I.

Basic Concepts of Economics

What is the basic economic problem?

A) Unemployment

B) Inflation

C) Scarcity

D) Income inequality

Define scarcity.

A) Unlimited resources for limited wants

B) Limited resources for unlimited wants

C) High demand for all goods

D) No resources for production

What does opportunity cost refer to?

A) The cost of producing additional units of a good

B) The best alternative forgone when making a decision

C) The total monetary cost of all choices

D) The cost incurred when there is inflation

Differentiate between a need and a want.

A) Needs are finite, wants are infinite

B) Needs are necessary for survival, while wants are additional desires

C) Needs are optional, wants are essential

D) There is no difference

What is the role of incentives in economics?

A) To make goods more affordable

B) To encourage certain behaviors and discourage others

C) To increase the supply of goods

D) To reduce competition in markets

What does the term “marginal utility” mean?

A) The total satisfaction from all goods consumed

B) The additional satisfaction from consuming one more unit of a good

C) The cost of producing one additional good

D) The price of a good in the market

Define production possibility frontier (PPF).

A) A curve that shows all possible combinations of goods that can be

produced given resources

B) The line showing the highest demand for a product

C) A graph showing the effect of inflation on production

D) A curve showing income distribution

Explain the law of increasing opportunity costs.

A) As production of one good increases, the opportunity cost of producing

additional units decreases

B) As production of one good increases, the opportunity cost of producing

additional units increases

C) There is no relationship between production and opportunity costs

D) Opportunity costs do not change with production levels

What is the difference between a market economy and a command

economy?
A) In a market economy, the government controls all production, while in a
command economy, markets are free

B) In a market economy, resources are allocated through central planning,

while in a command economy, resources are allocated through market forces

C) A market economy relies on consumer decisions, while in a command

economy, resources are allocated by central government decisions

D) There is no difference

What is meant by “marginal cost”?

A) The cost of producing one more unit of a good

B) The total cost of producing all goods

C) The cost of raw materials for production

D) The cost per unit of labor

II. Supply and Demand

What does the law of demand state?

A) As price increases, quantity demanded increases

B) As price increases, quantity demanded decreases

C) As price decreases, supply increases

D) There is no relationship between price and demand

How does a decrease in the price of a good affect its quantity demanded?

A) Increases quantity demanded

B) Decreases quantity demanded

C) No effect on quantity demanded

D) Reduces supply

What is the law of supply?

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 demand increases, supply increases

D) Price has no effect on supply

What factors can shift the demand curve to the right?

A) A decrease in consumer income

B) An increase in the price of related goods

C) An increase in consumer preferences for the good

D) A decrease in the price of the good

What is meant by a movement along the demand curve?

A) A change in the price of the good

B) A shift in consumer preferences

C) A change in consumer income

D) A change in the price of related goods

Explain what happens when both supply and demand increase

simultaneously.

A) The price decreases, but quantity remains unchanged

B) The price increases, but quantity remains unchanged

C) The equilibrium price rises, but quantity could either rise or fall

D) The equilibrium price falls, but quantity increases

What is a price ceiling?

A) The highest price a seller can charge

B) A price set above the market equilibrium to prevent inflation

C) A legal maximum price set by the government

D) The lowest price at which goods can be sold

What is a price floor?

A) A maximum price set by the government

B) A minimum price set by the government

C) A price where demand equals supply

D) A price where market forces cannot intervene

Define equilibrium price.

A) The price where demand exceeds supply

B) The price where supply equals demand

C) The price with the highest total revenue

D) The price set by the government

What happens when the market price is above the equilibrium price?

A) There is a shortage

B) There is a surplus

C) The market is in equilibrium

D) The demand curve shifts left

What does a shortage occur in a market?

A) When supply exceeds demand

B) When quantity supplied equals quantity demanded

C) When demand exceeds supply

D) When price is too high

How does a change in consumer income affect demand?

A) It has no effect on demand

B) An increase in income increases demand for normal goods and decreases

demand for inferior goods

C) An increase in income decreases demand for normal goods and increases

demand for inferior goods

D) A decrease in income increases demand for all goods

What is cross-price elasticity of demand?

A) The sensitivity of quantity demanded to changes in consumer income

B) The sensitivity of quantity demanded of one good to a change in the price

of another good

C) The responsiveness of supply to changes in price

D) The total quantity demanded at different price points

If the price of coffee rises, and the demand for tea increases, what type of
goods are coffee and tea?

A) Complementary goods

B) Substitute goods

C) Normal goods

D) Inferior goods

What does it mean if a good is a “normal good”?

A) Demand increases when income decreases

B) Demand decreases when income increases

C) Demand increases when income increases

D) There is no relationship between income and demand

What does it mean if a good is an “inferior good”?

A) Demand increases when income increases

B) Demand decreases when income decreases

C) Demand increases when income decreases

D) Demand is unrelated to income

How would an increase in the price of a substitute affect demand for a good?

A) It decreases demand for the good

B) It increases demand for the good

C) There is no effect on demand

D) The supply curve shifts right

What is the effect of a technological advancement on supply?

A) It shifts the supply curve to the left

B) It shifts the supply curve to the right

C) It has no effect on supply

D) It causes the price to decrease

What factors shift the supply curve to the left?

A) An increase in technology

B) A decrease in input prices

C) An increase in taxes or regulations

D) An increase in consumer demand

What is the difference between a change in quantity demanded and a

change in demand?

A) A change in quantity demanded occurs due to a change in income

B) A change in demand refers to a shift in the demand curve, while a change

in quantity demanded refers to a movement along the curve

C) A change in quantity demanded refers to a shift in the demand curve

D) There is no difference

III. Elasticity

What is price elasticity of demand (PED)?

A) The responsiveness of quantity demanded to changes in income

B) The responsiveness of quantity demanded to changes in the price of the

good

C) The change in quantity supplied in response to price changes

D) The amount of a good consumers are willing to buy at a given price

Define inelastic demand.

A) Demand where quantity demanded changes significantly with price

changes

B) Demand where quantity demanded does not change significantly with

price changes

C) Demand for luxury goods

D) Demand for inferior goods

What is perfectly elastic demand? Provide an example.

A) Demand where price and quantity demanded are fixed

B) Demand where the quantity demanded can change infinitely with any
price change
C) Demand where price does not affect the quantity demanded

D) Demand for goods with no substitutes

What does it mean if demand is unitary elastic?

A) The percentage change in quantity demanded equals the percentage

change in price

B) The quantity demanded does not change with price changes

C) The demand curve is horizontal

D) Demand is perfectly inelastic

If the price elasticity of demand is greater than 1, what type of demand is it?

A) Perfectly inelastic

B) Elastic

C) Unitary elastic

D) Inelastic

How is the price elasticity of demand calculated?

A) % change in quantity demanded / % change in price

B) % change in price / % change in quantity supplied

C) % change in income / % change in price

D) Total revenue / price

What is the formula for income elasticity of demand (YED)?

A) % change in price / % change in income

B) % change in income / % change in quantity demanded

C) % change in quantity supplied / % change in income

D) % change in price / % change in quantity demanded

What is the relationship between price elasticity of demand and total

revenue?

A) When demand is elastic, price increases lead to lower total revenue

B) When demand is elastic, price increases lead to higher total revenue

C) Total revenue remains unaffected by price changes

D) Total revenue is maximized when price is inelastic

How does elasticity influence the ability of firms to raise prices without losing
sales?

A) Inelastic demand allows firms to raise prices without significant loss of

sales

B) Elastic demand allows firms to raise prices without loss of sales

C) Firms can never raise prices if demand is elastic

D) Elasticity has no effect on pricing decisions

What is cross-price elasticity of demand and how is it calculated?

A) The responsiveness of supply to changes in the price of related goods

B) The responsiveness of quantity demanded of one good to price changes of

a related good

C) The responsiveness of quantity supplied to price changes of related goods

D) The effect of income changes on the price of goods

IV. Tax Incidence

What is tax incidence?

A) The price paid by consumers in the market

B) The amount of tax levied by the government

C) The division of the tax burden between buyers and sellers

D) The effect of a tax on the quantity supplied

How is the burden of a tax shared between buyers and sellers?

A) It is always split equally

B) The buyer always bears the full burden

C) The seller always bears the full burden

D) It depends on the elasticity of supply and demand

What is the difference between statutory incidence and economic incidence

of a tax?
A) Statutory incidence refers to who is legally responsible for paying the tax,
while economic incidence refers to who actually bears the burden

B) Statutory incidence is based on the income of the taxpayer

C) Economic incidence is a measure of the tax rate, while statutory incidence

determines the total tax revenue

D) There is no difference

If demand is inelastic and supply is elastic, who bears the greater burden of
the tax?

A) Buyers

B) Sellers

C) Both equally

D) Neither, the tax is avoided

What happens to the price consumers pay when a tax is imposed on a good
with perfectly inelastic demand?

A) Price remains unchanged

B) Price increases by the full amount of the tax

C) Price decreases

D) The tax burden is shared equally

How does the imposition of a tax on a good affect its equilibrium price and
quantity?

A) It reduces both equilibrium price and quantity

B) It increases equilibrium price and decreases quantity

C) It decreases equilibrium price and increases quantity

D) It has no effect on the equilibrium price or quantity

If supply is perfectly inelastic, who bears the entire burden of a tax?

A) The consumer

B) The seller

C) The government
D) Both the seller and the consumer equally

If demand is perfectly elastic, who bears the entire burden of a tax?

A) The consumer

B) The seller

C) Both the seller and the consumer equally

D) The government

What does it mean if the tax incidence is shared equally between consumers
and producers?

A) Demand is perfectly inelastic

B) Supply is perfectly elastic

C) Both supply and demand are equally elastic

D) The market is in equilibrium

How does the elasticity of supply and demand affect the burden of a tax?

A) The more inelastic the demand, the greater the burden on consumers

B) The more elastic the supply, the greater the burden on producers

C) The more elastic the demand, the more the government bears the burden

D) Tax burden does not depend on elasticity

V. Advanced Applications (Questions 71-90)

What is the effect of a subsidy on supply and demand curves?

A) Shifts the supply curve to the left

B) Shifts the demand curve to the right

C) Shifts the supply curve to the right

D) Shifts the demand curve to the left

How does a government price support affect the agricultural market?

A) Increases the quantity of goods supplied

B) Decreases the price of agricultural goods

C) Leads to a surplus of goods

D) Decreases the supply of agricultural goods

What happens when the government sets a price ceiling below the market
equilibrium?

A) Creates a surplus

B) Leads to a shortage

C) Shifts the supply curve right

D) Shifts the demand curve left

How does the imposition of a quota on imports affect supply and prices?

A) Increases supply and reduces price

B) Reduces supply and increases price

C) Increases both supply and price

D) Does not affect supply or price

What is the effect of a tariff on domestic prices and quantity?

A) Increases domestic prices and decreases quantity imported

B) Decreases domestic prices and increases quantity imported

C) Does not affect domestic prices or quantity

D) Increases quantity imported and decreases domestic prices

VI. Mixed and Application-Based Questions (Questions 91-100)

If the price of a good increases and the total revenue increases, what can be
inferred about the price elasticity of demand for that good?

A) Demand is inelastic

B) Demand is elastic

C) Demand is unitary elastic

D) Total revenue remains unchanged

What is the effect of a price ceiling on the quality of a good or service?

A) It improves the quality

B) It decreases the quality

C) It has no effect on quality

D) It makes the good unavailable

How does an increase in income affect the demand for normal and inferior
goods differently?

A) Increases demand for both normal and inferior goods

B) Increases demand for normal goods and decreases demand for inferior
goods

C) Decreases demand for normal goods and increases demand for inferior
goods

D) There is no effect

Explain how price elasticity can be used by firms to determine optimal

pricing strategies.

A) By adjusting prices to where demand is unitary elastic

B) By increasing prices where demand is inelastic

C) By reducing prices where demand is elastic

D) All of the above

How do shifts in the demand curve and supply curve impact equilibrium price
and quantity?

A) The shift in demand determines the equilibrium price, while the shift in
supply determines the quantity

B) Shifts in both demand and supply affect both equilibrium price and
quantity

C) A shift in supply always increases quantity and decreases price

D) A shift in demand does not affect equilibrium quantity

If the government imposes a tax on a good and the price paid by consumers
does not change, what can you conclude about the price elasticity of supply
and demand?

A) Both supply and demand are perfectly elastic

B) Supply is perfectly inelastic and demand is elastic

C) Demand is perfectly inelastic and supply is elastic

D) Both supply and demand are perfectly inelastic

How do externalities influence market outcomes and government

intervention?

A) They lead to efficient market outcomes and reduced need for government
intervention

B) They lead to market failure and may require government intervention

C) They always result in higher prices

D) Externalities do not affect market outcomes

If the government imposes a tax on producers, how does the incidence of the
tax depend on the relative elasticities of supply and demand?

A) Tax incidence depends on the relative elasticity of supply only

B) Tax incidence depends on the relative elasticity of demand only

C) Tax incidence is split equally regardless of elasticities

D) Tax incidence depends on both the relative elasticities of supply and

demand

What happens when a government imposes a quota on imports of a good?

A) The domestic price decreases and supply increases

B) The domestic price increases and supply decreases

C) The domestic price decreases and supply remains the same

D) There is no effect on price or supply

How does the imposition of a tax on a good with perfectly elastic demand
affect the market?

A) It results in no change in quantity but the price increases

B) It results in a reduction in quantity demanded without affecting price

C) It shifts the supply curve to the left

D) It shifts the demand curve to the left

Here are the answers to the questions you listed:

I. Basic Concepts of Economics

1. C) Scarcity

2. B) Limited resources for unlimited wants

3. B) The best alternative forgone when making a decision

4. B) Needs are necessary for survival, while wants are additional

desires

5. B) To encourage certain behaviors and discourage others

6. B) The additional satisfaction from consuming one more unit of a

good

7. A) A curve that shows all possible combinations of goods that can

be produced given resources
 8. B) As production of one good increases, the opportunity cost of
producing additional units increases

9. C) A market economy relies on consumer decisions, while in a

command economy, resources are allocated by central
government decisions

10. A) The cost of producing one more unit of a good

II. Supply and Demand

1. B) As price increases, quantity demanded decreases

2. A) Increases quantity demanded

3. B) As the price of a good increases, the quantity supplied

increases

4. C) An increase in consumer preferences for the good

5. A) A change in the price of the good

6. C) The equilibrium price rises, but quantity could either rise or

fall

7. C) A legal maximum price set by the government

8. B) A minimum price set by the government

9. B) The price where supply equals demand

10. B) There is a surplus

11. C) When demand exceeds supply

12. B) An increase in income increases demand for normal

goods and decreases demand for inferior goods

13. B) The sensitivity of quantity demanded of one good to a

change in the price of another good
 14. B) Substitute goods

15. C) Demand increases when income increases

16. C) Demand increases when income decreases

17. B) It increases demand for the good

18. B) It shifts the supply curve to the right

19. C) An increase in taxes or regulations

20. B) A change in demand refers to a shift in the demand

curve, while a change in quantity demanded refers to a
movement along the curve

III. Elasticity
1. B) The responsiveness of quantity demanded to changes in the
price of the good

2. B) Demand where quantity demanded does not change

significantly with price changes

3. B) Demand where the quantity demanded can change infinitely

with any price change

4. A) The percentage change in quantity demanded equals the

percentage change in price

5. B) Elastic

6. A) % change in quantity demanded / % change in price

7. B) % change in income / % change in quantity demanded

8. A) When demand is elastic, price increases lead to lower total

revenue
 9. A) Inelastic demand allows firms to raise prices without
significant loss of sales

10. B) The responsiveness of quantity demanded of one good

to price changes of a related good

IV. Tax Incidence

1. C) The division of the tax burden between buyers and sellers

2. D) It depends on the elasticity of supply and demand

3. A) Statutory incidence refers to who is legally responsible for

paying the tax, while economic incidence refers to who actually
bears the burden

4. A) Buyers

5. B) Price increases by the full amount of the tax

 6. B) It increases equilibrium price and decreases quantity

7. A) The consumer

8. B) The seller

9. C) Both supply and demand are equally elastic

10. A) The more inelastic the demand, the greater the burden
on consumers

V. Advanced Applications (Questions 71-90)

1. C) Shifts the supply curve to the right

2. C) Leads to a surplus of goods

 3. B) Leads to a shortage

4. B) Reduces supply and increases price

5. A) Increases domestic prices and decreases quantity imported

VI. Mixed and Application-Based Questions (Questions 91-100)

1. A) Demand is inelastic

2. B) It decreases the quality

3. B) Increases demand for normal goods and decreases demand

for inferior goods

4. D) All of the above

5. B) Shifts in both demand and supply affect both equilibrium price

and quantity
6. C) Demand is perfectly inelastic and supply is elastic

7. B) They lead to market failure and may require government

intervention

8. D) Tax incidence depends on both the relative elasticities of

supply and demand

9. B) The domestic price increases and supply decreases

10. B) It results in a reduction in quantity demanded without

affecting price