ECO401 Midterm MCQs 2025

Q1. All the insurance companies around the globe work under the principle of:

1. Law of zero numbers.
2. Law of constant numbers.
3. Law of large numbers.
4. Law of small numbers.

Correct answer: Law of large numbers.

Q2. The substitution effect of a price rise is always:

1. Positive.
2. Negative.
3. Undefined.
4. Zero.

Correct answer: Negative.

Q3. Which of the following types of elasticity is calculated as the percentage change in quantity demanded due to percentage change in price?

1. Income elasticity of demand
2. Price elasticity of demand
3. Cross price elasticity of demand
4. Price elasticity of supply

Correct answer: Price elasticity of demand

Q4. Whenever we have to give up higher and higher units of one good in order to produce each additional unit of other good, this principal shows:

1. The increasing opportunity cost
2. The decreasing opportunity cost
3. The constant opportunity cost
4. Constant decreasing cost

Correct answer: The increasing opportunity cost

Q5. Which of the following prompting producers to supply less and consumers to demand more?

1. Economic growth
2. Market failure
3. Shortages
4. Surplus

Correct answer: Surplus

Q6. A rational person does not act unless:

1. Marginal benefits of an action exceed marginal costs.
2. Marginal costs of an action exceed marginal benefits.
3. The action is ethical.
4. The action makes money for the person.

Correct answer: Marginal benefits of an action exceed marginal costs.

Q7. Assume that first five units of a variable input generate corresponding total outputs per period of 50, 75, 120, 150, and 250 respectively. The marginal product of 5th unit of input is

1. 100
2. 50
3. 150
4. 200

Correct answer: 100

Q8. The study of economics basically focuses on:

1. How society spends the income of individuals.
2. What scarce resources are used to produce goods and services.
3. How scarce resources are allocated to fulfill society's goals.
4. For whom resources are allocated to increase efficiency.

Correct answer: How scarce resources are allocated to fulfill society's goals.

Q9. The opportunity cost of an action is:

1. The value of the next best alternative forgone.
2. The undesirable aspects of that action.
3. Same for everyone.
4. The average amount of unhappiness experienced by everyone involved.

Correct answer: The value of the next best alternative forgone.

Q10. The Engel curve is positively sloped for the:

1. Inferior good
2. Normal Good and inferior good
3. Expensive good
4. Normal good

Correct answer: Normal good

Q1. Assume that land used for growing wheat is fixed in quantity and numbers of workers employed are variable. When Ali hires 9 workers, he gets 15 tonnes of wheat. By employing 10 workers, wheat production increases from 15 tonnes to 20 tonnes. The marginal physical product of wheat in this case will be:

1. 35 tonnes.
2. 5 tonnes.
3. 2 tonnes.
4. 20 tonnes.

Correct answer: 5 tonnes.

Q2. Which of the following is true?

1. Price effect = Income effect + Substitution effect
2. Price effect = Income effect - Substitution effect
3. Price effect = Substitution effect – Income effect
4. Price effect = Income effect * Substitution effect

Correct answer: Price effect = Income effect + Substitution effect

Q3. Which of the following is the slope of the indifference curve (IC);

1. MUy / MUx
2. MUx / MUy
3. MUx = MUy
4. MUx + MUy

Correct answer: MUy / MUx

Q4. Marginal social cost is the change in social costs caused by:

1. A unit change in variable cost.
2. A unit change in input.
3. A unit change in output.
4. A unit change in fixed cost.

Correct answer: A unit change in output.

Q5. What is the formula for calculating the cross price elasticity of demand?

1. Percentage change in quantity demanded / Percentage change in price
2. Percentage change in quantity demanded of one good/ Percentage change in price of another good
3. Percentage change in quantity supplied / Percentage change in price
4. Percentage change in consumer’s taste / Percentage change in price

Correct answer: Percentage change in quantity demanded of one good/ Percentage change in price of another good

Q6. Suppose that 24 units of output are produced by using 6 units of labor. Which of the following is TRUE in this context?

1. The average product of labor is 4.
2. None of the given options.
3. The marginal product of labor is 4.
4. The total product of labor is 1/4.

Correct answer: The average product of labor is 4.

Q7. The law of diminishing returns states that as more units of a variable factor are added to a fixed factor:

1. Marginal utility falls.
2. The marginal product increases.
3. The total product falls.
4. The marginal product falls.

Correct answer: The marginal product falls.