ECO402 Midterm MCQs 2025

Q1. The supply curve slopes upward demonstrating that at:

1. Lower prices firms will increase output.
2. None of the given options.
3. Higher prices firms will decrease output.
4. Higher prices firms will increase output.

Correct answer: Higher prices firms will increase output.

Q2. If the percentage change in quantity demanded for milk is less than the percentage change in price of milk

1. Elastic
2. Inelastic
3. Perfectly elastic
4. Unitary elastic

Correct answer: Inelastic

Q3. If X is a normal good, a rise in money income will shift the:

1. Demand curve for X to the left
2. Supply curve for X to the left
3. Supply curve for X to the right
4. Demand curve for X to the right

Correct answer: Demand curve for X to the right

Q4. Amount of one good that a consumer gives up to obtain more of another good is known as marginal rate of:

1. Technical substitution
2. Utility
3. Substitution
4. Disutility

Correct answer: Substitution

Q5. If two goods are perfect substitutes of each other, then the shape of an indifference curve is:

1. Concave
2. Convex
3. L-shaped
4. Straight line

Correct answer: Straight line

Q6. Slope of indifference curve is known as Marginal rate of:

1. Substitution.
2. Technical substitution.
3. Disutility.
4. Utility.

Correct answer: Substitution.

Q7. Moving down along a marginal utility curve for apples, the:

1. Marginal utility of apples increases.
2. Consumer’s well-being increases.
3. Marginal utility of apples decreases.
4. Total utility of apples decreases

Correct answer: Marginal utility of apples decreases.

Q8. If prices are held constant, an increase in income will:

1. Shift budget line outwards.
2. Rotate budget line outer towards Y-axis.
3. Shift budget line inwards.
4. Rotate budget line outer towards X-axis.

Correct answer: Shift budget line outwards.

Q9. The assumption of transitivity is violated when indifference curves_______.

1. Become parallel
2. Intersect each other
3. Become perpendicular
4. Touch X-axis

Correct answer: Intersect each other

Q10. Inferior goods have negative income elasticity and luxury goods have:

1. Income elasticity less than zero
2. Income elasticity equal to one
3. Income elasticity less than one
4. Income elasticity greater than one

Correct answer: Income elasticity greater than one

Q1. If the percentage change in quantity demanded for milk is less than the percentage change in price of milk

1. Elastic
2. Inelastic
3. Perfectly elastic
4. Unitary elastic

Correct answer: Inelastic

Q2. If prices are held constant, an increase in income will:

1. Rotate budget line outer towards Y-axis.
2. Shift budget line outwards.
3. Rotate budget line outer towards X-axis.
4. Shift budget line inwards.

Correct answer: Shift budget line outwards.

Q3. Suppose a consumer is spending all of his income on food (measured on x-axis) and books (measured on y-axis). Which of the following will pivot the budget line inward towards x-axis?

1. Decrease in price of food
2. Increase in price of books
3. Increase in price of food
4. Decrease in price of books

Correct answer: Increase in price of food

Q4. When a consumer drinks one glass of water and then drinks another glass of water, his utility from second glass is less than the utility from first glass. This is an example of Law of:

1. Equi-marginal utility.
2. Diminishing marginal utility.
3. Increasing marginal cost.
4. Increasing marginal utility.

Correct answer: Diminishing marginal utility.

Q5. Suppose the price of meat remains constant. Which of the following will happen as a result of the decrease in consumers’ income?

1. Supply curve of meat shifts towards right.
2. Demand curve of meat shifts towards left.
3. Demand curve of meat shifts towards right.
4. Supply curve of meat shifts towards left.

Correct answer: Demand curve of meat shifts towards left.

Q6. If the prices are held constant, a decrease in income will:

1. Rotate budget line outer towards Y-axis.
2. Shift budget line outwards.
3. Shift budget line inwards.
4. Rotate budget line outer towards X-axis.

Correct answer: Shift budget line inwards.

Q7. The demand curve is downward sloping if the price elasticity of demand is:

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

Correct answer: Negative