Microeconomics MCQs | ECO402 MCQs | Set 1
Microeconomics MCQs | ECO402 MCQs | Set 1
MCQs (Multiple Choice Questions)
1) Which of the following will cause the demand curve for butter to shift to the left?
a) An increase in the price of the butter
b) A decrease in consumers' incomes
c) An increase in the price of margarine (a
substitute)
d) All of the given options
Correct Answer:
The correct answer is 'c'.
Explanation:
An increase in the price of a substitute like margarine will cause
the demand for butter to shift to the left. When the price of a
substitute rises, consumers are more likely to choose the less
expensive option, which in this case is butter. As a result, they
will decrease their demand for butter, shifting the demand curve to
the left. So, the correct answer is "c) An increase in the price of
margarine (a substitute)."
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2) The slope of the budget line, faced by an investor deciding what
percentage
of her portfolio to place in a risky asset, increases when the:
a) Standard deviation of the portfolio gets smaller
b) Rate of return on the risk-free asset
gets larger
c) Rate of return on the risky asset gets larger
d) Rate of return on money gets larger
Correct Answer:
The correct answer is 'c'.
Explanation:
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3) Microeconomics is the branch of economics that deals with which of the
following topics?
b) Unemployment and interest rates
c) The behavior of individual firms and
investors
d) The behavior of individual consumers, firms and
investors
Correct Answer:
The correct answer is 'a'.
Explanation:
Microeconomics is the branch of economics that deals with the behavior of individual consumers, individual firms, and how they interact in markets. It focuses on the study of individual economic agents, their decision-making processes, and how their choices impact prices, quantities, and resource allocation in specific markets. Topics in microeconomics include consumer behavior, supply and demand, market structures, and the analysis of individual firms and industries. Unemployment and interest rates, on the other hand, are typically topics studied in macroeconomics, which looks at the economy as a whole.
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4) Jane is trying to decide which courses to take next semester. She
has narrowed down her choice to two courses Microeconomics and Macroeconomics. Now she
is having trouble. She just cannot decide which of the two courses to take.
It’s not that she is indifferent between the two courses, she just cannot decide.
An economist would say that this is an example of preferences that:
a) Are not transitive
b) Are incomplete
c) Violate the assumption that more is preferred to
less
d) All of the given options
Correct Answer:
The correct answer is 'b'.
Explanation:
In economics, preferences are considered incomplete when
an individual cannot make a clear ranking or choice
between two or more alternatives. In this scenario,
Jane cannot decide between Microeconomics and
Macroeconomics, which indicates that her preferences
for these courses are incomplete. This is different
from indifference (where an individual is
truly indifferent between alternatives) and from
violating the assumption that more is preferred to
less, which would be a violation of rationality but not
necessarily incompleteness of preferences. So, the correct
answer is "Are incomplete."
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5) The law of diminishing returns
assumes that:
a) There is at least one fixed input
b) All inputs are changed by the same
percentage
c) Additional inputs are added in smaller and
smaller increments
d) All inputs are held constant
Correct Answer:
The correct answer is 'a'.
Explanation:
The law of diminishing returns, also known as the law of diminishing
marginal returns, assumes that there is at least one fixed input
(a factor of production that remains constant) while other inputs
are varied. This law states that as additional units of the
variable input
are added to the fixed input, the marginal product of the variable
input will eventually decrease, leading to diminishing returns. So,
the correct answer is "There is at least one fixed input."
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6) According to the law of diminishing returns:
a) The total product of an input will eventually be
negative.
b) The total product of an input will eventually
decline.
c) The marginal product of an input will eventually
be negative.
d) The marginal product of an input will
eventually decline.
Correct Answer:
The correct answer is 'd'.
Explanation:
According to the law of diminishing returns, as additional units of
a variable input are added to a fixed input, the marginal product
of the variable input will eventually decline. This means that each
additional unit of the variable input contributes less to the total
output or product. So, the correct answer is "The marginal product
of an input will eventually decline."
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7) 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
Correct Answer:
The correct answer is 'c'.
Explanation:
Along a price consumption curve, income is held constant. The price
consumption curve shows the various combinations of two
goods (usually one is normal and the other is an inferior or
luxury good) that a consumer can purchase while keeping their
income fixed. The
consumer explores different quantities of the goods in response
to changes in their prices, but the income remains constant for
each point on the curve. So, the correct answer is "Income
is constant."
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8) The law of diminishing returns refers to diminishing:
a) Total returns.
b) Marginal returns.
c) Average returns.
d) All of the given options.
Correct Answer:
The correct answer is 'b'.
Explanation:
The law of diminishing returns, also known as the law of diminishing marginal returns, refers specifically to diminishing marginal returns. It states that as additional units of a variable input are added to a fixed input, the marginal product (or marginal returns) of the variable input will eventually decrease, indicating that each additional unit of the variable input contributes less to the total output. So, the correct answer is "Marginal returns."
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9) The function which shows combinations of inputs that yield the same output is called a(n):
a) Isoquant curve
b) Isocost curve
c) Production function
d) Production possibilities frontier
Correct Answer:
The correct answer is 'a'.
Explanation:
The function that shows combinations of inputs that yield the
same level of output is called an "isoquant curve." "Iso"
means equal, and "quant" stands for quantity, so an
isoquant curve represents combinations of inputs that
produce equal quantities or levels of output. This concept
is essential in the theory of production and is analogous
to the concept of an indifference curve in consumer theory,
which shows combinations of goods that
provide the same level of satisfaction. So, the correct
answer is "Isoquant curve."
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10) Moving down along a demand curve for apples:
a) Consumer well-being decreases
b) The marginal utility of apples decreases
c) The marginal utility of apples increases
d) None of the given options
Correct Answer:
The correct answer is 'c'.
Explanation:
When moving down along a demand curve for apples (i.e., buying more apples at a lower price), the marginal utility of apples typically increases. This means that with each additional apple purchased, consumers are getting more utility or satisfaction from each apple, as they are willing to buy more at the lower price. So, the correct answer is "The marginal utility of apples increases."
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