Economics PMS MCQs

(i) Modern microeconomics theory generally regards utility as:
(a) cardinal
(b) ordinal
(c) independent
(d) Republican

(ii) A basic assumption of the theory of consumption choice is that:
(a) the consumer tries to get on the highest indifference curve
(b) the consumer tries to get the most of good Y
(c) the budget line is concave
(d) none of these

(iii) The substitution effect must always be:
(a) positive
(b) negative
(c) zero
(d) bigger than the income effect

(iv) The income effect:
(a) must always be negative
(b) must always be positive
(c) can be negative or positive
(d) must be smaller than substitution effect

(v) Normal goods experience an increase in consumption when:
(a) real income increase
(b) real income falls
(c) price rises
(d) tastes change

(vi) The demand for a good is price inelastic if:
(a) the price elasticity is one
(b) the price elasticity is less than one
(c) the price elasticity is greater than one
(d) all of these

(vii) A demand curve with unitary elasticity at all points is:
(a) a straight line
(b) a parabola
(c) a hyperbola
(d) all of these

(viii) The marginal product equals the average product when the latter is:
(a) ½ of its maximum value
(b) ¼ of its maximum value
(c) equals to its maximum value
(d) equals to its minimum value

(ix) A firm’s aspiration level is:
(a) its profits last year
(b) the boundary between “satisfactory” and “unsatisfactory” outcomes.
(c) its highest previous profit level
(d) none of these

(x) The firm’s cost functions are determined by:
(a) the price of its product
(b) its assets
(c) its production function
(d) the age of the firm

(xi) The following industry often is a natural monopoly:
(a) cigarette industry
(b) publishing industry
(c) drug industry
(d) electric power industry

(xii) Recognizing that the assumptions of perfect competition never hold at all precisely, the perfectly competitive model is:
(a) interesting mainly for academic studies
(b) outmoded and seldom used even by academic economists
(c) of considerable use to industrial economists, as well as academic economists
(d) all of these

(xiii) Under perfect competition, rivalry is:
(a) impersonal
(b) very personal and direct, advertising being important
(c) nonexistent since the firms cooperate
(d) all of these

(xiv) If average total cost is less than marginal cost at its profit-maximizing output, a perfectly competitive firm:
(a) will make positive profit
(b) will operate at a point to the right of the minimum point on the average total cost curve
(c) will not discontinue production
(d) all of these

(xv) Monopolies arise as a consequence of:
(a) patents
(b) control over the supply of a basic input
(c) franchise
(d) all of these

(xvi) A monopolistic firm will expand its output when:
(a) marginal revenue exceeds marginal cost
(b) marginal cost exceeds marginal revenue
(c) marginal cost equals marginal revenue
(d) marginal revenue is negative

(xvii) A monopolist will never produce at a point where:
(a) demand is price-inelastic
(b) demand is price-elastic
(c) marginal cost is positive
(d) marginal cost is increasing

(xviii) When demand is elastic:
(a) a fall in price is more than offset by an increase in quantity demanded, so that total revenue rises.
(b) the good is probably a necessity, so price has little effect on quantity demanded
(c) a rise in price will increase total revenue, even though less is sold.
(d) buyers are not much influenced by prices of competing proceduts

(xix) If the price elasticity of demand for product is 0.5, this means that:
(a) a 1 percent change in price will change quantity demanded by 50%
(b) a 1 percent increase in quantity demanded is associated with a 0.5 percent fall in price
(c) a 1 percent increase in price is associated with 0.5% fall in quantity demanded
(d) a 1 percent increase in price will cause a 0.5% increase in quantity demanded.

(xx) Price elasticity of demand for a commodity tends to be greater:
(a) the more of a necessity it is
(b) the more substitutes there are for it
(c) over shorter time periods
(d) the lower the price.


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