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Basic Economics MCQs with Answers

1. The fundamental economic problem faced by all societies is:

a. unemployment
b. inequality
c. poverty
d. scarcity

2. Capitalism refers to:
a. the use of markets
b. government ownership of capital goods
c. private ownership of capital goods
d. private ownership of homes & cars

3. There are three fundamental questions every society must answer. Which of the
following is/are one of these questions?
a. What goods and services are to be produced?
b. How are the goods and services to be produced?
c. Who will get the goods and services that are produced?
d. All of the above

4. If you were working full-time now, you could earn $20,000 per year. Instead, you are
working part-time while going to school. In your current part-time job, you earn $5,000
per year. At your school, the annual cost of tuition, books, and other fees is $2,000. The
opportunity cost of completing your education is:
a. $2,000
b. $5,000
c. $17,000
d. $20,000
e. $22,000

5. The bowed shape of the production possibilities curve illustrates:
a. the law of increasing marginal cost
b. that production is inefficient
c. that production is unattainable
d. the demand is relatively inelastic

6. You have taken this quiz and received a grade of 3 out of a possible 10 points (F). You
are allowed to take a second version of this quiz. If you score 7 or more, you can raise
your score to a 7 (C). You will need to study for the second version. In making a rational
decision as to whether or not to retake the test, you should
a. always retake the quiz
b. consider only the marginal benefits from of retaking the quiz (four extra points)
c. consider only the marginal opportunity costs from taking the quiz (the time spent
studying and taking the quiz)
d. consider both the marginal benefits and the marginal opportunity costs of retaking the quiz

7. The law of demand states that:
a. as the quantity demanded rises, the price rises
b. as the price rises, the quantity demanded rises
c. as the price rises, the quantity demanded falls
d. as supply rises, the demand rises
8. The price elasticity of demand is the:
a. percentage change in quantity demanded divided by the percentage change in price
b. percentage change in price divided by the percentage change in quantity demanded
c. dollar change in quantity demanded divided by the dollar change in price
d. percentage change in quantity demanded divided by the percentage change in quantity supplied

9. Community Colleges desired to increase revenues. They decided to raise fees paid by
students with Bachelors degrees to $50 per unit because they believed this would result in
greater revenues. But in reality, total revenues fell. Therefore, the demand for Community
College courses by people with Bachelors degrees must have actually been:
a. relatively inelastic
b. unit elastic
c. relatively elastic
d. perfectly elastic

10. The demand for a product would be more inelastic:
a. the greater is the time under consideration
b. the greater is the number of substitutes available to buyers
c. the less expensive is the product in relation to incomes
d. all of the above

Answers: D C D C A D C A C C
1. In the case of agriculture,
a. the demand has shifted to the right more than the supply has shifted to the right
b. the demand has shifted to the right less than the supply has shifted to the right
c. the demand has shifted to the left more than the supply has shifted to the left
d. the demand has shifted to the left less than the supply has shifted to the left

2. The agricultural price support program is an example of
a. a price ceiling
b. a price floor
c. equilibrium pricing

3. If there is a price floor, there will be
a. shortages
b. surpluses
c. equilibrium

4. If there is a price ceiling, there will be
a. shortages
b. surpluses
c. equilibrium

5. If there is a price ceiling, which of the following is NOT likely to occur?
a. rationing by first-come, first-served
b. black markets
c. gray markets
d. sellers providing goods for free that were formerly not free

6. The goal of a pure market economy is to best meet the desires of
a. consumers
b. companies
c. workers
d. the government

7. In a pure market economy, which of the following is a function of the price?

I. provide information to sellers and buyers , II. provide incentives to sellers and buyers
a. I only
b. II only
c. both I and II
d. neither I nor II

8. In a market system, sellers act in ____________ interest , but this leads to behaviors
in ____________ interest.
a. self; self
b. self; societys
c. societys; societys
d. societys; self

9. The law of diminishing (marginal) returns states that as more of a variable factor is
added to a certain amount of a fixed factor, beyond some point:
a. Total physical product begins to fall
b. The marginal physical product rises
c. The marginal physical product falls
d. The average physical product falls

10. Why is the law of diminishing marginal returns true?
a. specialization and division of labor
b. spreading the average fixed cost
c. limited capital
d. all factors being variable in the long-run

Answers: B B B A D A C B C C

Economics Questions & Answers

1. An Enquiry into the Nature and Causes of Wealth of Nations is the book of economist
(A) Adam Smith
(B) Marshall
(C) Robbins
(D) None of above
Ans : (A)

2. Economics is the Science of Wealth who gave this definition ?
(A) J. K. Mehta
(B) Marshall
(C) Adam Smith
(D) Robbins
Ans : (C)

3. Economics is what economists do. It has been supported by
(A) Richard Jones
(B) Comte
(C) Gunnar Myrdal
(D) All of the above
Ans : (D)

4. Human Welfare is the subject of Economics. This statement is associated with the name of which of
the economists ?
(A) Marshall
(B) Pigou
(C) Penson
(D) All of the above
Ans : (D)

5. Who has given scarcity definition of economics ?
(A) Adam Smith
(B) Marshall
(C) Robbins
(D) Robertson
Ans : (C)

6. Economics is a science the basis of this statement is
(A) Relation between cause and effect
(B) Use of deductive method and inductive method for the formations of laws
(C) Experiments
(D) All of the above
Ans : (D)

7. Characteristics of economic laws are
(A) Mere statements of economic tendencies
(B) Less certain
(C) Hypothetical
(D) All of the above
Ans : (D)

8. Which theory is generally included under micro economics ?
(A) Price Theory
(B) Income Theory
(C) Employment Theory
(D) None of the above
Ans : (A)

9. Whose opinions have revolutionised the scope of macro economics ?
(A) Adam Smith
(B) J.B. Say
(C) J.M. Keynes
(D) All of the above
Ans : (C)

10. Which of the following is an economic activity ?
(A) Teaching of a teacher in the school
(B) To teach son at home
(C) To serve her child by mother
(D) To play football by a student
Ans : (A)

11. Passive factor of production is
(A) Only land
(B) Only capital
(C) Both land and capital
(D) Neither land nor capital
Ans : (C)

12. Under law of demand
(A) Price of commodity is an independent variable
(B) Quantity demanded is a dependent variable
(C) Reciprocal relationship is found between price and quantity demanded
(D) All of the above
Ans : (D)

13. For inferior commodities, income effect is
(A) Zero
(B) Negative
(C) Infinite
(D) Positive
Ans : (B)

14. When total utility becomes maximum, then marginal utility will be
(A) Minimum
(B) Average
(C) Zero
(D) Negative
Ans : (C)

15. Utility means
(A) Power to satisfy a want
(B) Usefulness
(C) Willingness of a person
(D) Harmfulness
Ans : (A)

16. Marginal utility is equal to average utility at that time when average utility is
(A) Increasing
(B) Maximum
(C) Falling
(D) Minimum
Ans : (B)

17. At point of satiety, marginal utility is
(A) Zero
(B) Positive
(C) Maximum
(D) Negative
Ans : (A)

18. Which of the following is the second law of Gossen ?
(A) Law of equi-marginal utility
(B) Law of equi-product
(C) Theory of indifference curve
(D) Law of diminishing marginal utility
Ans : (A)

19. Total utility of a commodity is measured by which price of that commodity ?
(A) Value in use
(B) Value in exchange
(C) Both of above
(D) None of above
Ans : (A)

20. According to Marshall, the basis of consumer surplus is
(A) Law of diminishing marginal utility
(B) Law of equi-marginal utility
(C) Law of proportions
(D) All of the above
Ans : (A)

Economics Mcqs For Pcs Exams
(i) Ceteris paribus is a Latin term meaning:
(a) one by one
(b) equal under the law.
(c) other things being equal.
(d) in accordance with the law.
(ii) The slope of a curve is:
(a) constant in the case of a straight line
(b) positive in the case of a direct relationship
(c) negative in the case of an inverse relationship
(d) equal to the change in vertical movement divided by the change in horizontal movement.
(iii) If the quantity of X increases whenever the price of X decreases, one can conclude that:
(a) the relationship between the price and the quantity of X is direct
(b) the relationship between the price and the quantity of X is inverse
(c) the relationship between the price and the quantity of X is linear
(d) the relationship between the price and the quantity of X is nonlinear
(iv) A simultaneous decrease in demand and supply will always result in:
(a) a decrease in the equilibrium price
(b) an increase in the equilibrium price
(c) a decrease in the equilibrium quantity
(d) an increase in the equilibrium quantity
(v) The marginal utility of a good refers to the:
(a) total utility of the good prior to consumption of the last unit
(b) extra utility associated with consuming another unit of the good
(c) utility associated with consuming an alternative good
(d) consumer surplus associated with the consumption of an alternative good
(vi) When a firm is experiencing economies of scale:
(a) the MP curve slopes upward
(b) the LRAC curve slopes downward
(c) diminishing returns to labor have been suspended
(d) the MC curve slopes downward
(vii) Actual GDP may exceed potential GDP for a short period of time when:
(a) the unemployment rate is high
(b) plants run extra shifts that ordinarily are not scheduled.
(c) plants are shut down to remove old equipment and install new equipment
(d) any or all of the above occur.
(viii) An example of frictional unemployment is:
(a) workers at General Motors plants laid off because of slow car sales.
(b) steel workers laid off by plant closings.
(c) a teenager who has quit work at McDonalds waiting to take a job next week at the car wash
(d) Inner-city welfare mothers taking classes to earn high-school equivalency degrees.
(ix) If inflation is expected to be 5 percent in the coming year and the nominal interest rate is 8
percent, then the real interest rate is:
(a) 3 percent
(b) 3 percent
(c) 8 percent
(d) 13 percent
(x) Which of the following is included in GDP as currently measured?
(a) food stamps
(b) used car sales
(c) additions to inventories
(d) purchases of Ford stock
(xi) Disposable income is:
(a) the same as personal income
(b) income that is used only for consumption
(c) Personal income remaining after income taxes
(d) exclusive of social security payments or welfare.
(xii) The difference between GNP and GDP is:
(a) net factor payments to foreigners
(b) indirect business taxes paid to all levels of government
(c) net exports of goods and services.
(d) capital consumption allowances.
(xiii) A country that makes large net income payments to investors in another country is likely to:
(a) have a large GDP than GNP
(b) have smaller GDP than GNP
(c) grow slower economically than the other country
(d) grow faster economically than the other country.
(xiv) Which of the following would be the best measure of changes in the standard of living in an
economy, expressed in a time series?
(a) real GDP
(b) output per labor hour of output
(c) real GDP per capita
(d) nominal GDP per capita
(xv) An MPC of less than 1 means that an increase in current disposable income would cause desired
consumption expenditures to:
(a) rise by less than full increase in disposable income.
(b) fall slightly because the increase in income will increase saving.
(c) rise by the full increase in disposable income.
(d) stay the same because the MPS is also less than 1.
(xvi) For money to serve as an efficient medium of exchange, it must have all but which of the
following characteristics?
(a) general acceptability
(b) convertibility into precious metals
(c) high value relative to its weight
(d) divisibility
(xvii) A bond that pays interest forever and never repays the principals is called a:
(a) perpetuity
(b) preferred share
(c) fixed-term bond
(d) treasury bill
(xviii) If given the same amount of inputs, U.S farmers produce 2 tons of rice per acre while
Japanese farmers produce 1 ton of rice per acre, we can be certain that:
(a) the United Sates should export rice to Japan.
(b) the United States has a comparative in rice production.
(c) the United States has an absolute advantage in rice production.
(d) Japanese farmers must be paid twice as much as American farmers.
(xix) The doctrine of comparative advantage says that there are gains from international trade:
(a) only if both comparative and absolute advantage are present in both countries.
(b) if opportunity costs are the same in the countries involved.
(c) only there are economies of scale available.
(d) if countries specialize in the production of goods in which they are relatively more efficient.
(xx) The terms of trade are measured by:
(a) the quantity of imported goods that can be obtained for each unit of an exported good.
(b) the ratio of the price of imports to the price of exports.
(c) the value of imported goods that can be obtained for each dollar of exported goods.
(d) all of the above.
(1) A market is in equilibrium, when:
(a) AC = P
(b) MC = MR
(c) AC = AR
(d) TC = TR
(e) None of these
(2) Consumers surplus occurs, when:
(a) Personal valuation exceeds the market valuation
(b) Market valuation exceeds the personal valuation
(c) Market valuation equals the personal valuation
(d) Market valuation equals the market price
(e) None of these
(3) Livestock is:
(a) An independent Sector
(b) Sub-sector of Agriculture
(c) Should be a part of Agriculture
(d) Would become a part of Agriculture
(4) Unemployment Rate is a percentage relation with reference to:
(a) Total Population
(b) Civilian Labour Force
(c) Employed Persons
(d) Unemployed Persons
(e) None of these
(5) Devaluation of rupee would result into:
(a) Expensive exports
(b) Expensive Imports
(c) Expensive Labour
(d) Overvalued Rupee
(e) None of these
(6) Indirect Taxes are:
(a) Direct Taxes Subsidies
(b) Subsidies
(c) Sales Taxes
(d) Income Taxes
(e) None of these
(7) Negative taxation refers to:
(a) Tax Rebate
(b) Subsidies
(c) Tax Evasion
(d) Tax Avoidance
(e) None of these
(8) Most commonly referred indicator of Inflation is:
(a) Wholesale Price Index
(b) Retail Price Index
(c) Sensitivity Price Index
(d) Consumer Price Index
(e) None of these
(9) If saving Rate is 12.0%, ICOR Value is 3% and Population Rate is 2.0%, then the Growth Rate
would be:
(a) 2.0%
(b) 3.6%
(c) 4.0%
(d) 6.0%
(e) None of these