ECO401 Solved MCQs by Aniqa Malik

Q1. Marginal utility measures:

1. The slope of the indifference curve.
2. The additional satisfaction from consuming one more unit of a good.
3. The slope of the budget line.
4. The marginal rate of substitution.

Correct answer: The additional satisfaction from consuming one more unit of a good.

Q2. Which of the following best expresses the law of diminishing marginal utility?

1. The more a person consumes of a product, the smaller becomes the utility which he receives from its consumption.
2. The more a person consumes of a product, the smaller becomes the additional utility which she receives as a result of consuming an additional unit of the product.
3. The less a person consumes of a product, the smaller becomes the utility which she receives from its consumption.
4. The less a person consumes of a product, the smaller becomes the additional utility which he receives as a result of consuming an additional unit of the product.

Correct answer: The more a person consumes of a product, the smaller becomes the additional utility which she receives as a result of consuming an additional unit of the product.

Q3. A curve that represents all combinations of market baskets that provide the same level of utility to a consumer is called:

1. A budget line.
2. An isoquant.
3. An indifference curve.
4. A demand curve.

Correct answer: An indifference curve.

Q4. The marginal rate of substitution:

1. May rise or fall, depending on the slope of the budget line.
2. Rises as you move downward along an indifference curve.
3. Falls as you move downward along an indifference curve.
4. Remains the same along a budget line.

Correct answer: Falls as you move downward along an indifference curve.

Q5. Which of the following is a characteristic of the indifference curves?

1. They are concave to the origin.
2. They are convex to the origin.
3. Curves closer to the origin have the highest level of total utility.
4. Curves closer to the origin have the highest level of marginal utility.

Correct answer: They are convex to the origin.

Q6. In the diagram given below, the budget line is best represented by the line:

1. AB
2. AD
3. FG
4. DG

Q7. The endpoints (horizontal and vertical intercepts) of the budget line:

1. Measure its slope.
2. Measure the rate at which one good can be substituted for another.
3. Measure the rate at which a consumer is willing to trade one good for another.
4. Represent the quantity of each good that could be purchased if all of the budget were allocated to that good.

Correct answer: Represent the quantity of each good that could be purchased if all of the budget were allocated to that good.

Q8. If prices and income in a two-good society double, what will happen to the budget line?

1. The intercepts of the budget line will increase.
2. The intercepts of the budget line will decrease.
3. The slope of the budget line may either increase or decrease.
4. There will be no effect on the budget line.

Correct answer: There will be no effect on the budget line.

Q9. If Px = Py, then when the consumer maximizes utility,

1. X must equal Y.
2. MU(X) must equal MU(Y).
3. MU(X) may equal MU(Y), but it is not necessarily so.
4. X and Y must be substitutes.

Correct answer: MU(X) must equal MU(Y).

Q10. The difference between what a consumer is willing to pay for a unit of a good and what must be paid when actually buying it is called:

1. Producer surplus.
2. Consumer surplus.
3. Cost-benefit analysis.
4. Net utility.

Correct answer: Consumer surplus.

Q11. Which of following is a key assumption of a perfectly competitive market?

1. Firms can influence market price.
2. Commodities have few sellers.
3. It is difficult for new sellers to enter the market.
4. Each seller has a very small share of the market.

Correct answer: Each seller has a very small share of the market.

Q12. 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.

Correct answer: Marginal revenue equals marginal cost.

Q13. The demand curve facing a perfectly competitive firm is:

1. Downward-sloping and less flat than the market demand curve.
2. Downward-sloping and more flat than the market demand curve.
3. Perfectly horizontal.
4. Perfectly vertical.

Correct answer: Perfectly horizontal.

Q14. The monopolist has no supply curve because:

1. The quantity supplied at any particular price depends on the monopolist's demand curve.
2. The monopolist's marginal cost curve changes considerably over time.
3. The relationship between price and quantity depends on both marginal cost and average cost.
4. There is a single seller in the market.

Correct answer: The quantity supplied at any particular price depends on the monopolist's demand curve.

Q15. A doctor sizes up patients' income and charges wealthy patients more than poorer ones. This pricing scheme represents a form of:

1. First-degree price discrimination.
2. Second-degree price discrimination.
3. Third-degree price discrimination.
4. Pricing at each consumer’s reservation price.

Correct answer: First-degree price discrimination.

Q16. For which of the following market structures is it assumed that there are barriers to entry?

1. Perfect competition
2. Monopolistic competition
3. Monopoly
4. All of the above

Correct answer: Monopoly

Q17. A market with few entry barriers and with many firms that sell differentiated products is:

1. Purely competitive.
2. A monopoly.
3. Monopolistically competitive.
4. Oligopolistic.

Correct answer: Monopolistically competitive.

Q18. Welfare economics is a branch of economics dealing with:

1. Social issues.
2. Normative issues.
3. Political issues.
4. None of the given options.

Correct answer: Normative issues.

Q19. ___________________ are goods that people must get a flavor of before they can consider buying them.

1. Experience goods.
2. Giffen goods.
3. Normal goods.
4. None of the given options.

Correct answer: Experience goods.

Q20. Which of the following does not refer to macroeconomics?

1. The study of aggregate level of economic activity.
2. The study of causes of unemployment.
3. The study of causes of inflation.
4. The study of the economic behavior of individual decision-making units such as consumers, resource owners and business firms.

Correct answer: The study of the economic behavior of individual decision-making units such as consumers, resource owners and business firms.

Q21. ----------------- is the entire satisfaction one derives from consuming goods or services:

1. Total utility
2. Scarcity
3. Marginal utility
4. Rationing

Correct answer: Total utility

Q22. The law of diminishing marginal utility states that:

1. As consumer consumes more and more units of any commodity, the utility that consumer derives from each additional unit falls
2. As consumer consumes more and more units of any commodity, the utility that consumer derives from each additional unit rises
3. As consumer consumes more and more units of any commodity, the utility that consumer derives from each additional unit remains the same
4. As consumer consumes less and less units of any commodity, the utility that consumer derives from each additional unit falls

Correct answer: As consumer consumes more and more units of any commodity, the utility that consumer derives from each additional unit falls

Q23. The equi marginal principle states that:

1. MUa = MUb = MUc = ---------------------------=MUn

Pa Pb Pc Pn

B. MUa > MUb > MUc > --------------------------->MUn Pa Pb Pc Pn C. MUa < MUb < MUc < ---------------------------<MUn Pa Pb Pc Pn D. None of the given options

Q24. Marginal utility measures:

1. The slope of the indifference curve
2. The additional satisfaction from consuming one more unit of a good
3. The slope of the budget line

Correct answer: The additional satisfaction from consuming one more unit of a good