Microeconomics is a branch of economics that focuses on the behavior and decision-making of individuals, households, and firms in the allocation of scarce resources. It analyzes how individuals and firms make choices regarding the production, consumption, and distribution of goods and services in a market economy. Microeconomics mcqs with answers pdf
Key Concepts in Microeconomics:
- Supply and Demand: Supply refers to the quantity of a good or service that producers are willing to offer at different price levels, while demand refers to the quantity of a good or service that consumers are willing to purchase at different price levels. The interaction between supply and demand determines the equilibrium price and quantity in a market.
- Elasticity: Elasticity measures the responsiveness of quantity demanded or supplied to changes in price or income. Price elasticity of demand measures how sensitive the quantity demanded is to changes in price, while income elasticity of demand measures how sensitive the quantity demanded is to changes in income.
- Consumer Behavior: Microeconomics examines how consumers make decisions regarding the allocation of their limited income among different goods and services. Concepts like utility, marginal utility, and consumer surplus are used to understand consumer preferences and choices.
- Production and Costs: Microeconomics analyzes how firms make decisions regarding the production of goods and services. It explores concepts like production functions, costs of production (including fixed costs, variable costs, and marginal costs), and profit maximization.
- Market Structures: Microeconomics studies different market structures in which firms operate, such as perfect competition, monopoly, monopolistic competition, and oligopoly. Each market structure has different characteristics and implications for prices, output levels, and competition.
- Market Failures: Microeconomics examines situations where markets fail to allocate resources efficiently, leading to market failures. Examples include externalities (costs or benefits that affect third parties), public goods (non-excludable and non-rivalrous goods), and imperfect information.
- Income Distribution: Microeconomics analyzes the distribution of income and wealth in society. It explores factors that contribute to income inequality, such as differences in skills, education, and market power.
- Welfare Economics: Microeconomics evaluates the efficiency and equity of resource allocation. It examines concepts like consumer and producer surplus, Pareto efficiency, and market interventions such as taxes, subsidies, and price controls.
Microeconomics provides a foundation for understanding individual economic decision-making and the functioning of markets, which is essential for policymakers, businesses, and individuals to make informed choices in the economy.
Microeconomics mcqs with answers pdf
Q1. Which of the following best describes the law of demand?
A) As price increases, quantity demanded decreases.
B) As price increases, quantity demanded increases.
C) As price decreases, quantity demanded decreases.
D) As price decreases, quantity demanded increases.
Q2. What happens to consumer surplus when the price of a good decreases?
A) It increases.
B) It decreases.
C) It remains unchanged.
D) It depends on the elasticity of demand.
Q3. In the short run, a perfectly competitive firm will shut down if price falls below:
A) Total cost.
B) Average total cost.
C) Average variable cost.
D) Marginal cost.
Q4. The price elasticity of demand measures the:
A) Responsiveness of quantity demanded to a change in price.
B) Responsiveness of quantity supplied to a change in price.
C) Percentage change in quantity demanded given a percentage change in income.
D) Percentage change in quantity supplied given a percentage change in price.
Q5. When the price of a good is above the equilibrium price, there is:
A) A shortage.
B) A surplus.
C) Neither a shortage nor a surplus.
D) An increase in demand.
Q6. Which of the following is an example of an externality?
A) A person buying a car.
B) A company hiring new employees.
C) A factory polluting a river.
D) A consumer purchasing a television.
Q7. The price elasticity of supply measures the:
A) Responsiveness of quantity demanded to a change in price.
B) Responsiveness of quantity supplied to a change in price.
C) Percentage change in quantity demanded given a percentage change in income.
D) Percentage change in quantity supplied given a percentage change in price.
Q8. If a good is considered a normal good, an increase in income will result in:
A) An increase in demand.
B) A decrease in demand.
C) An increase in supply.
D) A decrease in supply.
Q9. In a monopolistically competitive market, firms:
A) Have significant barriers to entry.
B) Are price takers.
C) Produce identical products.
D) Have some control over the price of their product.
Q10. The market structure with the highest degree of market power is:
A) Perfect competition.
B) Monopolistic competition.
C) Oligopoly.
D) Monopoly.
Q11. In a perfectly competitive market, a firm maximizes its profit by producing at the quantity where:
A) Price is equal to average total cost.
B) Price is equal to marginal cost.
C) Marginal cost is equal to average total cost.
D) Average variable cost is equal to marginal cost.
Q12. The income elasticity of demand measures the:
A) Responsiveness of quantity demanded to a change in price.
B) Responsiveness of quantity supplied to a change in price.
C) Percentage change in quantity demanded given a percentage change in income.
D) Percentage change in quantity supplied given a percentage change in price.
Q13. Which of the following is a characteristic of a public good?
A) Non-excludability and non-rivalry.
B) Excludability and non-rivalry.
C) Non-excludability and rivalry.
D) Excludability and rivalry.
Q14. The market demand curve is derived by:
A) Summing the individual supply curves in the market.
B) Summing the individual demand curves in the market.
C) Finding the equilibrium price and quantity in the market.
D) Subtracting the individual supply curves from the individual demand curves.
Q15. In the long run, a monopolistically competitive firm will earn:
A) Positive economic profit.
B) Zero economic profit.
C) Negative economic profit.
D) Variable economic profit.
Q16. When the price elasticity of demand is greater than 1, demand is considered:
A) Inelastic.
B) Elastic.
C) Unitary elastic.
D) Perfectly elastic.
Q17. A firm’s marginal cost curve represents:
A) The additional cost of producing one more unit of output.
B) The total cost of producing a given quantity of output.
C) The average cost of producing one unit of output.
D) The average variable cost of producing one more unit of output.
Q18. Which of the following is true in a competitive market in the long run?
A) Firms earn positive economic profit.
B) Firms produce at the minimum of average total cost.
C) Price is equal to marginal cost.
D) Demand is perfectly elastic.
Q19. When a tax is imposed on a good, the burden of the tax falls mainly on the:
A) Consumers of the good.
B) Producers of the good.
C) Government.
D) Elasticity of demand and supply.
Q20. In an oligopoly, firms:
A) Are price takers.
B) Have significant barriers to entry.
C) Produce identical products.
D) Interact strategically with one another.
Microeconomics mcq class 11
1. Which of the following is a characteristic of a perfectly competitive market?
a) Few sellers
b) Differentiated products
c) Barriers to entry
d) Price taker
2. In economics, the term “demand” refers to:
a) The quantity of a good or service that producers are willing to supply at a given price.
b) The quantity of a good or service that consumers are willing to buy at a given price.
c) The amount of money consumers are willing to spend on a particular good or service.
d) The total amount of a good or service available in the market.
3. Which of the following is an example of a fixed cost?
a) The cost of raw materials
b) Rent for a factory
c) Wages for temporary workers
d) The cost of electricity
4. Elasticity of demand measures:
a) The responsiveness of quantity demanded to a change in price.
b) The change in price as a result of a change in quantity demanded.
c) The total revenue earned from selling a product.
d) The proportion of income spent on a good or service.
5. When the price of a good or service increases, what happens to the quantity demanded?
a) It increases
b) It decreases
c) It remains unchanged
d) It depends on the income level of consumers
6. The law of supply states that, other things being equal:
a) As the price of a good increases, the quantity supplied decreases.
b) As the price of a good increases, the quantity supplied increases.
c) As the price of a good decreases, the quantity supplied decreases.
d) There is no relationship between price and quantity supplied.
7. Which of the following is a characteristic of a monopoly market?
a) Many sellers
b) Identical products
c) Easy entry and exit
d) Single seller
8. In economics, the term “opportunity cost” refers to:
a) The explicit cost of producing a good or service.
b) The monetary value of the resources used to produce a good or service.
c) The value of the next best alternative foregone.
d) The total cost of producing a good or service.
9. Which of the following is an example of a market failure?
a) The government provides public goods.
b) The existence of monopolistic competition.
c) The presence of externalities.
d) The law of demand and supply.
10. The demand for a normal good increases when:
a) Income increases
b) Income decreases
c) Prices of substitute goods decrease
d) Prices of complementary goods increase
11. Which of the following is a characteristic of monopolistic competition?
a) Many sellers
b) Homogeneous products
c) Easy entry and exit
d) Price taker
12. When the price of a substitute good decreases, what happens to the demand for the original good?
a) It increases
b) It decreases
c) It remains unchanged
d) It depends on the income level of consumers
13. Which of the following is a characteristic of oligopoly?
a) Many sellers
b) Identical products
c) Easy entry and exit
d) Interdependence among sellers
14. The price elasticity of demand is greater than 1 for:
a) Inelastic demand
b) Unitary elastic demand
c) Elastic demand
d) Perfectly elastic demand
15. Which of the following is an example of a variable cost?
a) Rent for a factory
b) Wages for permanent workers
c) Insurance costs
d) Property taxes
16. Which of the following is a characteristic of a competitive market?
a) High barriers to entry
b) Identical products
c) Limited number of sellers
d) Price setter
17. The concept of “diminishing marginal utility” suggests that:
a) The more of a good or service consumed, the greater the satisfaction derived from each additional unit.
b) The less of a good or service consumed, the greater the satisfaction derived from each additional unit.
c) The more of a good or service consumed, the less the satisfaction derived from each additional unit.
d) The less of a good or service consumed, the less the satisfaction derived from each additional unit.
18. The price elasticity of supply measures:
a) The responsiveness of quantity demanded to a change in price.
b) The responsiveness of quantity supplied to a change in price.
c) The change in price as a result of a change in quantity supplied.
d) The proportion of income spent on a good or service.
19. Which of the following is a determinant of supply?
a) Income of consumers
b) Price of substitutes
c) Tastes and preferences
d) Cost of production
20. The price elasticity of demand is perfectly inelastic when its value is:
a) 0
b) 1
c) Greater than 1
d) Less than 1
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What is the difference between microeconomics and macroeconomics?
Microeconomics focuses on the behavior of individuals and firms, while macroeconomics examines the behavior of the economy as a whole. Microeconomics deals with topics like supply and demand, consumer behavior, and market structures, while macroeconomics analyzes aggregate variables such as GDP, inflation, and unemployment.
How does supply and demand affect prices in a market?
Supply and demand interact to determine the equilibrium price and quantity in a market. If demand increases while supply remains constant, prices tend to rise. Conversely, if supply increases while demand remains constant, prices tend to fall. Changes in both supply and demand can result in shifts of the equilibrium price and quantity.
What is the concept of elasticity and why is it important?
Elasticity measures the responsiveness of quantity demanded or supplied to changes in price or income. Price elasticity of demand indicates how sensitive consumers are to price changes, while price elasticity of supply measures how responsive producers are to price changes. Elasticity is crucial for understanding market dynamics, revenue changes, and the incidence of taxes, among other economic phenomena.
What are the different types of market structures?
There are several market structures in microeconomics, including perfect competition, monopoly, monopolistic competition, and oligopoly. Perfect competition is characterized by many buyers and sellers, homogeneous products, and ease of entry and exit. Monopoly exists when a single firm controls the market. Monopolistic competition involves many firms selling differentiated products, while oligopoly consists of a few dominant firms.
How do externalities affect market outcomes?
Externalities are costs or benefits that affect third parties who are not involved in a transaction. Negative externalities, such as pollution, impose costs on society, while positive externalities, like education, confer benefits. Externalities can lead to market failures, as the private market does not account for these external costs or benefits. Policy interventions, such as taxes or subsidies, are often used to address externalities and achieve a more efficient outcome.