability' and 'non-rivalry', "law and
order" it is a classic example of...
A. A negative externality
B. A positive externality
C. Increasing returns
D. Public good
22. If a good with a negative externality is produced in a competitive market, then:
A. The firm producing it will make losses
B. Consumers will not but it
C. Too much of it will be produced
D. Too little of it will be produced
23. A pure public good is:
A. Inferior and inelastic
B. Non-excludable and non-rivalrous
C. Excludable and rivalrous
D. Inferior and non-excludable
24. If you hate cigarette smoke, then each time your roommate smokes while you
are around, he imposes:
A. A positive externality on you
B. A neutral externality on you
C. A sales tax on you
D. A negative externality on you.
25. When there is elastic demand for a product, who holds the tax incidence?
A. The government
B. The buyer
C. The seller
D. The exporting country
26. If there is excess demand for a product because of price control, we can be sure that
the price controls being used is:
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A. Price floor
B. Price ceiling
C. Excise tax on producers
D. Sales tax on consumers
27. A price ceiling is a:
A. A legally established minimum price that can be charged for a good
B. A legally established maximum price that can be charged for a good
C. Minimum price is in fact charged in competitive market
D. Maximum price that can be charged in competitive market
28. The concept of utility is generally related to:
A. Dissatisfaction
B. Necessary
C. Useless
D. Usefulness
29. The law of diminishing marginal utility provides a strong base for:
A. Law of demand
B. Law of supply
C. Law of diminishing return
D. Law of variable proportions
30. A consumer is said to be in equilibrium when marginal utilities are:
A. Increasing
B. Minimum
C. Maximum
D. Equal
31. The consumption expenditure of a consumer is restricted because of:
A. Law of equi marginal utility
B. Budget constraint
C. Demand curve
D. Marginal utility
32. The total utility decreases when marginal utility:
A. Decreases
B. Increases
C. Remain constant
D. Becomes negative
33. Which of the following statement is true:
A. If we move along indifference curve, the slope of indifference curve will increase
B. If we move along indifference curve, the slope of indifference curve will decrease
C. If we move along indifference curve, the slope of indifference curve will remain
constant
D. If we move along indifference curve, the slope of indifference curve will first
increase then decrease
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34. The slope of an indifference curve is called:

A. Marginal rate of substitution
B. Marginal rate of technical substitution
C. Marginal rate of satisfaction
D. Marginal rate of consumer preferences
35. Which of the following is a property of indifference curve:
A. Consumer will always prefer a lowest indifference curve
B. Consumer will always prefer a highest indifference curve
C. Consumer will always prefer a middle indifference curve
D. Consumer will always never prefer an indifference curve
36. An increase in supply, or a shift in supply curve to the right occurs when:
A. A rise in input cost happens
B. If govt pays subsidies for a good
C. If producer expects the price to fall in the future
D. If the govt regulates a good
37. An effective price floor must be set above equilibrium resulting in:
A. A shortage
B. A surplus
C. Limited choices
D. Neither surplus nor shortage
38. Which of the following is likely to be the most suitable form of business organization
for a group of four doctors:
A. Partnership
B. Private company
C. Public company
D. Public corporation
39. A government taxes the production of cars. What is likely to decrease?
A. The cost of supplying cars
B. The price of cars
C. The revenue for the govt
D. The supply of cars at every price
40. The law of demand will not be valid in case of:
A. Normal goods
B. Very high and very low priced products
C. Superior goods
D. Giffen goods

41. The price of a product doubles due to which its quantity demanded falls to one-half. The
elasticity of demand for the product will be:
A. Equal to unity
B. Less than unit
C. Greater than unit
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D. Equal to zero
42. The elasticity of demand in case of substitutes is called :
A. Income elasticity of demand
B. Price elasticity of demand
C. Cross elasticity of demand
D. Inelastic demand
43. When demand and supply rise in equal proportions, the equilibrium price will :
A. Rise
B. Fall
C. Remain constant
D. Becomes zero
44. The price of a product doubles due to which its quantity demanded falls to one-half. The
elasticity of demand for the product will be:
A. Equal to unity
B. Less than unit
C. Greater than unit
D. Equal to zero
45. In the long-run, a perfectly competition firm earns only:
A. Normal profit
B. Super-normal profit
C. Sub-normal profit
D. Abnormal loss
46. The diagram shows a monopolistically competitive firm, according to
it the profit maximizing quantity and price are:

A. Q = 19, P = 30
B. Q = 15, P = 27
C. Q = 15, P = 20
D. Q = 25, P = 15

47. Which of the following is the best example of a perfectly

competitive market?
A. Diamonds
B. Athletic shoes
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C. Soft drinks
D. Farming
48. Which of the following market types has the fewest number of
firms?
A. perfect competition
B. monopoly

C. monopolistic competition

D. oligopoly

49. A price-taking firm:

A) Cannot influence the price of the product it sells.

B) Talks to rival firms to determine the best price for all of them to
charge.

C) Sets the product's price to whatever level the owner decides upon.

D) Asks the government to set the price of its product.

50. Tax incidence is used to analyze who, between _____, is really paying
the tax.
A. The rich and the poor B. The buyer and the seller
C. The residents of a country and tourists

D. The people and the government

ANSWER KEY:

1.D 11. C 21.D 31.B 41.A

2.C 12.C 22.C 32.D 42.C
3.B 13.A 23.B 33.B 43.C
4.B 14.B 24.D 34.A 44.A
5.D 15.B 25.C 35.B 45.A
6.A 16.C 26.B 36.B 46.C
7.D 17.C 27.B 37.B 47.D
8.B 18.C 28.D 38.A 48.D
9.D 19.B 29.A 39.D 49.A
10.D 20.C 30.D 40.B 50.B
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