Tag: What are the basic problems of an economy

What is the difference between microeconomics and macroeconomics?

a) Microeconomics studies the behavior of individual consumers, while macroeconomics examines the overall performance of the economy.

b) Microeconomics focuses on the long-run, while macroeconomics deals with short-term economic fluctuations.

c) Microeconomics analyzes the economy as a whole, while macroeconomics studies individual markets.

d) Microeconomics is concerned with government policies, while macroeconomics examines consumer behavior.

Answer: a) Microeconomics studies the behavior of individual consumers, while macroeconomics examines the overall performance of the economy.

 

What are the basic problems of an economy?

a) Scarcity, inflation, and unemployment

b) Choice, inflation, and opportunity cost

c) Scarcity, choice, and opportunity cost

d) Unemployment, inflation, and government intervention

Answer: c) Scarcity, choice, and opportunity cost

 

Which concept explains that individuals make decisions by comparing marginal benefits to marginal costs?

a) Marginalism

b) Incrementalism

c) Elasticity of demand

d) Consumer surplus

Answer: a) Marginalism

 

What is the primary determinant of price and quantity in a competitive market?

a) Government regulations

b) Consumer preferences

c) Market forces of supply and demand

d) Cost of production

Answer: c) Market forces of supply and demand

 

What is the measure of the responsiveness of quantity demanded to a change in price?

a) Income elasticity of demand

b) Price elasticity of demand

c) Consumer surplus

d) Marginal utility

Answer: b) Price elasticity of demand

 

Which type of demand elasticity indicates that a change in price leads to a proportionate change in quantity demanded?

a) Unitary elastic demand

b) Inelastic demand

c) Elastic demand

d) Perfectly elastic demand

Answer: a) Unitary elastic demand

 

What does the Engel curve represent in consumer behavior analysis?

a) The relationship between income and consumption of a normal good

b) The relationship between price and quantity demanded of a product

c) The relationship between income and consumption of an inferior good

d) The relationship between consumer surplus and producer surplus

Answer: a) The relationship between income and consumption of a normal good

 

Which pricing strategy involves setting the selling price based on the cost of production plus a desired profit margin?

a) Target pricing

b) Marginal cost pricing

c) Cost-plus pricing

d) Going rate pricing

Answer: c) Cost-plus pricing

 

What is the concept that infers a consumer’s preferences based on their observed choices in the market?

a) Consumer surplus

b) Marginal utility

c) Revealed preference theory

d) Price consumption curve

Answer: c) Revealed preference theory

 

Which type of market structure has many sellers offering differentiated products?

a) Monopoly

b) Oligopoly

c) Perfect competition

d) Monopsony

Answer: c) Perfect competition

 

What is the equilibrium price in a competitive market?

a) The price set by the largest seller in the market

b) The price at which quantity demanded equals quantity supplied

c) The highest price that consumers are willing to pay

d) The price determined by the government regulations

Answer: b) The price at which quantity demanded equals quantity supplied

 

What does the term “elasticity of demand” measure?

a) The responsiveness of supply to a change in price

b) The responsiveness of quantity demanded to a change in price

c) The responsiveness of demand to changes in consumer income

d) The responsiveness of quantity supplied to changes in production costs

Answer: b) The responsiveness of quantity demanded to a change in price

 

Which of the following factors influences the elasticity of demand?

a) Consumer income

b) Price of substitutes

c) Population size

d) Government policies

Answer: b) Price of substitutes

 

What is the concept of “consumer surplus”?

a) The difference between the price consumers are willing to pay and the actual price they pay in the market

b) The difference between the total cost of production and the total revenue generated by a firm

c) The difference between the total revenue and total cost of a product in the market

d) The difference between the price producers are willing to receive and the actual price they receive in the market

Answer: a) The difference between the price consumers are willing to pay and the actual price they pay in the market

 

Which utility concept suggests that consumer satisfaction can be measured numerically?

a) Marginal utility

b) Cardinal utility

c) Ordinal utility

d) Total utility

Answer: b) Cardinal utility

 

Which of the following is an example of a fixed factor of production?

a) Labor

b) Raw materials

c) Machinery

d) Office supplies

Answer: c) Machinery

 

In the long run, a firm experiences economies of scale when:

a) Its total costs decrease with an increase in production.

b) Its average costs increase with an increase in production.

c) Its marginal costs increase with an increase in production.

d) Its total costs remain constant with an increase in production.

Answer: a) Its total costs decrease with an increase in production.

 

The law of variable proportions applies in the:

a) Long run, where all inputs are variable.

b) Short run, where at least one input is fixed.

c) Long run, where all inputs are fixed.

d) Short run, where all inputs are variable.

Answer: b) Short run, where at least one input is fixed.

 

Which of the following best defines “marginal rate of technical substitution”?

a) The rate at which the total cost changes with a change in output.

b) The rate at which one input can be substituted for another while keeping output constant.

c) The rate at which the total utility changes with a change in consumption.

d) The rate at which the price of one good changes with a change in the price of another good.

Answer: b) The rate at which one input can be substituted for another while keeping output constant.

 

Which pricing strategy involves setting the selling price based on the cost of production and a desired profit margin?

a) Marginal cost pricing

b) Cost-plus pricing

c) Target pricing

d) Going rate pricing

Answer: b) Cost-plus pricing

 

What is the equilibrium price in a monopoly market?

a) The price set by the government to regulate the market

b) The price determined by the monopolist based on their production cost

c) The price where the quantity demanded equals the quantity supplied

d) The price at which the monopolist maximizes their profit

Answer: d) The price at which the monopolist maximizes their profit

 

In which market structure does a small number of firms dominate the market and may engage in collusion or competition?

a) Oligopoly

b) Perfect competition

c) Monopsony

d) Monopoly

Answer: a) Oligopoly

 

What is the main objective of demand forecasting?

a) To determine the production cost of goods

b) To estimate the demand for substitute products

c) To predict future changes in supply

d) To estimate future demand for goods and services

Answer: d) To estimate future demand for goods and services

 

Which of the following is NOT an approach to demand forecasting?

a) Survey method

b) Time series analysis

c) Regression analysis

d) Consumer preference method

Answer: d) Consumer preference method

 

Which of the following factors influences the price elasticity of demand?

a) The availability of substitutes

b) Government regulations

c) Advertising expenditure

d) Cost of production

Answer: a) The availability of substitutes

 

What does the concept of “income elasticity of demand” measure?

a) The responsiveness of quantity demanded to a change in consumer income

b) The responsiveness of quantity demanded to a change in price

c) The responsiveness of quantity supplied to a change in consumer income

d) The responsiveness of quantity supplied to a change in price

Answer: a) The responsiveness of quantity demanded to a change in consumer income

 

Which of the following elasticity values represents a perfectly elastic demand?

a) 0

b) 1

c) Infinity (∞)

d) 0.5

Answer: c) Infinity (∞)

 

What is the expansion path in production theory?

a) The path that shows the expansion of supply in the market

b) The path that shows the relationship between inputs and outputs in the short run

c) The path that shows the relationship between inputs and outputs in the long run

d) The path that shows the increase in quantity demanded in the market

Answer: c) The path that shows the relationship between inputs and outputs in the long run

 

Which cost includes both explicit and implicit costs?

a) Accounting cost

b) Opportunity cost

c) Fixed cost

d) Variable cost

Answer: b) Opportunity cost

 

What does the term “diseconomies of scale” refer to?

a) When the average cost of production remains constant as output increases

b) When the average cost of production decreases as output increases

c) When the average cost of production increases as output increases

d) When the marginal cost of production decreases as output increases

Answer: c) When the average cost of production increases as output increases

 

Which of the following pricing strategies involves setting the selling price based on the prices set by competitors?

a) Marginal cost pricing

b) Cost-plus pricing

c) Target pricing

d) Going rate pricing

Answer: d) Going rate pricing

 

What is the key characteristic of a perfectly competitive market?

a) Many buyers and sellers

b) Product differentiation

c) High barriers to entry

d) Price-setting power for individual firms

Answer: a) Many buyers and sellers

 

What does the concept of “revealed preference theory” suggest?

a) Consumers reveal their preferences through surveys and interviews.

b) Consumers’ actual choices in the market reflect their true preferences.

c) Consumers’ preferences can be inferred from their income levels.

d) Consumers’ preferences are constant and do not change over time.

Answer: b) Consumers’ actual choices in the market reflect their true preferences.

 

What is the primary determinant of price and quantity in a monopolistic competition market?

a) Market demand and supply

b) Government regulations

c) The individual firm’s demand and supply

d) The number of firms in the market

Answer: c) The individual firm’s demand and supply

 

Which of the following statements is true about the long-run average cost curve in a competitive market?

a) It is U-shaped due to economies of scale.

b) It is downward sloping due to diseconomies of scale.

c) It is horizontal due to constant returns to scale.

d) It is upward sloping due to diseconomies of scale.

Answer: c) It is horizontal due to constant returns to scale.

 

What is the concept of “marginal rate of technical substitution” (MRTS)?

a) The rate at which one input can be substituted for another while keeping output constant.

b) The rate at which a firm’s total cost changes with a change in output.

c) The rate at which the market price of a good changes with a change in consumer income.

d) The rate at which a firm’s total revenue changes with a change in output.

Answer: a) The rate at which one input can be substituted for another while keeping output constant.

 

What does the “law of returns to scale” state?

a) As a firm increases its output, its average cost decreases due to economies of scale.

b) As a firm increases its output, its average cost increases due to diseconomies of scale.

c) As a firm increases its output, its average cost remains constant due to constant returns to scale.

d) As a firm increases its output, its marginal cost decreases due to economies of scale.

Answer: c) As a firm increases its output, its average cost remains constant due to constant returns to scale.

 

Which of the following is NOT a characteristic of a monopoly market?

a) A single seller with significant market power

b) High barriers to entry

c) Identical products sold by different firms

d) Price-setting power for the monopolist

Answer: c) Identical products sold by different firms

 

What is the primary objective of “demand forecasting”?

a) To estimate the future production cost of goods

b) To predict the changes in government policies

c) To estimate the future demand for goods and services

d) To determine the future supply of raw materials

Answer: c) To estimate the future demand for goods and services

 

What is the term used for the difference between the maximum price a consumer is willing to pay and the actual price they pay for a product?

a) Marginal utility

b) Consumer surplus

c) Producer surplus

d) Elasticity of demand

Answer: b) Consumer surplus

 

In which market structure does a single seller have significant market power?

a) Oligopoly

b) Perfect competition

c) Monopsony

d) Monopoly

Answer: d) Monopoly