Economics : Multiple choice questions and their Answers.

Multiple choice questions

Chapter 01    The Nature of Economics

Chapter 02    Scarcity, Governments, and Economists

Chapter 03    Supply and Demand

Chapter 04    Elasticity of Demand and Supply

Answer the following questions.

Chapter 01: The Nature of Economics

Question 1: Which of the following statements about factors of production is false?

 a) The term 'factors of production' is another term for resources.

 b) The factor of production termed labour means human resources.

 c)  The factor or production termed land means natural resources.

d)  The factor of production termed capital means the money which the owners of firms need in order to set their firms up.

Question 2 : Which of the following statements about the use of resources is not one of the key questions in economics?

a) How are resources used?

b) Where are resources used?

c) For what are resources used?

d)  For whom are resources used?

Question 3 : Which of the following statements about producers is false?

a) Households produce many goods and services for themselves

b) People set up some producers who do not aim to make profits.

c)  All the goods and services consumed in any country are produced by its own producers.

d)  Governments arrange the production of some goods and services.

Question 4 : Which of the following statements is true?

a) Despite the problem of scarcity, people do not always want producers to use the most efficient production methods.

b) The problem of scarcity would disappear if the world's population grew to ensure more labour was available.

c)  A producer who uses no more resources than it needs must display productive efficiency.

d)  The world's economies were as integrated 50 years ago as they are today

Question 5 : What is meant by intermediate goods and services?

a) The same as capital goods, such as plant, buildings, vehicles and machinery.

b) Products which one firm buys off another and then uses up in its own products.

c)  All inputs bought by firms, including labour and raw materials.

d)  Imports.

Question 6 : What is meant by the term final goods and services?

a) The same as the term intermediate goods and services.

b) The same as the term consumer goods and services

c)  All goods and services except those traded second hand.

d)  Goods and services which are finished as far as the economy is concerned.

Question 7 : Which of the following statements is false?

 a) Purchases of capital goods are called investment

b) GDP equals the total value of wages received by households.

c)  In a simple economy with just households and firms, the value of investment equals the value of saving.

d)  In a simple economy with just households and firms, the value of investment plus consumers' expenditure equals GDP.

Question 8: Which of the following statements is false?

a) GDP measures the value of all the goods and services produced in the economy.

b) GDP stands for gross domestic product.

c)  GDP excludes intermediate goods and services.

d)  GDP equals wages plus trading profits.

Question 9 :Which of the following statements is true?

a) Microeconomics is concerned chiefly with the economy as a whole.

b) Macroeconomics is concerned chiefly with individual markets.

c)  Governments have no influence over market prices.

d)  When economists study the price in a market, their chief aims are to understand why the price is what it is and why it may change.

Question 10 : Which of the following statements is false?

a) An economic model is a theory based on key variables and expressed in formal terms.

b) An economic model is tested by seeing how accurate its predictions are.

c)  Testing economic models is rarely tricky.

d)  The words 'ceteris paribus' mean other things remaining the same.

Chapter 02: Scarcity, Governments, and Economists

Question 1 : Which of the following is not required for a country to be producing at a point on its production possibility frontier?

 a) Full employment of labour.

\b) All producers using the latest technology.

c)  Stable prices.

d)  All producers having productive efficiency.

Question 2: Which of the following statements is true

a) The production possibility frontier is steeper at the right end than the left because some resources are better suited to making some products than others.

b) The production possibility frontier is straight because some resources are better suited to making some products than others.

c)  The production possibility frontier is steeper at the left end than the right because some resources are better suited to making some products than others.

d)  The production possibility passes the point which represents total wants in the economy.

Question 3 : Which of the following will not shift a country's production possibility frontier?

a) A fall in unemployment.

b) An increase in the age at which people retire.

c)  The introduction of improved technology.

d)  Purchases of new capital by firms.

Question 4 : Which of the following types of economy describes the economy of the UK?

a) A command economy.

b) A market economy.

c)  A mixed economy.

d)  A planned economy.

Question 5 : All the following government policies are likely to increase the quantity of some products that are produced. But with one policy, this effect is a side-effect rather than the aim. Which policy is that?

a) A policy intended to improve efficiency.

b) The introduction of subsidies on some products.

c)  A policy intended to reduce unemployment.

d)  The introduction of taxes on the rich and transfers to the poor.

Question 6:Which of the following policies would increase production by taking it to a point closer to the production possibility frontier, but would not shift the frontier?

a) A policy that encouraged firms to buy more industrial plant.

b) A policy that encouraged firms to develop and introduce improved technology.

c)  A policy that encouraged firms to buy more machinery.

d)  A policy that encouraged firms to adopt better technologies that are already available.

Question 7 : Suppose a country is currently producing at a point on its production possibility frontier, and undertakes no trade with other countries. Then trade is opened up. Which of the following would not occur as a direct result?

a) Its production possibility frontier would shift.

b) Its production would shift to another point on its production possibility frontier.

c)  The pattern of products that the country produced would differ from the pattern that its consumers consumed.

d)  Consumers would be able to consume at a point outside the production possibility frontier.

Question 8 : Which of the following policies is not classed as a stabilization policy?

a) A policy aimed at reducing unemployment.

b) A policy aimed at reducing the number of people in poverty.

c)  A policy aimed at reducing the rate of inflation.

d)  A policy aimed at shifting the production possibility frontier outwards.

Question 9: Which of the following statements is a positive statement?

a) Bankers' bonuses should be taxed.

b) The eurozone ought to allow member countries in difficulty to stop using the euro and use currencies of their own instead.

c)  One of the largest industries in the UK is the financial services industry.

d)  The UK government ought to split up some of the largest UK banks to promote more competition in the banking industry.

Question 10 : Suppose you buy Economics by David King. What is the opportunity cost of your purchase?

a) The money you paid for the book.

b) Whatever you would have spent the money on if you had not bought the book.

c)  The cost of producing the book.

d)  The time you spend studying the book.

 Chapter 3 :Supply and Demand

Question 1 : The supply and demand model applies when three of the following four conditions are met. Which condition is not required?

a) There must be many buyers.

b) There must be many sellers.

c)  The buyers and sellers must trade an identical item.

d)  The item traded must be a product.

Question 2: Which of the following predictions is not made by the supply and demand model?

a) If there is excess demand, the price will rise.

b) If there is excess supply, the price will fall.

c)  If there is no excess demand or excess supply, the market will be in equilibrium.

d)  A market which is out of equilibrium will always move rapidly to the equilibrium,

Question 3 :Suppose there is excess supply in a market and the price decreases. Which of the following combinations of events will occur?

a) There will be a fall in quantity supplied and a rise in quantity demanded.

b) There will be a fall in quantity supplied and a rise in demand.

c)  There will be a fall in supply and a rise in quantity demanded.

d)  There will be a fall in supply and a rise in demand.

Question 4 : Suppose there is a decrease in supply in a market where the supply curve slopes upwards and the demand curve slopes downwards. Which of the following would not occur?

a) An excess supply.

b) A fall in price.

c)  A fall in supply.

d)  A fall in the equilibrium level of expenditure.

Question 5 : Suppose a market is in equilibrium, and then the demand increases. Which of the following would be shown on a graph that illustrated the effects?

a) An excess demand at the initial equilibrium price.

b) An excess demand at the new equilibrium price.

c)  An excess supply at the initial equilibrium price.

d)  An excess supply at the new equilibrium price.

Question 6 : Suppose there is an increase in demand in a market where the supply curve slopes upwards and the demand curve slopes downwards. Which of the following might not occur?

a) An excess supply.

b) A fall in price.

c)  A rise in the quantity traded.

d)  A fall in the equilibrium level of expenditure.

Question 7 : Which of the following might not lead to an increase in the demand for a product that can be stored?

a) A fall in the price of a complement.

b) A rise in consumer incomes.

c)  An increase in the number of buyers.

d)  An expected rise in price.

Question 8: Which of the following might not lead to a decrease in the demand for a type of labour?

a) A decrease in the number of firms using the labour.

b) An increase in the productivity of the labour.

c)  A fall in the price of a substitute input.

d)  A decrease in the demand for the produce or products which the labour is used to produce.

Question 9 : Which of the following would not lead to a decrease in the supply of a product that can be stored?

a) An increase in the demand for a joint product.

b) A rise in the price of another input.

c)  A decrease in the number of firms supplying the product.

d)  An expected rise in the price of the product.

Question 10 : Which of the following could not lead to an increase in price combined with an increase in the quantity traded?

a) An increase in demand combined with unchanged supply.

b) An increase in demand combined with a decrease in supply.

c)  A decrease in demand combined with an increase in supply.

d)  An increase in demand combined with an increase in supply.

Chapter 04: Elasticity of Demand and Supply

Question 1 :A student club wants to raise just enough income to cover its costs. Its income comes partly from membership fees and partly from selling tickets for its nightly discos. Attendance at the discos currently leads to overcrowding of the club's room. The demand for membership is price inelastic and the demand for discos is price elastic. To reduce the crowding without changing its total income, what should the club do?

a) Raise both the disco ticket price and the membership fee.

b) Lower both the disco ticket price and the membership fee.

c)  Raise the disco ticket price but lower the membership fee.

d)  Lower the disco ticket price but raise the membership fee.

Question 2 :Suppose the price of a product increases from £12 to £20 and the quantity demanded falls from 55 a week to 45. What is the PED?

a) 0.4

b) -0.4

c)  2.5

d)  -2.5

Question 3 :Suppose a demand curve runs from the price axis to the quantity axis in a straight line. Whereabouts will PED=-1.0?

a) Where the curve meets the price axis.

b) Everywhere along the curve.

c)  At the mid-point of the curve.

d)  Nowhere along the curve.

Question 4 : A consumer product has a PED of -0.12. Which of the following factors would not help to explain this?

a) There are few substitutes available.

b) Any substitutes there are have higher prices.

c)  The product accounts for a small percentage of consumer expenditure.

d)  The product is a normal good.

Question 5 :Which of the following statements is true?

a) When an economy grows, firms would prefer to be making inferior goods rather than making normal goods.

b) If a firm notices that the price of a substitute for its product has fallen, it would prefer the CED between the products to be far from zero rather than close to zero.

c)  If a firm notices that the price of a complement for its product has risen, it would prefer the CED between the products to be far from zero rather than close to zero.

d)  If a firm's costs increase and it has to increase the price of its output, it would prefer demand to be price inelastic rather than price elastic.

Question 6 : Suppose incomes double over a period of years. Which sorts of product will experience the biggest increases in price?

a) Those with a PES close to 0.0 and an IED well above 0.0.

b) Those with a PES close to 0.0 and an IED well below 0.0

c)  Those with a PES well above 1.0 and an IED well above 0.0

d)  Those with a PES well above 1.0 and an IED well below 0.0

Question 7 :Suppose the price of a product increases from £50 to £70 and the quantity supplied rises from 40 a day to 80. What is the PES?

a) 0.5

b) -0.5

c)  2.0

d)  -2.0

Question 8 : Which of the following statements is false?

a) PES is infinity all along any horizontal supply curve.

b) PES is 1.0 all along any supply curve which passes through the origin.

c)  PED is zero all along any vertical demand curve.

d)  PED is -1.0 along any demand curve where spending would be the same at each price.

Question 9 :A consumer product has a PES of 0.1. Which of the following factors would not help to explain this?

a) The producers are close to full capacity.

b) One or more of the key intermediate products needed to make the product are themselves items with an inelastic supply.

c)  Consumers need very little time to respond fully to price changes.

d)  One type of labour used by the producers may be in inelastic supply

Question 10

Which of the following statements is false?

a) Price elasticity of demand is negative for most products.

b) Price elasticity of supply is positive for most products.

c)  Income elasticity of demand is positive for normal goods.

d)  Cross elasticity of demand is positive between complements.