MCQ Practice Questions

1. A change in which of the following will NOT shift the demand curve for
hamburgers?
a. the price of hot dogs
b. the price of hamburgers
c. the price of hamburger buns
d. the income of hamburger consumers

2. Movie tickets and DVDs are substitutes. If the price of DVDs increases, what
happens in the market for movie tickets?
a. The supply curve shifts to the left.
b. The supply curve shifts to the right.
c. The demand curve shifts to the left.
d. The demand curve shifts to the right.

3. If the economy goes into a recession and incomes fall, what happens in the
markets for inferior goods?
a. Prices and quantities both rise.
b. Prices and quantities both fall.
c. Prices rise, quantities fall.
d. Prices fall, quantities rise.

4. A life-saving medicine without any close substitutes will tend to have

a. a small elasticity of demand.
b. a large elasticity of demand.
c. a small elasticity of supply.
d. a large elasticity of supply.

5. A linear, downward-sloping demand curve is

a. inelastic.
b. unit elastic.
c. elastic.
d. inelastic at some points, and elastic at others.

6. An increase in the supply of a good will decrease the total revenue producers
receive if
a. The demand curve is inelastic.
b. The demand curve is elastic.
c. the supply curve is inelastic.
d. The supply curve is elastic.

7. The ability of firms to enter and exit a market over

time means that, in the long run,
a. The demand curve is more elastic.
b. The demand curve is less elastic.
c. the supply curve is more elastic.
d. the supply curve is less elastic.

8. If a higher level of production allows workers to specialize in particular tasks, a

firm will likely exhibit ________ of scale and ________ average total cost.
a. economies, falling
b. economies, rising
c. diseconomies, falling
d. diseconomies, rising

9. A competitive firm maximizes profit by choosing the quantity at which

a. average total cost is at its minimum.
b. marginal cost equals the price.
c. average total cost equals the price.
d. marginal cost equals average total cost.

10. A firm is a natural monopoly if it exhibits the following as its output increases:
a. decreasing marginal revenue
b. increasing marginal cost
c. decreasing average revenue
d. decreasing average total cost

11. Compared to the social optimum, a monopoly firm chooses

a. a quantity that is too low and a price that is too high.
b. a quantity that is too high and a price that is too low.
c. a quantity and a price that are both too high.
d. a quantity and a price that are both too low.

12. Which of the following goods best fits the definition of monopolistic competition?
a. wheat
b. tap water
c. crude oil
d. soft drinks

13. If advertising makes consumers more loyal to particular brands, it could ______
the elasticity of demand and ______ the markup of price over marginal cost.
a. increase, increase
b. increase, decrease
c. decrease, increase
d. decrease, decrease

14. The antitrust laws aim to

a. facilitate cooperation among firms in oligopolistic
industries.
b. encourage mergers to take advantage of economies
of scale.
c. discourage firms from moving production facilities
overseas.
d. prevent firms from acting in ways that reduce
Competition.

15. The functions of money include:

a) Store of value
b) Unit of account
c) Medium of exchange
d) All of the above

16. All of the following topics fall within the study of microeconomics EXCEPT:
a. the impact of cigarette taxes on the smoking behavior of teenagers.
b. the role of Microsoft’s market power in the pricing of software.
c. the effectiveness of antipoverty programs in reducing homelessness.
d. the influence of the government budget deficit on economic growth.

17. Which of the following conditions does NOT describe

a firm in a monopolistically competitive market?
a. It makes a product different from its competitors.
b. It takes its price as given by market conditions.
c. It maximizes profit both in the short run and in the
long run.
d. It has the freedom to enter or exit in the long run.

18. An auto worker is considered _______ and earns _________

a. Labour, wages
b. Capital, rent
c. Entrepreneur, wages
d. Labour, rent

19. What will happen to the labour market of Doctors, if medical training institutes
increase in a country.
a. Labour demand increases
b. Labour supply increases
c. Labour demand decreases
d. Labour supply decreases

20. The supply curve of labour shifts to left due to

a. Population growth
b. Boom in automation
c. Increase in wages
d. Increase in wealth

21. The key feature of an oligopolistic market is that

a. Each firm produces a different product from other firms.
b. a single firm chooses a point on the market demand curve.
c. each firm takes the market price as given.
d. a small number of firms are acting strategically.
22. Which of the following limits the power of credit creation by Commercial Bank
a. Fiscal Policy
b. Banking policy
c. Business Possession
d. Moral Suasion by central Bank

23. The most widely used monetary policy tool among these is?
a. Open market operations
b. Issuing of notes
c. Close market operations
d. Discount rate

24. Which among these is not a monetary tool?

a. SLR
b. Deficit financing
c. Open market operations
d. CRR

25. This is not a function of the RBI?

a. Printing of currency
b. Controller of credit
c. Issuance of coins
d. Custodian of foreign currency

26. Rate of interest is increased by RBI at times of:

a. Lower inflation
b. Higher inflation
c. From the pressure of commercial banks
d. All of the above

27. Increase in cash reserve ratio (CRR) by the RBI will result in:
a. Initially increase the supply but later on decrease automatically.
b. No impact on the supply of money in the economy
c. Decrease the supply of money in the economy
d. Increase the supply of money in the economy

28. Repo Rate means?

a. Rate offered by banks to their premium customers.
b. Rate at which RBI offers loan facilities to commercial banks against government
securities, with the condition that banks need to repurchase the securities in a short
period.
c. Banks having excess cash can buy securities from RBI with a condition of reselling
securities to RBI on a prefixed day and price.
d. Banks can discount bills of exchange and avail loan from RBI at times when cash is
needed.

29. The most widely used monetary policy tool among these is?
a. Open market operations
b. Issuing of notes
c. Close market operations
d. Discount rate

30. The main economic problem faced by all society is.

a. Unemployment
b. Inequality
c. Poverty
d. Scarcity

31.“Capitalism” refers to?

a. The use of market
b. Government ownership of capital
c. Private ownership of capital goods
d. Private ownership of homes & cars

32. 1. What do you mean by the supply of goods?

a. Stock available for sale
b. Total stock in the warehouse
c. The actual production of the good
d. Quantity of the good offered for sale at a particular price per unit of time

33. Which of the following are the instruments of the money market?
a. Call money
b. Certificate of deposits
c. Trade bills
d. All of the above

34. _________ is a market for lending & borrowing of short term funds.
a. Money market
b. Primary market
c. Capital market
d. All of the above

35. Stock exchange is known as __________ market for securities.

a. Primary market
b. Secondary market
c. Capital market
d. None of the above

36. What does the term ceteris paribus mean?

a. things are different
b. other things remaining equal
c. with the view that
d. in reference to
37. A firm will realize the highest level of profit if it is able to engage in
a. first-degree price discrimination.
b. second-degree price discrimination.
c. third-degree price discrimination.
d. The answer cannot be determined without additional information.

38. A movie theater that charges a lower price for matinees than for evening showings
is engaging in
a. first-degree price discrimination.
b. second-degree price discrimination.
c. third-degree price discrimination.
d. The answer cannot be determined without additional information.

39. Dumping refers to the practice of

a. international price discrimination.
b. charging a lower price on foreign markets where demand is more price elastic.
c. taking advantage of the segmentation of markets that results from domestic
restrictions on imports.
d. All of the above are correct.

40. A firm that is selling a product at or below cost on foreign markets in order to drive
foreign producers out of business is engaging in
a. international price discrimination.
b. persistent dumping.
c. predatory dumping.
d. sporadic dumping.

41. The difference between revenue and cost is called

a. wage
b. profit
c. output
d. none of the above

42. The inputs that a firm uses in the production process are called
a. factors of production
b. organs of production
c. production inputs
d. none of the above

43. If LAC curve falls as output expands, this is due to _____:

a. Law of diminishing retains
b. Economics of scale
c. Law of variable proportion
d. Diseconomies of scale

44. __ is defined as the output per unit of variable input.

a. Total Product (TP)
b. Average Product
c. Marginal Product
d. None of the above

45. Law of variable proportions or the law of diminishing marginal product is the
tendency of the Marginal Product to
a. first increase and then fall
b. first fall and then increase
c. fall constantly
d. increase constantly

46. 15-When a proportional increase in all inputs results in an increase in output

by the same proportion, the production function is said to display
a. Decreasing Returns to Scale (DRS)
b. Increasing Returns to Scale (IRS)
c. Constant returns to scale (CRS)
d. None of the above

47. Which of the following is true?

a. In the short run, at least one of the factor – labour or capital – cannot be varied
b. In the long run, all factors of production can be varied
c. both (A) and (B)
d. None of the above

48. The market supply curve shows

a. the effect on market demand of a change in the supply of a good or service.
b. the quantity of a good that firms would offer for sale at different prices.
c. the quantity of a good that consumers would be willing to buy at different prices.
d. All of the above are correct.

49. Market equilibrium refers to a situation in which market price

a. is high enough to allow firms to earn a fair profit.
b. is low enough for consumers to buy all that they want.
c. is at a level where there is neither a shortage nor a surplus.
d. is just above the intersection of the market supply and demand curves.

50. An increase in the supply of a good will cause

a. an increase in equilibrium price and quantity.
b. a decrease in equilibrium price and quantity.
c. an increase in equilibrium price and a decrease in equilibrium quantity.
d. a decrease in equilibrium price and an increase in equilibrium quantity.
A
.
B
.
C
.
D
.