Chapter (2_4) Questions

Chapter (2) MCQs

1. The concept of demand is described by
I. how fully a good satisfies an individual’s wants.
II. II. how much of a good an individual would be prepared to buy.
Which of the following is correct?
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
2. In a household with a given food budget, factors that will affect how fully the family’s
wants for food are satisfied are
I. the prices of foodstuffs.
II. the prices of non-foodstuffs.
III. total household income.
Which of the following is correct?
a. I only.
b. I and II only.
c. I, II and III.
d. Not I, not II, not III.
3. A traveler arrives at an airport and discovers that the taxi fare to the city center is $5.00.
The additional economic variables that will influence the average individual’s decision
whether or not to hire a taxi are
I. the price of the airport bus to the city.
II. the individual’s income.
III. the price of a new taxi.
Which of the following is correct?
a. I only.
b. I and II only.
c. I and III only.
d. I, II and III.
4. In some countries, such as Saudi Arabia, the sale of alcohol is prohibited. Which of the
following is correct? It can be concluded that
a. in those countries no individual has any demand for alcohol.
b. law makers in those countries believe that the consumption of alcohol is harmful to
society.
c. there are no benefits from drinking alcohol.
d. individuals collectively in those countries have no demand for alcohol.
5. A well-known football club is considering allowing old-age pensioners (people over 65
years of age) to attend home games for $2 instead of the normal ticket price of $10. If
total ticket receipts were to increase as a result of adopting such a policy, which of the
following is correct? It follows that
a. old-age pensioners, as a group, will have more income remaining to spend on other
goods and services.
b. the demand for tickets by old-age pensioners is more price-elastic than the demand
for tickets by all other age groups taken together.
c. total revenue from ticket sales would increase if all ticket prices were reduced to $2
d. the increase in ticket revenue from new fans more than offsets the loss in revenue
from old-age pensioners, who always attended games but now pay $2 instead of 10

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6. On a desert island, only two foods are available, fish and coconuts. On some days a
castaway eats well; on other days he goes hungry. On any given day
I. the higher the marginal utilities of fish and coconuts the hungrier he is.
II. the lower the marginal utilities of fish and coconuts the hungrier he is.
III. when the marginal utilities are zero, his total utility is zero.
Which of the following is correct?
a. I only.
b. II only.
c. I and III only.
d. II and III only.
7. A person spending his income to yield maximum satisfaction buys hot dogs at 25 cents
each and glasses of beer at 50 cents each. He derives 40 utils (units of utility) from the
fourth and last hot dog he buys. How many utils does he derive from the last glass of beer
he buys in the same period?
a. 20
b. 40
c. 80
d. 160
8. In a village in Ireland in the nineteenth century, all income was earned by producing linen
and all family income was spent on food. When the price of meat fell, family F bought
fewer potatoes and said it was better off. Family G said it was neither better nor worse
off in the same circumstances. Assuming the ‘law of diminishing marginal utility’ to hold, it
follows that
I. family F’s marginal utility of meat must have fallen.
II. family G must not have consumed any meat either before or after the price change.
Which of the following is correct?
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
9. A consumer’s typical demand curve is downward sloping to the quantity axis because
I. at lower prices the consumer buys more of the good in question in place of other
goods that are now relatively more expensive.
II. at lower prices the consumer can buy all she bought of the good at the higher price,
and with the money left over she can still buy more.
Which of the following is correct?
a. I only
b. II only
c. Both I and II
d. Neither I nor II
10. An individual’s demand curve for car could shift because of
I. a change in the price of car.
II. a change in the price of petrol.
III. a change in the individual’s income.
Which of the following is correct?
a. I only.
b. I and III only.
c. II and III only.
d. I, II and III.

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11. the demand curve for cigarettes have shifted to the left (assuming cigarettes not to be
an inferior good) because of
I. the BMA’s report suggesting a link between cigarette smoking and premature death.
II. a decrease in the price of cigars and pipe tobacco (cigar and pipe smoking being
substitutes for cigarette smoking for many people).
III. an increase in smokers’ income.
Which of the following is correct?
a. II only.
b. I and II only.
c. I and III only.
d. I, II and III.
12. If X is a substitute for Y and Z is a complementary good to Y, which of the following is
correct? An increase in the price of Y, cet. par., will lead to
a. a decrease in the quantity of X demanded.
b. an increase in the quantity of X demanded and an increase in the quantity of Z
demanded.
c. a decrease in the quantity of Z demanded.
d. an increase in the quantity of Z demanded and a decrease in the quantity of X
demanded.
13. In travelling about London, most people use either the underground train system or the
bus (which are substitutes for one another). Suppose all underground train fares were
doubled but bus fares remained unchanged. How would the underground train fare
increase affect the total fare revenue?
a. It would increase for buses but might increase or decrease for the underground.
b. It would increase for the underground but might increase or decrease for buses.
c. It would increase for both underground and bus travel.
d. It would increase for the underground and remain unchanged for buses.
14. The local Community Centre operates so as to raise just enough revenue to cover its
costs. Its revenue comes from a membership fee of $5 and a price of 50 cents for its
nightly disco in the main hall. Attendance at the disco results in overcrowding of the hall.
In order to reduce the crowding without increasing total receipts, if disco demand is
elastic and membership demand is inelastic, the Centre should do which of the following:
a. raise both the membership fee and the disco price.
b. lower both the membership fee and the disco price.
c. raise the disco price and lower the membership fee.
d. lower the disco price and raise the membership fee.

# Ans. # Ans. # Ans.

1 B 7 C 13 A
2 A 8 C 14 A
3 B 9 C
4 B 10 C
5 D 11 B
6 A 12 C

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 Chapter (3) MCQs
1. The budget constraint indicates that the amount spent on goods cannot exceed after tax
income
a. True
b. False
2. The slope of the budget constraint shows the trade-off between two goods.
a. True
b. False
3. Income determines the slope of the budget constraint.
a. True
b. False
4. The amount that an individual is willing to pay for an extra cup of coffee is called the
marginal utility of coffee.
a. True
b. False
5. The amount that an individual is willing to pay for coffee is called the marginal utility of
coffee.
a. True
b. False
6. A rational individual will increase her consumption of a good until the marginal utility
equals the price.
a. True
b. False
7. When income increases, the budget constraint rotates, becoming flatter.
a. True
b. False
8. When income increases, the consumer demands more of inferior goods.
a. True
b. False
9. If an individual demands more of a good when income falls, the good is a complement
a. True
b. False
10. If the income elasticity is less than zero, then the good is an inferior good.
a. True
b. False
11. The long run income elasticity of demand is greater than the short run income elasticity
of demand
a. True
b. False
12. If when the price of one good rises, the demand for another also rises, the goods are
substitutes
a. True
b. False
13. If when the price of one good falls, the demand for another also falls, the goods are
complements
a. True
b. False
14. When the price of a good falls, the substitution effect encourages more consumption of
that good.
a. True
b. False

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15. Suppose the price elasticity of demand is 1.5. If price falls, total revenue will
a. remain the same.
b. fall.
c. rise.
d. double.
e. both c and d.
16. Suppose that the price elasticity of demand is 0.7. The demand for this good is
a. perfectly inelastic.
b. inelastic.
c. unitary elastic.
d. elastic.
e. perfectly elastic.
17. Which of the following are true statements concerning the price elasticity of demand?
a. the price elasticity is constant for any demand curve.
b. demand is less price elastic in the short run than in the long run.
c. if total revenue falls as price increases, the demand is relatively inelastic.
d. both a and c.
18. Assuming that there is no saving or borrowing and a consumer’s income is fixed, his
budget constraint
a. Defines his opportunity set
b. Indicates that total expenditures cannot be greater than total income
c. Shows that marginal utility is decreasing
d. All of the above
e. A and B
19. Suppose that the price of a movie ticket is $5 and the price of a pizza $10. The trade-off
between the two goods is
a. One pizza for one movie ticket
b. Two movie tickets for one pizza
c. Two pizzas for one movie ticket
d. $2 per movie ticket
e. None of the above
20. The marginal utility of a good indicates
a. that the usefulness of the good is limited.
b. the willingness to pay for an extra unit.
c. that the good is scarce.
d. that the slope of the budget constraint is the relative price.
e. None of the above
21. Diminishing Marginal Utility means that
a. that the usefulness of the good is limited.
b. the willingness to pay for an extra unit decreases as more of that good is consumed.
c. the good is less scarce.
d. the slop of the budget constraint is flatter as more of that good is consumed.
e. None of the above
22. If Fred is willing to pay $100 for one espresso maker and $120 for two, then the marginal
utility of the second espresso maker is
a. $20
b. $120
c. $100
d. $60
e. $50
23. When the income of a consumer increases, her budget constraint
a. shifts outward parallel to the original budget constraint.
b. rotates and becomes steeper.
c. rotates and becomes flatter.
d. shifts inward parallel to the original budget constraint.
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24. The percentage change in quantity demanded brought about a 1 percent increase in
income is
a. 1
b. Greater than 0
c. The income elasticity of demand
d. The price elasticity of demand
e. None of the above
25. In the long run,
a. the price elasticity of demand is greater than in the short run.
b. the income elasticity of demand is greater than in the short run.
c. the price elasticity of demand is less than in the short run.
d. the income elasticity of demand is less than in the short run.
e. both a and b.
26. when a price of a good (measured along the horizontal axis) falls, the budget constraint
a. rotates and becomes flatter
b. rotates and becomes steeper
c. shifts out parallel to the original budget constraint
d. shifts in parallel to the original budget constraint
e. none of the above
27. If demand for a good falls as income rises, then
a. the good is a normal good.
b. the good is an inferior good.
c. the income elasticity is less than 0.
d. the income elasticity is between 0 and 1.
e. both b and c.
28. when the price of a good falls, the substitution effect
a. encourages the individual to consume more of the good
b. encourages the individual to consume less of the good
c. leads to more consumption if the good is an inferior good but less if the good is a
normal good.
d. leads to less consumption if the good is an inferior good but more if the good is a
normal good.
e. A and C
29. When the price of good falls, the income effect
a. encourages the individual to consume more of the good
b. encourages the individual to consume less of the good
c. leads to more consumption if the good is an inferior good but less if the good is a
normal good.
d. leads to less consumption if the good is an inferior good but more if the good is a
normal good.
e. A and C
30. The rational consumer chooses her purchases for each good so that the
a. Utility equals total expenditure
b. Marginal utility equals price
c. Consumer surplus equals 0
d. Marginal utility is diminishing
e. Income elasticity equals 1
31. The difference between what the consumer is willing to pay for an item and what she has
to pay is called the
a. marginal utility.
b. substitution effect.
c. consumer surplus.
d. income effect.
e. price elasticity of demand.

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32. In general, the price elasticity of demand is greater when
a. The good is an inferior
b. There are good, close substitutes available
c. There are good, close complements available
d. The income elasticity of demand is less
e. None of the above
33. For normal goods, when income rises,
a. the budget constraint shifts out, parallel.
b. the demand curve shifts to the right.
c. quantity demanded increases.
d. more money is spent on the good.
e. all of the above.
34. For normal goods, as price rises,
a. the substitution effect encourages less consumption.
b. the income effect encourages less consumption.
c. the quantity demanded falls.
d. the demand for substitute goods increases.
e. all of the above.
35. For inferior goods, as the price rises,
a. the substitution effect encourages less consumption.
b. the income effect encourages less consumption.
c. the income effect encourages more consumption.
d. the quantity demanded must stay constant.
e. both a and c.
36. The slope of the budget constraint depends on
a. the relative price of the goods.
b. the income of the constraint
c. the availability of substitute goods.
d. whether the good is normal or inferior.
e. both a and b.

# Ans. # Ans. # Ans. # Ans. # Ans. # Ans.

1 A 7 B 13 B 19 B 25 A 31 C
2 A 8 B 14 A 20 B 26 A 32 B
3 B 9 B 15 C 21 B 27 E 33 E
4 A 10 A 16 B 22 A 28 A 34 E
5 B 11 B 17 B 23 A 29 D 35 E
6 A 12 A 18 E 24 C 30 B 36 A

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 Chapter (4) MCQs
1. If you were to observe a firm supplying none of a particular good at its existing price, it
could justifiably be concluded that
I. the good is incapable of making a profit for the firm at any price.
II. II. the firm expects the price to fall in the future.
Which of the following is correct?
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
2. A firm that produces a range of cosmetics products moves from Britain to Germany. In
comparing monthly sales, it discovers that in Germany it supplies a greater proportion of
high-cost items than it did in Britain. The factors that could not have caused this
change in the firm’s sales are
I. higher income levels in Germany compared with Britain.
II. the length of the period being compared.
III. different relative prices of cosmetic products in the two countries.
Which of the following is correct?
a. I only.
b. II only.
c. II and III only.
d. I, II and III.
3. What is the correct definition of the term ‘short run’ as used in the theory of supply?
a. The time period between the decision to produce a good and its final appearance
on the market.
b. A time period of less than one year in which more than one factor of production can
be altered.
c. A time period of up to three years in which any factor of production can be altered.
d. The time period in which a firm cannot increase or decrease the quantity it hires of
at least one factor of production
4. In the theory of supply, what does the term ‘long run’ refer to when used in connection
with a firm’s decision making?
a. The number of years over which a firm can expect to produce with unaltered
factors of production.
b. Any period of time between three and five years in which a firm can increase or
decrease all the factors of production it employs.
c. Any period of time over five years in which a firm can increase or decrease all the
factors of production it employs.
d. The time period in which a firm can increase or decrease all the factors of
production it employs.
5. A firm must make maximum profits when
I. it raises the maximum amount of revenue from selling its products.
II. its products are produced at the lowest possible costs per unit of output.
Which of the following is correct?
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
6. The output of a good (i.e. the quantity produced) divided by the number of units of a
variable factor used in the production of that good is a definition of:
a. marginal product of that factor.
b. average product of that factor.
c. total cost of production.
d. variable cost of production.

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7. A hop grower in Kent noted that, within limits, the larger the number of workers he hired
the greater was the output of hops from his fields. This means that for the number of
workers being employed by the grower the marginal product of labour is necessarily
a. higher than the average product of farm labour.
b. lower than the average product of farm labour.
c. greater than zero.
d. less than zero.
8. Which of the following is correct? For a firm, in the long run
a. fixed costs tend to be greater than variable costs.
b. variable costs tend to be greater than fixed costs.
c. all costs are fixed.
d. all costs are variable costs.
9. If a perfectly competitive firm is maximising profit in the long run, price equals
I. short-run marginal cost.
II. long-run marginal cost
Which of the following is correct?
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
10. If an increase in the demand for aircraft causes the price of aluminium to rise, how will
this, other things being unchanged, affect the industry that produces aluminium beer
cans?
a. Its output will increase.
b. Its long-run supply curve will shift to the right.
c. Its long-run supply curve will shift to the left.
d. Its long-run supply curve will not be affected.
11. If a firm is producing output at a point where diminishing returns have set in, then
I. each additional unit of output will be more expensive to produce
II. each additional unit of output will require increasing amounts of the variable factor
of production.
III. the marginal product of the variable factor of production decreases as the quantity
used increases.
Which of the following is correct?
a. I only.
b. I and II only.
c. I and III only.
d. I, II and III.
12. The higher the
I. marginal product of a factor input, the lower the marginal cost of output.
II. average product of a factor input, the lower the average cost of output.
III. costs of fixed factor inputs, the lower the marginal cost of output.
Which of the following is correct?
a. I only.
b. III only.
c. I and II only.
d. I, II and III.
13. For a firm with given plant and equipment, which of the following will always decrease as
output increases?
a. Total variable cost.
b. Total fixed cost.
c. Variable cost per unit.
d. Fixed cost per unit.

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14. The short-run supply curve of an industry would shift to the right as a result of
I. an increase in the number of firms in the industry.
II. an increase in the cost of the variable factor of production.
III. a decrease in the cost of the variable factor of production.
Which of the following is correct?
a. I only.
b. III only.
c. I and II only.
d. I and III only.

# Ans. # Ans. # Ans.

1 D 7 C 13 D
2 B 8 D 14 B
3 D 9 C
4 D 10 C
5 D 11 D
6 B 12 C

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