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

Economics (ECO401)

Multiple Choice Questions (MCQs)

Objective Questions

  1. 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
  2. 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
  3. Final goods are:

    1. Inferior goods only
    2. For further processing
    3. Perishable goods only
    4. For Direct use by the consumers
  4. If a 2% rise in consumer’s incomes causes a 4% rise in product’s demand, the income elasticity of demand for the product will be:

    1. 0.5
    2. 1.5
    3. 2
    4. 2.5
  5. 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
  6. 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
  7. When the price elasticity of demand for a good is greater than 1, we say that the demand is:

    1. Increasing
    2. Decreasing
    3. Elastic
    4. Inelastic
  8. 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.
  9. When the price for entry tickets for parks decrease, families tend to spend more time at parks instead at home. This best reflects:

    1. Diminishing marginal utility
    2. The income effect
    3. The rationing function of markets
    4. The substitution effect
  10. “Q= a – b P” represents equation of:

    1. Supply
    2. Demand
    3. Labor supply
    4. Budget line
  11. Suppose a firm hires five workers and offers them to pay Rs. 350 for 6 hours. Later on, firm decides to increase working hours instead of hiring new workers. As working hours increase, the wage rate:

    1. Increases
    2. Decreases
    3. Remains unchanged
    4. First decreases then increases
  12. It is expected that the sign of cross price elasticity of demand between two complementary goods would be:

    1. Positive
    2. Negative
    3. Zero
    4. Ambiguous
  13. 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.
  14. The gold standard was an example of what kind of exchange-rate system?

    1. A freely floating exchange rate
    2. A managed floating exchange rate
    3. A fixed exchange rate
    4. A non-convertible exchange rate
  15. Assume that the current market price is above the market clearing level. We would expect:

    1. A shortage to accumulate
    2. Downward pressure on the current market price
    3. Upward pressure on the current market price
    4. Lower production during the next time period
  16. Inverse relationship between the inflation rate and the unemployment rate is explained by:

    1. Aggregate demand curve.
    2. Price adjustment curve.
    3. Phillips Curve.
    4. Okun law.
  17. 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
  18. 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
  19. 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
  20. Rabia decides to look after her baby at home rather than going out with her friends in a park. His dilemma is an example of:

    1. Opportunity cost
    2. Marginal analysis
    3. Allocative efficiency
    4. The economic perspective
  21. An increase in the total output of a country over time is called:

    1. Inflation
    2. Economic growth
    3. Economic development
    4. Unemployment
  22. 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.
  23. 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.
  24. What would result from a depreciation of the pound on the foreign exchange market?

    1. An increase in the price of imported computers.
    2. A fall in the purchasing power of US tourists in London.
    3. A fall in the price of imported computers.
    4. An increase in the purchasing power of UK tourists overseas.
  25. There will be excess supply in the market due to:

    1. Price ceiling
    2. Price rationing
    3. Price floor
    4. All of the given
  26. 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.
  27. In a free market economy, resources are allocated on the basis of:

    1. Votes taken by consumers
    2. A central planning authority
    3. Consumer preferences
    4. The level of profits of firms
  28. When producers are unable to meet market demand for the product, this results as:

    1. Surplus of goods
    2. Market failure
    3. Monopoly
    4. Shortage of good
  29. 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.
  30. Ali has 1 acre land in Bahawalpur. He grows wheat on this land by employing 10 workers. To get maximum output, he decides to increase number of workers. The law of diminishing returns states that as more workers are employed to grow wheat on 1 acre land:

    1. Marginal utility of wheat falls
    2. The total physical product of wheat falls
    3. The marginal physical product of wheat falls
    4. The marginal physical product of wheat increases
  31. Demand is elastic when the elasticity of demand is:

    1. Greater than 0
    2. Greater than 1
    3. Less than 1
    4. Less than 0
  32. The curve of unitary elastic demand will be:

    1. A hyperbola
    2. An ellipse
    3. A rectangle
    4. A parabola
  33. 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
  34. The cross-price elasticity of demand of complementary goods is:

    1. Less than 0
    2. Equal to 0
    3. Greater than 0
    4. Between 0 and 1
  35. The opportunity cost of an action is:

    1. Same for everyone
    2. The value of the next best alternative
    3. The undesirable aspects of that action
    4. The average amount of unhappiness experienced by everyone involved
  36. 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.
  37. 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
  38. 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
  39. ABC Company is running a business of car manufacturing and finds sharp increase in prices of spare parts which in turn increases cost of manufacturing cars. This increase in cost of production will:

    1. Shift demand curve for cars to the right
    2. Shift demand curve for cars to the left
    3. Shift supply curve for cars to the left
    4. Bring no change in demand or supply curves for cars
  40. The price elasticity of demand measures the responsiveness of quantity demanded to:

    1. Quantity demanded
    2. Quantity supplied
    3. Price
    4. Output
  41. 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.
  42. 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
  43. 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
  44. 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
  45. When government sets the price of a good less than the equilibrium price of a good, then there will be:

    1. Surplus of the good
    2. Shortage of the good
    3. An increase in the demand for the good
    4. A decrease in the supply of the good
  46. Which of the following might be considered to be a characteristic of a planned economy?

    1. Government influence
    2. Consumer sovereignty
    3. Forbiddance of interest
    4. Even income distribution
  47. 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
  48. Suppose if investment rises by Rs 100 billion at each price level. If the value of the multiplier is 4, what is the amount of change in real GDP demanded at each price level?

    1. 25
    2. 50
    3. 400
    4. 1000
  49. Demand is said to be ________ when the elasticity of demand is less than 1.

    1. Increasing
    2. Decreasing
    3. Elastic
    4. Inelastic
  50. Suppose quantity demanded of chicken increases by 5 percent in response to 2 percent increase in price of beef. The cross-price elasticity of demand for chicken with respect to price of beef is:

    1. +2.5
    2. -2.5
    3. +0.25
    4. -0.25
  51. 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
  52. What is meant by the term utility?

    1. Useless.
    2. Require.
    3. Necessary.
    4. Satisfaction.
  53. 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
  54. If the price elasticity of demand for beans is estimated to be -0.4, then a 20% increase in price will decrease the quantity demanded by:

    1. 14%
    2. 8%
    3. 16%
    4. 20%
  55. 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.
  56. 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.
  57. 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.
  58. Production possibility frontier analysis assumes that resources:

    1. Increase with production
    2. Are saved for emergency use
    3. Are used to produce thousands of goods
    4. Are used in a technically efficient way
  59. 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.
  60. 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
  61. The process by which we limit the supply or amount of some economic factor which is scarcely available is called:

    1. Rationing
    2. Bundling
    3. Price floor
    4. Price ceiling
  62. During exams, Ali is studying for two hours a day and decides to spend an extra hour for better performance. The marginal benefit is the benefit that he gets from studying:

    1. All three hours
    2. An extra hour
    3. Two hours
    4. Four hours
  63. If the price of a good X is increased by 40% and its quantity demanded falls by 10%, the price elasticity of demand is:

    1. Price elastic
    2. Price inelastic
    3. Unit price elastic
    4. Normal
  64. Economics is different from other social sciences because it is primarily concerned with the study of ________.

    1. Limited resources
    2. Scarcity
    3. Social behavior
    4. Biological behavior
  65. Suppose that a farmer grows wheat and sells it to a baker for Rs.1, the baker makes bread and sells it to a store for Rs.2, and the store sells it to the customer for Rs.3. This transaction increases GDP by:

    1. Rs.1
    2. Rs.2
    3. Rs.3
    4. Rs.6
  66. If a good has income elasticity of demand equal to 1/2, the good is:

    1. Normal good (but not a luxury)
    2. An inferior good
    3. Luxury good
    4. A Giffen good
  67. 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
  68. The demand for books is expressed as: Qd = 100 - P
    The supply of books is expressed as: Qs = 4P
    Refer to the above scenario, the equilibrium price of books is:

    1. Rs. 15
    2. Rs. 20
    3. Rs. 23
    4. Rs. 25
  69. A Higher demand for computers will ________ of computers.

    1. Increase both equilibrium price and equilibrium quantity
    2. Decrease both equilibrium price and equilibrium quantity
    3. Increase equilibrium price and decrease equilibrium quantity
    4. Decrease equilibrium price and increase equilibrium quantity
  70. 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
  71. 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
  72. 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
  73. Accounts office of Z&X corporations has paid Rs.250000 on account of profit in the month of August 2011. Which of the following the accounts office has paid for?

    1. Labor
    2. Capital
    3. Land
    4. Entrepreneurship
  74. When the price of wheat rises by 10%, the quantity of wheat purchased falls by 4%. This shows that the demand for wheat is:

    1. Perfectly elastic
    2. Unit elastic
    3. Price elastic
    4. Price inelastic
  75. Salman makes a plan to see movie with his friends. The cost of ticket is Rs. 300. If he will go, he will have to forego Rs. 500 that otherwise he will get by doing work at that time. The opportunity cost of watching movie is:

    1. Rs.350
    2. Rs. 500
    3. Rs. 850
    4. Rs.150
  76. “Each firm produces an identical product and there is freedom of entry and exit”. This is TRUE for which of the following market structures?

    1. For Monopoly
    2. For Oligopoly
    3. For Perfect competition
    4. For Monopolistic competition
  77. 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.
  78. 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
  79. Which of the following is NOT a public good?

    1. Street lights
    2. Electronics
    3. Knowledge
    4. National security
  80. 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
  81. 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.
  82. 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.
  83. Falling inflation means that price level is rising at a(n):

    1. Constant Rate.
    2. Increasing rate.
    3. Decreasing rate.
    4. Fluctuating rate.
  84. The oligopoly model that predicts that oligopoly prices will tend to be very rigid is the ________ model.

    1. Cournot
    2. Stackelberg
    3. Dominant firm
    4. kinked demand curve
  85. Rationing is needed due to the problem of:

    1. Unemployment.
    2. Inflation.
    3. Scarcity.
    4. Poverty.
  86. In measurement of GDP, the problem of double counting is avoided by:

    1. Using GDP deflator.
    2. Adjusting the value of intermediate goods with prices.
    3. Adjusting the value of only finished goods with prices.
    4. Calculating value added at each stage of production.
  87. Suppose Gross Domestic Product (GDP) in 2007 equals Rs. 720,000. If the values of indirect taxes and depreciation allowance are Rs. 250,000 and Rs. 40,000 respectively, the value of net domestic product (NDP) is:

    1. Rs.680, 000
    2. Rs.470, 000
    3. Rs.430, 000
    4. Rs.510, 000
  88. 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
  89. 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.
  90. 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
  91. Organizations of independent firms, producing similar products, that work together to raise prices and restrict output, are a situation of:

    1. Cartels
    2. Perfect competition
    3. Optimal output mix
    4. Price ceiling
  92. If marginal physical product is equal to average physical product:

    1. Total revenue will fall
    2. Average variable costs will fall
    3. The total physical product will fall
    4. The average physical product will not change
  93. Which of the following is true about the market mechanism?

    1. Works through central planning by government
    2. Eliminates market failures created by government
    3. Inefficient means of communicating consumer demand
    4. Prices serve as a means of communication between consumers and producers
  94. 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
  95. If income elasticity is negative, the good is:

    1. Normal good
    2. A substitute good
    3. A complementary good
    4. inferior good
  96. The percentage change in quantity demanded given a percentage change in consumer's income is known as:

    1. Price elasticity of demand
    2. Income elasticity of demand
    3. Supply price elasticity
    4. Cross price elasticity
  97. If quantity demanded of videocassette players decreases by 15% as a result of 10% increase in its price, then one can conclude that demand for videocassette players is:

    1. Elastic
    2. Inelastic
    3. Perfectly elastic
    4. Perfectly inelastic
  98. Arif decides to work for an extra hour rather than playing cricket with his friends. He gets Rs. 500 for an extra hour. His opportunity cost of working for an extra hour is:

    1. Rs. 500
    2. Pleasure that he would have received from playing cricket
    3. Rs.500 minus pleasure that he would have received from playing cricket
    4. Undetermined
  99. 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.
  100. 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
  101. 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.
  102. Suppose that as the price of apples falls the income effect causes consumers to buy fewer apples. We can conclude that apple is:

    1. An inferior good
    2. Nasty tasting
    3. A normal good
    4. Expensive
  103. If the price of a good X is increased by 15% and its quantity demanded falls by 25%, the price elasticity of demand is:

    1. Price elastic
    2. Price inelastic
    3. Unit price elastic
    4. Normal
  104. 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.
  105. 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
  106. 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
  107. 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.
  108. 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
  109. 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.
  110. The demand for butter is downward-sloping. The price of butter suddenly rises from Rs. 160 per kg to Rs. 180 per kg. This will cause:

    1. Demand curve of butter to shift to the right
    2. Demand curve of butter to shift to the left
    3. Quantity demanded of butter to increase
    4. Quantity demanded of butter to decrease
  111. If the current market price is above the market clearing level. We would expect:

    1. A shortage to accumulate
    2. A surplus to accumulate
    3. Upward pressure on the current market price
    4. Lower production during the next time period
  112. Marginal social cost is the change in social costs caused by:

    1. A unit change in input
    2. A unit change in fixed cost
    3. A unit change in variable cost
    4. A unit change in output
  113. The branch of economics that studies the entire economy, such topics as aggregate production, unemployment and inflation is called:

    1. Managerial economics
    2. Macro economics
    3. Micro economics
    4. Financial economics
  114. In price discrimination, price elasticity of demand for different customers should be:

    1. Same.
    2. Unit elastic.
    3. Infinite elastic.
    4. Different.
  115. 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.
  116. 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
  117. In a perfectly competitive market:

    1. Firms can freely enter and exit
    2. Firms sell a differentiated product
    3. Transaction costs are high
    4. All of the given
  118. If one firm increases its price, in the kinked demand curve model then:

    1. Other firms will reduce their price.
    2. Other firms will compete on a non-price basis.
    3. Other firms will not increase their price.
    4. Other firms will increase their output level.
  119. Which of the following factors would cause leftward shift in supply curve for bicycles?

    1. Decrease in wages
    2. Increase in prices of inputs
    3. Decrease in prices of inputs
    4. Use of latest technology in production of bicycles
  120. When we study market equilibrium, the primary influencing variable on production and purchasing decisions is:

    1. Price
    2. Cost of production
    3. The overall state of the economy
    4. Consumer’s income
  121. 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
  122. 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
  123. 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
  124. 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
  125. The socially optimal level of price and quantity is determined where:

    1. Marginal social benefit curve intersects marginal social cost curve.
    2. Marginal social benefit curve intersects marginal private benefit curve.
    3. Marginal social benefit curve intersects marginal private cost curve.
    4. Marginal private benefit curves intersects marginal social cost curve.
  126. The total utility curve starts at the origin and reaches the peak when marginal utility is:

    1. Zero
    2. Maximum
    3. Negative
    4. Positive
  127. A Demand Curve is price inelastic when changes in demand are:

    1. Greater than zero
    2. Equal than those in price
    3. Proportionately smaller than those in price
    4. Proportionately greater than those in price
  128. If demand for automobiles increases and the supply curve do not shift then result will be:

    1. No change in price and quantity of automobiles
    2. Higher price and lower quantity of automobiles
    3. Higher price and more quantity of automobiles
    4. Higher price and no change in quantity of automobiles
  129. Gross National Product (GNP) is:

    1. Gross Domestic Product (GDP) minus depreciation.
    2. Net National Product (NNP) plus depreciation.
    3. National income discounted by the GDP deflator.
    4. Income from foreign investments.
  130. 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.
  131. 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.
  132. Those who hold the Classical view of the labour market are likely to believe that:

    1. Monetary, but not fiscal policy will have an effect on output and employment
    2. Fiscal but not monetary policy will have an effect on output and employment.
    3. Both monetary and fiscal policy will have an effect on output and employment.
    4. Neither monetary nor fiscal policy will have an effect on output and employment.
  133. 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.
  134. 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
  135. If the quantity demanded of mangoes exceeds the quantity supplied of mangoes:

    1. There is a surplus of mangoes
    2. Market forces will cause the price to fall
    3. Market forces will cause the price to rise
    4. The market is in equilibrium
  136. 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
  137. Which of the following is not a stock variable?

    1. Government debt
    2. The labor force
    3. The amount of money held by the public
    4. Inventory investment
  138. 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
  139. 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.
  140. 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
  141. The law of diminishing marginal utility indicates that the demand curve is:

    1. Vertical
    2. U shaped
    3. Upward sloping
    4. Downward sloping
  142. 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
  143. Which best expresses the law of demand?

    1. A higher price reduces demand
    2. A lower price reduces demand
    3. A higher price reduces quantity demanded
    4. A lower price shifts the demand curve to the right
  144. 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
  145. A market is said to be in equilibrium when:

    1. Supply equals Price
    2. There is upward pressure on price
    3. There is downward pressure on price
    4. Quantity demanded is equal to quantity supplied
  146. What will happen if exchange rate decreases from $1 = Pak Rs. 85 to $1 = Pak Rs. 65?

    1. It will reduce imports of Pakistan.
    2. Its imports and exports will remain unchanged.
    3. It will decrease exports of Pakistan.
    4. It will increase exports of Pakistan.
  147. 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.
  148. 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.
  149. Arifa in her recent address in National assembly said that poverty should be reduced in Pakistan. Which category her statement falls in?

    1. Normative
    2. Positive
    3. Negative
    4. None of the given
  150. Which of the following is a characteristic of a mixed economy?

    1. Resources are governed by both government and individuals.
    2. It utilizes the characteristics of both market economy and planned economy.
    3. People are free to make their decisions and government controls the defense.
    4. All of the given
  151. If there is a price ceiling, there will be:

    1. Shortages
    2. Surpluses
    3. Equilibrium
    4. Decrease in production
  152. 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
  153. 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.
  154. Which of the following is TRUE for an entrepreneur?

    1. An innovator
    2. A risk taker
    3. Someone who brings resources together and produces a product
    4. All of the given
  155. 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
  156. 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
  157. A normative economic statement is a statement:

    1. of fact
    2. Used to test economic theory
    3. Of what ought to be, not what is
    4. Of what will occur if certain assumptions are true
  158. 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
  159. Diminishing marginal returns implies:

    1. Decreasing marginal costs
    2. Increasing marginal costs
    3. Decreasing average variable costs
    4. Decreasing average fixed costs
  160. If the income elasticity of demand for tea is 0.4, a 10% increase in consumer's income will lead to a _________ in the quantity of tea demanded.

    1. 40 percent increase
    2. 40 percent decrease
    3. 4 percent increase
    4. 0.4 percent increase
  161. 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
  162. 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.
  163. 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
  164. If consumers’ incomes remain constant, then demand for product Y will:

    1. Necessarily remain unchanged
    2. Shift to the right if Y is a complementary good
    3. Shift to the right if Y is a normal good
    4. Shift to the right if Y is an inferior good
  165. 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
  166. 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
  167. Suppose Fauji Fertilizer Company Limited produces 4500 bags of Sona Urea and sells each bag at a price of Rs. 350. What is the total revenue this firm gets by selling 4500 bags?

    1. 128500
    2. 150000
    3. 1575000
    4. 1636000
  168. If price of MP3 players rises and as a result, the demand for headphones decreases, then one can say that MP3 players and headphones are:

    1. Normal goods
    2. Substitutes
    3. Complements
    4. Inferior goods
  169. 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.
  170. Suppose Ali is consuming 20 units of Apples and 10 units of bananas with his given income. Suddenly his level of income increases and he starts consuming more of both goods. For Ali, both goods are:

    1. Normal Goods
    2. Substitutes
    3. Complements
    4. Giffen Goods
  171. If sugar and tea are considered to be perfect complements, than a decrease in price of sugar will lead to:

    1. Decrease in quantity demanded of sugar
    2. Decrease in quantity demanded of tea
    3. Increase in quantity demanded of tea
    4. Increase in quantity supplied of tea
  172. 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
  173. 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.
  174. 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
  175. 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
  176. For a firm buying labor competitively, the marginal input cost is equal to the:

    1. Wage
    2. Interest rate
    3. Price of output
    4. cost of raw materials
  177. Measurement of elasticites is made in percentage terms because:

    1. It is easy to calculate
    2. The resulting measure is unit free
    3. It gives a more accurate answer
    4. The answer is always negative that way
  178. The quantity of a good that sellers wish to sell at each price level is called:

    1. Supply
    2. Demand
    3. Shortage
    4. Surplus
  179. 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.
  180. Revenue is equal to price times:

    1. Quantity
    2. Quantity minus total cost
    3. Quantity minus average cost
    4. Quantity minus marginal cost