Economics MCQs

Which of the following is not an element of fiscal policy?

Government spending
Government borrowing
Taxation
Exchange rates

Which of the following is associated with a negative Public Sector Net Cash Requirement?

The government is running a budget deficit
The government�s expenditure exceeds its income
The government is running a budget surplus
Public Sector Debt Repayment (PSDR) is high.

........................................ taxes are collected by the Revenue authority from a business, which attempts to pass on the tax to consumers...

Progressive
Direct
Indirect

If a government has a macro-economic policy objective of expanding the overall level of economic activity, which of the following measures would not ...

Increasing public expenditure
Lowering interest rates
Increasing taxation

The currency in country X is the Krone while country Y uses the Euro. Country Y has recently experienced an increase in its exchange rate with Countr...

A stimulus to exports in Country Y
An increase in the costs of imports from Country X
Reducing demand for imports from Country X
A reduction in the rate of cost push inflation

The following, with one exception, are �protectionist measures� in international trade. Which is the exception?

Import quotas
Subsidies for exporters
Customs procedures
Tariffs

Are the following statements true or false? 1 Frictional unemployment will be short term 2 Governments can encourage labour mobility if they want to...

Both statements are true
Statement 1 is true and statement 2 is false.
Statement 1 is false and statement 2 is true.
Both statements are false.

Monetary policy is a government economic policy relating to: 1 Interest rates 2 Taxation 3 Public borrowing and spending 4 Exchange rates Which o...

1 and 4
2 and 3
2 and 4
3 and 4

Which of the following organisations might benefit from a period of high price inflation?

An organisation which has a large number of long term payables
An exporter of goods to a country with relatively low inflation
A large retailer with a high level of inventory on display and low rate of inventory turnover

Which of the following are the goals of macroeconomic policy? 1 Encouraging economic growth 2 Low unemployment 3 Achievement of a balance between e...

1 and 2
2 and 3
2, 3 and 4
1, 2 and 3

Which of the following is an example of cyclical unemployment?

The entry of school leavers into the labour pool each year
Lay-offs among agricultural labourers in winter
Automation of ticketing services in tourism
Recession in the building industry

A surplus on the balance of payments usually refers to a surplus or deficit on the ........................................ account. Which word corr...

Current
Capital
Financial

........................................ economic growth is determined by supply-side rather than by demand side factors. Which word correctly compl...

Actual
Potential
National

1 In a free market economy, the price mechanism:

Aids government control
Allocates resources
Measures national wealth

The supply curve of a firm operating in a competitive market is its

Marginal cost curve above the average variable cost curve
Marginal cost curve above the average total cost curve
Average total cost curve beyond the point where the marginal cost curve cuts it from below
Average variable cost curve below the average revenue curve

A legal minimum price is set which is below the equilibrium price. What will be the impact of this?

Excess of demand over supply
Excess of supply over demand
Nothing

Which one of the following would cause the supply curve for a good to shift to the right (outwards from the origin)?

A fall in the price of the good
An increase in the demand for the good
A fall in production costs of the good
The imposition of a minimum price

When the price of a good is held above the equilibrium price, the result will be

Excess demand
A shortage of the good
A surplus of the good

Which one of the following would not lead directly to a shift in the demand curve for overseas holidays?

An advertising campaign by holiday tour operators
A fall in the disposable incomes of consumers
A rise in the price of domestic holidays
A rise in the price of overseas holidays

Which of the following is likely to lead to a fall in the price of good Q which is a normal good?

A rise in the price of good P, a substitute for good Q
A fall in the level of household incomes generally
A fall in the price of good T, a complement to good Q
A belief that the price of good Q is likely to double in the next 3 months

According to the theory of the firm, which of the following statements describes an oligopoly?

There are no barriers to entry into or exit from the market
There is only one producer in the market
There are four producers exerting considerable influence in the market
There are many producers but they each use product differentiation to distinguish themselves from each other

Which of the following is not a substitute for carpets?

Ceramic floor tiles
Wooden floorboard
Carpet underlay

Which of the following is not a complement to cars?

Petrol
Tyres
Holidays

The demand for fashion goods is not influenced by:

Price
Allocative inefficiency among producers
The distribution of income among households
Expectation of future price changes

If the price of coffee falls, which one of the following outcomes would be expected to occur?

A fall in the quantity of coffee demanded
A rise in the price of tea
A fall in the demand for drinking cups
A fall in the demand for tea

Consider the price and demand for flower vases. The price of cut flowers goes up sharply. Which of the following would you expect to happen?

The demand curve for flower vases will shift to the left and their price will rise
The demand curve for flower vases will shift to the right and their price will rise
There will be a movement along the demand curve for flower vases and their price will go down
The demand curve for flower vases will shift to the left and their price will go down

Consider the price and demand for tickets to travel by sea ferry. The price of travelling by hovercraft (a substitute form of travel) goes up. Which ...

The demand curve for sea ferry tickets will shift to the left, and their price will go down. More sea ferry tickets will be sold.
The demand curve for sea ferry tickets will shift to the right, and their price will go up. More ferry tickets will be sold.
The demand curve for sea ferry tickets will shift to the right and their price will go down. More sea ferry tickets will be sold.
The demand curve for sea ferry tickets will shift to the right and their price will go up. Fewer sea ferry tickets will be sold.

The summer demand for hotel accommodation in London comes mainly from foreign tourists. Demand for hotel rooms in London in summer could be reduced b...

Item 1 only
Items 1 and 2 only
Items 2 and 3 only
Item 3 only

ABC produces a variety of soft drink. It has two competitors but all three producers use product differentiation to distinguish themselves from each o...

Perfect competition
Monopoly
Monopolistic competition
Oligopoly

Suppose that, in a certain advanced industrialised country, the government has applied price controls over rents of both public and private rented ac...

Consequences 1 and 2
Consequences 2 and 3
Consequences 3 and 4
Consequences 1 and 4

The demand curve for a resource may shift because of

A change in the demand for a good whose production is dependent on the resource
Concerns about potential harmful pollution from the resource
A change in the price of a substitute resource
All of the above

Consumer surplus is:

The excess between what consumers are prepared to pay for a good or service, and the prevailing market price
The indirect tax producers pay on a good or service
The marginal utility gained by consuming one more unit of a good or service
The indirect tax consumers pay on a good or service

If the absolute value of the price elasticity of demand for dry white wine is greater than one, a decrease in the price of all wine would result in: ...

A more than proportional decrease in the quantity of dry white wine purchased
A less than proportional decrease in the quantity of dry white wine purchased
A less than proportional increase in the quantity of dry white wine purchased
A more than proportional increase in the quantity of dry white wine purchased

If both the supply and the demand for a good increase, the market price will

Rise only in the case of an inelastic supply function.
Fall only in the case of an inelastic supply function.
Not be predictable with only these facts.
Rise only in the case of an inelastic demand function.

A supply curve illustrates the relationship between

Price and quantity supplied.
Price and consumer tastes.
Price and quantity demanded.
Supply and demand.

As a business owner you have determined that the demand for your product is inelastic. Based upon this assessment you understand that

Increasing the price of your product will increase total revenue.
Decreasing the price of your product will increase total revenue.
Increasing the price of your product will have no effect on total revenue.
Increasing the price of your product will increase competition.

Which one of the following has an inverse relationship with the demand for money?

Aggregate income.
Price levels.
Interest rates.
Flow of funds.

An improvement in technology that in turn leads to improved worker productivity would most likely result in

A shift to the right in the supply curve and a lowering of the price of the output.
A shift to the left in the supply curve and a lowering of the price of the output.
An increase in the price of the output if demand is unchanged.
Wage increases.

Which of the following market features is likely to cause a surplus of a particular product?

A monopoly.
A price floor.
A price ceiling.
A perfect market.

A decrease in the price of a complementary good will

Shift the demand curve of the joint commodity to the left.
Increase the price paid for a substitute good.
Shift the supply curve of the joint commodity to the left.
Shift the demand curve of the joint commodity to the right.

Demand for a product tends to be price inelastic if

The product is considered a luxury item.
Few good complements for the product are available.
The population in the market area is large.
People spend a large share of their income on the product.

Which of the following has the highest price elasticity coefficient?

Milk.
Macaroni and cheese
Bread.
Ski boats.

The local video store�s business increased by 12% after the movie theater raised its prices from $6.50 to $7.00. Thus, relative to movie theater adm...

Substitute goods.
Superior goods.
Complementary goods.
Public goods.

An individual receives an income of $3,000 per month, and spends $2,500. An increase in income of $500 per month occurs, and the individual spends $...

0.2
0.4
0.6
0.8

Which of the following is not one of the five forces in Porter�s model for industry analysis?

Competitors.
Bargaining power of customers.
Bargaining power of suppliers.
General economic conditions.

Which of the following is a defining characteristic of supply chain management?

Focuses on the sharing of information with suppliers and customers.
Focuses on redesigning processes.
Focuses on improving quality.
Focuses on strategic alliances.

Which of the following is not a likely strategy for a firm in a purely competitive market?

Lean manufacturing.
Supply chain management.
Process reengineering.
Development of a brand name.

What is the purpose of a response profile in competitor analysis?

To develop an understanding of the firm�s industry.
To analyze the firm�s strengths in relation to its competitors.
To identify possible actions by competitors.
To understand the nature of the firm�s major markets.

The process of dividing all potential consumers into smaller groups of buyers with distinct needs, characteristics, or behaviors, who might require ...

Strategic planning.
Market segmentation.
Product positioning.
Objective setting.

Which of the following measures of unemployment would be of least importance to management when trying to predict the future state of the economy?

Structural unemployment.
Cyclical unemployment.
Frictional unemployment.
Overall unemployment.

Which of the following best describes the steps involved in performing competitor analysis?

Gathering information about the competitor and using it to predict the competitor� behavior.
Determining the type of market structure and the number of competitors.
Assessing the general environment and determining how that affects competition.
Assessing the market structure to predict when new competitors will enter the market.

An oligopolist faces a �kinked� demand curve. This terminology indicates that

When an oligopolist lowers its price, the other firms in the oligopoly will match the price reduction, but if the oligopolist raises its price, the other firms will ignore the price change.
An oligopolist faces a nonlinear demand for its product, and price changes will have little effect on demand for that product.
An oligopolist can sell its product at any price, but after the �saturation point� another oligopolist will lower its price and, therefore, shift the demand curve to the left.
Consumers have no effect on the demand curve, and an oligopolist can shape the curve to optimize its own efficiency.

All of the following are ways that companies in developed countries generally may compete with companies in developing countries except

Technology.
Customer service.
Quality.
Low-cost resources.

The process by which resources are transformed into useful forms is

capitalisation
consumption.
allocation.
production.

The concept of choice would become irrelevant if

capital were eliminated.
scarcity were eliminated.
we were dealing with a very simple, one-person economy.
poverty were eliminated.

Which of the following is not a resource as the term is used by economists?

money
land
buildings.
labour.

Capital, as economists use the term,

is the money the fir m spends to hire resources.
is money the firm raises from selling stock.
refers to the process by which resources are transformed into useful forms.
refers to things that have already been produced that are in turn used to produce other goods and services.

Opportunity cost, most broadly define, is

the additional cost of producing an additional unit of output.
what we forgo, or give up, when we make a choice or a decision.
a cost that cannot be avoided, regardless of what is done in the future.
the additional cost of buying an additional unit of a product.

Periods of “less than full employment” of resources correspond to

points on the ppf.
points outside the ppf.
either points inside or outside the ppf.
points inside the ppf.

What lies is at the heart of the allocation of goods and services in a free-market economy?

Concerns of equity or equal distribution among individuals.
The order or command of the ruling government or dictator.
The wishes of consumers in the market.
The price mechanism.

Laboratory (or controlled) experiments cannot be performed in economics because:

of resource scarcity.
economics is a natural science.
of the difficulty of distinguishing between normative and positive statements.
economics is a social science.

Positive statements are:

value judgments
verifiable or testable
statements in the affirmative
good statements

The former Soviet Union was an example of:

a planned economy
free-market/capitalism
dictatorship
a mixed economy

Rational choice or rational decision-making involves

comparing the net benefit of a choice with the total net benefit foregone of all the alternatives combined
weighing up total costs and total benefits associated with a decision
weighing up m arginal costs and marginal benefits associated with a decision
all of the above.

The PPF can be used to illustrate:

the principle of opportunity costs and increasing opportunity costs
the distinction between micro and macroeconomics
efficient, infeasible and inefficient production combinations
all of the above

The concept of “interdependence of markets” can refer to the interdependence between:

two or more factor markets
goods and factor markets
goods markets
all of the above

What effect is working when the price of a good falls and consumers tend to buy it instead of other goods?

the substitution effect.
the ceteris paribus effect.
the total price effect.
the income effect.

The quantity demanded (Qd) of a soft drink brand A has decreased. This could be because:

A’s consumers have had an increase in income.
the price of A has increased.
A’s advertising is not as effective as in the past.
the price of rival brand B has increased

Demand curves in P-Q space are derived while holding constant

consumer tastes and the prices of other goods.
incomes, tastes, and the price of the good.
incomes and tastes.
incomes, tastes, and the prices of other goods.

Suppose the demand for good Z goes up when the price of good Y goes down. We can say that goods Z and Y are

perfect substitutes.
unrelated goods.
complements.
substitutes.

If the demand for coffee decreases as income decreases, coffee is

a normal good.
a complementary good.
an inferior good.
a substitute good.

Which of the following will NOT cause a shift in the demand curve for compact discs?

a change in the price of pre-recorded cassette tapes.
a change in wealth.
a change in income.
a change in the price of compact discs.

Which of the following is consistent with the law of supply?

As the price of calculators rises, the supply of calculators increases, ceteris paribus.
As the price of calculators falls, the supply of calculators increases, ceteris paribus.
As the price of calculators rises, the quantity supplied of calculators increases, ceteris paribus .
As the price of calculators rises, the quantity supplied of calculators decreases, ceteris paribus.

The price of computer chips used in the manufacture of personal computers has fallen. This will lead to __________ personal computers.

a decrease in the supply of
a decrease in the quantity supplied of
an increase in the supply of
an increase in the quantity supplied of

When there is excess demand in an unregulated market, there is a tendency for

quantity demanded to increase.
quantity supplied to decrease.
price to fall.
price to rise.

Equilibrium in the market for good A obtains

when there is no surplus or shortage prevailing in the market
where the demand and supply curves for A intersect
when all of what is produced of A is consumed
all of the above

A shift in the demand curve (drawn in the traditional Price-Quantity space) to the left may be caused by

a decrease in supply.
a fall in income.
a fall in the price of a complementar y good.
a fall in the number of substitute goods.

A shift in the demand curve (drawn in Income-Quantity space) to the left may be caused by

a fall in the price of a complementar y good.
a fall in income.
a change in tastes such that consumers prefer the good more.
a rise in the number of substitute goods.

A movement along the demand curve (drawn in Quantity-Price space) to the left may be caused by

an increase in supply
a rise in income.
a rise in the price of a complementary good.
a fall in the number of substitute goods.

When the market operates without interference, price increases will distribute what is available to those who are willing and able to pay the most. T...

price fixing.
quantity setting.
quantity adjustment.
price rationing

How many different equilibria can obtain when you allow for shifts in the demand and/or the supply curves?

2
4
8
16

What will happen to equilibrium price and quantity when the demand curve shifts to the left and the supply curve shifts to the right

price falls unambiguously but the effect on quantity cannot be determined
both price and quantity falls unambiguously
quantity falls unambiguously but the effect on price cannot be deter mined
the effect on both price and quantity cannot be determined

What will happen to equilibrium price and quantity when both the demand and supply curves shift to the left

price falls unambiguously but the effect on quantity cannot be determined
both price and quantity falls unambiguously
quantity falls unambiguously but the effect on price cannot be determined
the effect on both price and quantity cannot be determined

A price ceiling imposed by the government can cause a shortage (excess demand)

when the price ceiling is above the free (or unregulated) market price
when the price ceiling is below the free (or unregulated) market price
when the price ceiling is equal to the free (or unregulated) market price
either of the above

What is the effect of imposing a fixed per unit tax on a good on its equilibrium price and quantity?

Price falls, quantity rises
Price rises, quantity falls
Both price and quantity fall
Both price and quantity rise

A price floor is

a maximum price usually set by government, that sellers may charge for a good or service.
a minimum price usually set by government, that sellers m ust charge for a good or service .
the difference between the initial equilibrium price and the equilibrium price after a decrease in supply.
the minimum price that consumers are willing to pay for a good or service.

The need for rationing a good arises when

there is a perfectly inelastic demand for the good.
supply exceeds demand.
demand exceeds supply.
a surplus exists.

If the “regulated-market” price is below the equilibrium (or “free-market” price) price,

the quantity demanded will be greater than quantity supplied .
demand will be less than supply.
quantity demanded will be less than quantity supplied.
quantity demanded will equal quantity supplied.

If a government were to fix a minimum wage for workers that was higher than the marketclearing equilibrium wage, economists would predict that

more workers would become employed.
there would be more unemployment.
the costs and prices of firms employing cheap labour would increase.
wages in general would fall as employers tried to hold down costs

When the decrease in the price of one good causes the demand for another good to decrease, the goods are

complements.
normal.
inferior
substitutes.

The price elasticity of demand is the

ratio of the percentage change in quantity demanded to the percentage change in price.
ratio of the change in price to the change in quantity demanded.
ratio of the change in quantity demanded to the change in price .
ratio of the percentage change in price to the percentage change in quantity demanded

The price of apples falls by 5% and quantity demanded increases by 6%. Demand for apples is:

inelastic.
perfectly inelastic.
elastic.
perfectly elastic.

The price of bread increases by 22% and the quantity of bread demanded falls by 25%. This indicates that demand for bread is

elastic.
inelastic
unitarily elastic
perfectly elastic

If the cross-price elasticity of demand between two goods is negative, then the two goods are

unrelated goods.
substitutes.
complements.
normal goods

If the quantity demanded of beef increases by 5% when the price of chicken increases by 20%, the cross-price elasticity of demand between beef and ch...

-4.
4.
-0.25
0.25.

The government is considering placing a tax on cigarettes to raise revenue to finance healthcare projects. The demand for cigar ettes is price inelas...

This is a very good way to raise revenue both in the short term and in the long term because there are no substitutes for cigarettes.
The tax on cigarettes will raise substantial revenue in the short term, but may not raise as much revenue as anticipated in the long term because the demand for cigarettes is likely to become more elastic over time .
This tax will not raise much revenue either in the short term or the long term since demand is price inelastic.
No tax revenue can be raised in this way because sellers of cigarettes will just lower their price by the amount of the tax and therefore the price of cigarettes to consumers will not change

The burden (incidence) of a tax will fall mainly on the producers if:

The producers are the ones legally obliged to pay the tax .
Supply is inelastic and dem and is elastic.
Demand is inelastic and supply is elastic.
There are many producers in the market.

Income elasticity of demand is the % change in quantity demanded divided by the % change in income. Which type of goods have negative income elastici...

Inferior goods.
Normal goods.
Substitute goods.
Complementary goods

If total revenue rises by 10% when price increases by 5%, this means:

demand is price inelastic
demand is price elastic
demand is unit elastic
demand is perfectly inelastic

If a 5% increase in price causes no change in total revenue, this means:

demand is price inelastic
demand is price elastic
demand is unit elastic
demand is perfectly inelastic

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Economics MCQs