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 –

1. Microeconomics is the branch of economics that studies the decisions of individual house-holds and firms.
2. 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.
3. Both A&B
4. 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.

1. True
2. False

Each person within an economy has certain innate desires which he or she wishes to satisfy. How are these satisfied?

1. By hard work
2. By paying taxes
3. Through the consumption of goods and services
4. None

Demand –

1. The quantity which buyers are willing and able to purchase of a product at the prevailing market price.
2. If there is a good that can solve a want or need for someone, then we say that there is demand for that good.
3. Both A&B
4. None

In economics, goods refer to the products that satisfy human needs or wants and provide utility. Goods are classification:

1. on the basis of consumption
2. on the basis of income
3. Both A&B
4. None

Types of goods on the basis of consumption include:

1. Merit goods
2. Demerit goods
3. Public goods
4. All of the above

Types of goods – on the basis of income include:

1. Normal goods
2. Inferior goods
3. Superior goods
4. All of the above

Which of the following is a type of demand?

1. Individual demand
2. Market demand
3. Both A&B
4. None

What microeconomics covers? –

1. It looks in detail upon the market balance between consumer tastes and preferences, and the scarcity of total resources.
2. It is the study of the economy in its component parts and means it analyses in detail specific markets, wages, and consumer choices.
3. It covers the behaviour of firms
4. All of the above

What microeconomics doesn’t cover? –

1. Microeconomics is not the study of broader, governmental policies, that look at the economy in aggregate.
2. 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.
3. Option A only
4. None

Law of Demand –

1. As the price of a product falls, ceteris paribus, the demand for the product extends
2. As the price of a product rises, ceteris paribus, the demand for the good contracts.
3. Both A&B
4. None

Assumptions underlying the law of demand include:

1. 1. There is no change in the income of consumers.
  2. There is no substitute for the good.
  3. The prices of related goods are stable.
  4. There is no change in custom, taste or preference of consumers.
  5. The size of population is stable.
  6. The climate and weather conditions are as expected
  7. The tax rates are stable.

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

Which of the following effects, causing a demand curve to be downward sloping:

1. Income effect
2. Substitution effect
3. Both A&B
4. None

Income effect –

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

Substitution effect –

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

Which of the following is correct for “Changes in the conditions of demand”?

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

Which of the following is correct for “Substitute goods”?

1. Two or more goods which satisfy the same need or compete for the same portion of income.
2. A rise in the price of a substitute will lead to a rise in demand for the good under examination.
3. Both A&B
4. None

Which of the following is correct for “Complement good”?

1. Two or more goods which are consumed together.
2. A rise in the price of a complement will lead to a decrease in demand for the good under examination.
3. Both A&B
4. 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.

1. True
2. 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?

1. Fall in taxation (i.e. a tax on earnings)
2. Higher national income due to economic growth
3. Fall in interest rates making the costs of mortgages lower, and hence increasing discretionary income.
4. 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:

1. Advertising and Fashions
2. Seasonal and climatic factors
3. Health scares or fads
4. All of the above

Which of the following is correct for “the law of demand”?

1. 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.
2. 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.
3. It is of great help for the state as well in the due course of raising tax on certain commodities.
4. 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:

1. 1. Change in trends
  2. Change in income
  3. Shortage of goods
  4. Expectation in price change
  5. Basic necessities of life

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

Giffen good – A good where quantity demanded increases when price rises.

1. True
2. False

Which of the following is correct for “Reservation price”?

1. The minimum price a firm is willing to receive for its good.
2. A firm will not sell at a price lower than reservation price.
3. Knowing the reservation price for firms is useful as a way of evaluating firm behaviour.
4. All of the above

Factors affecting reservation price include:

1. Disposable income of the buyers
2. Substitute goods
3. State laws, number of subsidies, taxes, inflation, economic conditions etc.
4. All of the above

Law of Supply –

1. As the price of a good rises, ceteris paribus, supply of the good extends
2. As the price of a good falls, ceteris paribus, supply of the good contracts.
3. Both A&B
4. None

Assumptions underlying the law of supply include:

1. 1. No change in the cost of production
  2. No change in technology (as this would affect the cost of production)
  3. No change in the climate (for the supply of goods affected by the climate)
  4. No change in the prices of substitutes
  5. No change in the availability and cost of natural resources
  6. No change in the price of capital goods
  7. Tax rates are stable

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

Which of the following is correct for “Changes in the conditions of supply”?

1. The factors which will impact upon the supply of a good, besides the price are known as changes in the conditions of supply.
2. Changes in the conditions of supply are represented by a shift in the supply curve.
3. They affect how the market operates in a different way to a change in the price.
4. 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:

1. There is a favourable change in the conditions of supply
2. The price at which firms can supply to the market falls
3. Firms can make profit on a greater quantity of goods
4. The supply curve shifts outwards
5. 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:

1. Increase
2. Decrease
3. Remain constant
4. 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.

1. False
2. True

A rise in the price of a substitute in production will cause a __________ in supply for the good under examination.

1. Increase
2. Decrease
3. Remain constant
4. None

A rise in the price of a complement in production will lead to an __________ in supply of the good under examination.

1. Increase
2. Decrease
3. Remain constant
4. None

What is/are the types of price that exist in markets:

1. Equilibrium market price: which is determined by market forces, i.e. demand and supply
2. Regulated market price: which is determined by the government.
3. Both A&B
4. None

The equilibrium market price –

1. 1. is one where both suppliers and consumers are willing and able to exchange a quantity of goods for money.
  2. Is the price at which quantity demanded equals quantity supplied and which will be established and restored by market forces.
  3. This is at the intersection of the downward sloping demand curve and the upward sloping supply curve.
  4. All of the above

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Microeconomics MCQs

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