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Microeconomics MCQs
Microeconomics is the branch of economics that studies the decisions of individual house-holds and firms. Here on MCQs.club we have written Multiple Choice Questions (MCQs) on Introduction to microeconomics that fully cover basic microeconomics, principles of microeconomics, microeconomic theory/meaning/analysis/foundation/ microeconomics online mcqs. We have made learning microeconomics easy. These introductory microeconomics MCQs are useful for Business management exams, Competitive exams and Professional Accountancy exams.
- Microeconomics –
- Microeconomics is the branch of economics that studies the decisions of individual house-holds and firms.
- It studies the way in which individual markets work and the detailed way in which regulation and taxes affect the allocation of labour and of goods and services.
- Both A&B
- None
- The first perspective from which to view micro economics is the consumer. Each person has “wants and needs” which products and services can provide for them.
- True
- False
- Each person within an economy has certain innate desires which he or she wishes to satisfy. How are these satisfied?
- By hard work
- By paying taxes
- Through the consumption of goods and services
- None
- Demand –
- The quantity which buyers are willing and able to purchase of a product at the prevailing market price.
- If there is a good that can solve a want or need for someone, then we say that there is demand for that good.
- Both A&B
- None
- In economics, goods refer to the products that satisfy human needs or wants and provide utility. Goods are classification:
- on the basis of consumption
- on the basis of income
- Both A&B
- None
- Types of goods on the basis of consumption include:
- Merit goods
- Demerit goods
- Public goods
- All of the above
- Types of goods – on the basis of income include:
- Normal goods
- Inferior goods
- Superior goods
- All of the above
- Which of the following is a type of demand?
- Individual demand
- Market demand
- Both A&B
- None
- What microeconomics covers? –
- It looks in detail upon the market balance between consumer tastes and preferences, and the scarcity of total resources.
- It is the study of the economy in its component parts and means it analyses in detail specific markets, wages, and consumer choices.
- It covers the behaviour of firms
- All of the above
- What microeconomics doesn’t cover? –
- Microeconomics is not the study of broader, governmental policies, that look at the economy in aggregate.
- The behaviour of firms; what drives them to make certain choices, and how slight changes in what they are faced with, can impact upon their conduct in the market place.
- Option A only
- None
- Law of Demand –
- As the price of a product falls, ceteris paribus, the demand for the product extends
- As the price of a product rises, ceteris paribus, the demand for the good contracts.
- Both A&B
- None
- Assumptions underlying the law of demand include:
- There is no change in the income of consumers.
- There is no substitute for the good.
- The prices of related goods are stable.
- There is no change in custom, taste or preference of consumers.
- The size of population is stable.
- The climate and weather conditions are as expected
- The tax rates are stable.
- (I) (II) and (V) only
- (I) (V) and (VII) only
- All of the above
- None
- Which of the following effects, causing a demand curve to be downward sloping:
- Income effect
- Substitution effect
- Both A&B
- None
- Income effect –
- As price falls, the consumer can maintain the same level of consumption for less expenditure. Some of the increase in real income might be used to buy more of the product.
- As price of Good A falls, the product is now relatively cheaper than alternative items which might cause consumers to switch, hence increasing demand for Good A.
- Both A&B
- None
- Substitution effect –
- As price falls, the consumer can maintain the same level of consumption for less expenditure. Some of the increase in real income might be used to buy more of the product.
- As price of Good A falls, the product is now relatively cheaper than alternative items which might cause consumers to switch, hence increasing demand for Good A.
- Both A&B
- None
- Which of the following is correct for “Changes in the conditions of demand”?
- Any change in demand brought about by a change other than the good’s own price is called a change in the conditions of demand.
- Changes in the conditions of demand are represented by a shift in the demand curve and are referred to as an increase or decrease in demand.
- Both A&B
- None
- Which of the following is correct for “Substitute goods”?
- Two or more goods which satisfy the same need or compete for the same portion of income.
- A rise in the price of a substitute will lead to a rise in demand for the good under examination.
- Both A&B
- None
- Which of the following is correct for “Complement good”?
- Two or more goods which are consumed together.
- A rise in the price of a complement will lead to a decrease in demand for the good under examination.
- Both A&B
- None
- Both substitute goods and complementary goods can be contrasted with independent goods where the price change for one has no effect on demand for the other.
- True
- False
- Consumer income – The amount of income consumers can allocate to the purchasing of goods. Which of the following would contribute to an increase in consumer income?
- Fall in taxation (i.e. a tax on earnings)
- Higher national income due to economic growth
- Fall in interest rates making the costs of mortgages lower, and hence increasing discretionary income.
- All of the above
- “Tastes and preferences” these are often important factors that impact on the demand for a product, and can be affected by:
- Advertising and Fashions
- Seasonal and climatic factors
- Health scares or fads
- All of the above
- Which of the following is correct for “the law of demand”?
- The law of demand contributes to the determination of price of a certain commodity. Also, the producer can see the effect on demand due to increase or decrease in price and can take decisions accordingly.
- The demand schedule helps the entities plan for future by analyzing the impact of change in prices on the quantity demanded at both; the national and international level.
- It is of great help for the state as well in the due course of raising tax on certain commodities.
- All of above
- There are certain cases wherein the law of demand does not apply i.e., the demand does not rise when the prices fall and vice versa. Such exceptions or limitations include:
- Change in trends
- Change in income
- Shortage of goods
- Expectation in price change
- Basic necessities of life
- All of the above
- (I) and (II) only
- (I) (II) and (V) only
- None
- Giffen good – A good where quantity demanded increases when price rises.
- True
- False
- Which of the following is correct for “Reservation price”?
- The minimum price a firm is willing to receive for its good.
- A firm will not sell at a price lower than reservation price.
- Knowing the reservation price for firms is useful as a way of evaluating firm behaviour.
- All of the above
- Factors affecting reservation price include:
- Disposable income of the buyers
- Substitute goods
- State laws, number of subsidies, taxes, inflation, economic conditions etc.
- All of the above
- Law of Supply –
- As the price of a good rises, ceteris paribus, supply of the good extends
- As the price of a good falls, ceteris paribus, supply of the good contracts.
- Both A&B
- None
- Assumptions underlying the law of supply include:
- No change in the cost of production
- No change in technology (as this would affect the cost of production)
- No change in the climate (for the supply of goods affected by the climate)
- No change in the prices of substitutes
- No change in the availability and cost of natural resources
- No change in the price of capital goods
- Tax rates are stable
- All of the above
- (I) (II) and (VI) only
- (I) (VI) and (VII) only
- None
- Which of the following is correct for “Changes in the conditions of supply”?
- The factors which will impact upon the supply of a good, besides the price are known as changes in the conditions of supply.
- Changes in the conditions of supply are represented by a shift in the supply curve.
- They affect how the market operates in a different way to a change in the price.
- All of the above is correct
- The factors which can cause a change in the conditions of supply, and hence a shift in supply include:
- There is a favourable change in the conditions of supply
- The price at which firms can supply to the market falls
- Firms can make profit on a greater quantity of goods
- The supply curve shifts outwards
- All of the above
- If the prices of the factors used in production rise, then this means that in order to produce the same quantity of output, the price at which it charges must:
- Increase
- Decrease
- Remain constant
- None
- The price and quantity at which firm decide to supply their product can be affected by incentives offered by the government in the form of indirect taxes or subsidies.
- False
- True
- A rise in the price of a substitute in production will cause a __________ in supply for the good under examination.
- Increase
- Decrease
- Remain constant
- None
- A rise in the price of a complement in production will lead to an __________ in supply of the good under examination.
- Increase
- Decrease
- Remain constant
- None
- What is/are the types of price that exist in markets:
- Equilibrium market price: which is determined by market forces, i.e. demand and supply
- Regulated market price: which is determined by the government.
- Both A&B
- None
- The equilibrium market price –
- is one where both suppliers and consumers are willing and able to exchange a quantity of goods for money.
- Is the price at which quantity demanded equals quantity supplied and which will be established and restored by market forces.
- This is at the intersection of the downward sloping demand curve and the upward sloping supply curve.
- All of the above
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