440+ Micro Economics 1 Solved MCQs

1.

Total utility is maximum when

A. marginal utility is zero
B. marginal utility is maximum
C. marginal utility increases
D. average utility is maximum
Answer» A. marginal utility is zero
2.

Which of the following is called gossans first law

A. law of substitution
B. law of equi marginal utility
C. law of diminishing marginal utility
D. none of the above
Answer» C. law of diminishing marginal utility
3.

When individuals income falls (everything remain the same) his demand for an inferior good

A. rises
B. falls
C. remains the same
D. we cannot say without additional information
Answer» A. rises
4.

If negative income effect is greater than positive substitution effect : the product will be

A. a normal good
B. an inferior good
C. a giffen good
D. a complementary good
Answer» C. a giffen good
5.

Which of the following statement is FALSE with regard to marginal utility

A. marginal utility is the utility derived from last unit
B. as consumption increases marginal utility goes on diminishing
C. at saturation point marginal utility is zero
D. marginal utility increases at a diminishing range
Answer» D. marginal utility increases at a diminishing range
6.

According to Marshall consumer surplus is:

A. total utility – marginal utility
B. total utility + marginal utility
C. total utility derived – price
D. price – marginal utility
Answer» C. total utility derived – price
7.

If both the products X & Y are normal goods

A. slopes down towards right
B. slopes up towards right
C. slopes up towards left
D. slopes down towards left
Answer» B. slopes up towards right
8.

Which of the following statement is TRUE with regard to total utility

A. total utility is the utility derived from last unit
B. total utility increases at a diminishing range
C. as consumption increases total utility goes on diminishing
D. at saturation point total utility is negative
Answer» B. total utility increases at a diminishing range
9.

If negative income effect is less than positive substitution effect : the product will be

A. a normal good
B. an inferior good
C. a giffen good
D. a complementary good
Answer» B. an inferior good
10.

Which of the following statements is true

A. hicksian substitution effect is greater than slutsky substitution effect
B. slutsky substitution effect is greater than hicksian substitution effect
C. hicksian substitution effect is same and equal to slutsky substitution effect
D. hicksian substitution effect is the reverse of slutsky substitution effect
Answer» B. slutsky substitution effect is greater than hicksian substitution effect
11.

According to Hicks substitution effect is

A. the movement to a higher indifference curve
B. the movement to a lower indifference curve
C. the movement along an indifference curve
D. the movement to a decreased consumption
Answer» C. the movement along an indifference curve
12.

Strong ordering means

A. absence of indifference
B. presence of indifference
C. no difference between different combinations
D. none of the above
Answer» A. absence of indifference
13.

In the fundamental theorem of consumption and to prove the law of demand, Samualson uses

A. compensating variation in income
B. the cost difference
C. the over compensation effect
D. substituting variation in price
Answer» C. the over compensation effect
14.

If negative income effect is greater than positive substitution effect : price effect will be

A. zero
B. negative
C. positive
D. positive and greater than one
Answer» B. negative
15.

As per indifference curve analysis consumer equilibrium is attained when

A. slope of indifference curve is constant
B. slopes of both indifference curve and income price line are equal
C. slopes of both indifference curve and income price line are opposite
D. both income price line and indifference curve are parallel.
Answer» B. slopes of both indifference curve and income price line are equal
16.

The slope of a budget line is

A. the satisfaction level of both the commodities
B. the income level of the consumer
C. the price ratio of both the commodities under consideration
D. price level of a country
Answer» C. the price ratio of both the commodities under consideration
17.

At the point of tangency the slope of indifference curve is

A. differ from point to point
B. is equal on the other side of the mid point
C. is the same
D. is increasing
Answer» C. is the same
18.

The slope of a budget line throughout its length is

A. the satisfaction level of both the commodities
B. the income level of the consumer
C. the price ratio of both the commodities under consideration
D. price level of a country
Answer» C. the price ratio of both the commodities under consideration
19.

The income effect for a commodity is

A. is always positive
B. is always negative
C. depends upon price effect
D. determines the nature of the commodity
Answer» D. determines the nature of the commodity
20.

The substitution effect for a commodity is

A. is always positive
B. depends upon the nature of the commodity
C. depends upon price effect
D. sometimes negative and sometimes positive
Answer» A. is always positive
21.

Price effect is

A. income effect – substitution effect
B. substitution effect – income effect
C. income effect + substitution effect
D. income effect + substitution effect- negative effects
Answer» C. income effect + substitution effect
22.

For a giffen good, when price falls

A. demand increases at a faster rate
B. demand decreases
C. demand remains constant
D. demand curve has a negative slope
Answer» B. demand decreases
23.

Inferior goods are the goods with

A. falling income effect
B. rising income effect
C. negative income effect
D. positive marshallian effects
Answer» C. negative income effect
24.

Indifference curves are

A. always parallel
B. may be parallel
C. may not be parallel
D. both b and c
Answer» D. both b and c
25.

Revealed preference theory assumes

A. weak ordering
B. strong ordering
C. constant ordering
D. multiple ordering
Answer» B. strong ordering
26.

Hicks Allen indifference theory is based on

A. weak ordering
B. strong ordering
C. constant ordering
D. multiple ordering
Answer» A. weak ordering
27.

Income consumption curve of an inferior commodity is

A. positively sloped
B. backward bending
C. downward slopping straight line
D. showing constant income effect
Answer» B. backward bending
28.

In case of a convex indifference curve

A. mrs xy is constant
B. mrs xy is increasing
C. mrs xy is negligible
D. mrs xy is diminishing
Answer» D. mrs xy is diminishing
29.

‘Higher the indifference curve higher will be level of satisfaction’. The statement is

A. always true
B. always false
C. sometimes true and sometimes false
D. true only if price effect is positive
Answer» A. always true
30.

As per indifference curve analysis, consumer always try to reach

A. higher indifference
B. lower indifference curve
C. middle indifference curve
D. lower income price line
Answer» A. higher indifference
31.

Which method is used by Hicks to eliminate the income effect when price of a product is changed

A. compensating variation in income
B. the cost difference
C. the over compensation effect
D. substituting variation in price
Answer» A. compensating variation in income
32.

The basic doctrine of consumers’ surplus is based on

A. indifference curve analysis
B. revealed preference theory
C. law of substitution
D. law of diminishing marginal utility
Answer» D. law of diminishing marginal utility
33.

According to Marshall, The law of diminishing marginal utility

A. applies on money in the manner in which it applies on commodity
B. do not applies on money except bank money
C. does not applies on bank money but applies on cash
D. applies on all commodities except money
Answer» D. applies on all commodities except money
34.

An indifference curve represent

A. four commodities
B. less than two commodities
C. only two commodities
D. only one commodity
Answer» C. only two commodities
35.

Indifference curve is always

A. concave to the origin
B. convex to the origin
C. l shaped
D. a straight line
Answer» B. convex to the origin
36.

Engel curve for giffen good is

A. positively sloped
B. negatively sloped
C. horizontal straight line
D. vertical straight line
Answer» B. negatively sloped
37.

Marginal utility is

A. always zero
B. increases at a diminishing rate
C. the utility derived from last unit
D. all the above
Answer» C. the utility derived from last unit
38.

Total utility is

A. the sum total of marginal utilities
B. entire utility derived from whole consumption
C. increases at a diminishing rate
D. all the above
Answer» D. all the above
39.

When Total utility is increasing at an decreasing rate, marginal utility is

A. constant
B. negative
C. increasing
D. decreasing
Answer» D. decreasing
40.

Other things being equal a decrease in demand can be caused by

A. a fall in price of the commodity
B. a fall in income of the consumer
C. a rise in price of the substitute
D. none of these
Answer» B. a fall in income of the consumer
41.

When price of a product falls, more of it is purchased because of

A. the substitution effect
B. the income effect
C. neither substitution effect nor income effect
D. both the substitution and income effects
Answer» D. both the substitution and income effects
42.

“Utility or satisfaction is a subjective concept; therefore it could only be ranked”. The statement supports

A. cardinal utility theorist
B. ordinal utility theorist
C. behavioral theorist of the firm
D. none of the above
Answer» B. ordinal utility theorist
43.

Ordinal utility analysis is otherwise known as

A. gossens second law
B. cardinality approach
C. indifference curve analysis
D. rationality approach
Answer» C. indifference curve analysis
44.

Ordinal utility analysis Was developed by

A. j.r.hicks & r.j.d. allen
B. samualson
C. marshall and jevons
D. slutsky
Answer» A. j.r.hicks & r.j.d. allen
45.

Total utility curve

A. always rises
B. first falls then rises
C. always falls
D. first rises and then falls after reaching its maximum
Answer» D. first rises and then falls after reaching its maximum
46.

At saturation point MU of a commodity is

A. positive
B. negative
C. zero
D. increasing
Answer» C. zero
47.

A consumer reaches equilibrium when

A. marginal utility is equal to price
B. marginal utility greater than price
C. marginal utility less than price
D. total utility is equal to price
Answer» A. marginal utility is equal to price
48.

Marshalian cardinal utility analysis assumes

A. marginal utility of money is zero
B. marginal utility of money is decreasing
C. marginal utility of money is increasing
D. marginal utility of money is constant
Answer» D. marginal utility of money is constant
49.

When individuals income rises (everything remain the same) his demand for a normal good

A. rises
B. falls
C. remains the same
D. negative
Answer» A. rises
50.

When individuals income falls (everything remain the same) his demand for a normal good

A. rises
B. falls
C. remains the same
D. negative
Answer» B. falls
51.

The concept of utility was introduced by

A. marshall
B. hicks and allen
C. geremy bentham
D. gossen
Answer» C. geremy bentham
52.

Cardinal utility analysis to consumer equilibrium was developed by

A. marshall
B. hicks and allen
C. geremy bentham
D. gossen
Answer» A. marshall
53.

MC at any level of output is given by

A. slope of tc curve
B. slope of tvc curve
C. slope of either tc or tvc
D. slope of tfc
Answer» C. slope of either tc or tvc
54.

If a firm’s average cost is Rs.32 at 6 units of output and Rs.34 at 7 unit, which one among the following is the marginal cost of producing the 7th unit

A. 46
B. 2
C. 36
D. 42
Answer» A. 46
55.

The cost that cannot be recovered once spent

A. accounting cost
B. fixed cost
C. implicit cost
D. sunk cost
Answer» B. fixed cost
56.

The saucer-type of modern Short run Average Variable Cost (SAVC) represents

A. excess capacity
B. managerial costs
C. load factors
D. reserve capacity
Answer» B. managerial costs
57.

The Long run Average Cost curve (LAC) in modern cost theory is roughly

A. u shaped
B. saucer shaped
C. l shaped
D. rectangular hyperbola
Answer» D. rectangular hyperbola
58.

Under increasing returns to scale, which of the following is the nature of the long run average cost curve?

A. downward sloping
B. upward rising
C. parallel to output axis
D. identical to short run average cost curve
Answer» D. identical to short run average cost curve
59.

Which of the following has a U shape?

A. average fixed cost curve
B. total cost curve
C. average variable cost curve
D. total variable cost curve
Answer» C. average variable cost curve
60.

AFC curve will always be

A. rectangular hyperbola
B. u shaped
C. horizontal
D. downward sloping
Answer» D. downward sloping
61.

Implicit cost of a factor of production is determined by its

A. sunk cost
B. variable cost
C. fixed cost
D. opportunity cost
Answer» A. sunk cost
62.

Economic cost include both

A. explicit cost and implicit cost
B. fixed cost and variable cost
C. explicit cost and prime cost
D. money cost and sunk cost
Answer» A. explicit cost and implicit cost
63.

The U shape of MC curve reflects

A. economies of scale
B. law of increasing returns
C. reserve capacity
D. law of variable proportion
Answer» D. law of variable proportion
64.

Envelope curve is

A. long run marginal cost curve
B. long run average cost curve
C. total cost curve
D. none of the above
Answer» D. none of the above
65.

In long run, which factor of production is fixed?

A. labour
B. capital
C. building
D. none of the above
Answer» B. capital
66.

The U shape of the average total cost curve reflects

A. ldmu
B. the law of variable proportions
C. consumer’s surplus
D. reserve capacity
Answer» A. ldmu
67.

The total fixed cost is a

A. horizontal straight line
B. vertical
C. hyperbola
D. u shaped
Answer» A. horizontal straight line
68.

When AC minimum in short run

A. ac < mc
B. ac > mc
C. ac = mc
D. any of above is possible
Answer» B. ac > mc
69.

The shape of TVC and TC are

A. rectangular hyperbola
B. inverse ‘s’ shape
C. horizontal straight line
D. l shaped
Answer» A. rectangular hyperbola
70.

The cost expressed not in terms of money but in terms of efforts of workers undergone for making the commodity

A. opportunity cost
B. real cost
C. sacrifice cost
D. implicit cost
Answer» C. sacrifice cost
71.

The MC curve cuts the AC curve at

A. the maximum point
B. the initial point
C. the minimum point
D. any point
Answer» B. the initial point
72.

The minimum point of ATC is at ...................position of the minimum point of AVC

A. right
B. left
C. same
D. all of above can be
Answer» B. left
73.

If the long run cost curve shifts down wards it is an indication of

A. technological progress
B. lower factor prices
C. both of these
D. reserve capacity
Answer» C. both of these
74.

The U shape of the LAC reflects

A. law of variable proportions
B. laws of returns to scale
C. reserve capacity
D. none of these
Answer» A. law of variable proportions
75.

A production possibility curve is concave to the point of origin because of

A. increasing marginal rate of transformation (mrt)
B. increasing marginal opportunity cost (moc)
C. both of the above
D. decreasing marginal rate of transformation
Answer» C. both of the above
76.

The deductive method is also called

A. abstract
B. analytical
C. priori method
D. all the above
Answer» D. all the above
77.

An Essay on the Nature and Significance of Economic Science was written by

A. adamsmith
B. alfred marshall
C. lord robbins
D. samuelson
Answer» C. lord robbins
78.

The word ‘Micro Economics and Macro Economics’ were first coined by

A. adamsmith
B. ragnar frisch
C. alfred marshall
D. lord robbins
Answer» B. ragnar frisch
79.

Excess demand for money, according to Say’s law in the Economy:

A. Is greater
B. Is very less
C. Is equal to zero
D. There is no relationship between excess demand for money and Say’s Law
Answer» D. There is no relationship between excess demand for money and Say’s Law
80.

Which of the following is not an assumption of classical theory?

A. Price flexibility
B. Unemployment
C. Say’s law
D. Neutrality of money
Answer» B. Unemployment
81.

In classical theory the equality between saving and investment is brought about by:

A. Rate of interest
B. Income
C. Consumption
D. Multiplier
Answer» A. Rate of interest
82.

The normal condition of a capitalist economy in classical theory is:

A. Underemployment
B. Full employment
C. General unemployment
D. Frictional unemployment
Answer» B. Full employment
83.

The classical economists believed that the demand for labour is a function of:

A. Total money wages
B. Money wage rate
C. Total real wages
D. Real wage rate
Answer» D. Real wage rate
84.

In classical theory of employment, there is the possibility of:

A. Voluntary unemployment
B. No unemployment
C. Involuntary unemployment
D. Disguised unemployment
Answer» A. Voluntary unemployment
85.

The idea that a general cut in wages will finally lead to a state of full employment was suggested by :

A. Keynes
B. Marshall
C. J.B.Say
D. A.C.Pigou
Answer» D. A.C.Pigou
86.

The aggregate production function implied under classical theory is :

A. Long run
B. Short run
C. No time element
D. None of the above
Answer» A. Long run
87.

In the Cambridge equation of M = kPR, the value of k is:

A. M/V
B. 1/V
C. V in Fisher’s equation
D. None of these
Answer» B. 1/V
88.

As a result of an increase in capital, ceteris paribus, ------ the marginal productivity of labour:

A. Remains constant
B. Increase
C. decreases
D. none of these
Answer» B. Increase
89.

In the classical theory, one of the following is an important assumption:

A. Wages and prices are inflexible
B. There is full employment
C. Agents are price setters
D. Adjustment is through quantity.
Answer» B. There is full employment
90.

In the Fisher’s extended equation of exchange MI VI represents:

A. Credit money
B. Primary money
C. Both primary and credit money
D. General price level
Answer» A. Credit money
91.

In Fisher’s transaction velocity model, one of the following is not an assumption:

A. Velocity of circulation of money is constant
B. The volume of transactions is constant
C. Full employment
D. P is considered as an active factor
Answer» D. P is considered as an active factor
92.

The cash balance equation M = KPO was given by:

A. Keynes
B. Pigou
C. Robertson
D. Marshall
Answer» D. Marshall
93.

“Supply creates its own demand “is a law of:

A. Investment
B. Inflation
C. Consumption
D. Market
Answer» D. Market
94.

In the equation MV+ MI VI = PT, ‘M ‘denotes:

A. Velocity of money
B. Money in circulation
C. Bank deposit
D. None of these
Answer» B. Money in circulation
95.

I classical demand for money, the relationship between money supply and price level is:

A. Proportional
B. Non-proportional
C. Neither proportional nor non-proportional
D. None of these
Answer» B. Non-proportional
96.

As per classical theory saving is:

A. An increasing function of rate of interest
B. Decreasing function of rate of interest
C. Decreasing function of level of income
D. None of these
Answer» A. An increasing function of rate of interest
97.

The Cambridge version of the quantity theory of money was developed by:

A. Fisher
B. Alfred Marshall
C. Pigou
D. Keynes
Answer» C. Pigou
98.

In classical system which of the following keeps the economy at full employment:

A. Level of saving
B. Increase in money supply
C. Adjustment in investment
D. Adjustment in money wages
Answer» D. Adjustment in money wages
99.

In Fisher’s equation of exchange MV=PT, the variation of which produces a proportional change in price:

A. M
B. V
C. P
D. T
Answer» A. M
100.

According to classical economists, variations in savings are due to:

A. Level of investment
B. Rate of interest
C. Level of employment
D. None of the above
Answer» B. Rate of interest
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