Economics is the study, description, and analysis of the ways in which a society produces and distributes Goods and Services. Here on MCQs.club we have prepared Multiple Choice Questions (MCQs) on Economics that fully cover fundamentals of economics MCQs, fundamental of economics and management, public economics, managerial economics, basic fundamentals of economics for business. These MCQs are useful for useful for competitive exams, Business management exams and Professional accountancy exams.

Economics is the study, description, and analysis of the ways in which a society produces and distributes:

1. Goods
2. Services
3. Both A&B
4. None

In economics, the term goods and services refer to everything that is produced in the economy — all products and services, including government “services,” such as national defense and the prison system.

1. True
2. False

The phenomenon of scarcity gives rise to some basic questions that are faced by every economy. The fundamental questions are:

1. What to produce?
2. How to produce?
3. For whom to produce?
4. All of the above

Scarcity – “What to produce” addresses?

1. two aspects; the needs of the society and the use of the available resources in the most efficient manner.
2. The question about the combination of scarce resources that would be used to produce goods and services. It questions the production techniques and whether these would be capital intensive or labour intensive.
3. … involves deciding about the distribution of goods and services i.e. who gets the final national product and how much.
4. All of the above

Scarcity – “How to produce” addresses?

1. two aspects; the needs of the society and the use of the available resources in the most efficient manner.
2. The question about the combination of scarce resources that would be used to produce goods and services. It questions the production techniques and whether these would be capital intensive or labour intensive.
3. … involves deciding about the distribution of goods and services i.e. who gets the final national product and how much.
4. All of the above

Scarcity – “For whom to produce” addresses?

1. two aspects; the needs of the society and the use of the available resources in the most efficient manner.
2. The question about the combination of scarce resources that would be used to produce goods and services. It questions the production techniques and whether these would be capital intensive or labour intensive.
3. … involves deciding about the distribution of goods and services i.e. who gets the final national product and how much.
4. All of the above

An economist collects his facts, analyses them, classifies them, and then discovers general principles governing these facts.

1. False
2. True

Economics is both i.e. a science and an art; science in its methodology and art in its application.

1. The above statement is incorrect
2. The above statement is correct

Importance of economics – which of the following is correct?

1. Economics is about making choices and the impact these choices have on us
2. It connects us to almost every aspect of our lives from our decisions that we make on individual basis to the overall structure created by the governments and firms.
3. Using economic approach while making decisions help us make better choices.
4. All of the above

All countries aim to increase their Gross Domestic Product (GDP). Which of the following is correct?

1. GDP leads to higher incomes which can be spent on improving food choices, better housing and other necessities
2. with increased GDP, governments can build schools to provide high quality education for the youth as well as to enhance their knowledge and skills so that they become useful to the society.
3. Both A&B
4. None

The goals of economics include:

1. 1. To lower the rate of unemployment so that the knowledgeable and skilled youth is able to find jobs fairly easily.
  2. To maintain price stability and avoid rapid fluctuations in prices
  3. Increase productivity which means producing maximum output with minimum input that can be achieved by making use of technological advancements
  4. An equitable distribution of income that is socially acceptable and determining the best route for economic progress in such a manner that the resources are utilized efficiently for sustainable development in the long run
  5. Develop economic freedom and welfare by creating policies that provide people with more choices and social benefits.

1. All of the above
2. (I) and (IV) only
3. (IV) and (V) only
4. None

The study and scope of economics is divided into two major branches namely Microeconomics and Macroeconomics.

1. True
2. False

Microeconomics –

1. involves studying the behaviour of units of the economy such as individual, firm or household
2. It deals with how individual, firm or household make decisions and what impacts those decisions
3. it includes the details of thousands of different products that an economy produces and the many characteristics that differentiate one worker from the other.
4. All of the above

Macroeconomics –

1. deals with the economic system as a whole
2. The subject matter of macroeconomics is the aggregates and averages of the entire economy e.g. total output, national income etc.
3. Both A&B
4. None

Typical Microeconomics questions include:

1. What determines the price of rice?
2. What will happen to demand if price falls/increases?
3. What will happen to inflation if interest rates rise?
4. A&B only

Typical Macroeconomics questions include:

1. What will happen to inflation if interest rates rise?
2. How can the standard of living be improved?
3. What will happen to demand if incomes rise?
4. A&B only

Limitations of microeconomics include:

1. Micro analysis does not provide a clear idea in relation to the overall functioning of the whole economy.
2. Micro economics assumes full employment in the society which is an unrealistic assumption.
3. Both A&B
4. None

Limitations of macroeconomics include:

1. The aggregate behavior is the focal point, but what is true for the economy might not be true for the individuals
2. Macroeconomics takes the aggregate as homogenous ignoring the internal composition and the structure
3. Both A&B
4. None

The main agents within an economy are:

1. Households (consumption units) – Allocating its scarce income between different goods and services to satisfy its needs.
2. Firms (production units) – Allocating scarce factors of production (labour, equipment, raw materials) between different potential products to increase its profits.
3. Governments – Allocating its resources (tax revenue, staff etc.) between different social needs.
4. All of the above

Consumption – represents the value of goods and services that are bought by the people. This is the largest part of the GDP and reflects the economics preferences of a country in terms of consumption. It could also be defined as the value of domestic and foreign entities’ sales to the households in the domestic market.

1. The above statement is incorrect
2. The above statement is correct

Categories of consumption include:

1. Durable goods e.g. automobiles, furniture
2. Non-durable goods e.g. food, clothing
3. Services e.g. transport, medical care, entertainment
4. All of the above

Circular flow of income:

1. Is used by economists to describe an economy is the circular flow of income
2. Circular flow of income diagrams is used to illustrate the different sectors and markets with in an economy
3. Both A&B
4. None

Factors of production – The factors of production are the resources used in producing any goods and services.

1. True
2. False

Factors of production are classified as:

1. Land: this categorises the natural resources on the planet
2. Labour: this is the human input into the process
3. Capital: Man-made resources used to produce other goods and services
4. Enterprise
5. All of the above

The owners of factors of production receive certain rewards, examples for such reward include:

1. Rent for land
2. Wages for labour
3. Interest for capital
4. Profit for entrepreneurs or organisations
5. All of the above

Opportunity cost –

1. It is used as a measure for how economic agents make decisions, and form the backbone of economic theory
2. When calculating the opportunity cost, it is important that only the highest-value alternative that has been sacrificed is considered.
3. Both A&B
4. None

The Production Possibility Frontier (PPF) also known as:

1. Product Possibility Curve
2. Production Possibility Curve
3. Both A&B
4. None
5. None

The Production Possibility Frontier (PPF):

1. Represents the maximum combinations of two alternative goods an economy can produce with the resources available to it within the given state of technology.
2. It offers the best selection of goods that society can pick from and occurs when the economy is fully efficient.
3. Both A&B
4. None

The characteristics of the Production Possibility Frontier (PPF) include:

1. It is downward sloping
2. It is concave to the origin
3. Both A&B
4. None

What is the reason for Production Possibility Frontier’s being “downward sloping”?

1. In order to increase the production of one good, resources must be diverted from the other, hence decreasing the production of that good.
2. is because some of the economy’s resources are better at producing Good A, and some are better at producing Good B.
3. Both A&B
4. None

What is the reason for Production Possibility Frontier’s being “concave to the origin”?

1. In order to increase the production of one good, resources must be diverted from the other, hence decreasing the production of that good.
2. is because some of the economy’s resources are better at producing Good A, and some are better at producing Good B.
3. Both A&B
4. None

Marginal rate of product transformation –

1. The amount of one good which must be foregone to gain one unit of the alternative.
2. This is another name for opportunity cost.
3. Both A&B
4. None

Which of the following is a type of economic system?

1. Command (or centrally planned) economy
2. Free market (or laissez- faire) economy
3. Mixed economy
4. All of the above

Planned economies –

1. In a planned economy allocation of resources is decided by the government rather than markets.
2. This type of economic system is completely dependent on the state.
3. Both A&B
4. None

Features of Planned economy include:

1. 1. Central planning body decides questions of what, how and whom.
  2. Productive resources are state owned and the state decides how they should be used for the common good.
  3. Resources are allocated by decree through an administrative system.
  4. Factor prices are set by central planning body.

1. (I) and (II) only
2. (II) and (IV) only
3. All of the above
4. None

Benefits of Planned economy include:

1. Production is carried out for the needs of society and not for the benefit of the few.
2. Full employment of the workforce is possible.
3. Permits long term industrial and social planning fostering economic stability.
4. All of the above

Drawbacks of Planned economy include:

1. Lack of profit motive and competition makes the economy inefficient.
2. Loss of consumer sovereignty to planners reduces welfare.
3. Lack of economic and political freedom.
4. All of the above

Features Market economies includes:

1. 1. Reliance on the market and price mechanism to allocate resources
  2. Private ownership and control of factors of production
  3. Self-interest and profit motive motivate economic decisions
  4. Wages and other factor payments set by market.

1. All of the above
2. (I) and (III) only
3. (III) and (IV) only
4. None

Benefits of Market economies includes:

1. Retains consumer sovereignty, Freedom of choice
2. Dynamic and responsive to changes in the technological environment
3. Both A&B
4. None

Drawbacks of Market economies includes:

1. Inequalities of income will lead to socially undesirable resource allocation
2. Danger of emphasis on luxuries rather than necessities
3. Danger of the growth of monopolies
4. All of the above

Features of Mixed economies include:

1. Economic decisions are taken by a mixture of the public and private sectors.
2. The state plays a key role in the operation of the economy.
3. Both A&B
4. None

Benefits of Mixed economies include:

1. Retains dynamism of private sector.
2. Public interest guarded by legislation and state provision.
3. Both A&B
4. None

Drawbacks of Mixed economies include:

1. State may regulate economy for political ends.
2. Government intervention creates costs and uncertainty.
3. Responsibility for economic performance blurred.
4. All of the above

—More to come soon—

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Fundamentals of Economics MCQs

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