Economics Question Answer 2021


Which of the following is not assumed to be constant along the money demand curve?

Ans-the interest rate


Which of the following will be hurt by inflation

A wage earner who bargains wages as a member of a trade union


Total fixed cost divided by the level of output yields

Average fixed costs


Demand curve faced by nuclear plant a monopoly shell be __ and for a wholesaler

Inelastic, perfectly elastic


Circular flow diagram in national income accounting is used to describe

Flow of income and expenditures in an economy


If a firm must produce a significant share of market output before low average cost can be achieved

Either monopolistic competition or oligopoly


When diminishing marginal returns set in the marginal product is

Negative and decreasing


If a perfectly competitive firms marginal revenue is rs 35

Its average revenue is rs 35


If the demand for Swordfish is price elastic and the price of Swordfish increases then

Total Revenue from Sword Fish sales will decrease


A US company owns a fast food store in India. The value of Goods and services produced in the store are included

The GDP of India but not of US


Which of the following is unique to oligopoly among all the market structures

Mutual interdependence


Which Real world market most closely approximates perfect competition

Wholesale wheat market


Which one of the following will shift the money demand curve to the right, keeping other things constant?

A decrease in the interest rate


What is the effect of an expansionary monetary policy on the demand for investment curve?

It causes downward movement along the curve


The Average fixed curve is

Downward slopping due to constant total fixed cost


Green GDP means

Measuring the impact of production on air pollution, water pollution, soil depletion and the loss of other natural resources


Demand Pull inflation is shown by an

outward shift of the aggregate demand curve


The consumer still gets the newspaper at Re 1.50 with growing number of supplements, better printing quality a lot of promotional rewards, gifts and better news coverage…

Tacit Collusion between the two dailies in future may lead to

Monopoly profits to both the firms


In the end the benefits from price war between TOI and HT were made by the

All of these


Newspaper market described in the case shows features of



Benefits for both the Times of India and Hindustan Times would have been higher if they would have completed primarily on

Quality of news coverage


A firm facing a downward-sloping demand curve sells 50 units of output at Rs 10 each. The firm’s marginal revenue is

Ans- less than 10


The additional output obtained by adding another unit of labor to the production process is called _____.

Ans- the marginal product of labor


If there is a decrease in the supply of money, which one of the following is most likely to happen?

Ans- interest rates will rise


A cartel’s marginal cost curve is the:

Ans- horizontal sum of all the individual firms’ marginal cost curves


total revenue of a good falls with fall in price, this indicates

Ans- the price elasticity of demand is lower than 1


In the range of increasing marginal returns, the total product is

Ans-increasing at an increasing rate


The distinction between discretionary fiscal policy and automatic stabilizers is that

Ans- only discretionary fiscal policy can stimulate the economy


Automatic stabilizers act to ______ government expenditures and _______ government revenues during recession in United States

Ans-Increase, decrease


In the short run, a monopolistic competitive firm will shut down when

Ans-average total cost is more than average revenue.


Which of the following actions would not increase GDP?

Ans-Tom gets fired for being late so often after his alarm clock breaks, so he moves off to the wilderness.


The money demand curve slopes downward because

Ans- None of these (higher interest rate increases the opportunity cost of holding money)


The income effect refers to the impact of a change in

Ans-the price of a good on real income


Which one of the following would be shown on IBM’s accounting statement?

Ans-revenue, explicit costs and accounting profit


Suppose it costs Minnie’s Mini-Golf (a monopolist) not a penny more to let another person on the course. If Minnie’s faces a linear (downward-sloping) market demand curve, it will maximize profits by choosing the point on the demand curve where

Ans-price elasticity is unit elastic


Resources are divided into the following broad categories

Ans-Natural resources, labor, capital, and entrepreneurial ability


The income effect of an increase in the price of potatoes (an inferior good) is a

Ans-decrease in the quantity demanded of potatoes


Which of the following is true regarding Gross Domestic Product?

Ans-it can be measured either from total spending or total expenditure.


For an equilibrium interest rate of 5%, an increase in the money supply other factors taken constant will most likely

Ans-Decrease the interest rate below 5%


The value of intermediate goods that are sold is

Ans-Not added to GDP


John spends exactly the same rupee amount on chocolates each week, regardless of their price John’s demand curve for chocolates is

Ans-unit elastic


if the loss minimizing output for a perfectly competitive firm is zero then at all other output levels

Ans- total revenue is less than total cost


The automobile industry is

ans-an oligopoly due to heavy…..


Which one of the following actions will not increase GDP?

Ans-An installer of an automobile tyre punctures the cars tyres parked near his neighbourhood


Which of the following statement/s Is/are correct?

  1. a) Economic information is usually scarce and cosy to acquire
  2. b) Economic information is usually not required for rational decision making

Ans- A is correct, b is false


When break even point is 2000 units, selling price per unit Rs 14 and variable cost is rs. 8, find out fixed cost

Ans- 12000


The base year for a price index is the year

Ans-that serves as a reference point


Which of the following could be true of perfect competition but not of monopoly?

Ans-There are no barriers to entry.


If a firm is producing at an output where the total revenue curve crosses the total cost curve

Ans- revenue is maximized


The law of demand states that

Ans-price and quantity demand are inversely related to each other, other factors being constant


Macroeconomics deals with

Ans-economic aggregates


The demand for products from monopolistic competition is elastic due to:

Ans- large number of buyers


Which one of the following characterizes a perfectly competitive market?

Ans- perfect product information available to buyers


If rice is a normal good, then the income effect of a price change means that

Ans- if income increases, demand for rice shifts rightward

In the short run, a monopolistically competitive firm is

Ans-not guaranteed any level of economic profit



In the context of circular flow of income and expenditure which of the following statements is not correct?

Ans- firms sells factors of production to households


If the marginal propensity to Consume (MPC) 0.75, a decrease in net taxes of Rs. 100 billion will increase he equilibrium level of real GDP

Ans- $400 Billion


anticipated inflation

ans- causes fewer problem than unanticipated


if the marginal propensity to save MPS is 0.2 and the government purchases decrease by 5000

ans-dcerease by 25000


As output expands, the slope of the average total cost curve

Ans- is first negative and then positive


Natural monopolies form when

Ans- long-run average cost declines as a firm expands output


Which of the following would not be included in GDP as a form of consumption spending?

ans -Ann prepares Tim’s income tax return.


All of the following are true of a perfectly competitive firm in long-run equilibrium except one. Which is the exception

Ans- Marginal cost is minimized


-If the managers of a theater plan to raise ticket prices to increase ticket revenue then they must believe that demand is

Ans- inelastic


cost-push inflation is typically depicted graphically as an

Ans-inward shift of aggregate supply and demand


Dunng inflationary times, which of the following is unlikely to happen?

Ans-People are willing to lend money for longer periods


Statement A firm in monopolistic competition are not producing at minimum average cost,

Statement B statement a firms in monopolistic competition have excess capacity

Ans- Both A and B is true


For a renter, the income effect of an increase in apartment rents will:

ans-have a greater impact than the income effect of an increase in the price of a chewing gum.


An increase in the interest rate, other things taken as constant, will

Ans- increase the quantity of loanable funds supplied


Economists classify all of the following as capital, except one. Which one is not capital?

ans- a $20 bill in a firm’s petty cash drawer


Transfer payments are

Ans-not included in GDP because they do not represent payments for currently produced goods or services.


Suppose sales of Maruti Brezza increases with an increase in the price of Hyundai Venue. Which one of the following options best explain the situation?

Ans- the substitution effect


if the inflation rate is 5 percent and you receive a wage increase of 5 percent.

Ans- your nominal income increases by 5 percent but your real Income is unchanged


If the cigarette sellers in the tobacco industry formed a cartel and decided to set price along a straight line downward sloping demand curve, which point would they choose if they want to gain the highest total revenue?

Ans-The point which MR is equal to MC.


Which one of the following is true about the MC curve?

Ans- it intersects both the AVC and ATC at their minimum points


Movements along the demand curve are called changes in

Ans- quantity demanded


In economics, ‘capital’ refers to

Ans-machines, buildings, tools and knowledge


The demand curve a monopolist’s faces

Ans-downward sloping market


Microsoft Edge closed unexpectedly.

Ans-is the inelastic demand curve


A monopolistic competitor’s demand curve is

Ans-more elastic than a monopolist but less elastic than a perfect competitor


Which one of the following is most likely to be a fixed resource for the Speedy Word Processing and Resume Company?

Ans- computer terminals


The automobile industry is

Ans- an oligopoly due to heavy Investment in plant and machinery and R&D.


The four components of GDP as per expenditure approach are

Ans-Investment, government purchases consumption and net exports.


The defining characteristic of oligopoly is that each firm

Ans- its mutually interdependent


The total revenue from selling trucks is equal to

Ans-the price of a truck times the quantity sold


staement A: money income is simply the number of rupees received per period. Statement B: change in price level keeps the money income constant but may increase or decrease income.

Ans- Both A and B is correct


slow-moving and non moving items of inventories, other than stock of finished goods and merchandise, is described as

Ans- non current asset


Suppose you received a 3 percent increase in your nominal wage. Over the year, inflation ran about 6 percent. Which of the following is true

Ans-Your real wage fell


A decrease in the interest rate will

Ans- increase the quantity of money people want to hold


which one of the following commodities has the highest elasticity of demand



Which of the following is most likely produced in a monopolistically competitive market



GDP of India denotes

Ans-the market value of all final goods and services produced during a year in india regardless of who owns the resources


If a firm is experiencing diminishing marginal returns to labor which one of the following must be true?

Ans-The positive effect of specialization in production is being offset by the negative effect of crowding of inputs


The total revenue from selling trucks is equal to

Ans- the price of a truck times the quantity sold


The immediate effect on GDP of Ibrahim’s purchase of a government bond is

Ans- nonexistent since no real goods and services have been produced


The reason economists assume that firms try to maximize economic profits

Ans-if over time firms that don’t earns profits would face difficulty in bearing the variable


If equilibrium real GDP demanded rises from $4 trillion to $6 trillion when government purchases increase by $1 trilion, how large is the marginal propensity to consume



If the marginal cost is greater than the average cost then

Ans-the average cost is increasing


If the marginal cost is less than the average cost then

Ans-the average variable cost is below marginal cost


If the Indian economy is already producing at its potential, the spending multiplier in the long-run




Average revenue for a perfectly competitive firm is equal to

Ans-total revenue/marginal revenue



The government imposed a price floor above the market price of the milk which would increase consumers’ expenditure on milk

Ans-demand is inelastic


in the context of national income accounting depreciation

Ans-is the loss a value of capital assets


Which of the following can increase real GDP per person?

Ans- all of these


Inputs that can be increased or decreased in the short run are called

Ans-variable inputs


The ToysForU an Indian Toy Company can produce 500 water pistol for a total cost of Rs.1 of Rs.3,000, but it would have costs of Rs.200 even if it produced no water pistols. Which o

Ans-Total cost is increasing at a decreasing rate.


Which one of the following is a constant elasticity supply curve?

Ans- supply curve passing through the origin


Which is the best method of computing National Income?

Ans- Combination of all these methods.


The demand curve faced by a perfectly competitive firm

Ans- is perfectly elastic


if the GDP price index is 150 and nominal GDP is Rs.9,000 billion, then real GDP is

Ans-6000 Billion


Which if the following is most likely to be a fixed resource for the Speedy Word Processing & Resume Company?

Ans-Computer terminals


Which of the following would be included in GDP?

Ans-payment of the monthly telephone bill by Mr. Laconic


Economics is the study of

Ans- how people use limited resources to satisfy their unlimited wants


Accounting profit is

Ans-never less than economic profit


For a non-price discriminating monopolist, an economic profit is maximized in the short run at a price of Rs 140 Marginal revenue at that output level is

Ans-less than RS 140


In the case of a normal good, an increase in consumers’ incomes would shift the

Ans-demand curve outward


If the manager of a theater plan to raise ticket prices to increase the revenue then they must believe that demand is



A characteristic of monopolistic competition is:

Ans-High barriers to entry and exit


The demand curve facing Imelda’s Shoe Boutique, a monopolistically competitive firm

Ans-slopes downward because Imelda’s sells a differentiated product


Which of the following is NOT a cause of inflation?

Ans-Increase in demand for goods/products and services


On a graph of production costs, the vertical distance between the fixed cost curve and the total cost curve at a specific quantity represents

Ans-average variable cost


Other things remaining constant, the quantity of money demanded varies

Ans-inversely with the market interest rate


A brand name may contribute to oligopolists’ economic profit by

Ans-acting as a barrier to entry


Which of the following is not considered a barrier to entry?

diseconomies of scale


In a perfectly competitive industry we are likely to find

Ans-firms that do not advertise


Firms in a perfectly competitive market have no control over

Ans- what price to charge


Which one of the following is most likely to be the price inelastic demand?

Ans-all of these


Government purchases are assumed to be autonomous because they are

Ans-independent of the level real GDP


Natural monopolies form when

Ans-long-run average cost declines as a firm expands output


Which of the following is a component of aggregate demand?

Ans- purchases by government


A firm practising price discrimination will be

Ans- charging different prices for a product in different market


If the Indian economy is operating at less than the potential GDP an increase in the money supply in the short run will lead to

Ans- demand side inflation


Along a demand curve, real income is assumed to be constant

Ans-always false


A Monopolist

Ans- can charge whatever price it wants


If Joe says that nothing comes close to a Pepsi, his demand for Pepsi is likely to be

Ans-relatively price inelastic


if the price of Pepsi-Cola increases from Rs. 5 to Rs. 6 per can and the quantity demanded decreases from 100 cans to 50 cans, then the demand is

Ans-more elastic


An increase in a person’s real wage necessarily means

Ans-greater purchasing power


Which one of the following commodities has the lowest elasticity of demand?



The quantity theory of money states that in the long run

Ans-an increase in nominal money supply will cause a proportionate increase in the price level


In the circular flow of income and expenditure

Ans- inspections are equal to leakages


The circular flow of income shows the relationship between

Ans- government, firms, households, foriegn sector


Markets reduce transactions costs

Ans-by decreasing the time spent on searching for information about goods and services


Given the availability of California oranges, demand for Florida oranges will

Ans-be more elastic than if there were no California oranges


In times of rapid inflation,

Ans-money loses its use as a medium of exchange


The demand curve facing a monopolist

Ans-lies above its marginal revenue curve


The law of demand assumes that as the price of a good increases,

Ans-consumers tend to shift their purchases to relatively cheaper substitute


If the cross elasticity of demand between product X and product Y is negative then

Ans-X and Y are complementary goods


What do monopolistic competition, pure monopoly, and perfect competition have in common?

Ans-the rule of profit maximization


Which of the following is a feature that monopolistic competition and oligopoly have in common?

Ans-extensive advertising to differentiate products.


For perfectly competitive firms, the relationship been the market price (P), average revenue (AR), and Marginal revenue (MR) is-

Ans- P=AR=MR


An increase in the interest rate will

Ans- decrease investment regardless of whether firms have to borrow money to make an investment


If marginal benefit is greater than marginal cost, a rational choice Involves:

Ans- more of the activity


Which of the following is correct?

Ans- Expansionary gap is the excess of actual GDP over potential GDP and government adopts a contractionary fiscal policy to address the issue


Monopolistic competition is best described as

Ans- many firms with some control over price and some product differentiation


Transaction of financial assets (shares, stocks etc) cause

Ans-Do not affect the national income


If the IMT administration raises the tuition fees of our students in order to increase revenue, it will

ANS-be successful it demand is inelastic


Which one of the following would an economist consider as a capital?

Ans-a lawyer’s personal computer


An example of an uncontrollable resource that contributes to diseconomies of scale for a move theater Is

Ans-public roads congested with traffic


As wants are unlimited but resources are scarce

Ans-choices must be made


For luxury goods income elasticity is

Ans- greater than one


The demand curve faced by a firm will be more elastic if

Ans- More the substitutes for its product


Which one of the following statement about price elasticity of demand is NOT true?

Ans-Higher the proportion of consumer’s budget spent on a good, the lower the value of price elasticity



Statement A an increase in the price of pizza, other things constant, increases the opportunity cost of pizza

Statement B Because of higher opportunity cost of pizza consumers will reduce demand for other goods and increase the quantity demanded of pizza

Ans-Statement As correct but statement B is not correct


If the low GDP growth rate of India is attributed to the country’s monetary policy then we should observe that the country’s money supply

Ans-had decreased and interest rates had increased


If the price of a haircut (a normal good) increases, other things constant, the

Ans-quantity demanded of haircuts decreases


Two heavy equipment manufacturers might collude in an effort to do all of the following except one. Which is the exception?

Ans-take advantage of the legal benefits that cartels receive


The effect of a change in net taxes on the quantity of real GDP demanded equals the resulting shift in the consumption function times

Ans-the autonomous net tax multiplier


In the real world, quantity demand is not likely to be perfectly inelastic because

Ans-then supplier could charge any prices which the consumers will be unable to afford


A cartel’s profit-maximizing quantity occurs where the cartel’s

Ans-marginal cost equals marginal revenue


For a monopolist, marginal revenue is

Ans-less than the price


Which of the following statement regarding the basic economic problem of scarcity correct?

Ans-The problems will exist as long as resources are available in limited amounts


Which of the following actions is an example of expansionary fiscal policy?

Ans- decrease in the income tax rates


As output expands, the slope of the average total cost curve

Ans-is first negative and then positive


Which of the following is the best example of an investment as defined by economists?

Ans-firm buying personal computers for its secretarial staff


A perfectly competitive firm that earns an economic profit in the short run choose the output that

Ans-maximizes total revenue


The marginal cost curve intersects the average total cost curve (ATC)

Ans- at the ATC’s minimum point


GDP does not include the

Ans-value of all transactions in the economy during given period


in double-entry GDP accounting

Ans-the value of output produced must equal the value of resource payments generated in producing that output


A Family Travel Agency is a monopolistic competitor who offers services that are differentiated from the services of other producers in the industry

Ans-has some power to control the price charges


A perfectly competitive firm is

Ans-price taker and hence cannot determine price but can determine the amount of..


(a) ____expresses quantity theory of money and

(b) ____denotes the value of simple spending multiplier?

Ans- (a) MV= PY (b) 1/1- MPC


GDP is a poor measure of social well-being because

Ans-the value of leisure time is not counted in GDP


If the income elasticity for product X is positive but less than one then it is a

Ans-superior product and a necessity


A firm facing constant Input prices, increasing marginal returns

Ans-can occur due to specialization and division of labor


Golden rule of profit maximization says that a profit maximizing firm produces

Ans-where marginal revenue equals marginal cost provided marginal cost cuts marginal revenue from below


The steeper the short-run aggregate supply curve,

Ans-the impact of a shift in the aggregate demand curve will be less on real GDP


If Marginal Propensity to consume (MPC) is 0.8 and the government purchases increase by

Ans-Increase by Rs. 25,000


Rhonda sets a house she has owned for 15 years. To make it more marketable, she buys…..

Ans-the sale price of the wallpaper and carpet cost along with the installation fee for


The additional output obtained by adding another unit of labor to the production process is

Ans-the marginal product of labor


Which one of the following is not considered as a natural monopoly

Ans-the automobile industry


Which one of the following statement about the market is not true?

Ans- All markets provide the same amounts of information


Fiscal policy refers to the regulation of

Ans-spending and taxing policies used by the government to influence the economy


Because resources are scarce,

Ans-people must make choices among alternative


An intersection point known as Four Comers lies 300 kn from the nearest town. Al this inter one small pharmacy. Which of the following is true?

Ans- The gas stations are oligopolists, the pharmacy is a monopolist.


Which of the following is most likely to be a fixed resource for the City Slicker’s Dude Ranch?

Ans -The lodge where the guests stay


Suppose art n barf restaurant

Pay the higher rent and leave menu prices unchanged


The GDP price index is the ratio of

Nominal GDP to real GDP multiplied by 100


Economists believe that

Concern for the welfare of others is consistent with the concept of self interest


Which of the following is most likely produced in a monopolistic competitive market



If a monopolistically competitive firm raises its price, it

Loses some, but not all, of its customers


A monopolistic competitive firm can raise price somewhat due to

Product differentiation


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