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Multiple Choice Questions on Microeconomics

MCQ on Microeconomics Objective Question and Answers for competitive exams like SSC, Railways, Banking, NDA, CDS, AFCAT, CAPF, UPSC, and State PSC.

Microeconomics MCQ

Microeconomics MCQ

Answer the following MCQ on Microeconomics:

Which of the following most closely approximates our definition of oligopoly?

(a) The cigarette industry.

(b) The barber shops

(c) The gasoline stations

(d) Wheat farmers


Answer for the Microeconomics MCQ is (a)
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolists). Because there are few sellers, each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence, and are influenced by, the decisions of other firms. Businesses that are part of an oligopoly share some common characteristics: they are less concentrated than in a monopoly, but more concentrated than in a competitive system. This creates a high amount of interdependence which encourages competition in non price related areas, like advertising and packaging. The tobacco companies, soft drink companies, and air lines are examples of an imperfect oligopoly.

The theory of distribution relates to which of the following?

(a) The distribution of assets

(b) The distribution of income

(c) The distribution of factor payments

(d) Equality in the distribution of income and wealth


Answer for the Microeconomics MCQ is (d)
In economics, distribution theory is the systematic attempt to account for the sharing of the national income among the owners of the factors of production—land, labour, and capital. Traditionally, economists have studied how the costs of these factors and the size of their return—rent, wages, and profits—are fixed. The theory of distribution involves three distinguishable sets of questions. First, how is the national income distributed among persons? Second, what determines the prices of the factors of production? Third, how is the national income distributed proportionally among the factors of production?

Movement along the same demand curve is known as

(a) Extension and Contraction of Demand

(b) Increase and Decrease of Demand

(c) Contraction of supply

(d) Increase in supply


Answer for the Microeconomics MCQ is (b)
A shift in the demand curve is caused by a factor affecting demand other than a change in price. If any of these factors change then the amount consumers wish to purchase changes whatever the price. The shift in the demand curve is referred to as an increase or decrease in demand. A movement along the demand curve occurs when there is a change in price. This may occur because of a change in supply conditions. The factors affecting demand are assumed to be held constant. A change in price leads to a move. A shift in the demand curve is caused by a factor affecting demand other than a change in price. If any of these factors change then the amount consumers wish to purchase changes whatever the price. The shift in the demand curve is referred to as an increase or decrease in demand. A movement along the demand curve occurs when there is a change in price. This may occur because of a change in supply conditions. The factors affecting demand are assumed to be held constant. A change in price leads to a move.

The income elasticity of demand being greater than one, the commodity must be

(a) a necessity

(b) a luxury

(c) an inferior good

(d) None of these


Answer for the Microeconomics MCQ is (b)
In economics, income elasticity of demand measures the responsiveness of the demand for a good to a change in the income of the people demanding the good, ceteris paribus. It is calculated as the ratio of the percentage change in demand to the percentage change in income. For example, if, in response to a 10% increase in income, the demand for a good increased by 20%, the income elasticity of demand would be 20%/10% = 2. A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.

The measure of a worker’s real wage is

(a) The change in his productivity over a given time

(b) His earnings after deduction at source

(c) His daily earnings

(d) The purchasing power of his earnings


Answer for the Microeconomics MCQ is (d)
A real wage rate is a nominal wage rate divided by the price of a good and is a transparent measure of how much of the good an hour of work buys. It provides an important indicator of the living standards of workers, and also of the productivity of workers. While differences in earnings or incomes may be misleading indicators of worker welfare, real wage rates are comparable across time and location. Nominal wages are not sufficient to tell us if workers gain since, even if wages rise, the price of one of the goods also rises when moving to free trade. The real wage represents the purchasing power of wages— that is, the quantity of goods the wages will purchase.

Economic rent refers to

(a) Payment made for the use of labor

(b) Payment made for the use of capital

(c) Payment made for the use of the organization

(d) Payment made for the use of land


Answer for the Microeconomics MCQ is (d)
Rent refers to that part of payment by a tenant which is made only for the use of land, i.e., free gift of nature. The payment made by an agriculturist tenant to the landlord is not necessarily equals to the economic rent. A part of this payment may consist of interest on capital invested in the land by the landlord in the form of buildings, fences, tube wells, etc. The term ’economic rent’ refers to that part of payment which is made for the use of land only, and the total payment made by a tenant to the landlord is called ‘contract rent’. Economic rent is also called surplus because it emerges without any effort on the part of a landlord.

The Marginal Utility Curve slopes downward from left to right indicating

(a) A direct relationship between marginal utility and the stock of commodity

(b) A constant relationship between marginal utility and the stock of commodity

(c) A proportionate relationship between marginal utility and the stock of commodity

(d) An inverse relationship between marginal utility and the stock of commodity


Answer for the Microeconomics MCQ is (d)
The Marginal Utility Curve is a curve illustrating the relation between the marginal utility obtained from consuming an additional unit of good and the quantity of the good consumed. The negative slope of the marginal utility curve reflects the law of diminishing marginal utility. The marginal utility curve also can be used to derive the demand curve. Marginal Utility is the utility derived from the last unit of a commodity purchased. One of the earliest explanations of the inverse relationship between price and quantity demanded is the law of diminishing marginal utility. This law suggests that as more of a product is consumed the marginal (additional) benefit to the consumer falls; hence consumers are prepared to pay less.

Equilibrium is a condition that can

(a) never change

(b) change only if some outside factor changes

(c) change only if some internal factor changes

(d) change only if government policies change


Answer for the Microeconomics MCQ is (c)
In economics, economic equilibrium is a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. For example, in the standard text-book model of perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied is equal. Equilibrium can change if there is a change in demand or supply conditions which are internal factor changes. In equilibrium, the price is endogenous because producers change their price

Transfer earning or alternative cost is otherwise known as

(a) Variable cost

(b) Implicit cost

(c) Explicit cost

(d) Opportunity cost (economic cost)


Answer for the Microeconomics MCQ is (d)
Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone, or group, who has picked among several mutually exclusive choices. When economists refer to the “opportunity cost” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, we spend time and money going to a movie, we cannot spend that time at home reading a book, and we cannot spend the money on something else. If our next-best alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure we forgo by not reading the book.