Introduction to Economics MCQs | ECO401 MCQs | Set 3
Introduction to Economics MCQs | ECO401 MCQs | Set 3
MCQs (Multiple Choice Questions)
1) The demand for apples is expressed as: `Q_d` = 100 -5P
The supply of apples is expressed as: `Q_s` = 25 -10P
Refer to the above scenario, if the equilibrium price of apples is Rs. 5, the equilibrium quantity of apples is:
a) 73
b) 75
c) 80
d) 85
Correct Answer:
The correct answer is 'b'.
Explanation:
To find the equilibrium quantity of apples, you can set the demand (`Q_d`) equal to the supply (`Q_s`) and solve for the equilibrium quantity.
The demand equation is: `Q_d` = 100 - 5P
The supply equation is: `Q_s` = 25 - 10P
At equilibrium, demand equals supply, so `Q_d` = `Q_s`. Therefore:
100 - 5P = 25 -10P
First, let's solve for the equilibrium price:
100 - 5P = 25 -10P
10P−5P=100−25
5P=75
P=75/5
P=15
The equilibrium price is Rs. 15.
Now, substitute the equilibrium price into either the demand or supply equation to find the equilibrium quantity. Let's use the demand equation:
So, at an equilibrium price of Rs. 15, the equilibrium quantity of apples is 25.
However, this question, states that the equilibrium price of apples is Rs. 5. It seems there might be a mistake in the provided equilibrium price. If the equilibrium price is indeed Rs. 5, then let's rework it:
Using the equilibrium price of Rs. 5:
P = 5
Substitute P = 5 into either the demand or supply equation. Let's use the demand equation:
`Q_d` = 100 − 5P
`Q_d` = 100 − 5(5)
`Q_d` = 100 - 25
`Q_d` = 75
Therefore, at an equilibrium price of Rs. 5, the equilibrium quantity of apples is 75.
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2) Chicken sandwiches are normal goods, which means that:
a) Incomes go up, the demand curve shifts to the right
b) Incomes go up, the supply curve shifts to the right
c) Price falls, the quantity demanded decreases.
d) As incomes increase, people buy less.
Correct Answer:
The correct answer is 'a'.
Explanation:
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3) What is meant by the term utility?
b) Required
c) Necessary
d) Satisfaction
Correct Answer:
The correct answer is 'd'.
Explanation:
In economics, utility refers to the satisfaction or pleasure a consumer derives from consuming a good or service. It represents the usefulness or satisfaction a product or service provides to an individual.
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4) The total cost (TC) function is given as: TC = 200 +5Q. What is the fixed cost?
a) 5Q
b) 5
c) 5 + (200/Q)
d) 200
Correct Answer:
The correct answer is 'd'.
Explanation:
In the total cost (TC) function TC=200+5Q:
The fixed cost is the constant cost that does not change with the quantity produced (Q). In the given function, the fixed cost is the component that remains constant regardless of the quantity produced.
In this case, the fixed cost is represented by the constant term in the total cost function, which is: 200
Therefore, the fixed cost is
200
200 in the given total cost function.
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5) The total cost (TC) function is given as: TC = 200 +5Q. What is the average total cost?
a) 5Q
b) 5
c) 5 + (200/Q)
d) 200
Correct Answer:
The correct answer is 'c'.
Explanation:
The average total cost (ATC) is found by dividing the total cost (TC) by the quantity produced (Q).
In the given total cost function TC=200+5Q, the average total cost is calculated as:
ATC = `{TC}/Q` = `{200+5Q}/Q` = `200/Q` + 5
Therefore, the average total cost (ATC) is represented as:
5 + `200/Q`
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6) Assume that the market for laptops is dominated by a single firm, like Inbox, that is able to extert influence over prices and output. This situation violates which of the following assumptions of perfect competition?
a) Many buyers and sellers
b) Easy entry and exit
c) No discrimination
d) Perfect information
Correct Answer:
The correct answer is 'b'.
Explanation:
In a perfectly competitive market, firms are able to enter and exit the market freely. This means that if a firm is making a profit, other firms will enter the market to compete for those profits. This competition will drive down prices and eliminate the firm's profits.
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7) Assume that the computer buyers in northern parts of Pakistan have no idea what prices are being paid in the southern parts of Pakistan. This situation violates which of the following assumptions of perfect competition?
a) Identical goods
b) No discrimination
c) Perfect information
d) Many buyers and sellers
Correct Answer:
The correct answer is 'c'.
Explanation:
In perfect competition, one of the key assumptions is that all buyers and sellers have perfect or complete information about the prices and market conditions. When buyers in one region have no knowledge of the prices in another region, it contradicts the assumption of perfect information in the market.
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8) The local bus system charges lower fares to students than to the other passengers. Suppose that this pricing strategy increases the profits of the bus system, we can conclude that students must have a _____ for bus service than other passengers.
a) Greater demand
b) Lower demand
c) More elastic demand
d) Less elastic demand
Correct Answer:
The correct answer is 'c'.
Explanation:
A more elastic demand means that students are more responsive to changes in the price of bus service. In other words, if the price of bus service increases, students are more likely to switch to other modes of transportation, such as walking, biking, or carpooling.
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9) While moving from left to right, the typical production possibilites frontier (PPF) has:
a) An increasingly steep negative slop.
b) A decreasingly steep negative slop.
c) An increasingly steep positive slop
d) A constant and negative slop
Correct Answer:
The correct answer is 'a'.
Explanation:
The negative slope of the PPF represents the trade-off between producing different goods or services. As you move from left to right along the PPF, producing more of one good necessitates sacrificing an increasing amount of the other good. This leads to a steeper negative slope, indicating the increasing opportunity cost of producing more of one item over the other.
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10) What is the assumption of constructing a production possibilities frontier?
a) Economic resources are underutilized
b) Production technology is allowed to vary
c) All available resources are employed efficiently.
d) None of the given options
Correct Answer:
The correct answer is 'c'.
Explanation:
The PPF assumes that all available resources in the economy are utilized effectively and efficiently to produce the maximum possible output of goods and services given the current technology and available resources. This assumption helps to delineate the different combinations of goods and services that an economy can produce when resources are used to their maximum potential.
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