1. Economics = Study of Wealth + Study of Man.

This definition of Economics is attributed toA) Adam Smith

B) Keynes
C) Alfred Marshall
D)A C pigou
2. Which of the following is likely to cause an inward shift in a countrys PPC?
A) Earthquake destroying resources of the country
B) Scientists discovering new machines
C) Workers getting jobs in the new metro project
D) The country finds new reserves of crude oil
3. Which of the following is correct?
A) Normative economics is not concerned with value judgment.
B) A market is a process that reconciles consumer decision, production decisions and labour decisions.
C) A mixed economy has a certain level of government intervention in the economy along with private sector
ownership of the economy.
D) Both (b) and (c).
4. Which of the following statements is incorrect?
A) Unlike normative economics, positive economics is based on objective analysis of economic issues.
B) The opportunity cost of a good is the quantity of other goods sacrificed to get another unit of that good
C) Microeconomics emphasizes interactions in the economy as a whole.
D) None of the above.
5. Identify the incorrect statementA) In inductive method, logic proceeds from the particular to the general.
B) Micro-economics and macro-economics are inter-dependent
C) In a mixed economy, there are three sectors viz private, public and joint.
D) PPC is the basis for studying demand and supply relationships in an economy.
6. Which of the following statements is correct?
A) Only marshalls definition of economics is the true definition of economics.
B) The PPC does not study growth prospects in an economy.
C) Central problems of an Economy are attributed to scarcity of resources and unlimited human wants.
D) None of the above.
7. Other things being equal, what causes a decrease in demand?
a) rise in the price of the substitute
b) fall in the price of the commodity
c) rise in the income of the consumer
d) rise in the price of the commodity
8. A firm is said to be of optimum size when
a) average total cost is at a minimum
b) marginal cost is at a minimum
c) marginal cost is equal to marginal revenue
d) the firm is maximizing its profit

9. What happens to marginal cost when average cost increases

a) Marginal cost is below average cost
b) Marginal cost is above average cost
c) Marginal cost is equal to average variable cost
d) Marginal cost is equal to average cost
10. Which one of the following is more effective in controlling prices in the long run?
a) decrease in production
b) increase in production
c) decrease in the rate of interest
d) increase in the rate of employment
11. Economic planning is an essential feature of
a) capitalist economy
b) socialist economy
c) mixed economy
d) dual economy
12. Which among the following is an essential characteristic of mixed economy?
a) co-existence of small scale and large scale industries
b) co-existence of private and public sectors
c) assigning equal importance to both agriculture and heavy industries
d) co-existence of the rich and the poor
13. Which of the following is the basic characteristic of Oligopoly?
a) a few sellers, one buyer
b) a few sellers, many buyers
c) a few sellers, a few buyers
d) many sellers, few buyers
14. Suppose it is announced that industry analysts are predicting that decreased oil supplies from Iraq will
cause gasoline prices to rise, beginning next month. In the current week, the announcement would:
a. shift the supply of gasoline right
c. shift the demand for gasoline left
b. shift the demand for gasoline right
d. have no effect on the demand or supply of gasoline
15. "At the price of $500, tickets for the Super Bowl are expensive. Yet, the are long lines of people who
wish to buy them. Many people who desire tickets will not be able to find them." From this quote, we know
that the price of Super Bowl tickets must be:
a. below equilibrium

b. above equilibrium
c. equal to equilibrium
16. Assume that the market for computers begins in equilibrium. Then, there is a decrease in a price of
Pentium processors used in the production of computers. When the new equilibrium is reached,
a. the price and quantity of computers will both have risen
b. the price and quantity of computers will both have fallen
c. the price of computers will have risen and the quantity will have fallen
d. the price of computers will have fallen and the quantity will have risen
17. Assume that the market for the stock of Microsoft begins in equilibrium. Then, both buyers and sellers
expect that the new Linux (a competitor of Microsoft Windows) will be a large success, reduing Microsoft
sales. When the new equilibrium is reached,
a. the price and quantity of the stock will both have risen
b. the price and quantity of the stock will both have fallen
c. the quantity of the stock will fall and the price will rise
d. the quantity of the stock will fall but the effect on price cannot be determined
18. The law of demand states that
a) demand increases with increase in income
b) when income and prices rise, the demand also rises
c) when price falls, demand increases
d) when price increases, demand increases
19. Which of the following is not a variable of Micro-Economics?
A) Equilibrium price in a market
B) Supply curve of individual firm
C) National income
D) Marginal utility of goods to Consumers

20. Income Theory is the other name ofA) Macro Economics

B) Micro Economics
C) Econometrics
D) Product pricing
21. Economics has
A) Positive aspects only.
B) Normative aspects only.
C) Both (a) and (b)
D) Neither (a) nor (b)

22. While laying down theories (like law of demand, law of supply), the aspect of Economics is
projected and brought out.
A) Positive
B) Normative
C) Both (a) and (b)
D) Neither (a) nor (b)

23. Opportunity Costs ariseA) When there is only course of action

B) When there two or more alternative courses of action
C) Both (a) and (b)
D) Neither (a) nor (b)

24. Suppose you find Rs. 500. If you choose to use Rs. 500 to go to a Cricket match, your Opportunity Cost
of going to the game isA) Nothing, because you found the money
B) 500 (because you could have used Rs. 500 to buy other things) plus the value of your time spent at the game.
C) 500 (since you could have used the Rs. 500 to buy other things) plus the value of your time spent at the game, plus
the cost of the dinner you purchased at the game
D) 25,000
25. If the PPF is linear, i.e. a Straight line, which of the following is true?
A) As the production of a product increases, the opportunity cost of that product rises.
B) As the production of a product increases, the opportunity cost of that product falls.
C) Opportunity costs are constant.
D) The economy is not at full employment when operating on the PPF
26.The Phillips curve describes the relationship between:
a. the federal budget deficit and the trade deficit
b. savings and investment
c. the unemployment rate and the inflation rate
d. marginal tax rates and tax revenues
27.If supply is price inelastic, the value of the price elasticity of supply must be
a. infinite.
b. zero.
c. less than 1.
d. none of these answers.
e. greater than 1.
28. If demand is linear (a straight line), then price elasticity of demand is
a. elastic in the upper portion and inelastic in the lower portion.
b. inelastic in the upper portion and elastic in the lower portion.
c. inelastic throughout.
d. constant along the demand curve.
e. elastic throughout.
29. Technological improvements in agriculture that shift the supply of agricultural commodities to the right
tend to
a. increase total revenue to farmers as a whole because the demand for food is elastic.
b. increase total revenue to farmers as a whole because the demand for food is inelastic.
c. reduce total revenue to farmers as a whole because the demand for food is elastic.
d. reduce total revenue to farmers as a whole because the demand for food is inelastic.
30. If there are implicit costs of production,
a. accounting profit will exceed economic profit.

b.
c.
d.
e.
31.
a.
b.
c.
d.
e.

economic profit will always be zero.

economic profit will exceed accounting profit.
accounting profit will always be zero.
economic profit and accounting profit will be equal.
If there are implicit costs of production,
accounting profit will exceed economic profit.
economic profit will always be zero.
economic profit will exceed accounting profit.
accounting profit will always be zero.
economic profit and accounting profit will be equal.

32. Which of the following statements about price and marginal cost in competitive and monopolized
markets is true?
a. In competitive markets, price equals marginal cost; in monopolized markets, price exceeds marginal cost.
b. In competitive markets, price equals marginal cost; in monopolized markets, price equals marginal cost.
c. In competitive markets, price exceeds marginal cost; in monopolized markets, price exceeds marginal cost.
d. In competitive markets, price exceeds marginal cost; in monopolized markets, price equals marginal cost.
33. Compared to a perfectly competitive market, a monopoly market will usually generate
a. higher prices and lower output.
b. higher prices and higher output.
c. lower prices and lower output.
d. lower prices and higher output.
33.
a.
b.
c.
d.

If marginal revenue exceeds marginal cost, a monopolists should

increase output.
decrease output.
keep output the same because profits are maximized when marginal revenue exceeds marginal cost.
raise the price.

34.Consumer surplus is the area

a. below the demand curve and above the price.
b. above the supply curve and below the price.
c. above the demand curve and below the price.
d. below the supply curve and above the price.
e. below the demand curve and above the supply curve.
35.The seller's cost of production is
a. none of these answers.
b. the minimum amount the seller is willing to accept for a good.
c. the seller's producer surplus.
d. the maximum amount the seller is willing to accept for a good.
e. the seller's consumer surplus.

36.
a.
b.
c.
d.
e.

A rational person does not act unless

the action is ethical.
the action produces marginal costs that exceed marginal benefits.
the action produces marginal benefits that exceed marginal costs.
the action makes money for the person.
none of these answers

37. You are planning to run a hot dog stand during a forthcoming fair. You originally estimated that you will
generate sales revenue of 2000 and you have already spent 1000 building the hot dog stand. The hot dog
stand is nearly completed but now you estimate total sales to be only 800 because the fair clashes with a

major music festival in a nearby location.. You can complete the hot dog stand for another 300. Should you
complete the hot dog stand? (Assume that there are no other costs - the hot dogs are costless to you.)
a. There is not enough information to answer this question.
b. Yes.
c. No.
38.Economics is the study of
a. how society manages its unlimited resources.
b. how to reduce our wants until we are satisfied.
c. how society manages its scarce resources.
d. how to fully satisfy our unlimited wants.
e. how to avoid having to make trade-offs.
39. That the supply curve of ice cream cones is upward sloping indicates that
a. the marginal cost of providing ice cream cones increasesas more cones are produced.
b. as the price of ice cream cones increases, the production technology is upgraded.
c. as the price increases, the opportunity cost of making icecream cones decreases.
d. all of the above.
e. none of the above.
40. All of the following shift the supply of watches to the right except
a. an advance in the technology used to manufacture watches.
b. an increase in the price of watches.
c. All of these answers cause an increase in the supply of watches.
d. a decrease in the wage of workers employed to manufacture watches.
e. manufacturers' expectation of lower watch prices in the future.
41.
a.
b.
c.
d.
e.

A decrease (leftward shift) in the supply for a good will tend to cause
an increase in the equilibrium price and quantity.
a decrease in the equilibrium price and an increase in the equilibrium quantity.
none of these answers.
a decrease in the equilibrium price and quantity.
an increase in the equilibrium price and a decrease in the equilibrium quantity.

42.Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What
would we expect to happen to the equilibrium price and quantity in the market for wheat today?
a. The impact on both price and quantity is ambiguous.
b. Price will decrease; quantity is ambiguous.
c. Price will increase; quantity will decrease.
d. Price will increase; quantity is ambiguous.
e. Price will increase; quantity will increase.
43.
a.
b.
c.
d.

An inferior good is one for which an increase in income causes a(n)

decrease in supply.
increase in demand.
increase in supply.
decrease in demand.
Points on the production possibilities frontier are
44. a. inefficient.
b. normative.
c. unattainable.
d. efficient.

45.
a.
b.
c.
d.

Economic growth is depicted by

a shift in the production possibilities frontier outward.
a movement from inside the curve toward the curve.
a shift in the production possibilities frontier inward.
a movement along a production possibilities frontier toward capital goods

46. Positive statements are

a. macroeconomic.
b. microeconomic.
c. statements of description that can be tested.
d. statements of prescription that involve value judgments.
47. Adam Smith's "invisible hand" concept suggests that a competitive market outcome
a. maximizes total surplus.
b. generates equality among the members of society.
c. minimizes total surplus.
d. both maximizes total surplus and generates equality among the members of society.
48.
a.
b.
c.
d.
e.

If buyers are rational and there is no market failure,

free market solutions are efficient.
free market solutions maximize total surplus.
all of these answers.
free market solutions are equitable.
free market solutions are efficient and free market solutions maximize total surplus.

49. In the long run, if a very small factory were to expand its scale of operations, it is likely that it would
initially experience
a. an increase in average total costs.
c. economies of scale.
b. diseconomies of scale.
d. constant returns to scale.

50.
a.
b.
c.
d.
e.

In long-run equilibrium in a competitive market, firms are operating at

the minimum of their average-total-cost curves.
all of these answers are correct.
their efficient scale.
zero economic profit.
the intersection of marginal cost and marginal revenue.