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The correct answer for each question is indicated by a .

1 CORRECT Economics is the study of

A)production technology
B)consumption decisions
C)how society decides what, how, and for whom to produce
D)the best way to run society

2 INCORRECT A resource is scarce if supply exceeds demand at zero price

A)TRUE
B)FALSE

3 INCORRECT The opportunity cost of a good is

A)the time lost in finding it

B)the quantity of other goods sacrificed to get another unit of that good
C)the expenditure on the good
D)the loss of interest in using savings

4 INCORRECT A market can accurately be described as

A)a place to buy things

B)a place to sell things
C)the process by which prices adjust to reconcile the allocation of resources
D)a place where buyers and sellers meet

5 CORRECT A command economy decides resource allocation by government planning

A)TRUE
B)FALSE

6 INCORRECT In a free market __________ ___________

A)governments intervene
B)governments plan production
C)governments interfere
D)prices adjust to reconcile scarcity and desires

7 CORRECT In the mixed economy

A)economic problems are solved by the government and market

B)economic decisions are made by the private sector and free market
C)economic allocation is achieved by the invisible hand
D)economic questions are solved by government departments

8 CORRECT Positive economics studies objective explanations of the workings of the economy

A)TRUE
 B)FALSE

9 INCORRECT Normative economics forms ___________ based on _____________

A)positive statements, facts

B)opinions, personal values
C)positive statements, values
D)opinions, facts

10 INCORRECT Microeconomics is concerned with

A)the economy as a whole

B)the electronics industry
C)the study of individual economic behaviour
D)the interactions within the entire economy

11 INCORRECT Macroeconomics is the study of ___________________

A)individual building blocks in the economy

B)the relationship between different sectors of the economy
C)household purchase decisions
D)the economy as a whole

12 INCORRECT An economic model is a physical representation of an economy

A)TRUE
B)FALSE

13 CORRECT Data are important in economics because __________ and __________

A)they suggest relationships for explanation, allow testing of hypotheses

B)they can be used for tables, they can be graphed
C)they can be used in computers, governments use them
D)they provide interesting information, can be summarised

14 INCORRECT Time series data show information

A)about the same point in time over different places

B)about different points in time over the same variable
C)about different variables over different places
D)about different points in time over different places

15 INCORRECT Index numbers express base data in relation to some relative value

A)TRUE
B)FALSE

16 INCORRECT The retail price index is used to ______________

A)construct price lists

B)compare shop prices
 C)measure changes in the cost of living
D)none of the above

17 INCORRECT A real value can be derived from a nominal value by

A)adjusting for changes over time

B)adjusting for data collection errors
C)adjusting for population changes
D)adjusting for changes in prices

To find the percentage change in a number, divide the absolute change by the original
18 CORRECT
number and multiply by 100
A)TRUE
B)FALSE

If your income during one year is £10,000 and the following year it is £12,000, then it
19 CORRECT
has grown by
A)20%
B)2%
C)12%
D)16%

20 INCORRECT A straight-line diagram can be drawn knowing the ______ and _________

A)vertical axis and horizontal axis

B)intercept and slope
C)scale and slope
D)intercept and scale

21 INCORRECT On a graph, a positive linear relationship

A)moves down to the right

B)moves up to the left
C)moves up to the right
D)moves down to the left

If the diagram of a line shows that lower values on the vertical scale are associated
22 INCORRECT
with higher values on the horizontal scale, this is an example of _____________
A)a nonlinear relationship
B)a positive linear relationship
C)a scatter diagram
D)a negative linear relationship

When we know the quantity of a product that buyers wish to purchase at each
23 CORRECT
possible price, we know
A)Demand
B)Supply
C)Excess demand
D)Excess supply
24 INCORRECT Supply is the quantity of a good sellers wish to sell each time the market opens

A)TRUE
B)FALSE

25 INCORRECT The equilibrium price clears the market; it is the price at which ________ _________

A)Everything is sold
B)Buyers spend all their money
C)Quantity demanded equals quantity supplied
D)Excess demand is zero
E)c and d

26 INCORRECT When a market is in equilibrium

A)Quantity demanded equals quantity supplied

B)Excess demand and excess supply are zero
C)The market is cleared by the equilibrium price
D)All of the above

27 INCORRECT ________ and ________ do not directly affect the demand curve

A)the price of related goods, consumer incomes

B)consumer incomes, tastes
C)the costs of production, bank opening hours
D)the price of related goods, preferences

28 INCORRECT A change in price can cause a shift of a demand curve

A)TRUE
B)FALSE

29 INCORRECT A demand curve can shift because of changing

A)incomes
B)prices of related goods
C)tastes
D)all of the above

30 INCORRECT A supply curve is directly affected by

A)technology
B)input costs
C)government regulation
D)all of the above

31 INCORRECT An increase in price will cause a supply curve to shift to the left

A)TRUE
B)FALSE
 If a price increase of good A increases the quantity demanded of good B, then good B
32 CORRECT
is a
A)substitute good
B)complementary good
C)bargain
D)inferior good

An increase in consumer income will increase demand for a _______ but decrease
33 INCORRECT
demand for a _________
A)substitute good, inferior good
B)normal good, inferior good
C)inferior good, normal good
D)normal good, complementary good

34 INCORRECT Price ceilings are imposed increase price above the free market equilibrium price

A)TRUE
B)FALSE

Correct
1) What Microeconomics is about?

A. Study of Business Environment

B. Study of financial position of the economy
C. Study of the Economy at Micro Level
D. None of the above

Feedback
Microeconomics is concerned with the study of the individual consumer/producer or single economic unit
Incorrect
2) Law of Demand states that

A. With the increase in price Quantity increases

B. With the increase in price quantity decreases other things remaining the same.
C. Quantity does not change with any increase in price.
D. All of the above.

Feedback
Law of demand states that other things remaining the same every increase in price causes the quantity to be decreased
and vice versa.

Discuss this Question

Correct
3) The Slope of Indifference Curve indicates
 A. Marginal Rate of Substitution of x for y
B. Prices of x and y
C. Slope of the budget line
D. Change in prices

Feedback
Slope of Indifference Curve shows MRSxy
Correct
4) Production Functions Shows

A. Prices of input and output

B. Relationship between output and input
C. Various combinations of inputs
D. All of the above

Feedback
Production function shows a level of output associated with inputs. Choice B is correct
Incorrect
5) Shape of Total Fixed Cost(TFC) Curve is

A. Verticle
B. Horizontal
C. 45 degree line
D. None of the above

Feedback
Since the fixed cost is given its shape is horizontal line
Discuss this Question
Correct
6) While in Perfect Competition

A. Firms are price taker

B. Buyers are independant
C. Input prices are given
D. None of the above

Feedback
Since in Perfect Competition goods are homogeneous and perfect substitute for one another and there is large number
of buyers and sellers, therefore , no firm has control over price.
Correct
7) Model of Monopolistic Competition (i.e Imperfect competition) is characterized by

A. Homogeneous goods
B. Differentiated goods
C. Substitute Goods
D. All of the above

Feedback
In monopolistic goods are differentiated and the firm faces downward sloping demand curve i.e with every
increase(decrease) in price there is decrease(increase) in quantity.
Incorrect
8) Monopoly is a form of market where there is

A. large number of buyer

B. Small number of buyer
C. A single firm controlling the market
D. Any of the above

Feedback
Monopoly is a form of market where a single producer controls the market and has power to change the price and
output.

Discuss this Question

Incorrect
9) In Duopoly, there is/are

A. Many firms
B. Two firms controlling the Market
C. Large corporations
D. None of the above

Feedback
Duopoly is a form of oligopoly where two large firms control the market.
Discuss this Question
Correct

10) Price discrimination is a situation when a producer

A. Charges different prices in different markets

B. Charges same price
C. Charges many prices
D. All of the above.
Incorrect

1) The only requirement for a market to be perfectly competitive is for the market to have
many buyers and sellers

A. True
B. False
Discuss this Question
Correct

2) For a competitive firm, marginal revenue equals the price of the goods it sells

A. True
B. False
Correct

3) If a competitive firm sells three times the amount of output, its total revenue also increases
by a factor of three

A. True
B. False
Correct

4) A firm maximzies profit when it produces output up to the point where marginal cost equals
marginal revenue

A. True
B. False
Incorrect

5) If marginal cost exceeds marginal revenue at a firm's current level of output, the firm can
increase profit if i increases its level of output

A. True
B. False
Discuss this Question
Incorrect

6) A competitive firm's short-run supply curve is the portion of its marginal cost curve that lies
above its average-total-cost curve

A. True
 B. False
Discuss this Question
Incorrect

7) A competitive firm's long-run supply curve is the portion of its marginal-cost curve that
lies above tis average-variable-cost curve

A. True
B. False
Discuss this Question
Incorrect

8) In the short run, if the price a firm receives for a good is above its average variable costs but
below its average total costs of production, the firm will temporarily shut down

A. True
B. False
Discuss this Question
Correct

9) In a competitive market, both buyers and sellers are price takers

A. True
B. False
Correct

10) In the long run, if the price firms receive for their output is below their average total costs of
production, some firms will exit the market.

A. True
B. False
Correct

11) In the short run, the market supply curve for a good is the sum of the quantities supplied
by each firm at each price

A. True
B. False
Incorrect

12) The short-run market supply curve is more elastic than the long-run market supply curve
 A. True
B. False
Discuss this Question
Incorrect

13) In the long run, perfectly competitive firms earn small but positive economic proifts

A. True
B. False
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Correct

14) In the long run, if firms are identical and there is free entry and exit in the market, all firms
in. the market operate at their efficient scale.

A. True
B. False
Correct

15) If the price of a good rises above the minimum average total cost of production, positive
economic profits will cause new firms to enter the market, which drives the price back
down to the minimum average total cost of production.

A. True
B. False
Incorrect

16) Which of the following is not a characteristic of a competitive market?

A. There are many buyers and sellers in the market

B. The goods offered for sale are largely the same
C. Firms can freely enter or exit the market
D. Firms generate small but positive economic profits in the long run
E. All of the above are characteristics of a competitive market
Discuss this Question
Incorrect

17) Which of the following markets would most closely satisfy the requirements for a
competitive market?

A. Gold bullion
 B. Electricity
C. Cable television
D. Soda
E. All of the above represent competitive markets
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Incorrect

18) If a competitive firm doubles its output, its total revenue

A. More than doubles

B. Doubles
C. Less than doubles
D. Cannot be determined because the price of the good may rise or fall
Discuss this Question
Correct

19) For a competitive firm, marginal revenue i

A. Equal to the price of the good sold

B. Average revenue divided by the quantity sold
C. Total revenue divided by the price
D. Equal to the quantity of the good sold
Incorrect

20) The competitive firm maximizes profit when it produces output up to the point where

A. Marginal cost equals total revenue

B. Marginal revenue equals average revenue
C. Marginal cost equals marginal revenue
D. Price equals average variable cost
Discuss this Question
Incorrect

21) If a competitive firm is producing a level of output where marginal revenue exceeds
marginal cost, the firm could increase profits if it

A. Increased production
B. Decreased production
C. Maintained production at the current level
D. Temporarily shut down
Discuss this Question
 Correct

22) If a competitive firm is producing a level of output where marginal revenue exceeds
marginal cost, the firm could increase profits if it

A. Increased production
B. Decreased production
C. Maintained production at the current level
D. Temporarily shut down
Incorrect

23) In the short run, the competitive firm's supply curve is the

A. Entire marginal-cost curve

B. Portion of the marginal-cost curve that lies above the average-total-cost curve
C. Portion of the marginal-cost curve that lies above the average-variable-cost curve
D. Upward-sloping potion of the average-total-cost curve
E. Upward-sloping portion of the average-variable-cost curve
Discuss this Question
Correct

24) In the long run, the competitive firm's supply curve is the

A. Entire marginal-cost curve

B. Portion of the marginal-cost curve that lies above the average-total-cost curve
C. Portion of the marginal-cost curve that lies above the average-total-cost curve
D. Upward-sloping portion of the average-total-cost curve
E. Upward-sloping portion of the average-variable-cost curve
Incorrect

25) A grocery store should close at night if the

A. Total costs of staying open are greater than the total revenue due to staying open
B. Total costs of staying open are less than the total revenue due to staying open
C. Variable costs of staying open are greater than the total revenue due to staying open
D. Variable costs of staying open are less than the total revenue due to staying open
Discuss this Question
Correct

26) The long-run market supply curve

 A. Is always more elastic than the short-run market supply curve
B. Is always less elastic than the short-run market supply curve
C. Has the same elasticity as the short-run market supply curve
D. Is always perfectly elastic
Incorrect

27) In the long run, some firms will exit the market if the price of the good offered for sale is
less than

A. Marginal revenue
B. Marginal cost
C. Average revenue
D. Average total cost
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Incorrect

28) If all firms in a market have identical cost structures and if inputs used in the production of
the good in that market are readily available, then the long-run market supply curve for that
good should be

A. Perfectly elastic
B. Downward sloping
C. Upward sloping
D. Perfectly inelastic
Discuss this Question
Incorrect

29) If an input necessary for production is in limited supply so that an expansion of the
industry raises costs for all existing firms in the market, then the long-run market supply
curve for a good could be

A. Perfectly elastic
B. Downward sloping
C. Upward sloping
D. Perfectly inelastic
Discuss this Question
Incorrect

30) If the long-run market supply curve for a good is perfectly elastic, an increase in the demand
for that good will, in the long run, cause

A. An increase in the price of the good and an increase in the number of firms in the market
 B. An increase in the price of the good but no increase in the number of firms in the market
C. An increase in the number of firms in the market but no increase in the price of the good
D. No impact on either the price of the good or the number of firms in the market
Discuss this Question
Incorrect

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

A. The minimum of their average-total-cost curves

B. The intersection of marginal cost and marginal revenue
C. Their efficient scale
D. Zero economic profit
E. All of the above