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Unit 1 - Practice Quiz

ECO113

1 Which of the following best defines Business Economics?

A. It is the study of the stock market exclusively.
B. It is the integration of economic theory with business practice for decision making.
C. It is the study of how governments tax businesses.
D. It is a branch of physics applied to money.

2 Business Economics is primarily __ in nature.

A. Macroeconomic
B. Microeconomic
C. Political
D. Historical

3 The concept of Opportunity Cost refers to:

A. The accounting cost of a product.
B. The cost of the next best alternative accepted.
C. The cost of the next best alternative foregone.
D. The total revenue generated minus expenses.

4 According to the Law of Demand, assuming ceteris paribus, there is an __ relationship between price and quantity demanded.

A. Inverse
B. Direct
C. Proportional
D. Unrelated

5 Which of the following assumptions is represented by the phrase "Ceteris Paribus"?

A. All other things being equal/constant
B. Prices fluctuate freely
C. Demand always equals supply
D. Consumers are irrational

6 Which of the following is NOT a determinant of demand?

A. Income of the consumer
B. Price of related goods
C. Cost of production
D. Tastes and preferences

7 If goods X and Y are substitutes, an increase in the price of X will likely lead to:

A. A decrease in the demand for Y
B. An increase in the demand for Y
C. No change in the demand for Y
D. A decrease in the supply of Y

8 For Complementary Goods (e.g., Car and Petrol), the cross-elasticity of demand is:

A. Positive
B. Negative
C. Zero
D. Infinite

9 A Giffen Good is a special type of inferior good where:

A. Demand decreases as price decreases.
B. Demand increases as income increases.
C. Demand is perfectly elastic.
D. The law of supply does not apply.

10 Which of the following best describes the Law of Supply?

A.
B.
C.
D.

11 A Movement along the demand curve is caused by:

A. A change in consumer income.
B. A change in the price of the good itself.
C. A change in the price of substitutes.
D. A change in technology.

12 A Shift in the supply curve to the right indicates:

A. Decrease in supply
B. Contraction of supply
C. Increase in supply
D. Expansion of supply

13 Which factor would cause a Leftward Shift in the supply curve?

A. Improvement in technology
B. Decrease in the price of raw materials
C. Increase in taxes on the product
D. Increase in the number of sellers

14 Market Equilibrium occurs when:

A. Quantity Demanded > Quantity Supplied
B. Quantity Supplied > Quantity Demanded
C. Quantity Demanded = Quantity Supplied
D. Price is zero

15 If the market price is above the equilibrium price, there will be:

A. Excess Demand (Shortage)
B. Excess Supply (Surplus)
C. Equilibrium
D. No trade

16 If demand increases while supply remains constant, the equilibrium price will:

A. Decrease
B. Increase
C. Remain unchanged
D. Become zero

17 The Price Elasticity of Demand (PED) measures:

A. The responsiveness of quantity supplied to a change in price.
B. The responsiveness of quantity demanded to a change in income.
C. The responsiveness of quantity demanded to a change in the good's own price.
D. The slope of the supply curve.

18 The mathematical formula for Price Elasticity of Demand is:

A.
B.
C.
D.

19 If the Price Elasticity of Demand is , demand is considered:

A. Inelastic
B. Unitary Elastic
C. Elastic
D. Perfectly Inelastic

20 A vertical demand curve represents:

A. Perfectly Elastic Demand ()
B. Perfectly Inelastic Demand ()
C. Unitary Elastic Demand ()
D. Relatively Elastic Demand

21 Which of the following goods is likely to have Inelastic Demand?

A. Luxury cars
B. Salt (Necessity)
C. Specific brand of chocolate
D. Vacation packages

22 If a good has many close substitutes, its demand is likely to be:

A. Inelastic
B. Highly Elastic
C. Perfectly Inelastic
D. Unitary Elastic

23 According to the Total Outlay (Revenue) Method, if Price falls and Total Expenditure rises, demand is:

A. Elastic ()
B. Inelastic ()
C. Unitary ()
D. Perfectly Inelastic

24 Which graph represents Unitary Elastic Demand throughout?

A. A vertical line
B. A horizontal line
C. A rectangular hyperbola
D. A straight line with positive slope

25 Veblen goods (Snob appeal goods) are an exception to the law of demand because:

A. They are inferior goods.
B. They are bought for their status symbol at high prices.
C. They have zero opportunity cost.
D. Government regulates their prices.

26 If income increases and the demand for a good decreases, the good is:

A. A Normal Good
B. An Inferior Good
C. A Luxury Good
D. A Necessity

27 The slope of a normal demand curve is:

A. Positive
B. Negative
C. Zero
D. Undefined

28 What happens to the supply curve if there is a technological advancement in production?

A. It shifts to the left.
B. It shifts to the right.
C. It creates a movement upward along the curve.
D. It becomes vertical.

29 A Price Floor set above the equilibrium price results in:

A. A Shortage
B. A Surplus
C. Market Clearing
D. Excess Demand

30 A Price Ceiling set below the equilibrium price results in:

A. A Surplus
B. A Shortage
C. Higher Profits
D. Reduced Demand

31 Income Elasticity of Demand is calculated as:

A. of substitute
B. of consumer
C.
D. without percentages

32 If the Cross Elasticity of Demand between two goods is Positive, the goods are:

A. Complements
B. Substitutes
C. Unrelated
D. Inferior

33 The quantity supplied of a good is a function of:

A.
B.
C.
D.

34 An Expansion of supply is represented diagrammatically by:

A. A rightward shift of the supply curve.
B. A leftward shift of the supply curve.
C. An upward movement along the same supply curve.
D. A downward movement along the same supply curve.

35 In the Short Run, demand is generally:

A. More elastic than in the long run.
B. Less elastic than in the long run.
C. Perfectly elastic.
D. Unrelated to time.

36 Which of the following is a characteristic of Normative Economics?

A. It deals with facts and cause-effect relationships.
B. It describes "what is".
C. It involves value judgments and opinions ("what ought to be").
D. It uses statistical data to prove theories.

37 If a 10% increase in price leads to a 5% decrease in quantity demanded, the demand is:

A. Elastic
B. Inelastic
C. Unitary
D. Perfectly Elastic

38 The Point Method of measuring elasticity is used when:

A. Changes in price and quantity are very large.
B. Changes in price and quantity are infinitesimally small.
C. We want to measure elasticity over a range.
D. Total revenue remains constant.

39 The Arc Elasticity formula uses:

A. The initial price and quantity only.
B. The final price and quantity only.
C. The average of initial and final prices and quantities.
D. The slope of the curve only.

40 A good that absorbs a very small proportion of a consumer's budget (e.g., matchbox) tends to have:

A. Highly Elastic Demand
B. Inelastic Demand
C. Unitary Demand
D. Positive Slope Demand

41 Which economic problem deals with the selection of goods to be produced?

A. How to produce?
B. For whom to produce?
C. What to produce?
D. When to produce?

42 If the demand curve is and , what is the quantity demanded?

A. 100
B. 90
C. 80
D. 20

43 At the equilibrium point, the forces of supply and demand are:

A. Balanced
B. Opposing but unequal
C. Non-existent
D. Controlled by government

44 The Substitution Effect of a price change implies that:

A. Consumers feel richer when prices fall.
B. Consumers buy more of the relatively cheaper good.
C. Consumers buy less of all goods.
D. Supply increases.

45 The Income Effect of a price fall implies that:

A. Real income (purchasing power) of the consumer increases.
B. Nominal income of the consumer increases.
C. The consumer works harder.
D. The good becomes inferior.

46 Which of the following creates a Contraction of Demand?

A. Decrease in price of the good
B. Increase in price of the good
C. Decrease in income
D. Adverse change in taste

47 If both Supply and Demand increase simultaneously by the exact same proportion, the equilibrium price will:

A. Increase
B. Decrease
C. Remain the same
D. Fluctuate wildly

48 Demand for durable goods (like refrigerators) is generally more __ than non-durable goods.

A. Inelastic
B. Elastic
C. Stable
D. Rigid

49 The concept of elasticity is useful for business managers in:

A. Setting prices to maximize revenue.
B. Ignoring competitors.
C. Increasing production costs.
D. Avoiding taxes.

50 A horizontal supply curve represents:

A. Perfectly Inelastic Supply
B. Perfectly Elastic Supply
C. Unitary Supply
D. Zero Supply