In the name of ALLAH, the most beneficient, the most merciful

Economics (ECO401)

Multiple Choice Questions (MCQs)

Objective Questions

  1. Sultan is running a logistics business and provides logistics services to the local business community. For his company, truck falls in the category of ________.

    1. Labor
    2. Capital
    3. Land
    4. Entrepreneurship
  2. Which of the following is NOT true about macroeconomics?

    1. The study of the aggregate level of economic activity.
    2. The study of the economic behavior of individual decision-making units such as consumers, resource owners, and business firms.
    3. The study of the cause of unemployment.
    4. The study of the cause of inflation.
  3. Ghani noticed a new entry of Rs. 110000 under the head of wages in his books of accounts. Which of the following his accountant must have paid to?

    1. Labor
    2. Capital
    3. Land
    4. Entrepreneurship
  4. Suppose a teacher organizes a study group by reserving a meeting room, compiling study materials and attracting students. The students would most likely be which of the following factors of production?

    1. Labor
    2. Land
    3. Capital
    4. Entrepreneurship
  5. The demand curve for eggs is downward-sloping. Suddenly the price of eggs increases from Rs.80/- per dozen to Rs.100/- per dozen. This will cause:

    1. The demand curve for eggs to shift leftward
    2. Quantity demanded of eggs to decrease
    3. The demand curve for eggs to shift rightward
    4. Quantity demanded of eggs to increase
  6. Asifa while addressing the young parliamentarians said that rising inflation in Pakistan was due to the high interest rates. Which category her statement falls in?

    1. Normative
    2. Positive
    3. Negative
    4. None of the given
  7. Diminishing marginal returns implies:

    1. Decreasing marginal costs
    2. Increasing marginal costs
    3. Decreasing average variable costs
    4. Decreasing average fixed costs
  8. Mohsin Malik has been updated by his partner that this month Rs. 65,000 have been paid to acquire new machinery directly needed to match the rising demand. Which of the following they have paid for?

    1. Labor
    2. Capital
    3. Land
    4. Entrepreneurship
  9. If the quantity demand of a product is greater than the quantity supplied of a product, then:

    1. There is a shortage of the product.
    2. There is a surplus of the product.
    3. The product is a normal good.
    4. The product is an inferior good.
  10. A demand curve is price inelastic when:

    1. Changes in demand are proportionately smaller than changes in price.
    2. Changes in demand are proportionately greater than changes in price.
    3. Changes in demand are equal to changes in price.
    4. None of the given
  11. Which of the following is the term that economists use to describe how consumers rank different goods and services?

    1. Satisfaction index.
    2. Goodness.
    3. Utility.
    4. None of the given
  12. Costs determine all of the following EXCEPT:

    1. Firm's behaviour.
    2. How firms should expand?
    3. Firm's profitability.
    4. Demand for a product.
  13. A firm maximizes profit by operating at the level of output where:

    1. Average revenue equals average cost.
    2. Average revenue equals average variable cost.
    3. Total costs are minimized.
    4. Marginal revenue equals marginal cost.
  14. The break-even point occurs when:

    1. Price < Average Variable Cost.
    2. Price < Average Total Cost.
    3. Price = Average Total Cost.
    4. Price > Average Variable Cost.
  15. If average physical product (APP) is increasing then which of the following must be true?

    1. Marginal physical product is above the average physical product.
    2. Marginal physical product is less than average physical product.
    3. Marginal physical product is decreasing.
    4. None of the given statement is true.
  16. Which of the following best describes a demand schedule?

    1. It is a numerical tabulation of the quantity demanded of a good at different prices, ceteris paribus.
    2. It is a graphical representation of the law of demand.
    3. It is a systematic listing of all the variables that might conceivably bring about a change in demand.
    4. It is a symbolic representation of the law of demand: P,Q and Q,P
  17. The demand curve for eggs is downward-sloping. Suddenly the price of eggs decreases from Rs.60/- per dozen to Rs.50/- per dozen. This will cause:

    1. The demand curve for eggs to shift leftward.
    2. Quantity demanded of eggs to decrease.
    3. The demand curve for eggs to shift rightward.
    4. Quantity demanded of eggs to increase.
  18. Sugar can be produced from sugar beets. If the price of sugar beets falls, which of the following will happen?

    1. The demand curve for sugar would shift right.
    2. The demand curve for sugar would shift left.
    3. The supply curve for sugar would shift right.
    4. The supply curve for sugar would shift left.
  19. If Ali prefers a certain income over a risky income, Ali is known as:

    1. Risk loving person.
    2. Risk neutral person.
    3. Risk averse person.
    4. Irrational person.
  20. Suppose that 48 units of output are produced by using 12 units of labor. Which of the following is TRUE in this context?

    1. The marginal product of labor is 4.
    2. The total product of labor is 1/4.
    3. The average product of labor is 4.
    4. None of the given
  21. The rate at which a firm can substitute capital for labour and hold output constant is the:

    1. Law of diminishing marginal returns.
    2. Marginal rate of substitution.
    3. Marginal rate of technical substitution.
    4. Marginal rate of production.
  22. Which of the following is TRUE for a monopolistically competitive firm in the short run equilibrium?

    1. It will make negative profit (lose money).
    2. It will make zero profit (break-even).
    3. It will make positive profit.
    4. Any of the given is possible.
  23. In price discrimination, price elasticity of demand for different customers should be:

    1. Same.
    2. Unit elastic.
    3. Infinite elastic.
    4. Different.
  24. A firm that benefits from lower costs per unit as it grows is an example of:

    1. Economies of scale.
    2. Diseconomies of scale.
    3. Increasing opportunity costs.
    4. Scale reduction.
  25. Yummy, an ice-cream maker, has discovered that the ratio of the marginal product of labor to the price of labor is 8.5, while the ratio of the marginal product of capital to the price of capital is 7.1. The firm has determined that it does not want to change its total costs. Yummy should:

    1. Use more capital and less labor.
    2. Use more labor and less capital.
    3. Do nothing, the differences in the ratios of marginal product to input price are too small to matter.
    4. Do nothing different since there is insufficient information upon which to make a decision.
  26. If the demand for using gym is price inelastic and your local gym owner increases the fee for using the gym, you would expect:

    1. A decrease in total revenue received by the gym owner.
    2. A increase in total revenue received by the gym owner.
    3. No change in total revenue received by the gym owner.
    4. An increase in the hours that people will spend in the gym.
  27. According to the utility model of consumer demand, the law of diminishing marginal utility indicates that the demand curve is:

    1. Vertical.
    2. U-shaped.
    3. Upward sloping.
    4. Downward-sloping.
  28. A total cost curve:

    1. Relates output with total cost.
    2. Is always upward sloping.
    3. Gets steeper as output rises, due to diminishing marginal product of an input.
    4. All of the given options.
  29. If income elasticity is negative, the good is:

    1. Normal good
    2. A substitute good
    3. A complementary good
    4. inferior good
  30. Which of the following is TRUE about an isocost line?

    1. It shows the cost of inputs needed to produce along an isoquant.
    2. It shows the cost of inputs needed to produce along an expansion path.
    3. It shows the input combinations that can be purchased with a given outlay of funds.
    4. It shows the output combinations that can be produced with a given outlay of funds.
  31. Which of the following is TRUE for third-degree price discrimination?

    1. Charging different prices to different groups based upon differences in elasticity of demand.
    2. Charging each consumer the same two part tariff.
    3. The use of increasing block rate pricing.
    4. Charging lower prices the greater the quantity purchased.
  32. Rationing is needed due to the problem of:

    1. Unemployment.
    2. Inflation.
    3. Scarcity.
    4. Poverty.
  33. Chicken sandwiches are normal goods, which means that as:

    1. Incomes go up, the demand curve shifts to the right.
    2. Incomes go up, the supply curve shifts to the right.
    3. Price falls, the quantity demanded decreases.
    4. As incomes increase, people buy less.
  34. What is meant by the term utility?

    1. Useless.
    2. Require.
    3. Necessary.
    4. Satisfaction.
  35. The total cost (TC) function is given as: TC = 200 + 5Q. What is the fixed cost?

    1. 5Q
    2. 5
    3. 5 + (200/Q)
    4. 200
  36. The total cost (TC) function is given as: TC = 200 + 5Q. What is the average total cost?

    1. 5Q
    2. 5
    3. 5 + (200/Q)
    4. None of the given
  37. Assume that the market for laptops is dominated by a single firm, like Inbox, that is able to exert infuence over prices and output. This situation violates which of the following assumptions of perfect competition?

    1. Many buyers and sellers
    2. Easy entry and exit
    3. No discrimination
    4. Perfect information
  38. Assume that the computer buyers in northern parts of Pakistan have no idea what prices are being paid in the southern parts of Pakistan. This situation violates which of the following assumptions of perfect competition?

    1. Identical goods
    2. No discrimination
    3. Perfect information
    4. Many buyers and sellers
  39. The local bus system charges lower fares to students than to the other passengers. Suppose that this pricing strategy increases the profits of the bus system, we can conclude that students must have a ________ for bus service than other passengers.

    1. Greater demand
    2. Lower demand
    3. More elastic demand
    4. Less elastic demand
  40. While moving from left to right, the typical production possibilities frontier (PPF) has:

    1. An increasingly steep negative slope.
    2. An decreasingly steep negative slope.
    3. An increasingly steep positive slope.
    4. A constant and negative slope.
  41. What is the assumption of constructing a production possibilities frontier?

    1. Economic resources are underutilized.
    2. Production technology is allowed to vary.
    3. All available resources are employed efficiently.
    4. None of the given
  42. A demand curve is price elastic when:

    1. Changes in demand are proportionately greater than changes in price.
    2. Changes in demand are equal to changes in price.
    3. Total revenue increases due to increase in price.
    4. Changes in demand are proportionately smaller than changes in price.
  43. If different firms in the oligopolistic structure do not cooperate with each other, this situation is known as:

    1. Collusive oligopoly.
    2. Cartel.
    3. Price leadership.
    4. Non-collusive oligopoly.
  44. The curve of unitary elastic demand will be:

    1. A hyperbola
    2. An ellipse
    3. A rectangle
    4. A parabola
  45. Points inside the production possibility frontier (ppf) show that:

    1. Efficient use of resources.
    2. Inefficient use of resources.
    3. Resources are not utilized.
    4. All of the given
  46. The quantity of a good that sellers wish to sell at each price level is called:

    1. Supply
    2. Demand
    3. Shortage
    4. Surplus
  47. If the cost of parts of automobiles rises, then:

    1. The demand curve for automobiles shifts to the right.
    2. The demand curve for automobiles shifts to the left.
    3. The supply curve for automobiles shifts to the right.
    4. The supply curve for automobiles shifts to the left.
  48. Suppose the government sets minimum prices of crops to support farmers. This is an example of:

    1. Price ceiling
    2. Price floor
    3. Free market equilibrium
    4. Shortage
  49. The distribution or allocation of a limited commodity, usually accomplished based on a standard or criterion is known as:

    1. Scarcity
    2. Rationing
    3. Bundling
    4. All of the given
  50. The demand for oranges is expressed as: Qd = 100 - P
    The supply of oranges is expressed as: Qs = 4P
    Refer to the above scenario, if the equilibrium price of oranges is Rs. 20, the equilibrium quantity of oranges is:

    1. 55
    2. 60
    3. 80
    4. 100
  51. Demand tends to be more elastic in the:

    1. Short run time period.
    2. Immediate time period.
    3. Long run time period.
    4. All of the given
  52. If there is a decrease in consumer's income from Rs. 12,000 to Rs. 10,000, the change in the quantity demanded of inferior goods can be shown by:

    1. Shifting the demand curve leftward.
    2. Shifting the demand curve rightward.
    3. Moving down along the same demand curve.
    4. Moving up along the same demand curve.
  53. Mujtaba has paid Rs. 75000 as rent last month which in his opinion has increased slightly as compared to previous months. Which of the following he has paid for?

    1. Labor
    2. Capital
    3. Land
    4. Entrepreneurship
  54. Zafar Iqbal stated in his opening note at University of Economics that food prices should be controlled for a comfortable living. Which category his statement falls in?

    1. Normative
    2. Positive
    3. Negative
    4. None of the given
  55. Atif Khan, Young minister for agriculture, has updated in a talk show that rise in food prices is due to the rising oil prices. Which category his statement falls in?

    1. Normative
    2. Positive
    3. Negative
    4. None of the given
  56. Microeconomics is the branch of economics that deals with which of the following?

    1. Individual consumers.
    2. Individual firms and investors.
    3. Unemployment and interest rates.
    4. Individual consumers, individual firms and investors.
  57. The production possibility frontier (PPF) shows all combinations of goods that:

    1. Society most desires.
    2. Lie outside the curve.
    3. Reflect full production.
    4. An economy can produce with all available resources.
  58. Which of the following defines the opportunity cost?

    1. Cost measured only in rupees
    2. Cost of producing the goods
    3. Cost of producing one more unit of good
    4. Cost of next best alternative forgone
  59. Saqib is planning to start his own business. Initial cost that has to be incurred is Rs. 50,000. But to do so, he has to quit a job which pays Rs. 120,000 a year. His opportunity cost of starting business is:

    1. Rs. 120,000
    2. Rs. 50,000
    3. Rs. 80,000
    4. Undetermined
  60. If there is an increase in the long term economic growth then production possibility frontier will:

    1. Shift inward
    2. Shift outward
    3. Remain the same
    4. Move downward on the same curve
  61. If the cost of parts of automobiles falls, then:

    1. The demand curve for automobiles shifts to the right.
    2. The supply curve for automobiles shifts to the right.
    3. The demand curve for automobiles shifts to the left.
    4. The supply curve for automobiles shifts to the left.
  62. The effect of a change in income on the quantity of the good consumed is called the:

    1. Income effect
    2. Budget effect
    3. Substitution effect
    4. Real income effect
  63. If the quantity demanded of computers exceeds the quantity supplied of computers:

    1. Market forces will cause the price to rise.
    2. The market is in equilibrium.
    3. There is a surplus of computers.
    4. Market forces will cause the price to fall.
  64. Other things remaining same, when raw material costs increase of an industry then:

    1. The supply curve shifts to the left.
    2. The supply curve shifts to the right.
    3. The demand curve shifts to the left.
    4. The demand curve shifts to the right.
  65. The demand for apples is expressed as: Qd = 80 - P
    The supply of apples is expressed as: Qs = 3P
    Refer to the above scenario, the equilibrium price of apples is:

    1. Rs. 10
    2. Rs. 15
    3. Rs. 20
    4. Rs. 25
  66. What would cause the supply curve of wheat to shift to the right?

    1. An increase in the prices of inputs
    2. A decrease in the number of wheat growers
    3. An increase in wages paid to agricultural workers
    4. Technological improvement which lowers the costs of production
  67. The demand for apples is expressed as: Qd = 100 - 5P
    The supply of apples is expressed as: Qs = 25 + 10P
    Refer to the above scenario, if the equilibrium price of apples is Rs.5, the equilibrium quantity of apples is:

    1. 73
    2. 75
    3. 80
    4. 85
  68. When government sets the price of a good and that price is below the equilibrium price, the result will be:

    1. A surplus of the good
    2. A shortage of the good
    3. An increase in the demand for the good
    4. A decrease in the supply of the good
  69. If government imposes a price ceiling on wheat, which of the following will occur in the market for wheat?

    1. There will be excess demand for wheat.
    2. There will be excess supply of wheat.
    3. The demand curve for wheat will shift leftward.
    4. The supply curve for wheat will shift rightward.
  70. If the price of sugar rises from Rs. 70 to Rs. 72 and quantity demanded decreases by 20%. We can conclude that:

    1. Demand is inelastic.
    2. The elasticity of demand is 2.
    3. Total revenue will decrease.
    4. Demand is unit elastic.
  71. If the income elasticity of demand for bread is 0.4, a 10% increase in consumer income will lead to a ________ in the quantity of bread demanded.

    1. 40% increase
    2. 40% decrease
    3. 4% increase
    4. 0.4% increase
  72. If a good is having inelastic demand then if price rises:

    1. Quantity demanded of good rises
    2. Quantity supplied of good falls
    3. Total revenue of good rises
    4. Total revenue of good falls
  73. Suppose supply of agricultural products is price inelastic and government decides to increase taxes on agricultural products. More of the tax burden in this case would fall on:

    1. Producers
    2. Consumers
    3. Government
    4. Both producers and consumers
  74. If Nestle Company has elastic demand for Nestle juices, then increase in price of Nestle juices will:

    1. Increase total revenue.
    2. Decrease total revenue.
    3. Bring no change in total revenue.
    4. Decrease marginal revenue.
  75. When the cross-price elasticity of demand for two goods is less than zero then the goods are ________ goods.

    1. Complementary
    2. Substitute
    3. Inferior
    4. Giffen
  76. If the cross price elasticity of demand between two products is +3.5, then:

    1. One of the products is expensive and one is relatively inexpensive
    2. One product is a normal good and the other is an inferior good
    3. The two products are complements
    4. The two products are substitutes
  77. Suppose we find that the cross-price elasticity of demand for two products is a negative number. We know that the two goods are:

    1. Normal goods
    2. Inferior goods
    3. Substitutes
    4. Complements
  78. Suppose Ali derives total utility equals to 10 utils from the consumption of 1 bottle of Pepsi. When he consumes another bottle of Pepsi, he gets total utility equals 25 utils. His marginal utility in this case will be:

    1. 2.5 utils
    2. 15 utils
    3. 25 utils
    4. 35 utils
  79. Which of the following shows the condition for consumer's equilibrium?

    1. Marginal utility per dollar spent on each good being equalized across all goods.
    2. The ratio of (marginal utility per unit of the good)/ (price per unit of the good) being equalized across all goods.
    3. The ratio of marginal utilities being equated to the ratio of prices for all possible pairs of goods.
    4. All of the given options.
  80. The law of diminishing marginal utility indicates that the demand curve is:

    1. Vertical
    2. U shaped
    3. Upward sloping
    4. Downward sloping
  81. The law of diminishing marginal utility states:

    1. The supply curve slopes upward
    2. The elasticity of demand is infinite
    3. Your utility grows at a slower and slower rate as you consume more and more units of a good
    4. Your utility grows at a slower and slower rate as you consume less units of a good
  82. Suppose the total utility derived from first four units of a good consumed are 12, 22, 32, and 42 respectively. What is the marginal utility of the third unit?

    1. 10
    2. 13
    3. 20
    4. 33
  83. Keeping other factors constant, if Asma drinks more and more bottles of coke, his marginal utility from coke will:

    1. Diminish
    2. Increase
    3. Remain the same
    4. First decrease then starts increasing
  84. The total utility curve starts at the origin and reaches the peak when marginal utility is:

    1. Zero
    2. Maximum
    3. Negative
    4. Positive
  85. All the insurance companies around the globe work under the principle of:

    1. Law of zero numbers
    2. Law of large numbers
    3. Law of small numbers
    4. Law of constant numbers
  86. If there are 30 percent chances that machine will work well and 70 percent chances that it will not function well, then the odd ratio will be:

    1. 2.333
    2. 0.428
    3. 0.40
    4. 0.721
  87. A good whose consumption increases due to increase in income is categorized as:

    1. Inferior good
    2. Giffen good
    3. Superior good
    4. Normal good
  88. Which of the following is TRUE about the production function?

    1. It relates inputs with output.
    2. It generates a curve that is upward sloping.
    3. It shows diminishing marginal product of an input.
    4. All of the given
  89. Ali initially started a small day care centre with only 10 children and one staff member. But he found that the cost per child is very high. He wants to expand the centre. Which of the following will happen when Ali expands the centre?

    1. Economies of scale
    2. Diseconomies of scale
    3. Increasing returns to the labor inputs
    4. Decreasing returns to the labor inputs
  90. Suppose a firm produces 20 units of output and incurs Rs.40 in average variable cost and Rs.8 in average fixed cost, average total cost is:

    1. 40
    2. 35
    3. 48
    4. 60
  91. The total cost (TC) function is given as TC = 200 + 8Q. What will be the average total cost if 2 units of commodity are produced?

    1. 20
    2. 55
    3. 108
    4. 216
  92. Suppose a profit maximizing firm gets total revenue of Rs. 15000 by selling 150 units of output. When it sells 250 units of output, total revenue becomes Rs. 35000. The marginal revenue in this case is:

    1. 125
    2. 200
    3. 350
    4. 400
  93. Suppose a profit maximizing firm sells 100 units of output. The total revenue function is TR =500q – 2q2. What is the value of marginal revenue?

    1. 100
    2. 400
    3. -400
    4. -100
  94. In soap industry, all firms can freely enter or exit into the market and each firm is competing on the basis of product differentiation. In which market structure this industry is operating?

    1. Monopoly
    2. Oligopoly
    3. Perfect Competition
    4. Monopolistic Competition