MCQs for BA Hons Economics Intermediate Microeconomics

MCQs

UNIT-I

Question. The concept of Quasi-rent mean
(a) The rent to the workers
(b) The rent shared by the Landlord and workers
(c) The interest paid to the entrepreneur
(d) The return to a factor of production which is fixed in supply in the short period

Answer

D

Question. Marginal productivity theory is also called
(a) Real theory
(b) Classical theory
(c) Monetary theory
(d)None of the above

Answer

A

Question. Subsistence theory of wages was used by
(a) Karl Marx
(b) Robinson
(c) J. S. Mill
(d) David Ricardo

Answer

D

Question. Who has contributed the modem theory of interest rate determination?
(a) Paul A. Samuelson
(b) Gunnar Myrdal
(c) Knut Wicksell
(d) J.R. Hicks

Answer

D

Question. Whose name is associated with the “Uncertainty-bearing theory of profit”?
(a) J. Schumpeter
(b) F.H. Knight
(c) J.B. Clark
(d) F.W. Watker

Answer

B

Question. Standard of living of workers depends upon their
(a) Nominal wages
(b) Real wages
(c) Average product
(d) Govt. policy

Answer

B

Question. These are kinds of rent EXCEPT
(a) Differential rent
(b) Scarcity rent
(c) Mobility rent
(d) Location rent

Answer

C

Question. This is capital:
(a) Money
(b) Forests
(c) Machinery
(d) Trademarks

Answer

C

Question. In economics capital refers to:
(a) Money
(b) High quality goods
(c) Trade mark
(d) Machinery and factories

Answer

D

Question. According to Professor Knight risks are of _____ kinds:
(a) two
(b) three
(c) four
(d) many

Answer

A

Question. This is not a function of the entrepreneur:
(a) Supervise
(b) Innovate
(c) Lend money
(d) Prepare plan

Answer

C

Question. According to Modern Theory of Rent, rent accrues to
(a) Land only
(b) Any factor
(c) Capital only
(d) Labour only

Answer

B

Question. Interest is paid because
(a) Capital is scarce
(b) Capital is productive
(c) Capital is attractive
(d) Capital is surplus

Answer

A

Question. Professor Knight is famous for his theory of:
(a) Rent
(b) Profit
(c) Population
(d) Wages

Answer

B

Question. Profits:
(a) Are residual payment
(b) Are pre-determined
(c) Are fixed contract
(d) Are always higher than wages

Answer

A

Question. According to Keynes interest is a payment for
(a) Consumer’s preference
(b) Producer’s preference
(c) Liquidity preference
(d) State Bank’s preference

Answer

C

Question. A decrease in the supply of labour is likely to lead to:
(a) A lower equilibrium wage and lower quantity of labour employed
(b) A lower equilibrium wage and higher quantity of labour employed
(c) A higher equilibrium wage and higher quantity of labour employed
(d) A higher equilibrium wage and lower quantity of labour employed

Answer

D

Question. Under Marginal productivity Theory, reward for labour is determined by
(a) Owner
(b) Labour
(c) Government
(d) Marginal Product

Answer

D

Question. The economist Ricardo argued that prices were _____ because land rents were _______
(a) High, High
(b) Low, Low
(c) Low, High
(d) High, Low

Answer

D

Question. Who has sought to measure Consumer’s Surplus with the help of indifference curve technique?
(a) Edgeworth
(b) Alfred Marshall
(c) J.R. Hick
(d) Pareto

Answer

C

Question. Profit is also known as
(a) Contractual rent
(b) Residual income
(c) Net income
(d)None of the above

Answer

B

Question. The return to a factor of production which is fixed in supply in the short period is called
(a) Scarcity rent
(b) Economic rent
(c) Quasi-rent
(d) Contractual rent

Answer

C

Question. The marginal productivity theory of distribution was firstly formulated in its complete form by
(a) Adam Smith
(b) J. S. Mill
(c) J. B. Clark
(d) David Ricardo

Answer

B

SECTION – B
MULTIPLE CHOICE QUESTIONS

Question. According to Prof Knight, ___________ is the reward for Uncertainty bearing.

Answer

profit

Question. According to _______________________ interest is a payment for Liquidity preference.

Answer

Keynes

Question. Nominal wage is normally expressed in terms of ___________________.

Answer

Money

Question. Interest is purely a monetary phenomenon is stated by _______________.

Answer

JM Keynes

Question. When a firm’s average revenue is equal to its average_________, it gets Normal profit.

Answer

cost

Question. The liquidity trap occurs when the demand for ____________is perfectly interest elastic.

Answer

money

Question. Ricardian theory of rent is also called ___________________ rent.

Answer

Differential

Question. The payment foe the use of capital without risk in lending is called ____________ interest.

Answer

net

Question. According to Keynes, interest is the reward for parting with ______________.

Answer

liquidity.

Question. Under Perfect competition, price is determined by the interaction of total demand and _______________ in the market.

Answer

total supply

Question. When prices of other goods increase, real wage___________.

Answer

falls

Question. Under the liquidity trap conditions, an increase in money supply will _______ the rate of interest.

Answer

reduce

Question. ________________ fund theory is a flow concept.

Answer

Loanable

Question. FW Taussing originated the ______________theory of profit.

Answer

wage

Question. Wage-fund theory was propounded by ___________.

Answer

Mill

Question. J.R. Hicks contributed the ____________ theory of interest rate determination.

Answer

modern

Question. David Ricardo uses the ______________theory of wages.

Answer

Subsistence

UNIT-II

Question. In order to maximize profits, a firm should produce at the output level for which
(a) Average cost is minimised
(b) Marginal cost equals marginal revenue
(c) marginal cost is minimised
(d) All of the above

Answer

B

Question. A market system where there is only one buyer, is known as.
(a) Monopoly
(b) Monopolistic competition
(c) Monopsony
(d) Monopsonistic competition

Answer

C

Question. When price is below equilibrium level, there will be:
(a) Surplus commodity in the market
(b) Supply curve will shift
(c) Demand curve will shift
(d) Shortage of commodity in the market

Answer

D

Question. Every factor of production gets reward equal to:
(a) Value of average product
(b) Value of marginal product
(c) Value of total product
(d) Total revenue

Answer

B

Question. Under perfect competition, demand for a factor is its:
(a) MRP curve
(b) ARP curve
(c) TRP curve
(d) TR – TC

Answer

A

Question. Equilibrium in the factor market achieved at the factor price and factor quantity is given by
(a) The intersection of the factor demand curve and the factor supply curve
(b) The sum total of the elasticities of demand and supply
(c) The product of the elasticities of demand and supply
(d) None of the above

Answer

A

Question. If marginal product of labour rises because of new technology:
(a) Wages will rise
(b) Wages will fall
(c) Wages will be unaffected
(d) May rise or fall

Answer

A

Question. Factor market will be in equilibrium when
(a) Demand for factors is less than its supply
(b) Demand for factors is equal to supply of factors
(c) Supply of factors is less than for it
(d) All of the above

Answer

B

Question. Under conditions of perfect competition in the product market:
(a) MRP=VMP
(b) MRP > VMP
(c) VMP > MRP
(d) None of the above

Answer

A

Question. If MRP = Price of the factor: firm should _______ at the unit of factor
(a) less factors
(b) more factors
(c) stop hiring more
(d) All of the above

Answer

C

Question. If MRP < P of the factor, firm should hire
(a) less factors
(b) more factors
(c) the same factors
(d) All of the above

Answer

A

Question. In a perfectly competitive market a firm in the long run will be in equilibrium when:
(a) AC =MC
(b) AR = MR
(c) MR = MC
(d) Price = AR = MR = AC = MC

Answer

D

Question. Which of the following is a characteristic of capital as a factor of production?
(a) It is fixed in supply
(b) It never depreciates
(c) It is a passive factor of production
(d) It is an active factor of production

Answer

C

Question. Which of the following is not a factor of production?
(a) Land
(b) Labour
(c) Money
(d) Capital

Answer

C

Question. The labor market equilibrium determines the wage rate and
(a) market
(b) employment
(c) money
(d) interest

Answer

B

Question. We should employ units of a factor to a point where:
(a) MR is negative
(b) MP is equal to price of the factor
(c) MP is positive
(d) MP is rising

Answer

B

Question. If equilibrium price rises but equilibrium quantity remains unchanged, the cause is:
(a) Supply and demand both decrease equally
(b) Supply and demand both increase equally
(c) Supply decreases and demand increases
(d) Supply increases and demand decreases

Answer

C

Question. A decrease in demand causes the equilibrium price to:
(a) Rise
(b) Fall
(c) Remain constant
(d) Indeterminate

Answer

B

Question. A monopolist maximizes profit by producing the quantity at which
(a) marginal revenue equals marginal cost.
(b) marginal revenue equals price.
(c) marginal cost equals price.
(d) marginal cost equals demand.

Answer

A

Question. Monopsony means
(a) A single seller
(b) A single buyer
(c) Large number of buyers
(d) None of the above

Answer

B

Question. Monopoly means
(a) A single seller
(b) A single buyer
(c) Large number of buyers
(d) None of the above

Answer

A

Question. The market, where the services of factor of production are bought and sold is, is
(a) Product market
(b) Factor market
(c) Commodity market
(d) Monopoly market

Answer

B

SECTION – B
MULTIPLE CHOICE QUESTIONS

Question. In a perfectly competitive market, an individual firm cannot influence the market ____________ of a factor

Answer

price

Question. Factor market refers to markets where services of the factors of production are ________ and sold.

Answer

bought

Question. ____________ relates to the willingness and ability of productive activities (that is, businesses) to hire or employ factors of production.

Answer

Factor demand

Question. In a perfectly competitive market, a firm in the___________ run will be in equilibrium when: Price = AR = MR = AC = MC.

Answer

long

Question. Under perfect competition, Marginal revenue productivity curve of labor cuts the marginal cost curve {marginal wage) from _____________.

Answer

above

Question. A monopoly is the sole seller of a product with no ______________ substitutes.

Answer

close

Question. The equilibrium price falls when there is a/an _______________ in demand.

Answer

decrease

Question. firm should stop hiring more factors at the point where ___________= Price of the factor.

Answer

MRP

Question. ___________ is the funds that firms use to buy and operate their production process.

Answer

Capital

Question. Monopolist is a price ___________.

Answer

maker

UNIT-III

Question. The marginal condition for a Pareto-optimal allocation of factors requires that the ________ between labour and capital be equal for all commodities produced by different firms.
(a) MRS
(b) MRTS
(c) DMR
(d) MC

Answer

B

Question. The first condition of which economist states that welfare is said to increase when national income increases
a) Kaldor-Hicks
b) Adam Smith
c) A. C. Pigou
d) Prof . Bergson

Answer

C

Question. The Fundamental Theorem of Welfare Economics:
a) shows that the allocation of resources generated by a complete system of perfectly competitive markets results in all consumers attaining the same utility level.
b) refers to the biblical observation that “the poor ye shall always have with you.”
c) implies that no intervention in the workings of markets can be justified on efficiency grounds.
d) holds that the allocation of resources generated by a complete system of perfectly competitive markets is Pareto efficient.

Answer

D

Question. The concept of ‘Social Welfare Function’ was propounded by A. Bergson in his article ‘A Re-formulation of Certain Aspects of Welfare Economics’ published in the year 1938
(a) 1932
(b) 1935
(c) 1938
(d) 1942

Answer

C

Question. The locus of the various physi¬cally attainable utility combinations of two persons when the factor endowments, state of technology and preference orders of the individuals are given.
(a) grand utility possibility frontier
(b) Maximum utility frontier
(c) Pareto Optimality frontier
(d) Hicks Utility Frontier

Answer

A

Question. Compensation criterion principle is associated with the name of
a) Kaldor-Hicks
b) Vilfredo Pareto
c) A. C. Pigou
d) Prof . Bergson

Answer

A

Question. Which among the following is NOT a correct statement?
(a) Welfare economics is based on value judgements.
(b) Welfare economics is also called ‘economics with a heart’.
(c) Welfare economics focuses on questions about equity as well as efficiency.
(d) The founder of Welfare economics was Alfred Marshall.

Answer

D

Question. If an economy operates on its production possibility curve, then the allocation of resources in that economy satisfies:
a) allocative efficiency.
b) distributive efficiency.
c) Pareto efficiency.
d) productive efficiency.

Answer

D

Question. If a brother and sister return home from trick-or-treating on Christmas and engage in a series of voluntary trades of candy, we can conclude that:
a) the initial allocation of candy between them was distributively inefficient.
b) the initial allocation of candy between them was distributively efficient.
c) their preferences must be different.
d) the candy they collected around the neighborhood must have been different.

Answer

A

Question. When the allocation of resources is Pareto efficient
(a) society is providing the greatest good to the greatest number.
(b) no consumer would prefer someone else’s consumption bundle to his or her own.
(c) it is not feasible to make someone better off without making someone worse off.
(d) it is feasible to make someone better off without making someone worse off.

Answer

C

Question. Who proclaimed the ‘doctrine of invisible hand’?
a) Adam Smith
b) A. C. Pigou
c) Kaldor-Hicks
d) V. Pareto

Answer

A

Question. The statement “The unemployment rate for teens is higher than that for adults” is
(a) A normative statement.
(b) A positive statement
(c) A political statement.
(d) An ethical statement.

Answer

B

Question. Welfare Economics is generally accepted as
a) Positive science
b) Normative science
c) Both of the above
d) None of the above

Answer

B

Question. According to AC Pigou, any reorganization of the economy which increases the share of the poor without reducing the national income is also considered an
(a) decrease in social welfare
(b) reduction in social welfare
(c) improvement in social welfare
(d) None of the above

Answer

C

Question. Welfare is improved when ‘the greatest good (is secured) for the greatest number’ is a statement given by
a) Kaldor-Hicks
b) Adam Smith
c) Jeremy Bentham
d) Prof . Bergson

Answer

C

Question. A situation in which it is impossible to make anyone better-off without making someone worse-off is said to be
(a) bentham Optimal
(b) Pareto-optimal
(c) Hicks Optimal
(d) Bergson Optimal

Answer

B

Question. A famous welfare economics book called, “Economics of Welfare” was written by
a) Kaldor-Hicks
b) Adam Smith
c) A. C. Pigou
d) Prof . Bergson

Answer

C

Question. The marginal condition for a Pareto-optimal or -efficient distribution of commodities among consumers requires that the MRS between ______ be equal for all consumers.
(a) Two factors
(b) Two goods
(c) Two consumers
(d) Two producers

Answer

B

Question. If any policy change benefits any one section of the society (gainers) to such an extent that it is better off even after the payment of compensation to the other sections of the society (losers) out of the benefits received, then that change leads to
(a) decrease in social welfare
(b) Neither decrease nor increase in social welfare
(c) increase in social welfare
(d) None of the above

Answer

C

SECTION – B
MULTIPLE CHOICE QUESTIONS

Question. Jeremy Bentham, an English economist, argued that welfare is improved when ‘the greatest good is secured for the greatest ______________’.

Answer

number

Question. If the amount of money of the ‘gainers’ is greater than the amount of the ‘losers’, the change constitutes an _____________ in social welfare.

Answer

improvement/increase

Question. In Pareto welfare economics, efficiency in exchange is also called Efficiency of distribution of commodities among ____________________.

Answer

consumers

Question. According to Pareto, any change that makes at least one indivi¬dual better-off and no one worse-off is an _________________ in social welfare.

Answer

improvement/increase

Question. For the attainment of a Pareto-efficient situation in an economy, ________________marginal conditions must be satisfied.

Answer

three

Question. According to Pareto ,a change that makes no one better-off and at least one worse-off is a _________________________ in social welfare.

Answer

decrease/reduction

Question. The marginal condition for a Pareto-optimal or -efficient distribution of commodities among consumers requires that the _______________between two goods be equal for all consumers.

Answer

MRS

Question. If the amount of money of the ‘gainers’ is lesser than the amount of the ‘losers’, the change constitutes an ______________ in social welfare.

Answer

decrease/reduction 

Question. Producer surplus is the area above the supply curve and below the ________________.

Answer

price

UNIT –IV

Question. If the net present value is greater than zero, then the project is
(a) Accepted
(b) Rejected
(c) Neither accepted nor rejected
(d) Postponed

Answer

A

Question. If rate of interest is 10% the PV (present value) of Rs. 100 received in 1 years time is
(a) 90
(b) 90.9
(c) 95
(d) 110

Answer

B

Question. The internal Rate of Return (IRR) criterion for project acceptance, under theoretically infinite funds is: accept all projects which have
(a) IRR equal to the cost of capital
(b) IRR greater than the cost of capital
(c) IRR less than the cost of capital
(d) None of the above

Answer

B

Question. Each of the following techniques use discounted cash flows to incorporate the time value of money into their analysis except
(a) payback method
(b) internal rate of return (IRR)
(c) net present value (NPV)
(d) modified internal rate of return

Answer

A

Question. If the internal rate of return (IRR) is negative, then the investor
(a) Loses money
(b) Gains money
(c) Neither gains nor loses money
(d) None of the above

Answer

A

Question. The reason that finding the present value of a future sum of money requires us to discount it, is that:
(a) Waiting involves risk
(b) We don’t know when we shall receive it
(c) Inflation will reduce its purchasing power
(d) Waiting deprives us of its use

Answer

D

Question. Under Net present value criterion, a project is approved if
(a) Its net present value is positive
(b) The funds are unlimited
(c) Both (a) and (b)
(d) None of the above

Answer

C

Question. If the net present value (NPV) is more than one, then the project may be
(a) Accepted
(b) Rejected
(c) Accepted or rejected
(d) All of the above

Answer

A

Question. Which of the following criterion is often preferred
(a) Net present value
(b) Profitability index
(c) Internal Rate of Return
(d) Payback period

Answer

A

Question. If interest rates rise, the present value of any future earnings is bound to:
(a) Suffer from inflation
(b) Increase in risk
(c) Rise 
(d) Fall

Answer

D

Question. The period of time required to recover initial cost of investment is called
(a) Payback period
(b) Annual average rate of return
(c) Internal rate of return
(d) Net present value

Answer

A

Question. Projects with __________ are preferred
(a) Lower payback period
(b) Normal payback period
(c) Higher payback period
(d) Any of the above

Answer

A

Question. A manager can presume that the project will enhance shareholder wealth only if its NPV based on the risk adjusted rate is
(a) equal
(b) zero.
(c) negative.
(d) positive.

Answer

D

Question. A project may be regarded as high risk project when
(a) It has smaller variance of outcome but a high initial investment
(b) It has larger variance of outcome and high initial investment
(c) It has smaller variance of outcome and a low initial investment
(d) It has larger variance of outcome and low initial investment

Answer

A

Question. What is the net present value?
(a) the future value of a project’s cash flows plus its initial cost
(b) the present value of a project’s cash flows plus its initial cost
(c) the future value of a project’s cash flows minus its initial cost
(d) the present value of a project’s cash flows minus its initial cost

Answer

D

Question. Why are projects with negative net present values (NPVs) unacceptable to a firm?
(a) Returns lower than the cost of capital result in firm failure.
(b) Returns with negative NPVs cause an equal profit ratio.
(c) Returns with negative NPVs are acceptable to a firm
(d) Returns lower than the cost of capital result in higher profit ratios

Answer

A

Question. The number of years required to recover initial cost of investment is called
(a) Recover period
(b) Take-back period
(c) Payback period
(d) Annual average rate of return

Answer

C

SECTION – B
MULTIPLE CHOICE QUESTIONS

Question. Net present value (NPV) is the sum of the present values of the project’s future cash flows minus the _______________of the project.

Answer

cost

Question. __________ value is the current value of a future sum of money or stream of cash flows given a specified rate of return.

Answer

Present

Question. ________value is the value of a current asset at a future date based on an assumed rate of growth.

Answer

Future

Question. IRR is the rate of return(r) which renders the net present value (NPV) equal to _____________.

Answer

zero

UNIT-V

Question. In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in
(a) Military capabilities
(b) labour productivities
(c) relative availabilities of factors of production
(d) tastes

Answer

C

Question. According to Ricardo, a country will have a comparative advantage in:
(a) Industries in which there are neither imports nor exports
(b) import competiting industries
(c) Industries that sell to domestic and foreign buyers
(d) industries that sell to only foreign buyers

Answer

C

Question. A closed economy is one in which:
(a) Imports exactly equal exports, so that trade is balanced.
(b) Domestic firms invest in industries overseas.
(c) The home economy is isolated from foreign trade
(d) Saving exactly equals investment at full employment.

Answer

C

Question. Adam Smith propounded the theory of
(a) Comparative cost
(b) Opportunity cost
(c) Absolute advantage in international trade
(d) None of the above

Answer

C

Question. The main objective of international trade is
(a) To maximize production
(b) To remove political bondage
(c) To establish world bank
(d) To remove poverty

Answer

A

Question. Import quota implies
(a) Physical limitation of quantities of goods traded to other countries
(b) Physical limitation of quantities of goods traded from other countries
(c) A duty imposed by the government upon the goods traded
(d) All of the above

Answer

B

Question. Suppose a country’s workers can produce 4 watches per hour or 12 rings per hour. If there is no trade,
(a) the domestic price of 1 ring is 1/4 of a watch.
(b) the domestic price of 1 ring is 3 watches.
(c) the domestic price of 1 ring is 1/3 of a watch.
(d) the domestic price of 1 ring is 12 watches

Answer

C

Question. Suppose the world consists of two countries: the UK and Spain. Further, suppose there are only two goods–food and clothing. Which of the following statements is true?
(a) If the UK has an absolute advantage in the production of food, then Spain must have an absolute advantage in the production of clothing.
(b) If the UK has a comparative advantage in the production of food, Spain might also have a comparative advantage in the production of food.
(c) If the UK has a comparative advantage in the production of food, it must also have a comparative advantage in the production of clothing
(d) If the UK has a comparative advantage in the production of food, then Spain must have a comparative advantage in the production of clothing

Answer

D

Question. What determines the pattern of specialisation and trade in industries with external economies of scale?
(a) Product differentiation
(b) Monopolistic competition
(c) Historical competition
(d) None of the above

Answer

C

Question. David Ricardo’s trading principle emphasis the:
(a) Demand side of the market
(b) supply side of the market
(c) role of comparative costs
(d) role of absolute costs

Answer

C

Question. Under Heckscher-Ohlin Model, international trade can lead to increases in:
(a) Consumer welfare only if output of both products is increased
(b) Output of both products and consumer welfare in both countries
(c) Total production of both products, but not consumer welfare in both countries
(d) Consumer welfare in both countries, but not toal production of both products.

Answer

B

Question. Nations conduct international trade because:
(a) Some nations prefer to produce one thing while others produce other things.
(b) Resources are not equally distributed among all trading nations.
(c) Trade enhances opportunities to accumulate profits.
(d) Interest rates are not identical in all trading nations

Answer

B

Question. Which of the following is a determinant of trade?
(a) Tastes
(b) Per capita income
(c) Technological change
(d) All of the above

Answer

D

Question. Who propounded the opportunity cost Theory of international trade?
(a) Ricardo
(b) Marshall
(c) Heckscher & Ohlin
(d) Haberler

Answer

D

Question. According to Heckscher-Ohlin theory as a result of international trade, thedifference in factor price between nations
(a) diminishes
(b) increases
(c) is constant
(d) All of the above

Answer

A

Question. David Ricardo propounded theory of
(a) Law of reciprocal demand
(b) Absolute theory of international trade
(c) Comparative theory of international trade
(d) None of the above 

Answer

C

Question. In Heckscher-Ohlin model, factor abundance have been defined in two terms. Those are
(a) Price and location criteria
(b) Physical and location criteria
(c) Price and physical criteria
(d)None of the above

Answer

C

SECTION – B
MULTIPLE CHOICE QUESTIONS

Question. International Trade means trade between _________________ .

Answer

Countries

Question. A tariff that maximises a country’s welfare is called ___________________ tariff.

Answer

optimum

Question. 2×2×2 model of International Trade is known by __________________ model.

Answer

Heckscher Ohlin model

Question. When two countries trade with each other, it is called _____________ trade.

Answer

bi-lateral

Question. An economy that does not trade with other countries is called______________ country.

Answer

closed

Question. The economist_________________ advocated free trade.

Answer

Adam Smith

Question. Ricardo has supplemented _______________________ theory.

Answer

Absolute advantage

Question. _______________, not absolute advantage, determines the decision to specialize in production.

Answer

Comparative advantage