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Business Economics - 100 MCQS - For Sec A-2
Business Economics - 100 MCQS - For Sec A-2
10. A shift of the supply curve of oil raises the price from $10 a barrel to $30 a barrel and reduces
the quantity demanded from 40 million to 23 million barrels a day. You can conclude that the
a) Supply of oil is elastic. b) supply of oil is inelastic
c) Demand for oil is inelastic d) Demand for oil is elastic.
11. If money income of the consumer and price of both the commodities decrease by 25 percent,
the budget line will:
a) Shift upwards b) Shift downwards c) Stay the same
d) Any of the above is possible e) None of the above is possible
12. Assume that the market for computers begins in equilibrium. Then, there is a decrease in a price
of Pentium processors used in the production of computers. When the new equilibrium is
reached:
a) The price and quantity of computers will both have risen
b) The price and quantity of computers will both have fallen
c) The price of computers will have risen and the quantity will have fallen
d) The price of computers will have fallen and the quantity will have risen
e) None of the above
13. If X and Y both are complementary commodities, price consumption curve will:
a) Be a horizontal straight line b) Be a vertical straight line
c) Slopes upward to the right d) All of the Above e) None of the Above
14. If income consumption curve incline to Y-axis we can conclude that:
a) X is an inferior good b) X is a Giffen good c) X and Y both are inferior goods
d) Y is Normal good d) X and Y both are normal goods e) A, B and D
15. If price consumption curve resulting from a decrease in price of X and moving towards Y, it
means that Y is:
a) An inferior/ Giffen commodity b) A Necessity of life
c) A superior commodity d) Normal commodity e) C & D f) None of the above
16. The substitution effect occurs because of the two reason:
a) Change in relative prices of commodities, One is cheaper and the other costlier
b) Change in the Income and price of other commodity
c) Income of the consumer does not change d) A and C e) B and C
17. Which of the following equations corresponds to an optimal choice point?
i) MRS = PX/PY ii) MUX/MUY = PX/PY iii) MUX/PX = MUY/PY iv) MUX/PY = MUY/PX
a) (i) only b) (i), (ii), and (iii) only c) (ii) and (iv) only
d) (i) and (ii) only e) (iii) and (iv) only
Name:___________________________________ Sec:____ Date:__________ Subject: Business Economics
Total Time: 02 Hours Total Marks: 100
18. Which of the following is true regarding income along a price consumption curve?
a) Income is increasing.
b) Income is decreasing.
c) Income is constant.
d) The level of income depends on the level of utility.
19. Sales of Good X have fallen from 120,000 per year to 108,000 per year following an increase in
the price of Good Y from $1 to $2
Which of the following statements most accurately describes the relationship between Goods X
and Y?
a) They are complements, and the relationship between them is very strong
b) They are substitutes, and the relationship between them is very strong
c) They are complements, but the relationship between them is relatively weak
d) They are substitutes, but the relationship between them is relatively weak
20. Which of the following statements is always true if an indirect tax is imposed on a good or service:
a) The price will rise by an amount equal to the tax.
b) The producer will bear more of the tax than the consumer.
c) The price rise will be smaller the greater the price elasticity of demand is.
d) The price rise will be greater the greater the price elasticity of demand is.
21. 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.
22. The tendency for unit costs to fall as output increases in the short run is due to the operation of:
a) Economies of scale
b) The experience of diminishing marginal returns
c) Falling marginal revenue
d) Increasing marginal returns
23. Which of the following cannot be true? In the short run, as output falls:
a) Average variable costs falls c) Average total cost falls
b) Average fixed cost falls d) Marginal costs falls
24. When marginal product reaches its maximum, what can be said of total product?
a) Total product must be at its maximum
b) Total product starts to decline even if marginal product is positive
c) Total product is increasing if marginal product is still positive
d) Total product levels off
25. Suppose a firm sells its product at a price lower than the opportunity cost of the inputs used to
produce it. Which is true?
a) The firm will earn accounting and economic profits.
b) The firm will face accounting and economic losses.
c) The firm will face an accounting loss, but earn economic profits.
d) The firm may earn accounting profits, but will face economic losses.
Name:___________________________________ Sec:____ Date:__________ Subject: Business Economics
Total Time: 02 Hours Total Marks: 100
26. If a business currently sells 10,000 units of its product each month at $10 each unit and the
demand for its product has a price elasticity of -2·5, a rise in the price of the product to $11 will?
a) Raise total revenue by $7,250.
b) Reduce total revenue by $17,500.
c) Reduce total revenue by $25,000.
d) Raise total revenue by $37,500.
27. A price ceiling set above the equilibrium market price will result in:
a) Market failure c) Excess supply over demand
b) Market equilibrium d) Excess demand over supply
28. Which one of the following would normally cause a rightward shift in the demand curve for a
product?
a) A fall in the price of a substitute product
b) A reduction in direct taxation on incomes
c) A reduction in price of the product
d) An increase in the price of a complementary product
29. In traditional theory, which of the following best describes a firm's short run supply curve:
a) Its marginal cost curve where price is less than average variable costs
b) Its marginal cost curve where price is greater than average variable costs
c) Its average cost curve where price is less than marginal cost
d) Its average cost curve where price is greater than marginal cost
30. If the price per unit of x rises from $1.20 to $1.30, it is expected that monthly demand will fall
from 800,000 units to 730,000 units. What is the arc elasticity of demand when the price is $1.20?
a) 1.05 b) 1.14 c) 0.64 d) 0.86
31. Which combination of demand and supply curves would be appropriate for a firm attempting to
increase its profits by increasing its market share?
a) Inelastic demand, inelastic supply
b) Elastic demand, elastic supply
c) Inelastic demand, elastic supply
d) Elastic demand, inelastic supply
32. Muddy Waters Co is an industrial company which has altered its production methods so that it
has reduced the amount of waste discharged from its factory into the local river. Which of the
following is most likely to be reduced?
a) Total private costs
b) Social costs
c) External benefit
d) Variable costs
33. Which of the following would cause the production possibility frontier for an economy to shift
outwards?
(i) A reduction in the level of unemployment
(ii) A rise in the rate of investment
(iii) A fall in the price of one factor of production
(iv) A rise in output per worker
a) (i) and (ii) only b)(i), (ii) and (iii) only c) (i), (iii) and (iv) only d) (ii) and (iv) only
Name:___________________________________ Sec:____ Date:__________ Subject: Business Economics
Total Time: 02 Hours Total Marks: 100
34. The price elasticity of demand (PED) of good A is negative, its income elasticity of demand (IED)
is positive and its cross elasticity of demand (XED) with respect to good X is negative. What is
the nature of good A?
a) A good bought for purposes of ostentation, complementary to X
b) An inferior good, substitute for X
c) A normal good, complementary to X
d) A Giffen good, substitute for X
35. The marginal product of labor curve shows the change in total product resulting from a:
a) One-unit increase in the quantity of a particular resource used, letting other resources
vary.
b) One-unit increase in the quantity of a particular resource used, holding constant other
resources.
c) Change in the cost of a variable resource.
d) Change in the cost of a fixed resource.
36. Which of the following is an example of an external economy of scale:
a) Increased wage costs due to falling unemployment in the region.
b) The employment of specialist managers by a firm to cope with higher output levels.
c) The extension of low-cost telecommunication links to an area of the country not previously
served by such links.
d) Cheaper finance in recognition of the firm's increased share of the market and therefore
its stability.
37. Harold Ippoli employs 30 people in his factory which manufactures sweets and puddings. He
pays them $5 per hour and they all work maximum hours. To employ one more person he would
have to raise the wage rate to $5.50 per hour. If all other costs remain constant, the marginal
cost of labour is:
a) $20.50 c) $15.00 d) $5.50 c) $0.50.
38. Suppose that a firm produces 200,000 units a year and sells them all for $10 each. The explicit
costs of production are $1,500,000 and the implicit costs of production are $300,000. The firm
has an accounting profit of:
a) $500,000 and an economic profit of $200,000.
b) $400,000 and an economic profit of $200,000.
c) $300,000 and an economic profit of $400,000.
d) $200,000 and an economic profit of $500,000
39. All of the following are example of the sources of internal economies of scale for a business
except one. Which ONE is the EXCEPTION?
a) Lower external financing costs for a larger firm
b) Greater specialisation of tasks in its labour force
c) Lower supply costs resulting from its bulk buying
d) Lower production costs resulting from long run technical change in the economy
40. If the government imposes a maximum price for a good that is below the equilibrium price, the
resulting market shortage will be greatest when:
a) The demand is price elastic and the supply is price inelastic
b) The demand is price elastic and the supply is price elastic
c) The demand is price inelastic and the supply is price elastic
d) The demand is price inelastic and the supply is price inelastic
Name:___________________________________ Sec:____ Date:__________ Subject: Business Economics
Total Time: 02 Hours Total Marks: 100
41. When a firm doubles its inputs and finds that its output has more than doubled, this is known as:
a) Economies of scale.
b) Constant returns to scale.
c) Diseconomies of scale.
d) A violation of the law of diminishing returns.
42. Which of the following is NOT true?
a) A firm will carry on producing in the short run provided that price at least equals average
variable cost
b) A firm will carry on producing in the short run provided that price at least equals average
fixed cost
c) A firm will carry on producing in the short run provided that total revenue at least equals
total variable cost
d) A firm will stop producing in the long run if total revenue is less than total cost
43. Which of the following defines the long-run equilibrium position of a firm operating under
conditions of perfect competition?
a) MC = MR, AC < AR, MR < AR
b) MC = MR, AC = AR, MR < AR
c) MC > MR, AC = AR, MR = AR
d) MC = MR, AC = AR, MR = AR
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50. Which one of the following is an advantage for a country adopting a flexible exchange rate
system regime?
a) It provides certainty for organisations engaged in international trade
b) It eliminates transaction costs
c) Monetary policy can be used to manage to exchange rate
d) It reduces the need for central banks to keep reserves of foreign exchange
63. Which one of the following options would a government attempting to reduce the deficit on its
country’s balance of payments current account deficit be most likely to employ?
a) An expansionary fiscal policy
b) A depreciation of its currency
c) An reduction in interest rates
d) Provide incentives for foreign companies to invest in its country
64. Markets in which derivatives are traded are classified as
a) Assets backed market
b) Cash flow backed markets
c) Mortgage backed markets
d) Derivative securities markets
65. Money market where debt and stocks are traded and maturity period is more than a year is
classified as
a) Shorter term markets
b) Capital markets
c) Counter markets
d) Long-term markets
66. Agreement between two parties to exchange cash flows in future and cash flows are based on
underlying instruments is classified as
a) Swaps
b) Interchange
c) Exchange
d) Index
67. Which of the following describe functions of the World Trade Organisation (WTO)?
(i) Settling trade disputes between member countries
(ii) Monitoring developments in world trade and reviewing barriers to international trade
(iii) Providing financial assistance to developing countries to help them develop international
trade
a) (i) and (ii) b) (i) and (iii) c) (ii) and (iii) d) All of them
69. Which ONE of the following would lead to a fall in the value of the multiplier?
b) A decrease in the marginal propensity to consume.
c) A fall in the level of public expenditure.
d) Consumers saving a lower proportion of their income.
e) A decrease in the marginal propensity to import.
Name:___________________________________ Sec:____ Date:__________ Subject: Business Economics
Total Time: 02 Hours Total Marks: 100
70. All of the following are disadvantages of inflation EXCEPT which ONE?
a) It redistributes wealth from debtors to creditors.
b) It reduces international competitiveness.
c) Market price signals are distorted.
d) Fixed income earners experience a fall in real income.
71. An expansionary fiscal policy would be most likely to reduce unemployment if the country had:
a) A high marginal propensity to import
b) A low marginal propensity to save.
c) A high marginal tax rate.
d) A low marginal propensity to consume.
72. In order to finance an excess of expenditure over taxation receipts, a government could:
a) Reduce its current consumption expenditure
b) Issue government bonds
c) Raise direct taxes
d) Run an overdraft on its account at the World Bank
73. Which one of the following is an advantage for a country adopting a flexible exchange rate
system regime?
a) It provides certainty for organisations engaged in international trade
b) It eliminates transaction costs
c) Monetary policy can be used to manage to exchange rate
d) It reduces the need for central banks to keep reserves of foreign exchange
74. All of the following would tend to raise the exchange rate (appreciate) for a country’s currency
except one. Which ONE is the EXCEPTION?
a) A fall in the volume of imports
b) A risen in foreign investment in the country
c) A fall in domestic interest rates
d) A rise in the country’s invisible earnings
75. Keynesian theory of employment is based on the concept of ------------
a) Aggregate Demand
b) Aggregate Supply
c) Aggregate Demand and Supply both
d) None
76. Which of the following are Causes of Excess Demand (Inflationary gap) except one:
a) Government expenditure > Government revenue
b) Increase in autonomous investment
c) Surplus on balance of payments
d) Increase in capital formation
e) All of the above
77. Suppose at the income level of $ 50,000 million, saving amounts to $ 11,000 million. An
income at $ 60,000 million, saving increased to $ 14,000 million. What is the marginal
propensity to save for the Saudi economy?
a) 0.5 b) 0.3 c)1.4 d) None of them
Name:___________________________________ Sec:____ Date:__________ Subject: Business Economics
Total Time: 02 Hours Total Marks: 100
78. Which of the following statements is true concerning the consumption function?
a) It slopes upward.
b) Its slope equals the MPC.
c) It represents the direct (positive) relationship between consumption spending and the
level of real disposable income.
d) If the consumption function lies above the 45-degree line then saving is positive.
e) All of the above
79. If disposal income is $400 billion, autonomous consumption is $60 billion, and MPS is 0.2, what
is the level of saving?
a) $20 billion. b) $210 billion. c) $380 Billion. d) $590 billion e) $780 billion.
81. Which one of the following best describes the theory of comparative advantage in relation to the
production of cars?
a) A country can produce cars at a lower opportunity cost than any of its trading partners
b) A country can produce cars more cheaply than any other country can
c) A country can produce more cars than any other country can
d) A country has a higher opportunity cost of producing cars than any of its trading partners
83. If the marginal propensity to consume is 0.25 (25 %) then the multiplier will be-
a) Recognition; shorter
b) Recognition; longer
c) Implementation; shorter
d) Implementation; longer
Name:___________________________________ Sec:____ Date:__________ Subject: Business Economics
Total Time: 02 Hours Total Marks: 100
93. Which of the following is included in M-1?
a) Gold c) Checkable deposits e) Stock
b) Credit cards d) Money market mutual fund
94. Which of the following gives the correct relationship between nominal and real interest rates?
a) Real interest rate = nominal interest rate + expected inflation rate
b) Nominal interest rate = real interest rate + expected inflation rate
c) Expected inflation rate = nominal interest rate + real interest rate
d) Nominal interest rate = real interest rate — expected inflation rate
95. The effects of low real interest rates include all of the following EXCEPT which ONE?
a) Credit-based sales will tend to be high.
b) Nominal costs of borrowing will always be low.
c) Business activity will tend to increase.
d) Investment will be encouraged.
96. Fiscal policy refers to the:
a) Government's ability to regulate the functioning of financial markets.
b) Spending and taxing policies used by the government to influence the level of economy
activity.
c) Techniques used by firms to reduce its tax liability.
d) The policy by MAS to affect the cash rate.
97. If the economy were in recession, we would expect:
a) Government expenditure to be low and tax revenues to be low, probably leading to a
budget surplus.
b) Government expenditure to be high and tax revenues to be low, probably leading to a
budget surplus.
c) Government expenditure to be high and tax revenues to be low, probably leading to a
budget deficit.
d) Government expenditure to be high and tax revenues to be high, probably leading to a
budget deficit.
98. If the government wants to try to reduce unemployment, it could ________ spending and/or
taxes should be ________.
a) Decrease; increased c) Increase; increased
b) Decrease; decreased d) Increase; decreased
99. Which of the following is an example of discretionary fiscal policy?
a) An increase in unemployment benefit payments during a recession due to rising
unemployment
b) The tax increases to combat rising inflation
c) A decrease in income tax receipts during a recession because incomes are falling
d) An increase in income tax receipts during an expansion because incomes are rising
100. What will be the future value of $ 100 at 5 % rate of interest after 2 years?
a) $ 110.00; c) $ 110.25;
b) $ 90.00 d) None of the above.
Name:___________________________________ Sec:____ Date:__________ Subject: Business Economics
Total Time: 02 Hours Total Marks: 100
Question Answer Question Answer
1 D 51 B
2 C 52 A
3 B 53 E
4 A 54 C
5 A 55 D
6 D 56 C
7 A 57 D
8 B 58 D
9 C 59 B
10 C 60 D
11 C 61 D
12 D 62 C
13 D 63 C
14 C 64 C
15 E 65 C
16 E 66 B
17 D 67 A
18 B 68 A
19 C 69 A
20 C 70 A
21 C 71 B
22 D 72 D
23 C 73 C
24 C 74 C
25 C 75 A
26 D 76 B
27 B 77 E
28 C 78 A
29 B 79 A
30 B 80 A
31 B 81 C
32 B 82 B
33 B 83 A
34 D 84 A
35 C 85 D
36 B 86 A
37 C 87 C
38 C 88 D
39 A 89 A
40 D 90 B
41 B 91 D
42 B 92 C
43 B 93 B
44 D 94 B
45 D 95 B
46 C 96 C
47 D 97 D
48 A 98 B
49 B 99 B
50 B 100 D