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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Practice Questions

Page 44 of 111
Question #861
In the two-commodity consumer equilibrium condition, which equality must hold?
A. Px/Py = MUy/MUx
B. MUx = MUy
C. MUx/Px = MUy/Py
D. Px × MUx = Py × MUy
Discuss
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Correct Answer: Option C

Explanation:
The consumer is in equilibrium when marginal utility per rupee is equal for all goods: MUx/Px = MUy/Py.
This question belongs to: Economy GK Economy Set 1
Question #862
For a normal good, a fall in its price creates:
A. zero income effect
B. negative substitution effect
C. negative income effect only
D. positive substitution effect and positive income effect
Discuss
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Correct Answer: Option D

Explanation:
For a normal good, both substitution effect and income effect work in the same direction when price falls, increasing quantity demanded.
This question belongs to: Economy GK Economy Set 1
Question #863
For an inferior good, the income effect of a price fall:
A. decreases quantity demanded
B. does not affect quantity demanded
C. always equals the substitution effect
D. increases quantity demanded
Discuss
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Correct Answer: Option A

Explanation:
For an inferior good, a price fall raises real income, and the income effect causes the consumer to buy less of the good.
This question belongs to: Economy GK Economy Set 1
Question #864
The Engel curve shows the relationship between:
A. price and quantity demanded
B. price and income
C. utility and expenditure
D. income and quantity demanded
Discuss
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Correct Answer: Option D

Explanation:
The Engel curve depicts the relationship between a consumer's income and the quantity demanded of a good.
This question belongs to: Economy GK Economy Set 1
Question #865
An isoquant shows different combinations of two inputs that produce:
A. different levels of output
B. the same level of output
C. minimum cost
D. maximum profit
Discuss
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Correct Answer: Option B

Explanation:
An isoquant is a curve showing all combinations of two inputs that yield the same level of output.
This question belongs to: Economy GK Economy Set 1
Question #866
The slope of an isoquant is called the:
A. marginal rate of technical substitution
B. marginal rate of substitution
C. price ratio
D. marginal utility ratio
Discuss
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Correct Answer: Option A

Explanation:
The slope of an isoquant is the marginal rate of technical substitution, the rate at which one input can substitute for another keeping output constant.
This question belongs to: Economy GK Economy Set 1
Question #867
The least-cost combination of inputs for a producer occurs where:
A. the isoquant intersects the isocost line at any point
B. marginal cost is zero
C. the isoquant is tangent to the isocost line
D. total product is maximum
Discuss
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Correct Answer: Option C

Explanation:
Producer equilibrium for least cost is achieved at the tangency of an isoquant and isocost line.
This question belongs to: Economy GK Economy Set 1
Question #868
The slope of an isocost line is equal to:
A. total cost divided by output
B. price of labour divided by price of capital
C. price of capital divided by price of labour
D. negative price of labour divided by price of capital
Discuss
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Correct Answer: Option D

Explanation:
The isocost line slope is the negative ratio of input prices, typically -w/r, where w is labour price and r is capital price.
This question belongs to: Economy GK Economy Set 1
Question #869
In the Cobb-Douglas production function Q = A L^α K^β, if α + β = 1, the production function exhibits:
A. negative returns
B. constant returns to scale
C. increasing returns to scale
D. decreasing returns to scale
Discuss
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Correct Answer: Option B

Explanation:
If α + β = 1, the Cobb-Douglas production function exhibits constant returns to scale.
This question belongs to: Economy GK Economy Set 1
Question #870
When marginal product is zero, total product is:
A. negative
B. minimum
C. equal to average product
D. maximum
Discuss
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Correct Answer: Option D

Explanation:
Total product is maximum when marginal product is zero.
This question belongs to: Economy GK Economy Set 1
Question #871
Average product is obtained by dividing total product by:
A. fixed input
B. units of variable input
C. marginal product
D. total cost
Discuss
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Correct Answer: Option B

Explanation:
Average product is total product divided by the units of the variable input used.
This question belongs to: Economy GK Economy Set 1
Question #872
Economic cost includes:
A. both explicit and implicit costs
B. only implicit costs
C. only accounting costs
D. only explicit costs
Discuss
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Correct Answer: Option A

Explanation:
Economic cost includes both explicit costs and implicit opportunity costs.
This question belongs to: Economy GK Economy Set 1
Question #873
Opportunity cost is the value of:
A. all possible alternatives foregone
B. the total money spent
C. the next best alternative foregone
D. the cheapest available alternative
Discuss
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Correct Answer: Option C

Explanation:
Opportunity cost is the value of the next best alternative forgone.
This question belongs to: Economy GK Economy Set 1
Question #874
Fixed costs are costs that:
A. equal variable costs
B. remain constant irrespective of output in the short run
C. vary directly with output
D. are zero in the long run
Discuss
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Correct Answer: Option B

Explanation:
Fixed costs do not change with the level of output in the short run.
This question belongs to: Economy GK Economy Set 1
Question #875
A sunk cost is a cost that:
A. can be recovered easily
B. has already been incurred and cannot be recovered
C. is equal to marginal cost
D. falls as output rises
Discuss
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Correct Answer: Option B

Explanation:
A sunk cost has already been incurred and cannot be recovered.
This question belongs to: Economy GK Economy Set 1
Question #876
The long-run average cost curve is often called the:
A. indifference curve
B. planning curve or envelope curve
C. marginal cost curve
D. demand curve
Discuss
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Correct Answer: Option B

Explanation:
The long-run average cost curve is also called the planning curve or envelope curve.
This question belongs to: Economy GK Economy Set 1
Question #877
Internal economies of scale arise due to:
A. expansion of the industry
B. increase in demand
C. expansion of the firm itself
D. government subsidies
Discuss
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Correct Answer: Option C

Explanation:
Internal economies of scale arise from the expansion of the individual firm itself.
This question belongs to: Economy GK Economy Set 1
Question #878
External economies of scale are enjoyed by a firm when:
A. the entire industry expands
B. it reduces prices
C. the firm increases its own size
D. it merges with another firm
Discuss
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Correct Answer: Option A

Explanation:
External economies arise from expansion of the industry as a whole, benefiting all firms.
This question belongs to: Economy GK Economy Set 1
Question #879
A firm should shut down in the short run if price is less than:
A. marginal cost
B. average fixed cost
C. average variable cost
D. average total cost
Discuss
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Correct Answer: Option C

Explanation:
In the short run, a firm shuts down if price is less than average variable cost.
This question belongs to: Economy GK Economy Set 1
Question #880
Under perfect competition, the profit-maximizing condition for a firm is:
A. TR is maximum
B. MR is maximum
C. MR = MC and MC is rising
D. P = AC
Discuss
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Correct Answer: Option C

Explanation:
A perfectly competitive firm maximizes profit where marginal revenue equals marginal cost and MC is rising.
This question belongs to: Economy GK Economy Set 1
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