Introduction to Economics MCQs | ECO401 MCQs | Set 4
Introduction to Economics MCQs | ECO401 MCQs | Set 4
MCQs (Multiple Choice Questions)
1) A demand curve is price elastic when:
a) Changes in demand are proportionately greater than changes in price
b) Changes in demand are equal to changes in price
c) Total revenue increases due to increase in price
d) Changes in demand are proportionately smaller than changes in price
Correct Answer:
The correct answer is 'a'.
Explanation:
A demand curve is price elastic when changes in demand are proportionately greater than changes in price. This means that when the price changes, the resulting change in the quantity demanded is relatively larger.
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2) If different firms in the oligopolistic structure do not cooperate with each other, this situation is known as:
a) Collusive oligopoly
b) Cartel
c) Price leadership
d) None-collusive oligopoly
Correct Answer:
The correct answer is 'd'.
Explanation:
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3) If the quantity demanded of a product is greater than the quantity supplied of the product, then:
b) There is a surplus of the product.
c) The product is a normal good.
d) The product is an inferior good.
Correct Answer:
The correct answer is 'a'.
Explanation:
When the quantity demanded of a product is greater than the quantity supplied, it results in a shortage of the product.
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4) A demand curve is price inelastic when:
a) Changes in demand are proportionately greater than changes in price
b) Changes in demand are equal to changes in price
c) None
d) Changes in demand are proportionately smaller than changes in price
Correct Answer:
The correct answer is 'd'.
Explanation:
A demand curve is considered price inelastic when changes in demand are proportionately smaller than changes in price. This means that a change in the price of a product results in a relatively smaller change in the quantity demanded.
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5) Which of the following is the term that economists use to describe how consumers rank different goods and services?
a) Satisfaction index
b) Goodness
c) Utility
d) None of the given options
Correct Answer:
The correct answer is 'c'.
Explanation:
Economists use the term "utility" to describe how consumers rank or perceive the satisfaction or usefulness derived from consuming or using different goods and services. Utility refers to the measure of satisfaction, usefulness, or value that consumers gain from the consumption of a product or service. It's a concept used to understand how individuals make choices based on their preferences and the perceived benefits or satisfaction they receive from the items they consume.
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6) Cost determines all of the following EXCEPT:
a) Firm's behavior
b) How firms should expand?
c) Firm's profitability
d) Demand for a product
Correct Answer:
The correct answer is 'd'.
Explanation:
Costs in a business, including production, operating, and other expenses, have a substantial impact on various aspects of a company's operations and decision-making. They influence a firm's behavior by affecting pricing strategies, production levels, and financial decisions. Costs also significantly affect a firm's profitability because they directly impact the balance between revenue and expenses.
However, costs do not directly determine the demand for a product. The demand for a product is primarily influenced by factors such as consumer preferences, prices, marketing strategies, and external economic conditions. While costs can indirectly influence pricing, which in turn might affect demand, they do not solely determine the level of demand for a product.
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7) A firm maximizes profit by operating at the level of output where:
a) Average revenue equals average cost
b) Average revenue equals average variable cost
c) Total costs are minimized
d) Average revenue equals marginal cost
Correct Answer:
The correct answer is 'd'.
Explanation:
This is because in economics, the profit-maximizing level of output occurs where the additional revenue gained from producing one more unit (marginal revenue) is equal to the additional cost incurred to produce that additional unit (marginal cost). When the average revenue (which is the total revenue divided by the quantity sold) is equal to the marginal cost, it means that the revenue earned from each unit sold matches the additional cost of producing the last unit. At this point, the firm is maximizing its profit because it's neither gaining nor losing extra profit by producing more or fewer units.
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8) The break-even point occurs when:
a) Price < Average Variable Cost
b) Price < Average Total Cost
c) Price = Average Total Cost
d) Price > Average Variable Cost
Correct Answer:
The correct answer is 'c'.
Explanation:
The break-even point is the level of output at which total revenue equals total costs, resulting in zero profit. This means that the firm is neither making a profit nor incurring a loss.
When the price at which a product is sold is equal to the average total cost (which includes both variable and fixed costs divided by the quantity produced), the revenue generated from selling each unit covers all costs, both variable and fixed. At the break-even point, the firm covers all its costs, resulting in a total revenue equal to the total costs, hence achieving a zero-profit situation.
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9) If average physical product (APP) is increasing then which of the following must be true?
a) Marginal physical product is above the average physical product
b) Marginal physical product is less than average physical product
c) Marginal physical product is decreasing
d) None
Correct Answer:
The correct answer is 'a'.
Explanation:
If the average physical product (APP) is increasing, it means that each additional unit of input is contributing more to the total output. Mathematically, when APP is increasing, it implies that the marginal physical product (MPP) (the additional output from an additional input unit) is higher than the average physical product.
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10) Which of the following best describes a demanding schedule?
a) It is a numerical tabulation of the quality demanded of a good at different prices, ceteris paribus.
b) It is a graphical representation of the law of demand.
c) It is systematic listing of all the variables that might conceivably bring about a change in demand.
d) It is a symbolic representation of the law of demand P, Q, and Q, P.
Correct Answer:
The correct answer is 'b'.
Explanation:
A demand schedule is a table that shows the quantity demanded of a good or service at different price levels. It is a graphical representation of the law of demand, which states that the quantity demanded of a good or service is inversely related to its price.
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