REVISION QUESTION

CHAPTER 1

1. Which of the following central problem of an economy deals with the distribution of
National Income?
A) How to produce
B) What to produce
C) For whom to produce
D) None of these

2. Scarcity requires that people must do which of the following things?

A) Trade
B) Cooperate
C) Make choices
D) Competition

3. Opportunity cost is:

A) the additional benefit of buying an additional unit of a product.
B) the cost incurred in the past before we make a decision about what to do in future
C) a cost that is borne in terms of discomfort and pain while supplying factors of
production
D) that which we forgo, or give up while making a choice or a decision

4. The opportunity cost of watching a movie will be equal to:

A) the time lost while watching the show
B) the pleasure that could have been enjoyed watching TV instead
C) the pleasure enjoyed by watching the show
D) the amount paid to buy the tickets

5. The opportunity cost of watching a movie will be equal to:

A) the time lost while watching the show
B) the pleasure that could have been enjoyed watching TV instead
C) the pleasure enjoyed by watching the show
D) the amount paid to buy the tickets

6. Which of the following is/are true about an economy?

A) It is the system of arrangement of all economic activities
B) It is comprised of all the regions of a country
C) Both a) and b)
D) Neither a) nor b)

7. The most fundamental economic problem is related to

A) scarcity of resources
B) Unlimited human wants
C) Both a) and b)
D) Neither a) nor b)
8. An economy in which all economic activities are organised through the market is called:
A) mixed economy
B) market economy
C) centrally planned economy
D) None of these

9. Economics is:
A) the study of stocks and bond market
B) mainly the study of business firms
C) the problem of choice under scarcity
D) the study of management decisions

10. Which of the following is/are not the feature of human wants
A) Limited
B) Recurring
C) Both a) and b)
D) Neither a) nor b)

11. Microeconomics is not concered with the behaviour of:

A) National income
B) a consumer
C) a firm
D) a producer

12. Macroeconomics deals with:

A) the behaviour of firms
B) the behaviour of electronics industry
C) the activities of individual units
D) economic aggregates

13. Which of is/are the reasons for Economic problems?

A) Scarcity of resources
B) Alternative uses of resources
C) Unlimited human wants
D) All of the above

14. Which of the following central problems of an economy deals with deciding the quantity of
goods to be produced?
A) What to produce
B) How to produce
C) For whom to produce
D) When to produce
 CHAPTER 2

1. Normally the demand curve will have a _______________ shape.

A) Upward sloping
B) Downward sloping
C) Vertical
D) Horizontal

2. Which of the following is an assumption made while drawing the demand curve?
A) The demand curve must be linear
B) The price of substitutes should not change
C) The quantity demanded should not change
D) The price of the commodity should not change

3. The elasticity for the demand of durable goods is __________.

A) Zero
B) Equal to unity
C) Greater than unity
D) Less than unity

4. Law of demand shows a relation between the ___________.

A) Quantity demand and quantity supply of a commodity
B) Income and quantity demand of a commodity
C) Price and quantity of a commodity
D) Income and price of a commodity

5. If the quantity demanded of a commodity is unresponsive to change in prices, then the

demand of that commodity is ________.
A) Perfectly inelastic
B) Elastic
C) Unit elastic
D) Inelasti

6. When the price of a product falls by 10% and its demand rises by 30%, then the elasticity of
demand is _________.
A) 13
B) 3
C) 10
D) 30

7. When the elasticity of demand for a commodity is very low, it shows that the product
________.
A) Has little importance in the total budget
B) Is a luxury
C) Is a necessity
D) None of the above
8. Which of the following is not a cause of the shift in demand for a product?
A) Change in the price of substitutes
B) Change in the income of a consumer
C) Change in the price of a product
D) None of the above

9. Would an increase in demand for a product cause the supply curve to shift in any direction?
A) No effect on supply
B) Change in the slope of a supply curve
C) The supply curve will move to the right
D) The supply curve will move to the left

10. In May 2019, a firm was providing 5000 kg of sugar at a market price of Rs. 30 per kg. But in
June 2019, the supply of sugar decreased to 4500 kg at a market price of Rs. 20 per kg. This
change shows that the supply of sugar is _____.
A) More elastic
B) Less elastic
C) Perfectly inelastic
D) Perfectly elastic

11. If the market supply curve for a product shifts rightwards, what is the best possible
explanation for this shift?
A) Increase in the price of raw materials
B) Introduction of a tax on that product by the government
C) Introduction of a new technique that makes the production of that commodity
cheaper
D) An advertising campaign that is successful in promoting the product

12. Which of the following scenarios will not shift the demand curve for a particular product
A) A change in the income of the consumers of that product
B) Effective advertising campaign by producers of a substitute good
C) A reduction in the price of the raw material for that product
D) A widely publicised study that says the product is harmful to the health of
consumers

13. A firm’s supply curve is on an upward slope because ______.

A) The production costs of additional units of output will rise beyond a point
B) Consumers see a positive relationship between price and quality
C) Expansion of production leads to the use of inferior inputs
D) None of the above

14. Which of the following metrics is not a constant factor while moving upwards along the
supply curve?
A) The price of the commodity
B) The number of sellers
C) Expected future prices
D) Cost of the resources used for producing that commodity
15. An increase in the number of restaurants serving fast-food leads to _______.
A) Growth in the demand of fast-food meals
B) Increase in the supply of fast-food meals
C) Increase in the price of fast-food meals
D) Growth in the demand for substitutes of fast-food meals

16. When the quantity demanded of a goods is equal to the quantity supplied of that goods,
then ___________.
A) There is a surplus
B) The government is intervening in the market
C) There is a shortage
D) None of the above
 CHAPTER 3

1. What is the effect of an indirect tax?

A) Lower the price of products and increase the quantity consumed.
B) Raise the price and reduce the quantity consumed.
C) To increase the production/consumption of demerit goods.
D) Providing merit goods at the socially optimal level.

2. In order to be effective, how must a price ceiling be set?

A) Below the equilibrium price.
B) Above the equilibrium price.
C) At the equilibrium price.
D) It will be effective no matter what level it is set at.

3.

What kind of government intervention is illustrated with the diagram?

A) Price floor
B) Price ceiling
C) Subsidy
D) Specific tax

4. Which of the following is not a reason to place a subsidy on a good?

A) To discourage consumption
B) To encourage production
C) To ensure more people can afford the good
D) To protect suppliers

5. The government imposes a tax of $1 per hamburger sold to prevent obesity. What kind of
tax is this?
A) Income tax
B) It is not a tax because it is meant to do good for citizens
C) Ad Valorem tax
D) Excise tax

6. Why are taxes, such as value added taxes or general sales taxes, known as indirect taxes?
A) Because you pay them indirectly by paying a bill every month
B) Because you do not pay them directly after you purchase a good or service
C) Because they are levied on purchases rather than on income directly
D) Because they are not directly related to consumption
 CHAPTER 4

1. What is the own-price elasticity of demand as price increases from $2 per unit to $4 per
unit? Use the mid-point formula in your calculation.

a) 1/3.
b) 6/10.
c) 2/3.
d) None of the above.

2. Suppose that a 2% increase in price results in a 6% decrease in quantity demanded. Own-

price elasticity of demand is equal to:

a) 1/3.
b) 6.
c) 2
d) 3.

3. If own-price elasticity of demand equals 0.3 in absolute value, then what percentage change
in price will result in a 6% decrease in quantity demanded?

a) 3%
b) 6%
c) 20%.
d) 50%.

4. Suppose you are told that the own-price elasticity of supply equal 0.5. Which of the
following is the correct interpretation of this number?

a) A 1% increase in price will result in a 50% increase in quantity supplied.

b) A 1% increase in price will result in a 5% increase in quantity supplied.
c) A 1% increase in price will result in a 2% increase in quantity supplied.
d) A 1% increase in price will result in a 0.5% increase in quantity supplied.

5. Suppose that a 10 increase in price results in a 50 percent decrease in quantity demanded.

What does (the absolute value of) own price elasticity of demand equal?

a) 0.5.
b) 0.2.
c) 5.
d) 10.

6. If goods X and Y are SUBSTITUTES, then which of the following could be the value of the
cross price elasticity of demand for good Y?

a) -1.
b) -2.
c) Neither a) nor b).
d) Both a) and b).
7. If pizza is a normal good, then which of the following could be the value of income elasticity of
demand?

a) 0.2.
b) 0.8.
c) 1.4
d) All of the above.

8. If goods X and Y are COMPLEMENTS, the which of the following could be the value of cross price
elasticity of demand?

a) 0.
b) 1.
c) -1.
d) All of the above could be the value of cross price elasticity of demand.

9. What is the own-price elasticity of demand as price decreases from $8 per unit to $6 per unit? Use
the mid-point formula in your calculation.

a) Infinity.
b) 7.0
c) 2.0.
d) 1.75

10. At what point is demand unit-elastic?

a) P = $6, Q = 12.
b) P = $4, Q = 8.
c) P = $2, Q = 12.
d) None of the above.

11. Which of the following statements about the relationship between the price elasticity of demand
and revenue is TRUE?

a) If demand is price inelastic, then increasing price will decrease revenue.

b) If demand is price elastic, then decreasing price will increase revenue.
c) If demand is perfectly inelastic, then revenue is the same at any price.
d) Elasticity is constant along a linear demand curve and so too is revenue.

12. Suppose BC Ferries is considering an increase in ferry fares. If doing so results in an increase in
revenues raised, which of the following could be the value of the own-price elasticity of demand for
ferry rides?

a) 0.5.
b) 1.0.
c) 1.5.
d) All of the above.
13.Which of the following statements correctly describes own-price elasticity of demand, for this
particular demand curve?

I. Demand is unit elastic at a price of $30, and elastic at all prices greater than $30.
II. Demand is unit elastic at a price of $30, and inelastic at all prices less than $30.
III. Demand is unit elastic for all prices.

a) I and II only.
b) I only.
c) I, II and III.
d) III only.

14.Suppose that, if the price of a good falls from $10 to $8, total expenditure on the good
decreases. Which of the following could be the (absolute) value for the own-price elasticity of
demand, in the price range considered?

a) 1.6.
b) 2.3.
c) Both a) and b).
d) Neither a) or b).

15. If a demand curve is VERTICAL, then own-price elasticity of demand for this good is equal to:

a) Infinity.
b) Zero.
c) One.
d) None of the above.

16.If – given consumer preferences – a certain good has many close substitutes available, then:

a) The demand for that good will be relatively inelastic, compared to goods for which there are few
close substitutes.
b) The supply of that good will be relatively inelastic, compared to goods for which there are few
close substitutes.
c) The demand for that good will be relatively elastic, compared to goods for which there are few
close substitutes.
d) The supply of that good will be relatively elastic, compared to goods for which there are few close
substitutes.

17.Which of the following statements about price ceilings is TRUE? (Assume the price ceiling is set
below the unregulated equilibrium price.)

a) Price ceilings make sellers worse off.

b) Price ceilings make buyers better off.
c) Both a) and b) are true.
 CHAPTER 5 & 6

1.Production function means:

A) Physical relationship between inputs used and output.
B) Technical relationship between inputs used and output
C) Financial relationship between inputs and output
D) Both Physical and technical relationship between inputs used and output

2.Marginal product (MP) is also called:

A) Increamental product
B)Total product
C) Average product
D) All of these

3.Which is a correct equation?

A) TP= AP/N
B) AP= TP/N
C) AP= TP x N
D) TP= AP- N

4.THe marginal product of a variable input is best describe as:

A) Total product divided by the number of units of variable input
B) The additional output resulting from one unit increase in the variable factor
C) The additional output resulting from one unit increase in both the variable and fixed inputs.
D) The ratio of the amout of the variable input that is being used to the amount of the fixed input
that is being used.

5.Diminishing marginal returns implies:

A) Decreasing average variable costs
B) Decreasing marginal cost
C) Increasing marginal cost
D) Decreasing average fixed cost

6.The main difference between short run and long run in economics is:
A) In short run, all inputs are fixed, while in long run all inputs are variable
B) In short run the firm varies all of its inputs to find the least cost combination of inputs.
C)In short run, at least one of the firm's input level is fixed.
D) In the long run, the firm is making a constrained decision about how to use existing plant and
equiptment efficiently.
...
Show Answer

7.The change in the total product resulting from a change in a variable input is:
A)Average product
B) Marginal product
C) Average cost
D) Marginal cost

8.Marginal product, mathematically, is the slope of the:

A) Total product curve
B) Average product curve
C) Marginal product curve
D) Explicit product curve

9.When total product (TP) increases at increasing rate, marginal product (MP):
A) Decreases
B) Constant
C) Increases
D) Become negative

10.When Marginal product increase, total product:

A) Start falling
B) Increases at increasing rate
C) Increasing at diminishing rate
D)Increases at constant rate

11.When marginal product (MP) rises, average product(AP):

A) Increases
B) Decreases
C) Constant
D) None of these

12.Average product cannot be negative because:

A) Total product can never be negative
B) Total product can never be zero
C) Both (A) and (B)
D) None of these

13.Fixed factor is:

A) Labour
B) Raw material
C) Power
D) Machine

14.When more and more units of variable factor are combined with fixed factor, the resulting law is
called:
A) Law of increasing return to scale
B) Law of constant return to scale
C) Law of variable proportion
D) Law of diminishing return to scale

15.A rational producer always wants to produce which stage (Phase) of law of variable proportion?
A) First stage (law of increasing factor)
B) Second stage (law of diminishing factor)
C) Third stage (law of negativer factor)
D) Any of the stage where a producer want.

17.In the case of increasing return marginal product curve is:

A) Slope upward
B) Slope downward
C) Become Parallel to X axis
D) Become parallel to Y axis

18.What happens to average product (AP) when marginal product (MP) is less than AP?
A) AP rises
B) AP falls
C) AP remains constant
D) None of these

19.At the point of inflextion,

A) Total product is maximum
B) Marginal product is maximum
C) Average product is maximum
D) Marginal product is zero

20.There are _________ stages of the law of variable proportion:

A) 2
B) 3
C) 4
D) None of these
 CHAPTER 7

1.Variable costs are:

A) sunk costs.
B) multiplied by fixed costs.
C) costs that change with the level of production.
D) defined as the change in total cost resulting from the production of an additional
unit of output.

2.Which is not a fixed cost?

A) monthly rent of $1,000 contractually specified in a one-year lease
B) an insurance premium of $50 per year, paid last month
C) an attorney's retainer of $50,000 per year
D) a worker's wage of $15 per hour

3.If you know that with 8 units of output, average fixed cost is $12.50 and average
variable cost is $81.25, then total cost at this output level is:
A) $93.75. B) $97.78. C) $750. D) $880.

4.With fixed costs of $400, a firm has average total costs of $3 and average variable
costs of $2.50. Its output is:
A) 200 units. B) 400 units. C) 800 units. D) 1,600 units.

5.The reason the marginal cost curve eventually increases as output increases for the
typical firm is because:
A) of diseconomies of scale.
B) of minimum efficient scale.
C) of the law of diminishing returns.
D) normal profit exceeds economic profit.

6.If the short-run average variable costs of production for a firm are rising, then this
indicates that:
A) average total costs are at a maximum.
B) average fixed costs are constant.
C) marginal costs are above average variable costs.
D) average variable costs are below average fixed costs.

7.If a more efficient technology was discovered by a firm, there would be:
A) an upward shift in the AVC curve. C) a downward shift in the AFC curve.
B) an upward shift in the AFC curve. D) a downward shift in the MC curve.

8.The firm's short-run marginal-cost curve is increasing when:

A) marginal product is increasing. C) total fixed cost is increasing.
B) marginal product is decreasing. D) average fixed cost is decreasing.

9.If all resources used in the production of a product are increased by 30 percent and
output increases by 30 percent, then there must be:
A) economies of scale. C) constant returns to scale.
B) diseconomies of scale. D) increasing average total costs.
10. Economies and diseconomies of scale explain why the:
A) short-run average fixed cost curve declines so long as output increases.
B) marginal cost curve must intersect the minimum point of the firm's average total
cost curve.
C) long-run average total cost curve is typically U-shaped.
D) short-run average variable cost curve is U-shaped.
 CHAPTER 8 – 11

1) What is the difference between perfect competition and monopolistic competition?

A) Perfect competition has a large number of small firms while monopolistic competition does not.
B) In perfect competition, firms produce identical goods, while in monopolistic competition, firms
produce
slightly different goods.
C) Perfect competition has no barriers to entry, while monopolistic competition does.
D) Perfect competition has barriers to entry while monopolistic competition does not.

2) The market type known as perfect competition is

A) almost free from competition and firms earn large profits.
B) highly competitive and firms find it impossible to earn an economic profit in the long run.
C) dominated by fierce advertising campaigns.
D) marked by firms continuously trying to change their products so that consumers prefer their
product to
their competitors' products.

3) Which of the following market types has all firms selling products so identical that buyers do not
care from
which firm they buy?
A) perfect competition
B) oligopoly
C) monopolistic competition
D) monopoly

4) Perfect competition is characterized by all of the following EXCEPT

A) well-informed buyers and sellers with respect to prices.
B) a large number of buyers and sellers.
C) no restrictions on entry into or exit from the industry.
D) considerable advertising by individual firms.

5) Which of the following is the best example of a perfectly competitive market?

A) diamonds B) athletic shoes C) soft drinks D) farming

6) Which of the following market types has the fewest number of firms?
A) perfect competition B) monopoly
C) monopolistic competition D) oligopoly

7) Which of the following market types has a large number of firms that sell similar but slightly
different
products?
A) perfect competition B) oligopoly
C) monopolistic competition D) monopoly

8) Which of the following market types has only a few competing firms?
A) perfect competition B) monopolistic competition
C) monopoly D) oligopoly

9) In a perfectly competitive market, the type of decision a firm has to make is different in the short
run than in
the long run. Which of the following is an example of a perfectly competitive firm's short-run
decision?
A) what price to charge buyers for the product
B) whether or not to enter or exit an industry
C) the profit-maximizing level of output
D) how much to spend on advertising and sales promotion

10) In a perfectly competitive market, the type of decision a firm has to make is different in the short
run than in
the long run. Which of the following is an example of a perfectly competitive firm's long-run
decision?
A) what price to charge buyers for the product
B) how much to spend on advertising and sales promotion
C) the profit-maximizing level of output
D) whether or not to enter or exit an industry

11) A monopoly is a market with

A) no barriers to entry.
B) many substitutes.
C) many suppliers.
D) one supplier.

12) Firms face competition when the good they produce

A) is in a market with natural barriers to entry.
B) is unique.
C) is in a market with legal barriers to entry.
D) has a close substitute.

13) Which of the following statements is correct?

A) The market demand and the firm's demand are the same for a monopoly.
B) Monopolies have perfectly inelastic demand for the product sold.
C) Monopolies are guaranteed to earn an economic profit.
D) All of the above are correct.

14) Which describes a barrier to entry?

A) anything that protects a firm from the arrival of new competitors
B) a government regulation that bars a monopoly from earning an economic profit
C) something that establishes a barrier to expanding output
D) firms already in the market incurring economic losses so that no new firm wants to enter the
market

15) A barrier to entry is

A) an open door.
B) the economic term for diseconomies of scale.
C) illegal in most markets.
D) anything that protects a firm from the arrival of new competitors.

16) Which of the following is different about perfect competition and monopolistic competition?
A) Firms in monopolistic competition compete on their product's price as well as its quality and
marketing.
B) In monopolistic competition, entry into the industry is unblocked.
C) Perfect competition has a large number of independently acting sellers.
D) Only firms in monopolistic competition can earn an economic profit in the short run.

17) In an industry with a large number of firms,

A) collusion is impossible.
B) one firm will dominate the market.
C) each firm will produce a large quantity, relative to market demand.
D) competition is eliminated.

18) Which of the following is an example of a monopolistically competitive industry?

A) wheat farming
B) colleges and universities
C) the local electricity producer
D) the domestic automobile producing industry

19) All of the following are examples of product differentiation in monopolistic competition EXCEPT
A) new and improved packaging.
B) lower price.
C) acceptance of more credit cards than the competition.
D) location of the retail store.

20) A differentiated product has

A) many perfect substitutes.
B) close but not perfect substitutes.
C) no close substitutes.
D) no substitutes of any kind.

21)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

22) If a few firms dominate an industry the market is known as ?

A) monopolistic competition
B)Competitively monopolistic
C) Duopoly
D) Oligopoly

23)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

24)In cartels ?
A) Each individual firm profit maximizes
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
 CHAPTER 12

1.Which of the following is an example of market failure?

A. Externalities
B. Low prices
C. Excess supply
D. Excludable and rival goods

2. Bonnie is considering installing insulation in her home. The insulation would save her money on
her heating bills over the next ten years, but she would need to pay for the installation of the
insulation today. Bonnie would be most likely to install the insulation if
A. she has a low discount rate
B. she values benefits today much more than benefits in the future
C. she has a high discount rate
D. she values costs more than benefits

3. Which of the following is not a type of good?

A. Private
B. Excludable
C. Common
D. Public

4. Economic efficiency criteria ignores:

A. Distributional impacts
B. Opportunity costs
C. Marginal decisions
D. Both B and C

5. When production of a good generates a negative externality, markets tend to provide _______
than the efficient quantity of the good.
A. more
B. less
C. about the same as
D. There is not enough information to determine the correct answer

6. The benefits in benefit/cost analysis are derived from:

A. The supply curve
B. The total willingness to accept
C. The marginal costs
D. None of the above

8. The beach is best described as:

A. A private good
B. An open access good
C. A public good
D. A common pool resource

9. Efficient allocation of a good with costs that are external to the production process occurs at:
A. MPC=MPB
B. MEC=MSC
C. MSC=MPB
D. There is no efficient allocation of goods with external effects

10. Which of the following are not ways to correct market failure:
A. Coase Bargaining
B. Assigning Property rights
C. Legislative and Executive Regulations
D. These are all ways to correct market failure

11. Which of the following are considered public goods?

a. Clean air, clean water, and biological diversity
b. Clean air, clean water, and fishing rights
c. Clean air, clean water, and open land
d. Lakes, streams, and ponds