Economics study desk with supply and demand curves, scales and an economic city model

Focused topic practice

market MCQs

Practise focused market questions with marked answers for exam preparation and subject revision.

market Mcqs
1. If the price of a good is above the equilibrium price ?
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A. there is a surplus and the price will fall

B. there is a surplus and the price will rise

C. there is a shortage and the price will rise

D. The quantity demanded is equal to the quantity supplied and the price remains unchanged

E. there is a shortage and the price will fall

2. If the price of good is equal to the equilibrium price ?
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A. there is a surplus and the price will fall

B. there is a shortage and the price will rise

C. there is surplus and the price will rise

D. the quantity demanded is equal to the quantity supplied supplied and the price remains unchanged

E. there is a shortage and the price will fall

3. A shift is demand will have more effect on price than quantity if ?
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A. The price elasticity of supply is price elastic

B. The price elasticity of supply is infinity

C. The price elasticity of supply is perfectly elastic

D. The price elasticity of supply is price inelastic

4. The effect of a tax to offset a negative externality will be to ____ price and ______ quantity?
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A. reduce, increase

B. increase, reduce

C. increase, increase

D. reduce , reduce

5. Externalities arise because there is a divergence between ________ and _________?
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A. social costs, social benefit

B. private costs, private benefits

C. insiders, outsiders

D. private costs, social costs or benefits
6. A decrease in demand for a products should ?
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A. Decrease equilibrium price and quantity

B. Decrease equilibrium price and increase quantity

C. Increase equilibrium price and decrease quantity

D. increase equilibrium price and quantity

7. A perfectly competitive market has ?
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A. many buyers and sellers.

B. only one seller.

C. firms that set their own prices

D. at least a few sellers.

8. Economists use the term Black Markets for situations where ?
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A. goods are sold at prices above legal or official price.

B. transactions are not recorded in the GDP figures.

C. illegal substances are sold

D. buyers and/or sellers are not paying taxes as they should

9. All of the following are types of imperfect competition except ?
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A. monopoly

B. unfair competition

C. oligopoly

D. monopolistic competition

10. Tax shifting ?
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A. occurs when house hold can alter their behaviour and do something to avoid paying a tax.

B. occurs when taxes cause prices to increase but wages to fall

C. is the ultimate distribution of a taxs burden

D. is the way in which a tax is structured

11. Market failure may arise because of ?
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A. all of the above

B. taxation

C. imperfect competition

D. externalities

E. missing markets

12. A dominant strategy is ?
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A. a players best strategy whatever the strategies adopted by rivals

B. a players best strategy when moving first

C. a losing strategy

D. a wining strategy

13. The allocation of resources is not efficient if ?
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A. unemployment is high

B. the marginal cost of production does not equal societys marginal benefit

C. the distribution is inequitable

D. economic growth is low

14. Which of the following statements is true about the impact of an increase in the price of lettuce ?
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A. Both the demand for lettuce will decrease and the equilibrium price and quantity of salad dressing will fall

B. The supply of lettuce will decrease

C. The demand for lettuce will decrease

D. The equilibrium price and quantity of salad dressing will fall

E. The equilibrium price and quantity of salad dressing will rise

15. A reduction in the costs of production will ?
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A. Shift the supply curve

B. Lead to an extension of supply

C. Lead to a movement along the supply curve

D. Shift the demand curve

16. In the insurance industry, high-risk customers are more likely to take out insurance. This is an example of ?
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A. risk aversion

B. adverse selection

C. moral hazard

D. a poor gamble

17. Nationalisation occurs when ?
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A. The government taxes a product to a raise its price

B. The government sells assets to a the private sector

C. The government bans a product

D. The government takes control of an industry
18. An increase in demand for a product should ?
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A. Increase equilibrium price and decrease quantity

B. Increase equilibrium price and quantity

C. Decrease equilibrium price and quantity

D. Decrease equilibrium price and increase quantity
19. Which best describes consumer surplus ?
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A. The profits made by a firm

B. The cost of providing a unit

C. The price consumers are willing to pray for a unit

D. The difference the price a consumer pays for an item and the price he/she is willing to pay
20. Where a tax can be shifted, the incidence depends on ?
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A. how many producers there are:

B. who is legally obliged to pay the tax

C. Whether there is perfect or imperfect information

D. elasticities of demand and supply
21. Income inequality can be high in the free market and should be reduced This is an example of What ?
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A. Normative economic statement

B. Formative economic statement

C. Positive economic statement

D. Judicial economic statement

22. If the price in a market is fixed by the government above equilibrium ?
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A. There is excess demand

B. There is excess supply

C. There is excess equilibrium

D. There is equilibrium

23. If a maximum price is set below equilibrium there will be ?
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A. Excess demand

B. A price increase

C. Excess supply

D. A price fall

24. The law of supply states that an increase in the price of a good ?
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A. increases the quantity supplied of that good

B. decrease the quantity demanded for that good

C. decrease the demand for the good

D. increase the supply of that good

E. none of these answers

25. If the price of good is below the equilibrium price ?
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A. the quantity demanded is equal to the quantity supplied and the price remains unchanged

B. there is a surplus and the price will rise

C. there is a shortage and the price will rise

D. there is a shortage and the price will fall

26. Suppose both buyers and sellers of wheat expect the price of wheat to rise in the near future. What would we expect to happen to the equilibrium price and quantity in the market for wheat today ?
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A. The impact on both price and quantity is ambiguous

B. Price will decrease, quantity is ambiguous.

C. price will increase, quantity will decrease

D. price will increase, quantity is ambiguous.

E. Price will increase, quantity will increase

27. An allocation is Pareto-efficient if no reallocation of resources would make some people _______ without making others ________?
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A. equal, unequal

B. better off; worse off

C. worse off; worse off

D. better off; better off

28. A positive externality occurs when ?
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A. The social marginal benefits are higher than the private marginal benefits

B. A product is not provided in the free market

C. The social marginal costs are higher than the private marginals costs

D. The social marginal cost equal the social marginal benefit

29. A competitive equilibrium is Pareto-efficient because ?
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A. All of the above

B. Producers are price takers

C. marginal costs and benefits are equal

D. prices equal marginal cost and benefit

E. consumers and producers face the same prices

30. Which of the following is the government most likely to subsidies ?
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A. Monopolies

B. Negative externalies

C. Oligopolies

D. Positive externalities
31. The price mechanism does not act as a ?
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A. Signal

B. Indicator of income

C. Rationing device

D. Incentive

32. VAT is a good example of which kind of tax ?
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A. Exercise duty

B. Direct

C. Specific

D. Ad valorem
33. The law of demand states that an increases in the price of a good ?
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A. increases the quantity supplied of that good

B. decreases the quantity supplied of that good

C. None of these answers

D. decreases the quantity demanded for that good

34. A shift in demand will have more effect on price than quantity if ?
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A. The price elasticity of supply is + 3

B. The price elasticity of supply is + 0.2

C. The price elasticity of supply is + 2

D. The price elasticity of supply is infinity

35. Except for taxes to offset ______ taxes are ______?
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A. externalities , distortionary

B. poor health, unnecessary

C. imperfect competition popular

D. inequality , a first best option

36. A shift in supply will have a bigger effect on price than output if demand is ?
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A. income elastic

B. income inelastic

C. Price elastic

D. Price inelastic
37. Suppose consumer tastes shift toward the consumption of apples Which of the following statements is an accurate description of the impact of this event on the market for apples ?
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A. There is an increase in the demand and supply of apples.

B. There is an increase in the demand for apples and an increase in the quantity supplied of apples.

C. There is an increase in the demand for apples and a decrease in the supply of apples

D. There is an increase in the quantity demanded of apples and in the supply for apples

E. There is a decrease in the quantity demanded of apples and an increase in the supply for apples

38. A movement along the demand curve may be caused by ?
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A. A change in advertising

B. A change in income

C. A change in the number of buyers

D. A shift in supply
39. We cannot say whether one allocation of resources is better than another allocation because ?
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A. some people cant count

B. some people may not be permanent resident

C. We cant make value judgments to compare different peoples welfare

D. not all economic activity is legal

40. Tax incidence is the ?
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A. measure of the impact the tax has on employment and output

B. behaviour of shifting the tax to another party.

C. ultimate distribution of a taxs burden.

D. structure of the tax

41. The reason for the kinked demand curve is that ?
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A. The oligopolist believes that competitors will match price increase but not output increase

B. The oligopolist believes that competitors will match price increase but not output reduction

C. The oligopolist believers that competitors will match price cuts but not price rises

D. The oligopolist believes that competitors will match output increase but not output reduction

42. Comparing a monopoly and competitive firm, the monopolist will ?
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A. produce less at a lower price

B. produce more at a lower price

C. produce less at a lower price

D. produce less at a higher price
43. A subsidy paid to producers ?
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A. shifts the demand curve

B. Shifts the supply curve

C. Leads to a contractions in supply

D. Leads to an extension of supply

44. The price mechanism cannot ?
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A. Act as a signal

B. Act as a incentive

C. Act as a rationing device

D. shift the demand curve
45. Suppose there is an increase in the both the supply and demand for personal computers Further, suppose the supply of personal computer increase more than demand for personal computers In the market for personal computers i the market for personal computers, we would expect ?
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A. the equilibrium quantity to rise and the equilibrium price to rise

B. the equilibrium quantity to rise and the change in the equilibrium price to be ambiguous

C. the equilibrium quantity to rise and the equilibrium price to remain constant

D. the equilibrium quantity to rise and the equilibrium price to fall

E. the change in the equilibrium quantity to be ambiguous and the equilibrium price to fall.

46. It is necessary to ration a good whenever ?
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A. supply exceeds demand

B. a surplus exists

C. demand exceeds supply

D. there is perfectly inelastic demand for the good

47. Assuming a downward sloping demand curve and upward sloping supply curve a higher equilibrium price may be caused by ?
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A. An increase in supply

B. An increase in demand

C. improvements in production technology

D. An fall in demand

48. The government is considering placing a tax on cigarettes to raise revenue to finance health-care benefits. The demand for cigarettes is price inelastic Which of the following statements is True ?
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A. This tax will not raise much revenue either in the short term or the long term since demand is price inelastic

B. The tax on cigarettes may not raise as much revenue as anticipated in the years to com because the demand for cigarettes is likely to become more elastic over time.

C. This a very good way to raise revenue both in the short term and in the long term, because there are no substitutes for cigarettes.

D. No tax revenue can be raised in this way because sellers of cigarette will just lower their price by the amount of the tax and therefore, the price of cigarettes to consumers will not change

49. A monopoly may be self-perpetuating because profits may be used for ?
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A. cost-saving

B. research

C. technical advance

D. all of the above
50. Which of the following shifts the demand for watches to the right ?
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A. a decrease in the wage of workers employed to manufacture watches

B. none of these answers

C. an increase in the price of watches

D. a decrease in consumer incomes if watches are a normal good

E. a decrease in the price of watch batteries if watch batteries and watches are complements