Introduction to Economics MCQs | ECO401 MCQs | Set 8
Introduction to Economics MCQs | ECO401 MCQs | Set 8
MCQs (Multiple Choice Questions)
1) In order for a taxicab to be operated in New York City, it must have a medallion on its hood. Medallions are expensive but can be resold and are therefore an example of:
a) A fixed cost
b) A variable cost.
c) An implicit cost.
d) An opportunity cost.
Correct Answer:
The correct answer is 'a'.
Explanation:
In business and economics, fixed costs are expenses that do not change with the level of production or operation. In this case, the cost of obtaining a medallion is a significant, upfront investment for a taxi operator that remains constant regardless of the number of trips made or the usage of the taxi.
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2) If a simultaneous and equal percentage decrease in the use of all physical inputs leads to a larger percentage decrease in physical output, a firm’s production function is said to exhibit:
a) Decreasing returns to scale
b) Constant returns to scale
c) Increasing returns to scale
d) Diseconomies of scale
Correct Answer:
The correct answer is 'a'.
Explanation:
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3) At any given point on an indifference curve, the absolute value of the slope equals:
b) The marginal rate of substitution.
c) The consumer’s marginal utility.
d) None of the given options.
Correct Answer:
The correct answer is 'b'.
Explanation:
The slope of an indifference curve represents the rate at which a consumer is willing to substitute one good for another while maintaining the same level of satisfaction (utility). This rate of substitution is termed the marginal rate of substitution, indicating the amount of one good a consumer is willing to give up to obtain an additional unit of the other good while staying on the same indifference curve.
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4) Aslam spends all of his money on racquetballs and food. What would happen to Aslam’s budget line if his income increased by 10 percent holding prices constant?
a) It would shift inward.
b) It would rotate about the axis for food.
c) It would rotate about the axis for racquetballs.
d) It would shift outward.
Correct Answer:
The correct answer is 'd'.
Explanation:
When income increases while prices remain constant, the budget line shifts outward. Aslam can now afford more of both goods (racquetballs and food) due to the increase in purchasing power resulting from the rise in income. This causes the budget line to extend or shift outward, allowing for greater quantities of both goods to be purchased.
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5) Cross-price elasticity measures whether:
a) Goods are normal or inferior.
b) Two goods are substitutes or complements.
c) Demand is elastic or inelastic.
d) Supply is steeper than demand or vice versa.
Correct Answer:
The correct answer is 'b'.
Explanation:
Cross-price elasticity of demand assesses how the quantity demanded of one good responds to a change in the price of another good. A positive cross-price elasticity indicates that the goods are substitutes, meaning that an increase in the price of one good leads to an increase in the quantity demanded of the other. A negative cross-price elasticity suggests that the goods are complements, where an increase in the price of one good results in a decrease in the quantity demanded of the other.
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6) Which of the following will be TRUE if demand is inelastic?
a) The coefficient of elasticity is greater than one.
b) The percentage change in quantity demanded is same as the percentage change in the price.
c) An increase in price will increase total revenue.
d) None of the given options.
Correct Answer:
The correct answer is 'c'.
Explanation:
In cases of inelastic demand, an increase in price leads to a proportionately smaller decrease in quantity demanded. Consequently, total revenue increases when price rises because the increase in revenue from the higher price outweighs the decrease in quantity sold.
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7) Suppose your local public golf course increases the greens fees for using the course. If the demand for golf is relatively inelastic, you would expect:
a) A decrease in total revenue received by the course.
b) An increase in total revenue received by the course.
c) No change in total revenue received by the course.
d) An increase in the amount of golf played on the course.
Correct Answer:
The correct answer is 'b'.
Explanation:
When the demand for a good or service is inelastic, an increase in price leads to a proportionately smaller decrease in the quantity demanded. In this case, with relatively inelastic demand for golf, raising the greens fees is likely to lead to an increase in total revenue for the golf course as the increase in revenue per round played outweighs the decrease in the number of rounds played.
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8) Aslam decides to stay at home and study for his exam rather than going out with his friends to a movie. His dilemma is an example of:
a) The economic perspective.
b) Marginal analysis.
c) Allocative efficiency.
d) Opportunity cost.
Correct Answer:
The correct answer is 'd'.
Explanation:
Opportunity cost refers to the value of the next best alternative forgone when a decision is made. In this scenario, by choosing to study for the exam, Aslam sacrifices the opportunity to spend time with his friends and watch a movie. The value of the forgone alternative (going to the movie) represents the opportunity cost of his decision to study.
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9) Government authorities have managed to reduce the unemployment rate from 8% to 4% in a hypothetical economy. As a result:
a) The economy's production possibilities curve will shift outward.
b) The economy's production possibilities curve will become steeper.
c) The economy will move downward along its production possibilities curve.
d) The economy will move from a point inside to a point closer to its production possibilities curve.
Correct Answer:
The correct answer is 'a'.
Explanation:
A decrease in the unemployment rate suggests a more fully employed workforce, leading to a more efficient use of the economy's resources. This could allow the economy to produce more goods and services, thereby shifting its production possibilities curve outward, signifying an increase in the potential for economic output.
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10) Land is best described as:
a) Produced factors of production.
b) "Organizational" resources.
c) Physical and mental abilities of people.
d) "Naturally" occurring resources.
Correct Answer:
The correct answer is 'd'.
Explanation:
In economics, land refers to the natural resources available for production. It includes all-natural resources such as soil, water, minerals, air, forests, and any other resources that occur naturally and are not man-made.
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