MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO PRINCIPLES OF ECONOMICS – MICROECONOMICS
What is the fundamental economic problem?
a) How to allocate resources efficiently
b) How to maximize profits
c) How to eliminate scarcity
d) How to increase consumption
Answer: c) How to eliminate scarcity
Which of the following is not considered a factor of production?
a) Land
b) Labor
c) Capital
d) Money
Answer: d) Money
Which of the following is a characteristic of a perfectly competitive market?
a) There are only a few firms in the market.
b) Firms can easily differentiate their products from competitors.
c) Firms are price takers.
d) Firms have significant control over the market price.
Answer: c) Firms are price takers.
The concept of opportunity cost is best defined as:
a) The explicit costs of production
b) The total costs of production
c) The value of the next best alternative foregone
d) The cost of raw materials
Answer: c) The value of the next best alternative foregone
Which of the following is an example of a positive externality?
a) Pollution from a factory harming nearby crops
b) A neighbor playing loud music late at night
c) Education increasing the productivity of workers
d) A company dumping waste into a river
Answer: c) Education increasing the productivity of workers
When demand increases and supply remains constant, what happens to the equilibrium price and quantity?
a) Price increases, quantity decreases
b) Price decreases, quantity increases
c) Price increases, quantity increases
d) Price decreases, quantity decreases
Answer: c) Price increases, quantity increases
Which of the following is a characteristic of a monopolistic competition market structure?
a) Many firms selling identical products
b) A single firm selling a unique product
c) Firms have no control over the market price
d) Barriers to entry are high
Answer: b) A single firm selling a unique product
When total revenue is at its maximum, what is the elasticity of demand?
a) Elastic
b) Inelastic
c) Unitary elastic
d) Perfectly elastic
Answer: c) Unitary elastic
Which of the following is a determinant of supply?
a) Consumer preferences
b) Production technology
c) Income of consumers
d) Prices of related goods
Answer: b) Production technology
Which of the following is a characteristic of a pure monopoly?
a) Many firms selling similar products
b) A single firm selling a unique product with no close substitutes
c) Firms are price takers
d) There are no barriers to entry
Answer: b) A single firm selling a unique product with no close substitutes
In a perfectly competitive market, what is the relationship between marginal revenue and price?
a) Marginal revenue is greater than price
b) Marginal revenue is equal to price
c) Marginal revenue is less than price
d) Marginal revenue is zero
Answer: b) Marginal revenue is equal to price
Which of the following is a characteristic of a command economy?
a) Private ownership of resources
b) Decentralized decision making
c) Government ownership of resources
d) Free market forces determine resource allocation
Answer: c) Government ownership of resources
When the price of a good increases, what happens to the quantity demanded?
a) Increases
b) Decreases
c) Stays the same
d) It depends on the elasticity of demand
Answer: b) Decreases
Which of the following is a determinant of price elasticity of demand?
a) Number of buyers in the market
b) Availability of substitutes
c) Price of complementary goods
d) Size of the firm
Answer: b) Availability of substitutes
In the long run, a firm in a perfectly competitive market earns:
a) Economic profit
b) Normal profit
c) Supernormal profit
d) Losses
Answer: b) Normal profit
Which of the following is an example of a regressive tax?
a) Income tax
b) Sales tax
c) Property tax
d) Corporate tax
Answer: b) Sales tax
The law of diminishing marginal returns states that:
a) Total output increases at a decreasing rate as more units of a variable input are added
b) Total output increases at a constant rate as more units of a variable input are added
c) Total output decreases at an increasing rate as more units of a variable input are added
d) Total output decreases at a constant rate as more units of a variable input are added
Answer: a) Total output increases at a decreasing rate as more units of a variable input are added
Which of the following is a characteristic of a public good?
a) Rivalry in consumption
b) Excludability
c) Non-rivalry in consumption
d) Excessive competition
Answer: c) Non-rivalry in consumption
What is the effect of a price ceiling below the equilibrium price in a market?
a) Surplus
b) Shortage
c) Equilibrium
d) No effect
Answer: b) Shortage
Which of the following is an example of a positive statement in economics?
a) The government should increase spending on education.
b) Pollution is harmful to the environment.
c) The minimum wage should be increased to reduce poverty.
d) An increase in taxes will lead to a decrease in consumption.
Answer: d) An increase in taxes will lead to a decrease in consumption.
Which of the following is a characteristic of monopolistic competition?
a) Identical products
b) Price-taking behavior
c) High barriers to entry
d) Product differentiation
Answer: d) Product differentiation
Which of the following is a determinant of supply elasticity?
a) Time period under consideration
b) Availability of substitutes
c) Number of firms in the market
d) Consumer preferences
Answer: a) Time period under consideration
A decrease in the price of a complementary good will lead to:
a) An increase in demand
b) A decrease in demand
c) An increase in supply
d) A decrease in supply
Answer: a) An increase in demand
Which of the following is a characteristic of a perfectly elastic demand curve?
a) It is horizontal
b) It is vertical
c) It slopes downward to the right
d) It slopes upward to the right
Answer: b) It is vertical
Which of the following is an example of a merit good?
a) Fast food
b) Cigarettes
c) Education
d) Alcohol
Answer: c) Education
A decrease in consumer income will likely lead to:
a) A decrease in demand for inferior goods
b) An increase in demand for inferior goods
c) A decrease in demand for normal goods
d) An increase in demand for normal goods
Answer: a) A decrease in demand for inferior goods
Which of the following is a characteristic of a factor market?
a) Goods and services are exchanged
b) Factors of production are bought and sold
c) Consumer preferences determine prices
d) Firms compete for market share
Answer: b) Factors of production are bought and sold
The price elasticity of demand coefficient is calculated as the:
a) Change in quantity demanded divided by the change in price
b) Change in price divided by the change in quantity demanded
c) Change in quantity demanded divided by the average of initial and final quantities
d) Change in price divided by the average of initial and final prices
Answer: a) Change in quantity demanded divided by the change in price
Which of the following is a characteristic of a perfectly competitive firm in the short run?
a) Economic profit is always positive
b) Marginal revenue is equal to marginal cost
c) The firm can earn supernormal profit
d) There are barriers to entry
Answer: b) Marginal revenue is equal to marginal cost
The consumer surplus in a market is represented by the area:
a) Above the demand curve and below the equilibrium price
b) Below the demand curve and above the equilibrium price
c) Above the supply curve and below the equilibrium price
d) Below the supply curve and above the equilibrium price
Answer: a) Above the demand curve and below the equilibrium price
Which of the following is a characteristic of a mixed economy?
a) Government controls all economic activities
b) There is no government intervention in the economy
c) Both private and public sectors play a role in resource allocation
d) The economy is entirely market-driven
Answer: c) Both private and public sectors play a role in resource allocation
Which of the following is a determinant of price elasticity of supply?
a) Time period under consideration
b) Availability of substitutes
c) Number of buyers in the market
d) Consumer preferences
Answer: a) Time period under consideration
In a competitive labor market, wages are determined by:
a) The government
b) Supply and demand for labor
c) Collective bargaining agreements
d) Labor unions
Answer: b) Supply and demand for labor
A decrease in the price of a substitute good will lead to:
a) An increase in demand
b) A decrease in demand
c) An increase in supply
d) A decrease in supply
Answer: b) A decrease in demand
Which of the following is a characteristic of a public good?
a) Rivalry in consumption
b) Excludability
c) Non-rivalry in consumption
d) Limited availability
Answer: c) Non-rivalry in consumption
Which of the following is an example of a negative externality?
a) A beekeeper providing pollination services to a farmer
b) A factory installing air pollution control equipment
c) Secondhand smoke from cigarettes affecting non-smokers
d) A company implementing recycling programs
Answer: c) Secondhand smoke from cigarettes affecting non-smokers
Which of the following is a characteristic of a command economy?
a) Private ownership of resources
b) Decentralized decision making
c) Central planning by the government
d) Minimal government intervention
Answer: c) Central planning by the government
The cross-price elasticity of demand measures the responsiveness of:
a) Quantity demanded of one good to changes in the price of another good
b) Quantity supplied of one good to changes in the price of another good
c) Income to changes in the price of a good
d) Price to changes in the quantity demanded of a good
Answer: a) Quantity demanded of one good to changes in the price of another good
Which of the following is a characteristic of a monopolistic market?
a) Identical products
b) Price-taking behavior
c) High barriers to entry
d) Many buyers and sellers
Answer: c) High barriers to entry
The marginal product of labor is:
a) The change in total output resulting from hiring one more unit of labor
b) The change in total output divided by the change in labor input
c) The change in labor input divided by the change in total output
d) The total output divided by the total labor input
Answer: a) The change in total output resulting from hiring one more unit of labor
In a perfectly competitive market, firms earn zero economic profit in the long run because:
a) Barriers to entry prevent new firms from entering the market
b) Firms can easily differentiate their products from competitors
c) Firms are price takers and cannot influence the market price
d) The market is controlled by a single dominant firm
Answer: c) Firms are price takers and cannot influence the market price
Which of the following is an example of a positive statement in economics?
a) The government should increase taxes on the wealthy.
b) Unemployment is harmful to the economy.
c) Minimum wage laws decrease employment opportunities.
d) Environmental regulations should be implemented to protect natural resources.
Answer: b) Unemployment is harmful to the economy.
Which of the following is an example of a regressive tax?
a) Property tax
b) Sales tax
c) Income tax
d) Corporate tax
Answer: b) Sales tax
The income elasticity of demand for normal goods is:
a) Positive
b) Negative
c) Zero
d) Infinite
Answer: a) Positive
In the short run, a perfectly competitive firm will shut down if:
a) Price is below average total cost
b) Price is below average variable cost
c) Price is above marginal cost
d) Price is below marginal cost
Answer: b) Price is below average variable cost
Which of the following is a characteristic of a perfectly competitive market?
a) Many firms selling identical products
b) High barriers to entry
c) Firms have significant control over the market price
d) Firms can easily differentiate their products from competitors
Answer: a) Many firms selling identical products
When demand is perfectly inelastic, the price elasticity of demand is:
a) Zero
b) Infinite
c) Greater than one
d) Less than one
Answer: a) Zero
Which of the following is a characteristic of a factor market?
a) Goods and services are exchanged
b) Factors of production are bought and sold
c) Consumer preferences determine prices
d) Firms compete for market share
Answer: b) Factors of production are bought and sold
Which of the following is a characteristic of a natural monopoly?
a) Many firms selling similar products
b) A single firm selling a unique product with no close substitutes
c) Firms are price takers
d) There are no barriers to entry
Answer: b) A single firm selling a unique product with no close substitutes
Which of the following is a determinant of supply?
a) Consumer preferences
b) Production technology
c) Income of consumers
d) Prices of related goods
Answer: b) Production technology
