Economy Set 1 MCQs

Economy GK

Economy Set 1 MCQs

Practice Economy GK MCQs on basic economic concepts including economy, economics, microeconomics, macroeconomics, goods and services, demand and supply, factors of production, opportunity cost, economic activities, sectors of economy and other fundamental concepts frequently asked in SSC, Railway, Banking, UPSC, JKSSB, JKPSC, Police, Defence and other competitive examinations.

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Page 2 of 111
Question #21
The law of demand states that, other things being equal, as price of a good rises:
A. demand rises
B. demand falls
C. quantity demanded rises
D. quantity demanded falls
Discuss
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Correct Answer: Option D

Explanation:
The law of demand states an inverse relationship between price and quantity demanded.
This question belongs to: Economy GK Economy Set 1
Question #22
A Giffen good is a good for which:
A. demand falls when price falls
B. demand is perfectly elastic
C. income effect is zero
D. demand increases when price rises
Discuss
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Correct Answer: Option D

Explanation:
A Giffen good has a strong income effect that dominates the substitution effect, so quantity demanded rises when price rises.
This question belongs to: Economy GK Economy Set 1
Question #23
Veblen goods are demanded mainly because:
A. their price is low
B. high price confers prestige or status
C. they are necessities
D. they have many substitutes
Discuss
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Correct Answer: Option B

Explanation:
Veblen goods are conspicuous consumption goods where a higher price increases their status value.
This question belongs to: Economy GK Economy Set 1
Question #24
Price elasticity of demand is measured as:
A. change in quantity divided by change in price
B. percentage change in price divided by percentage change in quantity demanded
C. percentage change in quantity demanded divided by percentage change in price
D. change in price divided by change in quantity
Discuss
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Correct Answer: Option C

Explanation:
Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.
This question belongs to: Economy GK Economy Set 1
Question #25
If a 10% increase in the price of a good causes quantity demanded to fall by 5%, the price elasticity of demand is:
A. 1
B. 0.5
C. 2
D. 5
Discuss
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Correct Answer: Option B

Explanation:
Elasticity = 5% / 10% = 0.5, which is inelastic.
This question belongs to: Economy GK Economy Set 1
Question #26
A perfectly inelastic demand curve has an elasticity of:
A. one
B. zero
C. greater than one
D. infinity
Discuss
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Correct Answer: Option B

Explanation:
With perfectly inelastic demand, quantity demanded does not change as price changes; elasticity is zero.
This question belongs to: Economy GK Economy Set 1
Question #27
If the price elasticity of demand for a good is exactly 1, an increase in its price will:
A. eliminate all demand
B. increase total revenue
C. decrease total revenue
D. leave total revenue unchanged
Discuss
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Correct Answer: Option D

Explanation:
Unitary elastic demand means total expenditure remains constant when price changes.
This question belongs to: Economy GK Economy Set 1
Question #28
The concept of consumer surplus was developed by:
A. J.M. Keynes
B. Alfred Marshall
C. Adam Smith
D. David Ricardo
Discuss
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Correct Answer: Option B

Explanation:
Alfred Marshall developed the concept of consumer surplus.
This question belongs to: Economy GK Economy Set 1
Question #29
An indifference curve is convex to the origin because of:
A. increasing returns to scale
B. diminishing marginal rate of substitution
C. constant marginal utility
D. increasing marginal rate of substitution
Discuss
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Correct Answer: Option B

Explanation:
Convexity of indifference curves is due to diminishing marginal rate of substitution.
This question belongs to: Economy GK Economy Set 1
Question #30
The slope of the budget line is equal to:
A. Px multiplied by Py
B. Px plus Py
C. negative Px divided by Py
D. Py divided by Px
Discuss
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Correct Answer: Option C

Explanation:
The budget line slope is -Px/Py, where Px is price of good X and Py is price of good Y.
This question belongs to: Economy GK Economy Set 1
Question #31
The marginal rate of substitution of X for Y is equal to:
A. MUx divided by MUy
B. Px multiplied by Py
C. TUx plus TUy
D. MUy divided by MUx
Discuss
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Correct Answer: Option A

Explanation:
MRS of X for Y is the ratio of marginal utility of X to marginal utility of Y.
This question belongs to: Economy GK Economy Set 1
Question #32
The law of variable proportions is associated with the:
A. all time periods equally
B. very long run
C. long run
D. short run
Discuss
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Correct Answer: Option D

Explanation:
The law of variable proportions operates in the short run when at least one factor is fixed.
This question belongs to: Economy GK Economy Set 1
Question #33
Returns to scale refers to the relationship between inputs and output when:
A. marginal cost is constant
B. all factors are changed in the same proportion
C. technology is fixed
D. only one factor is changed
Discuss
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Correct Answer: Option B

Explanation:
Returns to scale describe the long-run response of output when all inputs change proportionally.
This question belongs to: Economy GK Economy Set 1
Question #34
The short-run average cost curve is U-shaped mainly due to:
A. economies of scale
B. external economies
C. constant returns to scale
D. the law of variable proportions
Discuss
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Correct Answer: Option D

Explanation:
In the short run, U-shaped average cost arises from the law of variable proportions.
This question belongs to: Economy GK Economy Set 1
Question #35
Marginal cost intersects the average total cost curve at its:
A. maximum point
B. starting point
C. point of inflection
D. minimum point
Discuss
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Correct Answer: Option D

Explanation:
Marginal cost intersects average total cost at its minimum point.
This question belongs to: Economy GK Economy Set 1
Question #36
A firm under perfect competition is a price taker because:
A. it differentiates its product
B. it controls the entire market
C. there are high barriers to entry
D. there are many buyers and sellers and the product is homogeneous
Discuss
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Correct Answer: Option D

Explanation:
In perfect competition, many sellers produce a homogeneous product, so no single firm can influence price.
This question belongs to: Economy GK Economy Set 1
Question #37
Under perfect competition, the demand curve of a firm is:
A. upward sloping
B. perfectly inelastic
C. perfectly elastic
D. downward sloping
Discuss
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Correct Answer: Option C

Explanation:
A perfectly competitive firm faces a horizontal demand curve at the market price.
This question belongs to: Economy GK Economy Set 1
Question #38
Price discrimination is most commonly possible under which market structure?
A. Monopoly
B. Perfect competition
C. Oligopoly
D. Monopolistic competition
Discuss
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Correct Answer: Option A

Explanation:
A monopolist can practise price discrimination because it has market power and can prevent resale.
This question belongs to: Economy GK Economy Set 1
Question #39
Selling costs are a distinguishing feature of which market structure?
A. Monopoly
B. Monopolistic competition
C. Pure competition
D. Perfect competition
Discuss
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Correct Answer: Option B

Explanation:
Firms in monopolistic competition incur selling costs to differentiate their products and attract customers.
This question belongs to: Economy GK Economy Set 1
Question #40
The kinked demand curve model is used to explain price rigidity in:
A. monopsony
B. oligopoly
C. monopoly
D. perfect competition
Discuss
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Correct Answer: Option B

Explanation:
The kinked demand curve explains why oligopolistic firms avoid changing prices.
This question belongs to: Economy GK Economy Set 1
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