ECO401 Introduction To Economics

MCQs File (By VU Short Lectures)

1. When the price elasticity of demand for a good is greater than
1, we say that the demand is:

1. Increasing
2. Decreasing
3. Elastic
4. Inelastic
2. Suppose Gross Domestic Product (GDP) in 2007 equals Rs.
720,000. If the values of indirect taxes and depreciation
allowance are Rs. 250,000 and Rs. 40,000 respectively, the
value of net domestic product (NDP) is:

1. Rs.680, 000
2. Rs.470, 000
3. Rs.430, 000
4. Rs.510, 000
3. If consumers’ incomes remain constant, then demand for
product Y will:

1. Necessarily remain unchanged

2. Shift to the right if Y is a complementary good
3. Shift to the right if Y is a normal good
4. Shift to the right if Y is an inferior good
4. Rabia decides to look after her baby at home rather than going
out with her friends in a park. His dilemma is an example of:

1. Opportunity cost
2. Marginal analysis
3. Allocative efficiency
4. The economic perspective
5. Assume that the computer buyers in northern parts of Pakistan
have no idea what prices are being paid in the southern parts
of Pakistan. This situation violates which of the following
assumptions of perfect competition?
 1. Identical goods
2. No discrimination
3. Perfect information
4. Many buyers and sellers
6. Ali has 1 acre land in Bahawalpur. He grows wheat on this land
by employing 10 workers. To get maximum output, he decides
to increase number of workers. The law of diminishing returns
states that as more workers are employed to grow wheat on 1
acre land:

1. Marginal utility of wheat falls

2. The total physical product of wheat falls
3. The marginal physical product of wheat falls
4. The marginal physical product of wheat increases
7. Suppose that a farmer grows wheat and sells it to a baker for
Rs.1, the baker makes bread and sells it to a store for Rs.2, and
the store sells it to the customer for Rs.3. This transaction
increases GDP by:

1. Rs.1
2. Rs.2
3. Rs.3
4. Rs.6
8. A firm maximizes profit by operating at the level of output
where:

1. Average revenue equals average cost.

2. Average revenue equals average variable cost.
3. Total costs are minimized.
4. Marginal revenue equals marginal cost.
9. Suppose a profit maximizing firm gets total revenue of Rs.
15000 by selling 150 units of output. When it sells 250 units of
output, total revenue becomes Rs. 35000. The marginal
revenue in this case is:

1. 125
2. 200
3. 350
 4. 400
10. Which of the following shows the condition for
consumer's equilibrium?

1. Marginal utility per dollar spent on each good being equalized

across all goods.
2. The ratio of (marginal utility per unit of the good)/ (price per
unit of the good) being equalized across all goods.
3. The ratio of marginal utilities being equated to the ratio of prices
for all possible pairs of goods.
4. All of the given options.
11. Which of the following is TRUE for a monopolistically
competitive firm in the short run equilibrium?

1. It will make negative profit (lose money).

2. It will make zero profit (break-even).
3. It will make positive profit.
4. Any of the given is possible.
12. Demand is said to be ________ when the elasticity of
demand is less than 1.

1. Increasing
2. Decreasing
3. Elastic
4. Inelastic
13. Those who hold the Classical view of the labour market
are likely to believe that:

1. Monetary, but not fiscal policy will have an effect on output and
employment
2. Fiscal but not monetary policy will have an effect on output and
employment.
3. Both monetary and fiscal policy will have an effect on output and
employment.
4. Neither monetary nor fiscal policy will have an effect on output
and employment.
14. In soap industry, all firms can freely enter or exit into the
market and each firm is competing on the basis of product
differentiation. In which market structure this industry is
operating?

1. Monopoly
2. Oligopoly
3. Perfect Competition
4. Monopolistic Competition
15. Organizations of independent firms, producing similar
products, that work together to raise prices and restrict output,
are a situation of:

1. Cartels
2. Perfect competition
3. Optimal output mix
4. Price ceiling
16. The law of diminishing marginal utility indicates that the
demand curve is:

1. Vertical
2. U shaped
3. Upward sloping
4. Downward sloping
17. A total cost curve:

1. Relates output with total cost.

2. Is always upward sloping.
3. Gets steeper as output rises, due to diminishing marginal
product of an input.
4. All of the given options.
18. Gross National Product (GNP) is:

1. Gross Domestic Product (GDP) minus depreciation.

2. Net National Product (NNP) plus depreciation.
3. National income discounted by the GDP deflator.
4. Income from foreign investments.
19. Demand tends to be more elastic in the:
 1. Short run time period.
2. Immediate time period.
3. Long run time period.
4. All of the given
20. If quantity demanded of videocassette players decreases
by 15% as a result of 10% increase in its price, then one can
conclude that demand for videocassette players is:

1. Elastic
2. Inelastic
3. Perfectly elastic
4. Perfectly inelastic
21. The total cost (TC) function is given as TC = 200 + 8Q.
What will be the average total cost if 2 units of commodity are
produced?

1. 20
2. 55
3. 108
4. 216
22. A demand curve is price elastic when:

1. Changes in demand are proportionately greater than changes in

price.
2. Changes in demand are equal to changes in price.
3. Total revenue increases due to increase in price.
4. Changes in demand are proportionately smaller than changes in
price.
23. If demand for automobiles increases and the supply curve
do not shift then result will be:

1. No change in price and quantity of automobiles

2. Higher price and lower quantity of automobiles
3. Higher price and more quantity of automobiles
4. Higher price and no change in quantity of automobiles
24. The total cost (TC) function is given as: TC = 200 + 5Q.
What is the average total cost?
 1. 5Q
2. 5
3. 5 + (200/Q)
4. None of the given
25. Sultan is running a logistics business and provides
logistics services to the local business community. For his
company, truck falls in the category of ________.

1. Labor
2. Capital
3. Land
4. Entrepreneurship
26. The demand for apples is expressed as: Qd = 100 - 5P
The supply of apples is expressed as: Qs = 25 + 10P
Refer to the above scenario, if the equilibrium price of apples is
Rs.5, the equilibrium quantity of apples is:

1. 73
2. 75
3. 80
4. 85
27. Yummy, an ice-cream maker, has discovered that the ratio
of the marginal product of labor to the price of labor is 8.5,
while the ratio of the marginal product of capital to the price of
capital is 7.1. The firm has determined that it does not want to
change its total costs. Yummy should:

1. Use more capital and less labor.

2. Use more labor and less capital.
3. Do nothing, the differences in the ratios of marginal product to
input price are too small to matter.
4. Do nothing different since there is insufficient information upon
which to make a decision.
28. What is meant by the term utility?

1. Useless.
2. Require.
3. Necessary.
 4. Satisfaction.
29. An increase in the total output of a country over time is
called:

1. Inflation
2. Economic growth
3. Economic development
4. Unemployment
30. What is the assumption of constructing a production
possibilities frontier?

1. Economic resources are underutilized.

2. Production technology is allowed to vary.
3. All available resources are employed efficiently.
4. None of the given
31. Suppose we find that the cross-price elasticity of demand
for two products is a negative number. We know that the two
goods are:

1. Normal goods
2. Inferior goods
3. Substitutes
4. Complements
32. Suppose quantity demanded of chicken increases by 5
percent in response to 2 percent increase in price of beef. The
cross-price elasticity of demand for chicken with respect to
price of beef is:

1. +2.5
2. -2.5
3. +0.25
4. -0.25
33. The gold standard was an example of what kind of
exchange-rate system?

1. A freely floating exchange rate

2. A managed floating exchange rate
3. A fixed exchange rate
 4. A non-convertible exchange rate
34. The demand for butter is downward-sloping. The price of
butter suddenly rises from Rs. 160 per kg to Rs. 180 per kg.
This will cause:

1. Demand curve of butter to shift to the right

2. Demand curve of butter to shift to the left
3. Quantity demanded of butter to increase
4. Quantity demanded of butter to decrease
35. Suppose that as the price of apples falls the income effect
causes consumers to buy fewer apples. We can conclude that
apple is:

1. An inferior good
2. Nasty tasting
3. A normal good
4. Expensive
36. Sugar can be produced from sugar beets. If the price of
sugar beets falls, which of the following will happen?

1. The demand curve for sugar would shift right.

2. The demand curve for sugar would shift left.
3. The supply curve for sugar would shift right.
4. The supply curve for sugar would shift left.
37. The demand for books is expressed as: Qd = 100 - P
The supply of books is expressed as: Qs = 4P
Refer to the above scenario, the equilibrium price of books is:

1. Rs. 15
2. Rs. 20
3. Rs. 23
4. Rs. 25
38. Keeping other factors constant, if Asma drinks more and
more bottles of coke, his marginal utility from coke will:

1. Diminish
2. Increase
3. Remain the same
 4. First decrease then starts increasing
39. Suppose Ali derives total utility equals to 10 utils from the
consumption of 1 bottle of Pepsi. When he consumes another
bottle of Pepsi, he gets total utility equals 25 utils. His marginal
utility in this case will be:

1. 2.5 utils
2. 15 utils
3. 25 utils
4. 35 utils
40. Which of the following is NOT true about
macroeconomics?

1. The study of the aggregate level of economic activity.

2. The study of the economic behavior of individual decision-
making units such as consumers, resource owners, and business
firms.
3. The study of the cause of unemployment.
4. The study of the cause of inflation.
41. The production possibility frontier (PPF) shows all
combinations of goods that:

1. Society most desires.

2. Lie outside the curve.
3. Reflect full production.
4. An economy can produce with all available resources.
42. Points inside the production possibility frontier (ppf)
show that:

1. Efficient use of resources.

2. Inefficient use of resources.
3. Resources are not utilized.
4. All of the given
43. What will happen if exchange rate decreases from $1 =
Pak Rs. 85 to $1 = Pak Rs. 65?

1. It will reduce imports of Pakistan.

2. Its imports and exports will remain unchanged.
 3. It will decrease exports of Pakistan.
4. It will increase exports of Pakistan.
44. Which of the following is TRUE for third-degree price
discrimination?

1. Charging different prices to different groups based upon

differences in elasticity of demand.
2. Charging each consumer the same two part tariff.
3. The use of increasing block rate pricing.
4. Charging lower prices the greater the quantity purchased.
45. The opportunity cost of an action is:

1. Same for everyone

2. The value of the next best alternative
3. The undesirable aspects of that action
4. The average amount of unhappiness experienced by everyone
involved
46. The rate at which a firm can substitute capital for labour
and hold output constant is the:

1. Law of diminishing marginal returns.

2. Marginal rate of substitution.
3. Marginal rate of technical substitution.
4. Marginal rate of production.
47. Revenue is equal to price times:

1. Quantity
2. Quantity minus total cost
3. Quantity minus average cost
4. Quantity minus marginal cost
48. A Higher demand for computers will ________ of
computers.

1. Increase both equilibrium price and equilibrium quantity

2. Decrease both equilibrium price and equilibrium quantity
3. Increase equilibrium price and decrease equilibrium quantity
4. Decrease equilibrium price and increase equilibrium quantity
49. Which of the following is not a stock variable?

1. Government debt
2. The labor force
3. The amount of money held by the public
4. Inventory investment
50. Which of the following best describes a demand schedule?

1. It is a numerical tabulation of the quantity demanded of a good

at different prices, ceteris paribus.
2. It is a graphical representation of the law of demand.
3. It is a systematic listing of all the variables that might
conceivably bring about a change in demand.
4. It is a symbolic representation of the law of demand: P,Q and
Q,P
51. If the price elasticity of demand for beans is estimated to
be -0.4, then a 20% increase in price will decrease the quantity
demanded by:

1. 14%
2. 8%
3. 16%
4. 20%
52. If Ali prefers a certain income over a risky income, Ali is
known as:

1. Risk loving person.

2. Risk neutral person.
3. Risk averse person.
4. Irrational person.
53. Ghani noticed a new entry of Rs. 110000 under the head
of wages in his books of accounts. Which of the following his
accountant must have paid to?

1. Labor
2. Capital
3. Land
 4. Entrepreneurship
54. The price elasticity of demand measures the
responsiveness of quantity demanded to:

1. Quantity demanded
2. Quantity supplied
3. Price
4. Output
55. Salman makes a plan to see movie with his friends. The
cost of ticket is Rs. 300. If he will go, he will have to forego Rs.
500 that otherwise he will get by doing work at that time. The
opportunity cost of watching movie is:

1. Rs.350
2. Rs. 500
3. Rs. 850
4. Rs.150
56. ABC Company is running a business of car manufacturing
and finds sharp increase in prices of spare parts which in turn
increases cost of manufacturing cars. This increase in cost of
production will:

1. Shift demand curve for cars to the right

2. Shift demand curve for cars to the left
3. Shift supply curve for cars to the left
4. Bring no change in demand or supply curves for cars
57. If there are 30 percent chances that machine will work
well and 70 percent chances that it will not function well, then
the odd ratio will be:

1. 2.333
2. 0.428
3. 0.40
4. 0.721
58. Mohsin Malik has been updated by his partner that this
month Rs. 65,000 have been paid to acquire new machinery
directly needed to match the rising demand. Which of the
following they have paid for?
 1. Labor
2. Capital
3. Land
4. Entrepreneurship
59. If the income elasticity of demand for tea is 0.4, a 10%
increase in consumer's income will lead to a _________ in the
quantity of tea demanded.

1. 40 percent increase
2. 40 percent decrease
3. 4 percent increase
4. 0.4 percent increase
60. When government sets the price of a good and that price
is below the equilibrium price, the result will be:

1. A surplus of the good

2. A shortage of the good
3. An increase in the demand for the good
4. A decrease in the supply of the good
61. Which of the following is a characteristic of a mixed
economy?

1. Resources are governed by both government and individuals.

2. It utilizes the characteristics of both market economy and
planned economy.
3. People are free to make their decisions and government controls
the defense.
4. All of the given
62. All the insurance companies around the globe work under
the principle of:

1. Law of zero numbers

2. Law of large numbers
3. Law of small numbers
4. Law of constant numbers
63. The effect of a change in income on the quantity of the
good consumed is called the:
 1. Income effect
2. Budget effect
3. Substitution effect
4. Real income effect
64. There will be excess supply in the market due to:

1. Price ceiling
2. Price rationing
3. Price floor
4. All of the given
65. Suppose a firm produces 20 units of output and incurs
Rs.40 in average variable cost and Rs.8 in average fixed cost,
average total cost is:

1. 40
2. 35
3. 48
4. 60
66. Saqib is planning to start his own business. Initial cost
that has to be incurred is Rs. 50,000. But to do so, he has to
quit a job which pays Rs. 120,000 a year. His opportunity cost
of starting business is:

1. Rs. 120,000
2. Rs. 50,000
3. Rs. 80,000
4. Undetermined
67. If the demand for using gym is price inelastic and your
local gym owner increases the fee for using the gym, you would
expect:

1. A decrease in total revenue received by the gym owner.

2. A increase in total revenue received by the gym owner.
3. No change in total revenue received by the gym owner.
4. An increase in the hours that people will spend in the gym.
68. Final goods are:

1. Inferior goods only

 2. For further processing
3. Perishable goods only
4. For Direct use by the consumers
69. If the quantity demanded of mangoes exceeds the
quantity supplied of mangoes:

1. There is a surplus of mangoes

2. Market forces will cause the price to fall
3. Market forces will cause the price to rise
4. The market is in equilibrium
70. The local bus system charges lower fares to students than
to the other passengers. Suppose that this pricing strategy
increases the profits of the bus system, we can conclude that
students must have a ________ for bus service than other
passengers.

1. Greater demand
2. Lower demand
3. More elastic demand
4. Less elastic demand
71. When the price of wheat rises by 10%, the quantity of
wheat purchased falls by 4%. This shows that the demand for
wheat is:

1. Perfectly elastic
2. Unit elastic
3. Price elastic
4. Price inelastic
72. If a 2% rise in consumer’s incomes causes a 4% rise in
product’s demand, the income elasticity of demand for the
product will be:

1. 0.5
2. 1.5
3. 2
4. 2.5
73. Arif decides to work for an extra hour rather than playing
cricket with his friends. He gets Rs. 500 for an extra hour. His
opportunity cost of working for an extra hour is:

1. Rs. 500
2. Pleasure that he would have received from playing cricket
3. Rs.500 minus pleasure that he would have received from playing
cricket
4. Undetermined
74. In a perfectly competitive market:

1. Firms can freely enter and exit

2. Firms sell a differentiated product
3. Transaction costs are high
4. All of the given
75. Diminishing marginal returns implies:

1. Decreasing marginal costs

2. Increasing marginal costs
3. Decreasing average variable costs
4. Decreasing average fixed costs
76. If price of MP3 players rises and as a result, the demand
for headphones decreases, then one can say that MP3 players
and headphones are:

1. Normal goods
2. Substitutes
3. Complements
4. Inferior goods
77. When the price for entry tickets for parks decrease,
families tend to spend more time at parks instead at home. This
best reflects:

1. Diminishing marginal utility

2. The income effect
3. The rationing function of markets
4. The substitution effect
78. If average physical product (APP) is increasing then
which of the following must be true?

1. Marginal physical product is above the average physical product.

2. Marginal physical product is less than average physical product.
3. Marginal physical product is decreasing.
4. None of the given statement is true.
79. If Nestle Company has elastic demand for Nestle juices,
then increase in price of Nestle juices will:

1. Increase total revenue.

2. Decrease total revenue.
3. Bring no change in total revenue.
4. Decrease marginal revenue.
80. The process by which we limit the supply or amount of
some economic factor which is scarcely available is called:

1. Rationing
2. Bundling
3. Price floor
4. Price ceiling
81. Accounts office of Z&X corporations has paid Rs.250000
on account of profit in the month of August 2011. Which of the
following the accounts office has paid for?

1. Labor
2. Capital
3. Land
4. Entrepreneurship
82. The demand curve for eggs is downward-sloping.
Suddenly the price of eggs increases from Rs.80/- per dozen to
Rs.100/- per dozen. This will cause:

1. The demand curve for eggs to shift leftward

2. Quantity demanded of eggs to decrease
3. The demand curve for eggs to shift rightward
4. Quantity demanded of eggs to increase
83. Which of the following is TRUE for an entrepreneur?
 1. An innovator
2. A risk taker
3. Someone who brings resources together and produces a product
4. All of the given
84. The break-even point occurs when:

1. Price < Average Variable Cost.

2. Price < Average Total Cost.
3. Price = Average Total Cost.
4. Price > Average Variable Cost.
85. If the cost of parts of automobiles falls, then:

1. The demand curve for automobiles shifts to the right.

2. The supply curve for automobiles shifts to the right.
3. The demand curve for automobiles shifts to the left.
4. The supply curve for automobiles shifts to the left.
86. If there is a price ceiling, there will be:

1. Shortages
2. Surpluses
3. Equilibrium
4. Decrease in production
87. “Each firm produces an identical product and there is
freedom of entry and exit”. This is TRUE for which of the
following market structures?

1. For Monopoly
2. For Oligopoly
3. For Perfect competition
4. For Monopolistic competition
88. If one firm increases its price, in the kinked demand curve
model then:

1. Other firms will reduce their price.

2. Other firms will compete on a non-price basis.
3. Other firms will not increase their price.
4. Other firms will increase their output level.
89. The demand for apples is expressed as: Qd = 80 - P
The supply of apples is expressed as: Qs = 3P
Refer to the above scenario, the equilibrium price of apples is:

1. Rs. 10
2. Rs. 15
3. Rs. 20
4. Rs. 25
90. In measurement of GDP, the problem of double counting
is avoided by:

1. Using GDP deflator.

2. Adjusting the value of intermediate goods with prices.
3. Adjusting the value of only finished goods with prices.
4. Calculating value added at each stage of production.
91. Suppose supply of agricultural products is price inelastic
and government decides to increase taxes on agricultural
products. More of the tax burden in this case would fall on:

1. Producers
2. Consumers
3. Government
4. Both producers and consumers
92. If a good has income elasticity of demand equal to 1/2,
the good is:

1. Normal good (but not a luxury)

2. An inferior good
3. Luxury good
4. A Giffen good
93. Production possibility frontier analysis assumes that
resources:

1. Increase with production

2. Are saved for emergency use
3. Are used to produce thousands of goods
4. Are used in a technically efficient way
94. Which of the following might be considered to be a
characteristic of a planned economy?

1. Government influence
2. Consumer sovereignty
3. Forbiddance of interest
4. Even income distribution
95. A Demand Curve is price inelastic when changes in
demand are:

1. Greater than zero

2. Equal than those in price
3. Proportionately smaller than those in price
4. Proportionately greater than those in price
96. The demand curve for eggs is downward-sloping.
Suddenly the price of eggs decreases from Rs.60/- per dozen to
Rs.50/- per dozen. This will cause:

1. The demand curve for eggs to shift leftward.

2. Quantity demanded of eggs to decrease.
3. The demand curve for eggs to shift rightward.
4. Quantity demanded of eggs to increase.
97. Which of the following defines the opportunity cost?

1. Cost measured only in rupees

2. Cost of producing the goods
3. Cost of producing one more unit of good
4. Cost of next best alternative forgone
98. A market is said to be in equilibrium when:

1. Supply equals Price

2. There is upward pressure on price
3. There is downward pressure on price
4. Quantity demanded is equal to quantity supplied
99. If the cost of parts of automobiles rises, then:

1. The demand curve for automobiles shifts to the right.

 2. The demand curve for automobiles shifts to the left.
3. The supply curve for automobiles shifts to the right.
4. The supply curve for automobiles shifts to the left.
100. A normative economic statement is a statement:

1. of fact
2. Used to test economic theory
3. Of what ought to be, not what is
4. Of what will occur if certain assumptions are true
101. The socially optimal level of price and quantity is
determined where:

1. Marginal social benefit curve intersects marginal social cost

curve.
2. Marginal social benefit curve intersects marginal private benefit
curve.
3. Marginal social benefit curve intersects marginal private cost
curve.
4. Marginal private benefit curves intersects marginal social cost
curve.
102. Which best expresses the law of demand?

1. A higher price reduces demand

2. A lower price reduces demand
3. A higher price reduces quantity demanded
4. A lower price shifts the demand curve to the right
103. Suppose Ali is consuming 20 units of Apples and 10 units
of bananas with his given income. Suddenly his level of income
increases and he starts consuming more of both goods. For Ali,
both goods are:

1. Normal Goods
2. Substitutes
3. Complements
4. Giffen Goods
104. Rationing is needed due to the problem of:
 1. Unemployment.
2. Inflation.
3. Scarcity.
4. Poverty.
105. Economics is different from other social sciences because
it is primarily concerned with the study of ________.

1. Limited resources
2. Scarcity
3. Social behavior
4. Biological behavior
106. A demand curve is price inelastic when:

1. Changes in demand are proportionately smaller than changes in

price.
2. Changes in demand are proportionately greater than changes in
price.
3. Changes in demand are equal to changes in price.
4. None of the given
107. Costs determine all of the following EXCEPT:

1. Firm's behaviour.
2. How firms should expand?
3. Firm's profitability.
4. Demand for a product.
108. Suppose if investment rises by Rs 100 billion at each price
level. If the value of the multiplier is 4, what is the amount of
change in real GDP demanded at each price level?

1. 25
2. 50
3. 400
4. 1000
109. Suppose Fauji Fertilizer Company Limited produces 4500
bags of Sona Urea and sells each bag at a price of Rs. 350.
What is the total revenue this firm gets by selling 4500 bags?
 1. 128500
2. 150000
3. 1575000
4. 1636000
110. Demand is elastic when the elasticity of demand is:

1. Greater than 0
2. Greater than 1
3. Less than 1
4. Less than 0
111. Suppose the government sets minimum prices of crops to
support farmers. This is an example of:

1. Price ceiling
2. Price floor
3. Free market equilibrium
4. Shortage
112. If the quantity demand of a product is greater than the
quantity supplied of a product, then:

1. There is a shortage of the product.

2. There is a surplus of the product.
3. The product is a normal good.
4. The product is an inferior good.
113. Marginal social cost is the change in social costs caused
by:

1. A unit change in input

2. A unit change in fixed cost
3. A unit change in variable cost
4. A unit change in output
114. The total cost (TC) function is given as: TC = 200 + 5Q.
What is the fixed cost?

1. 5Q
2. 5
3. 5 + (200/Q)
 4. 200
115. If the current market price is above the market clearing
level. We would expect:

1. A shortage to accumulate
2. A surplus to accumulate
3. Upward pressure on the current market price
4. Lower production during the next time period
116. Ali initially started a small day care centre with only 10
children and one staff member. But he found that the cost per
child is very high. He wants to expand the centre. Which of the
following will happen when Ali expands the centre?

1. Economies of scale
2. Diseconomies of scale
3. Increasing returns to the labor inputs
4. Decreasing returns to the labor inputs
117. Which of the following is TRUE about the production
function?

1. It relates inputs with output.

2. It generates a curve that is upward sloping.
3. It shows diminishing marginal product of an input.
4. All of the given
118. If government imposes a price ceiling on wheat, which of
the following will occur in the market for wheat?

1. There will be excess demand for wheat.

2. There will be excess supply of wheat.
3. The demand curve for wheat will shift leftward.
4. The supply curve for wheat will shift rightward.
119. Other things remaining same, when raw material costs
increase of an industry then:

1. The supply curve shifts to the left.

2. The supply curve shifts to the right.
3. The demand curve shifts to the left.
4. The demand curve shifts to the right.
120. Suppose a firm hires five workers and offers them to pay
Rs. 350 for 6 hours. Later on, firm decides to increase working
hours instead of hiring new workers. As working hours
increase, the wage rate:

1. Increases
2. Decreases
3. Remains unchanged
4. First decreases then increases
121. In a free market economy, resources are allocated on the
basis of:

1. Votes taken by consumers

2. A central planning authority
3. Consumer preferences
4. The level of profits of firms
122. If the quantity demanded of computers exceeds the
quantity supplied of computers:

1. Market forces will cause the price to rise.

2. The market is in equilibrium.
3. There is a surplus of computers.
4. Market forces will cause the price to fall.
123. The distribution or allocation of a limited commodity,
usually accomplished based on a standard or criterion is known
as:

1. Scarcity
2. Rationing
3. Bundling
4. All of the given
124. “Q= a – b P” represents equation of:

1. Supply
2. Demand
3. Labor supply
4. Budget line
125. Assume that the current market price is above the market
clearing level. We would expect:

1. A shortage to accumulate
2. Downward pressure on the current market price
3. Upward pressure on the current market price
4. Lower production during the next time period
126. A good whose consumption increases due to increase in
income is categorized as:

1. Inferior good
2. Giffen good
3. Superior good
4. Normal good
127. If different firms in the oligopolistic structure do not
cooperate with each other, this situation is known as:

1. Collusive oligopoly.
2. Cartel.
3. Price leadership.
4. Non-collusive oligopoly.
128. If there is a decrease in consumer's income from Rs.
12,000 to Rs. 10,000, the change in the quantity demanded of
inferior goods can be shown by:

1. Shifting the demand curve leftward.

2. Shifting the demand curve rightward.
3. Moving down along the same demand curve.
4. Moving up along the same demand curve.
129. In price discrimination, price elasticity of demand for
different customers should be:

1. Same.
2. Unit elastic.
3. Infinite elastic.
4. Different.
130. Inverse relationship between the inflation rate and the
unemployment rate is explained by:
 1. Aggregate demand curve.
2. Price adjustment curve.
3. Phillips Curve.
4. Okun law.
131. If the price of a good X is increased by 40% and its
quantity demanded falls by 10%, the price elasticity of demand
is:

1. Price elastic
2. Price inelastic
3. Unit price elastic
4. Normal
132. The cross-price elasticity of demand of complementary
goods is:

1. Less than 0
2. Equal to 0
3. Greater than 0
4. Between 0 and 1
133. The curve of unitary elastic demand will be:

1. A hyperbola
2. An ellipse
3. A rectangle
4. A parabola
134. The law of diminishing marginal utility states:

1. The supply curve slopes upward

2. The elasticity of demand is infinite
3. Your utility grows at a slower and slower rate as you consume
more and more units of a good
4. Your utility grows at a slower and slower rate as you consume
less units of a good
135. Which of the following factors would cause leftward shift
in supply curve for bicycles?

1. Decrease in wages
 2. Increase in prices of inputs
3. Decrease in prices of inputs
4. Use of latest technology in production of bicycles
136. Measurement of elasticites is made in percentage terms
because:

1. It is easy to calculate
2. The resulting measure is unit free
3. It gives a more accurate answer
4. The answer is always negative that way
137. Microeconomics is the branch of economics that deals
with which of the following?

1. Individual consumers.
2. Individual firms and investors.
3. Unemployment and interest rates.
4. Individual consumers, individual firms and investors.
138. While moving from left to right, the typical production
possibilities frontier (PPF) has:

1. An increasingly steep negative slope.

2. An decreasingly steep negative slope.
3. An increasingly steep positive slope.
4. A constant and negative slope.
139. If a good is having inelastic demand then if price rises:

1. Quantity demanded of good rises

2. Quantity supplied of good falls
3. Total revenue of good rises
4. Total revenue of good falls
140. The quantity of a good that sellers wish to sell at each
price level is called:

1. Supply
2. Demand
3. Shortage
4. Surplus
141. During exams, Ali is studying for two hours a day and
decides to spend an extra hour for better performance. The
marginal benefit is the benefit that he gets from studying:

1. All three hours

2. An extra hour
3. Two hours
4. Four hours
142. Which of the following is TRUE about an isocost line?

1. It shows the cost of inputs needed to produce along an isoquant.

2. It shows the cost of inputs needed to produce along an
expansion path.
3. It shows the input combinations that can be purchased with a
given outlay of funds.
4. It shows the output combinations that can be produced with a
given outlay of funds.
143. Suppose a profit maximizing firm sells 100 units of
output. The total revenue function is TR =500q – 2q2. What is
the value of marginal revenue?

1. 100
2. 400
3. -400
4. -100
144. When we study market equilibrium, the primary
influencing variable on production and purchasing decisions is:

1. Price
2. Cost of production
3. The overall state of the economy
4. Consumer’s income
145. It is expected that the sign of cross price elasticity of
demand between two complementary goods would be:

1. Positive
2. Negative
3. Zero
 4. Ambiguous
146. The oligopoly model that predicts that oligopoly prices
will tend to be very rigid is the ________ model.

1. Cournot
2. Stackelberg
3. Dominant firm
4. kinked demand curve
147. Mujtaba has paid Rs. 75000 as rent last month which in
his opinion has increased slightly as compared to previous
months. Which of the following he has paid for?

1. Labor
2. Capital
3. Land
4. Entrepreneurship
148. Suppose a teacher organizes a study group by reserving a
meeting room, compiling study materials and attracting
students. The students would most likely be which of the
following factors of production?

1. Labor
2. Land
3. Capital
4. Entrepreneurship
149. If marginal physical product is equal to average physical
product:

1. Total revenue will fall

2. Average variable costs will fall
3. The total physical product will fall
4. The average physical product will not change
150. Chicken sandwiches are normal goods, which means that
as:

1. Incomes go up, the demand curve shifts to the right.

2. Incomes go up, the supply curve shifts to the right.
3. Price falls, the quantity demanded decreases.
 4. As incomes increase, people buy less.
151. Falling inflation means that price level is rising at a(n):

1. Constant Rate.
2. Increasing rate.
3. Decreasing rate.
4. Fluctuating rate.
152. If sugar and tea are considered to be perfect
complements, than a decrease in price of sugar will lead to:

1. Decrease in quantity demanded of sugar

2. Decrease in quantity demanded of tea
3. Increase in quantity demanded of tea
4. Increase in quantity supplied of tea
153. Which of the following is true about the market
mechanism?

1. Works through central planning by government

2. Eliminates market failures created by government
3. Inefficient means of communicating consumer demand
4. Prices serve as a means of communication between consumers
and producers
154. A firm that benefits from lower costs per unit as it grows
is an example of:

1. Economies of scale.
2. Diseconomies of scale.
3. Increasing opportunity costs.
4. Scale reduction.
155. The total utility curve starts at the origin and reaches the
peak when marginal utility is:

1. Zero
2. Maximum
3. Negative
4. Positive
156. The branch of economics that studies the entire economy,
such topics as aggregate production, unemployment and
inflation is called:

1. Managerial economics
2. Macro economics
3. Micro economics
4. Financial economics
157. Asifa while addressing the young parliamentarians said
that rising inflation in Pakistan was due to the high interest
rates. Which category her statement falls in?

1. Normative
2. Positive
3. Negative
4. None of the given
158. Atif Khan, Young minister for agriculture, has updated in a
talk show that rise in food prices is due to the rising oil prices.
Which category his statement falls in?

1. Normative
2. Positive
3. Negative
4. None of the given
159. What would cause the supply curve of wheat to shift to
the right?

1. An increase in the prices of inputs

2. A decrease in the number of wheat growers
3. An increase in wages paid to agricultural workers
4. Technological improvement which lowers the costs of production
160. The percentage change in quantity demanded given a
percentage change in consumer's income is known as:

1. Price elasticity of demand

2. Income elasticity of demand
3. Supply price elasticity
4. Cross price elasticity
161. If income elasticity is negative, the good is:

1. Normal good
2. A substitute good
3. A complementary good
4. inferior good
162. If the cross price elasticity of demand between two
products is +3.5, then:

1. One of the products is expensive and one is relatively

inexpensive
2. One product is a normal good and the other is an inferior good
3. The two products are complements
4. The two products are substitutes
163. If the income elasticity of demand for bread is 0.4, a 10%
increase in consumer income will lead to a ________ in the
quantity of bread demanded.

1. 40% increase
2. 40% decrease
3. 4% increase
4. 0.4% increase
164. Assume that the market for laptops is dominated by a
single firm, like Inbox, that is able to exert infuence over prices
and output. This situation violates which of the following
assumptions of perfect competition?

1. Many buyers and sellers

2. Easy entry and exit
3. No discrimination
4. Perfect information
165. What would result from a depreciation of the pound on
the foreign exchange market?

1. An increase in the price of imported computers.

2. A fall in the purchasing power of US tourists in London.
3. A fall in the price of imported computers.
4. An increase in the purchasing power of UK tourists overseas.
166. Which of the following is NOT a public good?

1. Street lights
2. Electronics
3. Knowledge
4. National security
167. Arifa in her recent address in National assembly said that
poverty should be reduced in Pakistan. Which category her
statement falls in?

1. Normative
2. Positive
3. Negative
4. None of the given
168. If the price of a good X is increased by 15% and its
quantity demanded falls by 25%, the price elasticity of demand
is:

1. Price elastic
2. Price inelastic
3. Unit price elastic
4. Normal
169. If there is an increase in the long term economic growth
then production possibility frontier will:

1. Shift inward
2. Shift outward
3. Remain the same
4. Move downward on the same curve
170. Zafar Iqbal stated in his opening note at University of
Economics that food prices should be controlled for a
comfortable living. Which category his statement falls in?

1. Normative
2. Positive
3. Negative
4. None of the given
171. According to the utility model of consumer demand, the
law of diminishing marginal utility indicates that the demand
curve is:

1. Vertical.
2. U-shaped.
3. Upward sloping.
4. Downward-sloping.
172. Suppose the total utility derived from first four units of a
good consumed are 12, 22, 32, and 42 respectively. What is the
marginal utility of the third unit?

1. 10
2. 13
3. 20
4. 33
173. Suppose that 48 units of output are produced by using 12
units of labor. Which of the following is TRUE in this context?

1. The marginal product of labor is 4.

2. The total product of labor is 1/4.
3. The average product of labor is 4.
4. None of the given
174. When government sets the price of a good less than the
equilibrium price of a good, then there will be:

1. Surplus of the good

2. Shortage of the good
3. An increase in the demand for the good
4. A decrease in the supply of the good
175. The demand for oranges is expressed as: Qd = 100 - P
The supply of oranges is expressed as: Qs = 4P
Refer to the above scenario, if the equilibrium price of oranges
is Rs. 20, the equilibrium quantity of oranges is:

1. 55
2. 60
3. 80
 4. 100
176. Which of the following is the term that economists use to
describe how consumers rank different goods and services?

1. Satisfaction index.
2. Goodness.
3. Utility.
4. None of the given
177. If the price of sugar rises from Rs. 70 to Rs. 72 and
quantity demanded decreases by 20%. We can conclude that:

1. Demand is inelastic.
2. The elasticity of demand is 2.
3. Total revenue will decrease.
4. Demand is unit elastic.
178. For a firm buying labor competitively, the marginal input
cost is equal to the:

1. Wage
2. Interest rate
3. Price of output
4. cost of raw materials
179. When the cross-price elasticity of demand for two goods
is less than zero then the goods are ________ goods.

1. Complementary
2. Substitute
3. Inferior
4. Giffen
180. When producers are unable to meet market demand for
the product, this results as:

1. Surplus of goods
2. Market failure
3. Monopoly
4. Shortage of good
181. Ghani noticed a new entry of Rs. 110000 under the head
of wages in his books of accounts. Which of the following his
accountant must have paid to?

1. Labor
2. Capital
3. Land
4. Entrepreneurship
182. The law of diminishing marginal utility indicates that the
demand curve is:

1. Vertical
2. U shaped
3. Upward sloping
4. Downward sloping
183. The rate at which a firm can substitute capital for labour
and hold output constant is the:

1. Law of diminishing marginal returns.

2. Marginal rate of substitution.
3. Marginal rate of technical substitution.
4. Marginal rate of production.
184. The price elasticity of demand measures the
responsiveness of quantity demanded to:

1. Quantity demanded
2. Quantity supplied
3. Price
4. Output
185. Suppose that a farmer grows wheat and sells it to a baker
for Rs.1, the baker makes bread and sells it to a store for Rs.2,
and the store sells it to the customer for Rs.3. This transaction
increases GDP by:

1. Rs.1
2. Rs.2
3. Rs.3
4. Rs.6
186. Demand is said to be ________ when the elasticity of
demand is less than 1.

1. Increasing
2. Decreasing
3. Elastic
4. Inelastic
187. Rabia decides to look after her baby at home rather than
going out with her friends in a park. His dilemma is an example
of:

1. Opportunity cost
2. Marginal analysis
3. Allocative efficiency
4. The economic perspective
188. An increase in the total output of a country over time is
called:

1. Inflation
2. Economic growth
3. Economic development
4. Unemployment
189. When we study market equilibrium, the primary
influencing variable on production and purchasing decisions is:

1. Price
2. Cost of production
3. The overall state of the economy
4. Consumer’s income
190. If income elasticity is negative, the good is:

1. Normal good
2. A substitute good
3. A complementary good
4. inferior good
191. When the price elasticity of demand for a good is greater
than 1, we say that the demand is:
 1. Increasing
2. Decreasing
3. Elastic
4. Inelastic
192. In price discrimination, price elasticity of demand for
different customers should be:

1. Same.
2. Unit elastic.
3. Infinite elastic.
4. Different.
193. What would result from a depreciation of the pound on
the foreign exchange market?

1. An increase in the price of imported computers.

2. A fall in the purchasing power of US tourists in London.
3. A fall in the price of imported computers.
4. An increase in the purchasing power of UK tourists overseas.
194. If a good is having inelastic demand then if price rises:

1. Quantity demanded of good rises

2. Quantity supplied of good falls
3. Total revenue of good rises
4. Total revenue of good falls
195. What is meant by the term utility?

1. Useless.
2. Require.
3. Necessary.
4. Satisfaction.
196. If the cross price elasticity of demand between two
products is +3.5, then:

1. One of the products is expensive and one is relatively

inexpensive
2. One product is a normal good and the other is an inferior good
3. The two products are complements
 4. The two products are substitutes
197. If Nestle Company has elastic demand for Nestle juices,
then increase in price of Nestle juices will:

1. Increase total revenue.

2. Decrease total revenue.
3. Bring no change in total revenue.
4. Decrease marginal revenue.
198. The demand for apples is expressed as: Qd = 100 - 5P
The supply of apples is expressed as: Qs = 25 + 10P
Refer to the above scenario, if the equilibrium price of apples is
Rs.5, the equilibrium quantity of apples is:

1. 73
2. 75
3. 80
4. 85
199. Suppose Ali is consuming 20 units of Apples and 10 units
of bananas with his given income. Suddenly his level of income
increases and he starts consuming more of both goods. For Ali,
both goods are:

1. Normal Goods
2. Substitutes
3. Complements
4. Giffen Goods
200. ABC Company is running a business of car manufacturing
and finds sharp increase in prices of spare parts which in turn
increases cost of manufacturing cars. This increase in cost of
production will:

1. Shift demand curve for cars to the right

2. Shift demand curve for cars to the left
3. Shift supply curve for cars to the left
4. Bring no change in demand or supply curves for cars
201. When government sets the price of a good and that price
is below the equilibrium price, the result will be:
 1. A surplus of the good
2. A shortage of the good
3. An increase in the demand for the good
4. A decrease in the supply of the good
202. Arif decides to work for an extra hour rather than playing
cricket with his friends. He gets Rs. 500 for an extra hour. His
opportunity cost of working for an extra hour is:

1. Rs. 500
2. Pleasure that he would have received from playing cricket
3. Rs.500 minus pleasure that he would have received from playing
cricket
4. Undetermined
203. Which of the following is TRUE about the production
function?

1. It relates inputs with output.

2. It generates a curve that is upward sloping.
3. It shows diminishing marginal product of an input.
4. All of the given
204. A demand curve is price inelastic when:

1. Changes in demand are proportionately smaller than changes in

price.
2. Changes in demand are proportionately greater than changes in
price.
3. Changes in demand are equal to changes in price.
4. None of the given
205. The quantity of a good that sellers wish to sell at each
price level is called:

1. Supply
2. Demand
3. Shortage
4. Surplus
206. Which of the following is TRUE for an entrepreneur?
 1. An innovator
2. A risk taker
3. Someone who brings resources together and produces a product
4. All of the given
207. Accounts office of Z&X corporations has paid Rs.250000
on account of profit in the month of August 2011. Which of the
following the accounts office has paid for?

1. Labor
2. Capital
3. Land
4. Entrepreneurship
208. The local bus system charges lower fares to students than
to the other passengers. Suppose that this pricing strategy
increases the profits of the bus system, we can conclude that
students must have a ________ for bus service than other
passengers.

1. Greater demand
2. Lower demand
3. More elastic demand
4. Less elastic demand
209. If there is an increase in the long term economic growth
then production possibility frontier will:

1. Shift inward
2. Shift outward
3. Remain the same
4. Move downward on the same curve
210. Diminishing marginal returns implies:

1. Decreasing marginal costs

2. Increasing marginal costs
3. Decreasing average variable costs
4. Decreasing average fixed costs
211. In a perfectly competitive market:

1. Firms can freely enter and exit

 2. Firms sell a differentiated product
3. Transaction costs are high
4. All of the given
212. Which of the following best describes a demand schedule?

1. It is a numerical tabulation of the quantity demanded of a good

at different prices, ceteris paribus.
2. It is a graphical representation of the law of demand.
3. It is a systematic listing of all the variables that might
conceivably bring about a change in demand.
4. It is a symbolic representation of the law of demand: P,Q and
Q,P
213. Which of the following is the term that economists use to
describe how consumers rank different goods and services?

1. Satisfaction index.
2. Goodness.
3. Utility.
4. None of the given
214. Suppose Gross Domestic Product (GDP) in 2007 equals
Rs. 720,000. If the values of indirect taxes and depreciation
allowance are Rs. 250,000 and Rs. 40,000 respectively, the
value of net domestic product (NDP) is:

1. Rs.680, 000
2. Rs.470, 000
3. Rs.430, 000
4. Rs.510, 000
215. Yummy, an ice-cream maker, has discovered that the ratio
of the marginal product of labor to the price of labor is 8.5,
while the ratio of the marginal product of capital to the price of
capital is 7.1. The firm has determined that it does not want to
change its total costs. Yummy should:

1. Use more capital and less labor.

2. Use more labor and less capital.
3. Do nothing, the differences in the ratios of marginal product to
input price are too small to matter.
 4. Do nothing different since there is insufficient information upon
which to make a decision.
216. Saqib is planning to start his own business. Initial cost
that has to be incurred is Rs. 50,000. But to do so, he has to
quit a job which pays Rs. 120,000 a year. His opportunity cost
of starting business is:

1. Rs. 120,000
2. Rs. 50,000
3. Rs. 80,000
4. Undetermined
217. Marginal social cost is the change in social costs caused
by:

1. A unit change in input

2. A unit change in fixed cost
3. A unit change in variable cost
4. A unit change in output
218. “Each firm produces an identical product and there is
freedom of entry and exit”. This is TRUE for which of the
following market structures?

1. For Monopoly
2. For Oligopoly
3. For Perfect competition
4. For Monopolistic competition
219. Suppose Fauji Fertilizer Company Limited produces 4500
bags of Sona Urea and sells each bag at a price of Rs. 350.
What is the total revenue this firm gets by selling 4500 bags?

1. 128500
2. 150000
3. 1575000
4. 1636000
220. If consumers’ incomes remain constant, then demand for
product Y will:

1. Necessarily remain unchanged

 2. Shift to the right if Y is a complementary good
3. Shift to the right if Y is a normal good
4. Shift to the right if Y is an inferior good
221. Suppose supply of agricultural products is price inelastic
and government decides to increase taxes on agricultural
products. More of the tax burden in this case would fall on:

1. Producers
2. Consumers
3. Government
4. Both producers and consumers
222. When the price for entry tickets for parks decrease,
families tend to spend more time at parks instead at home. This
best reflects:

1. Diminishing marginal utility

2. The income effect
3. The rationing function of markets
4. The substitution effect
223. Keeping other factors constant, if Asma drinks more and
more bottles of coke, his marginal utility from coke will:

1. Diminish
2. Increase
3. Remain the same
4. First decrease then starts increasing
224. Which of the following is not a stock variable?

1. Government debt
2. The labor force
3. The amount of money held by the public
4. Inventory investment
225. Mujtaba has paid Rs. 75000 as rent last month which in
his opinion has increased slightly as compared to previous
months. Which of the following he has paid for?

1. Labor
2. Capital
 3. Land
4. Entrepreneurship
226. Suppose if investment rises by Rs 100 billion at each price
level. If the value of the multiplier is 4, what is the amount of
change in real GDP demanded at each price level?

1. 25
2. 50
3. 400
4. 1000
227. Economics is different from other social sciences because
it is primarily concerned with the study of ________.

1. Limited resources
2. Scarcity
3. Social behavior
4. Biological behavior
228. Which of the following is TRUE for third-degree price
discrimination?

1. Charging different prices to different groups based upon

differences in elasticity of demand.
2. Charging each consumer the same two part tariff.
3. The use of increasing block rate pricing.
4. Charging lower prices the greater the quantity purchased.
229. If Ali prefers a certain income over a risky income, Ali is
known as:

1. Risk loving person.

2. Risk neutral person.
3. Risk averse person.
4. Irrational person.
230. If one firm increases its price, in the kinked demand curve
model then:

1. Other firms will reduce their price.

2. Other firms will compete on a non-price basis.
 3. Other firms will not increase their price.
4. Other firms will increase their output level.
231. If the demand for using gym is price inelastic and your
local gym owner increases the fee for using the gym, you would
expect:

1. A decrease in total revenue received by the gym owner.

2. A increase in total revenue received by the gym owner.
3. No change in total revenue received by the gym owner.
4. An increase in the hours that people will spend in the gym.
232. The opportunity cost of an action is:

1. Same for everyone

2. The value of the next best alternative
3. The undesirable aspects of that action
4. The average amount of unhappiness experienced by everyone
involved
233. If the price elasticity of demand for beans is estimated to
be -0.4, then a 20% increase in price will decrease the quantity
demanded by:

1. 14%
2. 8%
3. 16%
4. 20%
234. Which of the following defines the opportunity cost?

1. Cost measured only in rupees

2. Cost of producing the goods
3. Cost of producing one more unit of good
4. Cost of next best alternative forgone
235. Demand tends to be more elastic in the:

1. Short run time period.

2. Immediate time period.
3. Long run time period.
4. All of the given
236. If a good has income elasticity of demand equal to 1/2,
the good is:

1. Normal good (but not a luxury)

2. An inferior good
3. Luxury good
4. A Giffen good
237. Falling inflation means that price level is rising at a(n):

1. Constant Rate.
2. Increasing rate.
3. Decreasing rate.
4. Fluctuating rate.
238. What will happen if exchange rate decreases from $1 =
Pak Rs. 85 to $1 = Pak Rs. 65?

1. It will reduce imports of Pakistan.

2. Its imports and exports will remain unchanged.
3. It will decrease exports of Pakistan.
4. It will increase exports of Pakistan.
239. Other things remaining same, when raw material costs
increase of an industry then:

1. The supply curve shifts to the left.

2. The supply curve shifts to the right.
3. The demand curve shifts to the left.
4. The demand curve shifts to the right.
240. The demand for butter is downward-sloping. The price of
butter suddenly rises from Rs. 160 per kg to Rs. 180 per kg.
This will cause:

1. Demand curve of butter to shift to the right

2. Demand curve of butter to shift to the left
3. Quantity demanded of butter to increase
4. Quantity demanded of butter to decrease
241. Chicken sandwiches are normal goods, which means that
as:
 1. Incomes go up, the demand curve shifts to the right.
2. Incomes go up, the supply curve shifts to the right.
3. Price falls, the quantity demanded decreases.
4. As incomes increase, people buy less.
242. If the quantity demand of a product is greater than the
quantity supplied of a product, then:

1. There is a shortage of the product.

2. There is a surplus of the product.
3. The product is a normal good.
4. The product is an inferior good.
243. If there is a decrease in consumer's income from Rs.
12,000 to Rs. 10,000, the change in the quantity demanded of
inferior goods can be shown by:

1. Shifting the demand curve leftward.

2. Shifting the demand curve rightward.
3. Moving down along the same demand curve.
4. Moving up along the same demand curve.
244. When the cross-price elasticity of demand for two goods
is less than zero then the goods are ________ goods.

1. Complementary
2. Substitute
3. Inferior
4. Giffen
245. A good whose consumption increases due to increase in
income is categorized as:

1. Inferior good
2. Giffen good
3. Superior good
4. Normal good
246. If different firms in the oligopolistic structure do not
cooperate with each other, this situation is known as:

1. Collusive oligopoly.
 2. Cartel.
3. Price leadership.
4. Non-collusive oligopoly.
247. The demand curve for eggs is downward-sloping.
Suddenly the price of eggs decreases from Rs.60/- per dozen to
Rs.50/- per dozen. This will cause:

1. The demand curve for eggs to shift leftward.

2. Quantity demanded of eggs to decrease.
3. The demand curve for eggs to shift rightward.
4. Quantity demanded of eggs to increase.
248. Ali initially started a small day care centre with only 10
children and one staff member. But he found that the cost per
child is very high. He wants to expand the centre. Which of the
following will happen when Ali expands the centre?

1. Economies of scale
2. Diseconomies of scale
3. Increasing returns to the labor inputs
4. Decreasing returns to the labor inputs
249. When producers are unable to meet market demand for
the product, this results as:

1. Surplus of goods
2. Market failure
3. Monopoly
4. Shortage of good
250. Measurement of elasticites is made in percentage terms
because:

1. It is easy to calculate
2. The resulting measure is unit free
3. It gives a more accurate answer
4. The answer is always negative that way
251. The percentage change in quantity demanded given a
percentage change in consumer's income is known as:

1. Price elasticity of demand

 2. Income elasticity of demand
3. Supply price elasticity
4. Cross price elasticity
252. A Higher demand for computers will ________ of
computers.

1. Increase both equilibrium price and equilibrium quantity

2. Decrease both equilibrium price and equilibrium quantity
3. Increase equilibrium price and decrease equilibrium quantity
4. Decrease equilibrium price and increase equilibrium quantity
253. Suppose a firm hires five workers and offers them to pay
Rs. 350 for 6 hours. Later on, firm decides to increase working
hours instead of hiring new workers. As working hours
increase, the wage rate:

1. Increases
2. Decreases
3. Remains unchanged
4. First decreases then increases
254. In a free market economy, resources are allocated on the
basis of:

1. Votes taken by consumers

2. A central planning authority
3. Consumer preferences
4. The level of profits of firms
255. If sugar and tea are considered to be perfect
complements, than a decrease in price of sugar will lead to:

1. Decrease in quantity demanded of sugar

2. Decrease in quantity demanded of tea
3. Increase in quantity demanded of tea
4. Increase in quantity supplied of tea
256. Suppose a teacher organizes a study group by reserving a
meeting room, compiling study materials and attracting
students. The students would most likely be which of the
following factors of production?
 1. Labor
2. Land
3. Capital
4. Entrepreneurship
257. Revenue is equal to price times:

1. Quantity
2. Quantity minus total cost
3. Quantity minus average cost
4. Quantity minus marginal cost
258. A total cost curve:

1. Relates output with total cost.

2. Is always upward sloping.
3. Gets steeper as output rises, due to diminishing marginal
product of an input.
4. All of the given options.
259. Points inside the production possibility frontier (ppf)
show that:

1. Efficient use of resources.

2. Inefficient use of resources.
3. Resources are not utilized.
4. All of the given
260. The total cost (TC) function is given as TC = 200 + 8Q.
What will be the average total cost if 2 units of commodity are
produced?

1. 20
2. 55
3. 108
4. 216
261. Which of the following is TRUE about an isocost line?

1. It shows the cost of inputs needed to produce along an isoquant.

2. It shows the cost of inputs needed to produce along an
expansion path.
 3. It shows the input combinations that can be purchased with a
given outlay of funds.
4. It shows the output combinations that can be produced with a
given outlay of funds.
262. Assume that the computer buyers in northern parts of
Pakistan have no idea what prices are being paid in the
southern parts of Pakistan. This situation violates which of the
following assumptions of perfect competition?

1. Identical goods
2. No discrimination
3. Perfect information
4. Many buyers and sellers
263. The production possibility frontier (PPF) shows all
combinations of goods that:

1. Society most desires.

2. Lie outside the curve.
3. Reflect full production.
4. An economy can produce with all available resources.
264. Asifa while addressing the young parliamentarians said
that rising inflation in Pakistan was due to the high interest
rates. Which category her statement falls in?

1. Normative
2. Positive
3. Negative
4. None of the given
265. Assume that the current market price is above the market
clearing level. We would expect:

1. A shortage to accumulate
2. Downward pressure on the current market price
3. Upward pressure on the current market price
4. Lower production during the next time period
266. If price of MP3 players rises and as a result, the demand
for headphones decreases, then one can say that MP3 players
and headphones are:
 1. Normal goods
2. Substitutes
3. Complements
4. Inferior goods
267. Suppose a profit maximizing firm sells 100 units of
output. The total revenue function is TR =500q – 2q2. What is
the value of marginal revenue?

1. 100
2. 400
3. -400
4. -100
268. A market is said to be in equilibrium when:

1. Supply equals Price

2. There is upward pressure on price
3. There is downward pressure on price
4. Quantity demanded is equal to quantity supplied
269. Salman makes a plan to see movie with his friends. The
cost of ticket is Rs. 300. If he will go, he will have to forego Rs.
500 that otherwise he will get by doing work at that time. The
opportunity cost of watching movie is:

1. Rs.350
2. Rs. 500
3. Rs. 850
4. Rs.150
270. The total cost (TC) function is given as: TC = 200 + 5Q.
What is the fixed cost?

1. 5Q
2. 5
3. 5 + (200/Q)
4. 200
271. “Q= a – b P” represents equation of:

1. Supply
 2. Demand
3. Labor supply
4. Budget line
272. According to the utility model of consumer demand, the
law of diminishing marginal utility indicates that the demand
curve is:

1. Vertical.
2. U-shaped.
3. Upward sloping.
4. Downward-sloping.
273. Suppose that as the price of apples falls the income effect
causes consumers to buy fewer apples. We can conclude that
apple is:

1. An inferior good
2. Nasty tasting
3. A normal good
4. Expensive
274. Demand is elastic when the elasticity of demand is:

1. Greater than 0
2. Greater than 1
3. Less than 1
4. Less than 0
275. If the price of a good X is increased by 40% and its
quantity demanded falls by 10%, the price elasticity of demand
is:

1. Price elastic
2. Price inelastic
3. Unit price elastic
4. Normal
276. Atif Khan, Young minister for agriculture, has updated in a
talk show that rise in food prices is due to the rising oil prices.
Which category his statement falls in?

1. Normative
 2. Positive
3. Negative
4. None of the given
277. If the cost of parts of automobiles falls, then:

1. The demand curve for automobiles shifts to the right.

2. The supply curve for automobiles shifts to the right.
3. The demand curve for automobiles shifts to the left.
4. The supply curve for automobiles shifts to the left.
278. Ali has 1 acre land in Bahawalpur. He grows wheat on this
land by employing 10 workers. To get maximum output, he
decides to increase number of workers. The law of diminishing
returns states that as more workers are employed to grow
wheat on 1 acre land:

1. Marginal utility of wheat falls

2. The total physical product of wheat falls
3. The marginal physical product of wheat falls
4. The marginal physical product of wheat increases
279. If government imposes a price ceiling on wheat, which of
the following will occur in the market for wheat?

1. There will be excess demand for wheat.

2. There will be excess supply of wheat.
3. The demand curve for wheat will shift leftward.
4. The supply curve for wheat will shift rightward.
280. Microeconomics is the branch of economics that deals
with which of the following?

1. Individual consumers.
2. Individual firms and investors.
3. Unemployment and interest rates.
4. Individual consumers, individual firms and investors.
281. Final goods are:

1. Inferior goods only

2. For further processing
 3. Perishable goods only
4. For Direct use by the consumers
282. The oligopoly model that predicts that oligopoly prices
will tend to be very rigid is the ________ model.

1. Cournot
2. Stackelberg
3. Dominant firm
4. kinked demand curve
283. The demand curve for eggs is downward-sloping.
Suddenly the price of eggs increases from Rs.80/- per dozen to
Rs.100/- per dozen. This will cause:

1. The demand curve for eggs to shift leftward

2. Quantity demanded of eggs to decrease
3. The demand curve for eggs to shift rightward
4. Quantity demanded of eggs to increase
284. If the quantity demanded of computers exceeds the
quantity supplied of computers:

1. Market forces will cause the price to rise.

2. The market is in equilibrium.
3. There is a surplus of computers.
4. Market forces will cause the price to fall.
285. Suppose that 48 units of output are produced by using 12
units of labor. Which of the following is TRUE in this context?

1. The marginal product of labor is 4.

2. The total product of labor is 1/4.
3. The average product of labor is 4.
4. None of the given
286. A Demand Curve is price inelastic when changes in
demand are:

1. Greater than zero

2. Equal than those in price
3. Proportionately smaller than those in price
 4. Proportionately greater than those in price
287. In soap industry, all firms can freely enter or exit into the
market and each firm is competing on the basis of product
differentiation. In which market structure this industry is
operating?

1. Monopoly
2. Oligopoly
3. Perfect Competition
4. Monopolistic Competition
288. If the income elasticity of demand for bread is 0.4, a 10%
increase in consumer income will lead to a ________ in the
quantity of bread demanded.

1. 40% increase
2. 40% decrease
3. 4% increase
4. 0.4% increase
289. Assume that the market for laptops is dominated by a
single firm, like Inbox, that is able to exert infuence over prices
and output. This situation violates which of the following
assumptions of perfect competition?

1. Many buyers and sellers

2. Easy entry and exit
3. No discrimination
4. Perfect information
290. A firm that benefits from lower costs per unit as it grows
is an example of:

1. Economies of scale.
2. Diseconomies of scale.
3. Increasing opportunity costs.
4. Scale reduction.
291. Gross National Product (GNP) is:

1. Gross Domestic Product (GDP) minus depreciation.

2. Net National Product (NNP) plus depreciation.
 3. National income discounted by the GDP deflator.
4. Income from foreign investments.
292. If average physical product (APP) is increasing then
which of the following must be true?

1. Marginal physical product is above the average physical product.

2. Marginal physical product is less than average physical product.
3. Marginal physical product is decreasing.
4. None of the given statement is true.
293. Organizations of independent firms, producing similar
products, that work together to raise prices and restrict output,
are a situation of:

1. Cartels
2. Perfect competition
3. Optimal output mix
4. Price ceiling
294. The total cost (TC) function is given as: TC = 200 + 5Q.
What is the average total cost?

1. 5Q
2. 5
3. 5 + (200/Q)
4. None of the given
295. Suppose a firm produces 20 units of output and incurs
Rs.40 in average variable cost and Rs.8 in average fixed cost,
average total cost is:

1. 40
2. 35
3. 48
4. 60
296. Which of the following is NOT a public good?

1. Street lights
2. Electronics
3. Knowledge
 4. National security
297. Which of the following shows the condition for
consumer's equilibrium?

1. Marginal utility per dollar spent on each good being equalized

across all goods.
2. The ratio of (marginal utility per unit of the good)/ (price per
unit of the good) being equalized across all goods.
3. The ratio of marginal utilities being equated to the ratio of prices
for all possible pairs of goods.
4. All of the given options.
298. If the price of sugar rises from Rs. 70 to Rs. 72 and
quantity demanded decreases by 20%. We can conclude that:

1. Demand is inelastic.
2. The elasticity of demand is 2.
3. Total revenue will decrease.
4. Demand is unit elastic.
299. Which of the following is a characteristic of a mixed
economy?

1. Resources are governed by both government and individuals.

2. It utilizes the characteristics of both market economy and
planned economy.
3. People are free to make their decisions and government controls
the defense.
4. All of the given
300. Suppose quantity demanded of chicken increases by 5
percent in response to 2 percent increase in price of beef. The
cross-price elasticity of demand for chicken with respect to
price of beef is:

1. +2.5
2. -2.5
3. +0.25
4. -0.25
301. Suppose Ali derives total utility equals to 10 utils from the
consumption of 1 bottle of Pepsi. When he consumes another
bottle of Pepsi, he gets total utility equals 25 utils. His marginal
utility in this case will be:

1. 2.5 utils
2. 15 utils
3. 25 utils
4. 35 utils
302. Rationing is needed due to the problem of:

1. Unemployment.
2. Inflation.
3. Scarcity.
4. Poverty.
303. When government sets the price of a good less than the
equilibrium price of a good, then there will be:

1. Surplus of the good

2. Shortage of the good
3. An increase in the demand for the good
4. A decrease in the supply of the good
304. Suppose a profit maximizing firm gets total revenue of Rs.
15000 by selling 150 units of output. When it sells 250 units of
output, total revenue becomes Rs. 35000. The marginal
revenue in this case is:

1. 125
2. 200
3. 350
4. 400
305. The process by which we limit the supply or amount of
some economic factor which is scarcely available is called:

1. Rationing
2. Bundling
3. Price floor
4. Price ceiling
306. Sugar can be produced from sugar beets. If the price of
sugar beets falls, which of the following will happen?

1. The demand curve for sugar would shift right.

2. The demand curve for sugar would shift left.
3. The supply curve for sugar would shift right.
4. The supply curve for sugar would shift left.
307. If there is a price ceiling, there will be:

1. Shortages
2. Surpluses
3. Equilibrium
4. Decrease in production
308. Suppose the total utility derived from first four units of a
good consumed are 12, 22, 32, and 42 respectively. What is the
marginal utility of the third unit?

1. 10
2. 13
3. 20
4. 33
309. Sultan is running a logistics business and provides
logistics services to the local business community. For his
company, truck falls in the category of ________.

1. Labor
2. Capital
3. Land
4. Entrepreneurship
310. Which of the following is TRUE for a monopolistically
competitive firm in the short run equilibrium?

1. It will make negative profit (lose money).

2. It will make zero profit (break-even).
3. It will make positive profit.
4. Any of the given is possible.
311. There will be excess supply in the market due to:
 1. Price ceiling
2. Price rationing
3. Price floor
4. All of the given
312. Which of the following is NOT true about
macroeconomics?

1. The study of the aggregate level of economic activity.

2. The study of the economic behavior of individual decision-
making units such as consumers, resource owners, and business
firms.
3. The study of the cause of unemployment.
4. The study of the cause of inflation.
313. The total utility curve starts at the origin and reaches the
peak when marginal utility is:

1. Zero
2. Maximum
3. Negative
4. Positive
314. When the price of wheat rises by 10%, the quantity of
wheat purchased falls by 4%. This shows that the demand for
wheat is:

1. Perfectly elastic
2. Unit elastic
3. Price elastic
4. Price inelastic
315. The demand for oranges is expressed as: Qd = 100 - P
The supply of oranges is expressed as: Qs = 4P
Refer to the above scenario, if the equilibrium price of oranges
is Rs. 20, the equilibrium quantity of oranges is:

1. 55
2. 60
3. 80
4. 100
316. Inverse relationship between the inflation rate and the
unemployment rate is explained by:

1. Aggregate demand curve.

2. Price adjustment curve.
3. Phillips Curve.
4. Okun law.
317. In measurement of GDP, the problem of double counting
is avoided by:

1. Using GDP deflator.

2. Adjusting the value of intermediate goods with prices.
3. Adjusting the value of only finished goods with prices.
4. Calculating value added at each stage of production.
318. Suppose the government sets minimum prices of crops to
support farmers. This is an example of:

1. Price ceiling
2. Price floor
3. Free market equilibrium
4. Shortage
319. If marginal physical product is equal to average physical
product:

1. Total revenue will fall

2. Average variable costs will fall
3. The total physical product will fall
4. The average physical product will not change
320. A demand curve is price elastic when:

1. Changes in demand are proportionately greater than changes in

price.
2. Changes in demand are equal to changes in price.
3. Total revenue increases due to increase in price.
4. Changes in demand are proportionately smaller than changes in
price.
321. A firm maximizes profit by operating at the level of output
where:

1. Average revenue equals average cost.

2. Average revenue equals average variable cost.
3. Total costs are minimized.
4. Marginal revenue equals marginal cost.
322. Zafar Iqbal stated in his opening note at University of
Economics that food prices should be controlled for a
comfortable living. Which category his statement falls in?

1. Normative
2. Positive
3. Negative
4. None of the given
323. The break-even point occurs when:

1. Price < Average Variable Cost.

2. Price < Average Total Cost.
3. Price = Average Total Cost.
4. Price > Average Variable Cost.
324. If the price of a good X is increased by 15% and its
quantity demanded falls by 25%, the price elasticity of demand
is:

1. Price elastic
2. Price inelastic
3. Unit price elastic
4. Normal
325. Which of the following is true about the market
mechanism?

1. Works through central planning by government

2. Eliminates market failures created by government
3. Inefficient means of communicating consumer demand
4. Prices serve as a means of communication between consumers
and producers
326. Costs determine all of the following EXCEPT:
 1. Firm's behaviour.
2. How firms should expand?
3. Firm's profitability.
4. Demand for a product.
327. If a 2% rise in consumer’s incomes causes a 4% rise in
product’s demand, the income elasticity of demand for the
product will be:

1. 0.5
2. 1.5
3. 2
4. 2.5
328. Which best expresses the law of demand?

1. A higher price reduces demand

2. A lower price reduces demand
3. A higher price reduces quantity demanded
4. A lower price shifts the demand curve to the right
329. The distribution or allocation of a limited commodity,
usually accomplished based on a standard or criterion is known
as:

1. Scarcity
2. Rationing
3. Bundling
4. All of the given
330. While moving from left to right, the typical production
possibilities frontier (PPF) has:

1. An increasingly steep negative slope.

2. An decreasingly steep negative slope.
3. An increasingly steep positive slope.
4. A constant and negative slope.
331. The curve of unitary elastic demand will be:

1. A hyperbola
2. An ellipse
 3. A rectangle
4. A parabola
332. Which of the following factors would cause leftward shift
in supply curve for bicycles?

1. Decrease in wages
2. Increase in prices of inputs
3. Decrease in prices of inputs
4. Use of latest technology in production of bicycles
333. Production possibility frontier analysis assumes that
resources:

1. Increase with production

2. Are saved for emergency use
3. Are used to produce thousands of goods
4. Are used in a technically efficient way
334. If quantity demanded of videocassette players decreases
by 15% as a result of 10% increase in its price, then one can
conclude that demand for videocassette players is:

1. Elastic
2. Inelastic
3. Perfectly elastic
4. Perfectly inelastic
335. The demand for books is expressed as: Qd = 100 - P
The supply of books is expressed as: Qs = 4P
Refer to the above scenario, the equilibrium price of books is:

1. Rs. 15
2. Rs. 20
3. Rs. 23
4. Rs. 25
336. The branch of economics that studies the entire economy,
such topics as aggregate production, unemployment and
inflation is called:

1. Managerial economics
2. Macro economics
 3. Micro economics
4. Financial economics
337. Those who hold the Classical view of the labour market
are likely to believe that:

1. Monetary, but not fiscal policy will have an effect on output and
employment
2. Fiscal but not monetary policy will have an effect on output and
employment.
3. Both monetary and fiscal policy will have an effect on output and
employment.
4. Neither monetary nor fiscal policy will have an effect on output
and employment.
338. The socially optimal level of price and quantity is
determined where:

1. Marginal social benefit curve intersects marginal social cost

curve.
2. Marginal social benefit curve intersects marginal private benefit
curve.
3. Marginal social benefit curve intersects marginal private cost
curve.
4. Marginal private benefit curves intersects marginal social cost
curve.
339. If the current market price is above the market clearing
level. We would expect:

1. A shortage to accumulate
2. A surplus to accumulate
3. Upward pressure on the current market price
4. Lower production during the next time period
340. If the cost of parts of automobiles rises, then:

1. The demand curve for automobiles shifts to the right.

2. The demand curve for automobiles shifts to the left.
3. The supply curve for automobiles shifts to the right.
4. The supply curve for automobiles shifts to the left.
341. Which of the following might be considered to be a
characteristic of a planned economy?

1. Government influence
2. Consumer sovereignty
3. Forbiddance of interest
4. Even income distribution
342. Arifa in her recent address in National assembly said that
poverty should be reduced in Pakistan. Which category her
statement falls in?

1. Normative
2. Positive
3. Negative
4. None of the given
343. The effect of a change in income on the quantity of the
good consumed is called the:

1. Income effect
2. Budget effect
3. Substitution effect
4. Real income effect
344. If there are 30 percent chances that machine will work
well and 70 percent chances that it will not function well, then
the odd ratio will be:

1. 2.333
2. 0.428
3. 0.40
4. 0.721
345. During exams, Ali is studying for two hours a day and
decides to spend an extra hour for better performance. The
marginal benefit is the benefit that he gets from studying:

1. All three hours

2. An extra hour
3. Two hours
4. Four hours
346. What would cause the supply curve of wheat to shift to
the right?

1. An increase in the prices of inputs

2. A decrease in the number of wheat growers
3. An increase in wages paid to agricultural workers
4. Technological improvement which lowers the costs of production
347. If the income elasticity of demand for tea is 0.4, a 10%
increase in consumer's income will lead to a _________ in the
quantity of tea demanded.

1. 40 percent increase
2. 40 percent decrease
3. 4 percent increase
4. 0.4 percent increase
348. Suppose we find that the cross-price elasticity of demand
for two products is a negative number. We know that the two
goods are:

1. Normal goods
2. Inferior goods
3. Substitutes
4. Complements
349. It is expected that the sign of cross price elasticity of
demand between two complementary goods would be:

1. Positive
2. Negative
3. Zero
4. Ambiguous
350. If the quantity demanded of mangoes exceeds the
quantity supplied of mangoes:

1. There is a surplus of mangoes

2. Market forces will cause the price to fall
3. Market forces will cause the price to rise
4. The market is in equilibrium
351. The demand for apples is expressed as: Qd = 80 - P
The supply of apples is expressed as: Qs = 3P
Refer to the above scenario, the equilibrium price of apples is:

1. Rs. 10
2. Rs. 15
3. Rs. 20
4. Rs. 25
352. All the insurance companies around the globe work under
the principle of:

1. Law of zero numbers

2. Law of large numbers
3. Law of small numbers
4. Law of constant numbers
353. For a firm buying labor competitively, the marginal input
cost is equal to the:

1. Wage
2. Interest rate
3. Price of output
4. cost of raw materials
354. Mohsin Malik has been updated by his partner that this
month Rs. 65,000 have been paid to acquire new machinery
directly needed to match the rising demand. Which of the
following they have paid for?

1. Labor
2. Capital
3. Land
4. Entrepreneurship
355. The cross-price elasticity of demand of complementary
goods is:

1. Less than 0
2. Equal to 0
3. Greater than 0
4. Between 0 and 1
356. The gold standard was an example of what kind of
exchange-rate system?

1. A freely floating exchange rate

2. A managed floating exchange rate
3. A fixed exchange rate
4. A non-convertible exchange rate
357. What is the assumption of constructing a production
possibilities frontier?

1. Economic resources are underutilized.

2. Production technology is allowed to vary.
3. All available resources are employed efficiently.
4. None of the given
358. If demand for automobiles increases and the supply curve
do not shift then result will be:

1. No change in price and quantity of automobiles

2. Higher price and lower quantity of automobiles
3. Higher price and more quantity of automobiles
4. Higher price and no change in quantity of automobiles
359. The law of diminishing marginal utility states:

1. The supply curve slopes upward

2. The elasticity of demand is infinite
3. Your utility grows at a slower and slower rate as you consume
more and more units of a good
4. Your utility grows at a slower and slower rate as you consume
less units of a good
360. A normative economic statement is a statement:

1. of fact
2. Used to test economic theory
3. Of what ought to be, not what is
4. Of what will occur if certain assumptions are true