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Basic Economics MCQs with Answers

1. The fundamental economic problem faced by all societies is:

a. unemployment

b. inequality

c. poverty

d. scarcity

2. “Capitalism” refers to:

a. the use of markets

b. government ownership of capital goods

c. private ownership of capital goods

d. private ownership of homes cars

3. There are three fundamental questions every society must answer. hich of thefollowin! is"are one of these questions#

a. !hat goods and services are to be produced"

b. #ow are the goods and services to be produced"

c. !ho will get the goods and services that are produced"

d. All of the above

$. %f you were wor&in! full'time now( you could earn )2*(*** per year. %nstead( you are

wor&in! part'time while !oin! to school. %n your current part'time +ob( you earn ),(*** per

year. -t your school( the annual cost of tuition( boo&s( and other fees is )2(***. The

opportunity cost of completin! your education is:a. $%&'''

b. $(&'''

c. $)*&'''

d. $%'&'''

e. $%%&'''

,. The bowed shape of the production possibilities curve illustrates:

a. the law of increasing marginal cost

b. that production is inefficient

c. that production is unattainable

d. the demand is relatively inelastic

. /ou have ta&en this qui0 and received a !rade of 3 out of a possible 1* points . /ou are

allowed to ta&e a second version of this qui0. %f you score 4 or more( you can raise your

score to a 4 C. /ou will need to study for the second version. %n ma&in! a rational decision

as to whether or not to reta&e the test( you should



a. always retake the qui+

b. consider only the marginal benefits from of retaking the qui+ ,four e-tra points

c. consider only the marginal opportunity costs from taking the qui+ ,the time spent

studying and taking the qui+

d. consider both the marginal benefits and the marginal opportunity costs of retaking the qui+

4. The law of demand states that:

a. as the quantity demanded rises& the price rises

b. as the price rises& the quantity demanded rises

c. as the price rises& the quantity demanded falls

d. as supply rises& the demand rises

5. The price elasticity of demand is the:

a. percentage change in quantity demanded divided by the percentage change in price

b. percentage change in price divided by the percentage change in quantity demandedc. dollar change in quantity demanded divided by the dollar change in price

d. percentage change in quantity demanded divided by the percentage change in quantity

supplied

6. Community Colle!es desired to increase revenues. They decided to raise fees paid by

students with 7achelors de!rees to ),* per unit because they believed this would result in

!reater revenues. 7ut in reality( total revenues fell. Therefore( the demand for Community

Colle!e courses by people with 7achelors de!rees must have actually been:

a. relatively inelastic

b. unit elasticc. relatively elastic

d. perfectly elastic

1*. The demand for a product would be more inelastic:

a. the greater is the time under consideration

b. the greater is the number of substitutes available to buyers

c. the less e-pensive is the product in relation to incomes

d. all of the above

-nswers: 8 C 8 C - 8 C - C C

1. %n the case of a!riculture(

a. the demand has shifted to the right more than the supply has shifted to the right

b. the demand has shifted to the right less than the supply has shifted to the right

c. the demand has shifted to the left more than the supply has shifted to the left



d. the demand has shifted to the left less than the supply has shifted to the left

2. The a!ricultural price support pro!ram is an e9ample of

a. a price ceiling

b. a price floor

c. equilibrium pricing

3. %f there is a price floor( there will be

a. shortages

b. surpluses

c. equilibrium

$. %f there is a price ceilin!( there will be

a. shortages

b. surplusesc. equilibrium

,. %f there is a price ceilin!( which of the followin! is ;T li&ely to occur#

a. rationing by first/come& first/served

b. black markets

c. gray markets

d. sellers providing goods for free that were formerly not free

. The !oal of a pure mar&et economy is to best meet the desires of

a. consumers b. companies

c. workers

d. the government

4. %n a pure mar&et economy( which of the followin! is a function of the price#

%. provide information to sellers and buyers ( %%. provide incentives to sellers and buyers

a. 0 only

b. 00 only

c. both 0 and 00

d. neither 0 nor 00

5. %n a mar&et system( sellers act in <<<<<<<<<<<< interest ( but this leads to behaviors in

<<<<<<<<<<<< interest.

a. self1 self

b. self1 society2s



c. society2s1 society2s

d. society2s1 self

6. The law of diminishin! mar!inal returns states that as more of a variable factor is

added to a certain amount of a fi9ed factor( beyond some point:

a. 3otal physical product begins to fall

b. 3he marginal physical product rises

c. 3he marginal physical product falls

d. 3he average physical product falls

1*. hy is the law of diminishin! mar!inal returns true#

a. speciali+ation and division of labor

b. spreading the average fi-ed cost

c. limited capital

d. all factors being variable in the long/run

-nswers: 7 7 7 - 8 - C 7 C C

=conomics >C?s

1. hich of the followin! is a characteristic of pure monopoly#

a. one seller of the product b. low barriers to entryc. close substitute productsd. perfect information2. %n pure monopoly( what is the relation between the price and the

mar!inal revenue#

a. the price is greater than the marginal revenue b. the price is less than the marginal revenuec. there is no relationd. they are equal

3. %n order to ma9imi0e profits( a monopoly company will produce that quantity at which

the:

a. marginal revenue equals average total cost b. price equals marginal revenue

c. marginal revenue equals marginal costd. total revenue equals total cost

$. ?uantity @rice Total Cost

1 )1** ) *

2 6, 13*

3 6* 21*



$ 5, 3**

, 5* $**

This monopolist should produce:

a. )

b. %c. 4d. 5e. (

,. Compared to the case of perfect competition( a monopolist is more li&ely to:

a. charge a higher price b. produce a lower quantity of the productc. make a greater amount of economic profitd. all of the above

. hich of the followin! is necessary for a natural monopoly#a. economies of scale b. a high proportion of the total cost is the cost of capital goodsc. the market is very smalld. all of the above

4. hich of the followin! is true about the way by which A8B= has been re!ulated by the

@DC#

a. 678E has been allowed to earn very high economic profits b. 3he profits of 678E are calculated as a percent of the value of the capital goodsc. !hen the demand for electricity would fall& the price of electricity would also fall

d. All of the above

5. hich of the followin! best defines price discrimination#

a. charging different prices on the basis of race b. charging different prices for goods with different costs of productionc. charging different prices based on cost/of/service differencesd. selling a certain product of given quality and cost per unit at different prices to different buyers

6. %n order to practice price discrimination( which of the followin! is needed#

a. some degree of monopoly power

b. an ability to separate the marketc. an ability to prevent resellingd. all of the above

1*. %n price discrimination( which section of the mar&et is char!ed the hi!her price#

a. the section with the richest people b. the section with the oldest people



c. the section with the most inelastic demandd. the section with the most elastic demand

-nswers: - - C C 8 8 7 8 8 C

1. hich of the followin! concepts represents the e9tra revenue a firm receives from theservices of an additional unit of a factor of production#

a. total revenue b. marginal physical productc. marginal revenus productd. marginal revenue2. or&ers ?uantity @roduced

1 1,

2 25

3 36

$ $5

, ,,

*

This company is a profit'ma9imi0in! firm sellin! in a competitive product mar&et and

hirin! in a competitive labor mar&et. %t uses semi's&illed labor to produce dampers used in

office buildin! ventilation systems. -ssume that the current mar&et price per damper is ),*

and that the prevailin! wee&ly salary per semi's&illed wor&er is ),,*. This company should

employ <<<<<< wor&ers.

a. % b. 4c. 5d. (

e. 9

3. The demand for labor is the same as the

a. marginal revenue product b. marginal physical productc. marginal costd. wage

$. The demand for labor slopes down and to the ri!ht because of

a. the law of demand b. the iron law of wagesc. the law of diminishing marginal returnsd. economies of scale

,. The demand for labor will be more elastic if:

a. there are few substitutes for labor b. there is a short time under considerationc. labor is a large percent of the total cost of production



d. the demand for the product is relatively inelastice. all of the above

. A&ills that can be transferred to other employers are called:

a. general skills

b. specific skillsc. non/pecuniary skillsd. all of the above

4. hich s&ills are most li&ely to be paid for by the employer#

a. 8eneral skills b. 6pecific skillsc. Educational skills

5. %f wor&er - earns more in wa!es than wor&er 7( it could be because:

a. 3he product made by worker A sells for a higher price than that made by worker B

b. !orker A uses more capital per worker than worker Bc. !orker A has more natural ability than worker Bd. All of the above

6. A&ills that embodied in a person are called

a. #uman capital b. Embodied skillsc. :hysical capitald. E-perience skills

1*. “Treatin! an individual as typical of a !roup” is the definition of

a. pure discrimination b. statistical discriminationc. human capitald. specific skills

-nswers: C 7 - C C - 7 8 - 7

1. The lar!est source of ta9 revenue for the federal !overnment is:

a. the personal income ta- b. the social security ta-c. the property ta-

d. the sales ta-2. hen my income was )1**(***( % paid )1*(*** in ta9es. hen my incomebecame )2**(***( % paid )$*(*** in ta9es. >y mar!inal ta9 rate is:

a. )'; b. %';c. 4';d. 5';



3. The ta9 is question E2 is:

a. progressive b. regressivec. proportional

$. hich of the followin! ta9es is re!ressive#a. the federal income ta- b. the state income ta-c. the sales ta-d. the Medicare ta-

,. -ssume that there are two !oods( - and 7. %n 166( -mericans produced 1* units of - at

a price of )1* and 2* units of 7 at a price of )2*. %n 2**2( -mericans produced 2* units of -

at a price of )2* and 3* units of 7 at a price of )3*. The ominal B8@ for 2**2 is:

a. $)'' b. $5''

c. $(''d. $<''e. $)4''

. Dsin! the numbers in question ,( the Feal B8@ for 2**2 is:

a. $5'' b. $('' c. $='' d. $<'' e. $)&4''

4. hich of the followin! statements is"are true#

a. Business 0nvestment 6pending occurs when individuals buy stock in the stock market b. :roductivity is the >nited 6tates grew very slowly between )<*4 and )<<9c. Because of discouraged workers& the official unemployment rate is too high

d. ?@ull employment occurs when there is no frictional unemployment

5. %mmediately after a trou!h( we would e9pect to have a"an

a. peak b. recessionc. recoveryd. another trough

6. Gast wee&( >artha spent one day cleanin! a house. or this( she was paid ),*. The rest of

the wee&( she spent loo&in! for a +ob. >artha would be classified as

a. employed

b. unemployedc. not in the labor force1*. Hohn lost his accountin! +ob when >ont!omery ards closed its

stores in Aan 8ie!o. Ie loo&ed for a similar +ob for ten months before findin! an

accountin! +ob at Aears. 8urin! the month Hohn was unemployed( he was

a. frictionally unemployed b. seasonally unemployedc. cyclically unemployedd. structurally unemployed



-nswers: - C - C = C 7 C - 8

Economics MCQs For PCS Exam

). 3o determine the correct level of 8:& it is necessary to.

a. to add up the values of goods and services during one year. b. add up all savings

c. to count all imports

d. to add up the value of semi finished goods

Answer is A

%. 8: is always

a. less then :

b. 8rater then :

c. Equal to :

d. Any of a& b& cAnswer is B

4. 3he four factor payment areD

a. Money& capital& salaries and income

b. !ages& rent& interest and profits

c. Money& power& preset age& and wealth

d. !ages& interest& salaries& and income.

Answer is B

5. !e measure national income by this method

a. E-penditure method

b. income method

c. product method

d. all of the above

Answer is 7

(. 3ransfer payment means

a. Bank loans

b. 3he payment without work

c. 3e-t payments

d. :ayments made to all factors of production

Answer is B

9. !hich statement is true

a. ational e-penditure ational income

b. ational E-penditure ational income ational production



C. ational E-penditure ational income ational 3a-es

d. ational E-penditure ational income/ 3a-es

Answer is A

*. 0f we compare 87: and 8:& then

a. 8: 87:/ net income from abroad

b. 8: 87: net income from abroad

c. 8: :/ net income from abroad

d. 8: : net income from abroad

Answer is B

=. A 3F set purchased from a retail store is an e-ample of

a. 0ntermediate goods

b. Capital goods

c. 6urplus goods

d. @inal goods

Answer is 7

<. 8: is "

a. 3otal sales in the economy

b. 3otal monetary transactions in an economy

c. 3he market values of all goods and services produced in an economy

d. 3otal spending in an economy

Answer is C

)'. 8: includes

a. A loan from bank

b.A loan from one2s parents

c. 8ifts and donations

d. A broker2s commission

Answer is 7

)). et 0nvestment is

a. 8ross 0nvestment minus household 0nvesment

b. 8ross 0nvestment minus govt.c. 8ross invesment minus capital consumption allowance

d. one of the above

Answer is C

)%. Market value of all final goods and services produced in a country during a year is defination

of



a. 0

b :

c. 8:

d. Consumption

Answer is C

)4. Consumption spending does not include

a. #ousehold2s purchases of food

b. #ousehold2s purchases of a career

c. #ousehold2s payment of rent for an apartment

d. #ousehold2s purchases of stock in any GHI corporation

Answer is 7

)5. !hich of the following would in crease national income

a. 0ncreases in ta-ation

b. 0ncrease in savings

c. 0ncreases in govt spending

d. 7ecreases in consumption spending

Answer is C

)(. !hich of the following is a withdrawal from the circular flow income strem.

a. 0nvestment

b. 6ubsidies

c. 3a-ation

d. consumptionAnswer is C

)9. :akistan2s saving rate is

a. ( ;

b. )5.5 ;

c. %( ;

d. 4( ;

Answer is B

)*. 0n the world population/wise :akistan isa. 4rd

b. 5th

c. 9th

d. =th

Answer is C



)=. :opulation growth rate in :akistan is

a. ) ;

b. ).*4 ;

c. ).< ;

d. 5 ;

Answer is B

)<. According to the Economic 6urvey of :akistan %''=/'< :akistan2s per capita income is >.6.

dollars

a. 4%'

b. )'59

c. <('

d. )(%'

Answer is B

%'. !hich is most likely to cause a more even distribution of income

a. An increases in indirect ta-es

b. An increases in managers2 salaries

c. An increases in progressive ta-ation

d. An increases in an rate of inflation

Answer is C

%). !orking population is JJJJK percent of total population of :akistan

a. %' ; b. 4' ;

c. 5' ;

d. (' ;

Answer is B

%%. :akistan started its first five/year plan in

a. )<5*

b. )<('

c.)<((

d. )<9'Answer is C

%4. Contribution of agriculture in :akistan2s national income is

a. %' ;

b. %5 ;

c. %= ;



d. %9 ;

Answer is B

%5. Contribution of industrial sector in :akistan economy is

a. %= ;

b. )= ;

c. = ;

d. K>ndetermined

Answer is B

%(. 6i+e of :akistan2s =th plan was in JJJJJrupeesD

a. *'' billion

b. )*'' billion

c. %*'' billion

d. 4*'' billion

Answer is B

%9. :akistan producesJJJJJof its oil requirements

a. %( ;

b 4( ;

c. 5( ;

d. (( ;

Answer is A

%*. Economic developmenta. it same is as economic growth

b. Means improvement in lifestyle

c. E-ists when there is equal distribution of income

d. All of the above

Answer is B

%=. Economic development is measured on the basis of

a. 0ncreases in nominal 8:

b. 0ncreases in real 8:

c. 0ncreases in personal incomesd. 0ncreases in government revenue

Answer is B

%<. 3he govt. can control inflation by

a. 0ncreasing demand for goods

b. 0ncreasing supply of goods



c. 0ncreasing money supply

d. 7ecreasing ta-es

Answer is B

4'. 8overnment of :akistan issues currency on the basis ofD

a. Availability of gold in the country

b. Availability of dollar in the country

c. 7emand for money in the country

d. 3a- collection

Answer is C

4). !hich property the paper money dose not possession

a. Acceptability

b. 7ivisibility

c. 7urability

d. :ortability

Answer is C

4%. Felocity of circulation of money means.

a. the number of times a unit of money changes hand2s daily

b. the number of times a unit of money changes hands monthly

c. the number of times a unit of money changes hands annually

d. the number of times a unit of money changes hands value

Answer is C

44. !hen the nation2s money supply is Ls. )%'' billion and 87:is Ls. 5='' billion& velocity of money is

a. '.%(

b. 5

c. '.5

d. 5 billion rupees

Answer is B

45. 0f quantity of money is doubled& than according to

Quantity 3heory& value of money is

a. Lemains constant b. 7ouble

c. #alf

d. one of the above

Answer is C



4(. According to eynes& demand for money is affected by

a. 0ncome

b. Late of interest

c. Niteracy rate

d. A and B of above

Answer is 7

49. !hich people of most likely to again during inflation"

a. 3hose living on pension

b. 3hose living on there saving

c. 3hose who are repaying borrowed money

Answer is C

4*. 0f quantity of money increases )'' ; other things remaining constant& value of changes by

a. 0ncreases by )'' ;

b. 7ecreases by )'' ;

C.7ecreases by %'' ;

d. 7ose not changes

Answer is B

4=. !hen banks prepare their balance sheets& they show the money lent in

a. Niability

b. Assets

c. Both assets and liabilities

d. oneAnswer is B

4<. 3he power of a bank to create credit is affected by

a. 3he cash reserve requirements

b. 3he amount of cash available

c. 3he number of branches of a bank

d. A and B of above

Answer is 7

5'. A bank has Ls. ( million in cash. 3he minimum reserve ratio is %' ;. !hat is ma-imum potential increases in total deposits"

a. '

b. (m

c. )'m

d. %(m

Answer is 7



5). !hen a commercial bank creates credit& its immediate effect is that it raises

A. 3he e-changes rate

B. 3he insert rate

C. 3he money supply

7. 3he real national income

Answer is C

5%. 6tate Bank of :akistan was established in

A. )<5=.

B. )<('

C. )<(%

7.)<(5

Answer is A

54. )'/rupee note is issued by

A. ational Bank

B. 6tate Bank

C. 8ovt of :akistan

7. 8overnor state Bank

Answer is B

55. !hich is the most widely used tool of monetary policy"

A. Clearing house

B. open market operations

C. discount rate7. issuing of notes

Answer is B

5(. when the state bank wants to decrease money supply in the country& it

A. buys govt securities in stock market

B. sells govt. securities

C. lowers discount rate

7.B and C of above.

Answer is B

59. Central bank2s rate of lending to commercial banks is called

A. 0nterest rate

B. discount rate

C. money rate

7. control rate

Answer is B



5*. !hen a central bank wants to increase money supply in circulation it called"

A. :urchase govt. securities

B. Nowers bank rate

C. 7irects banks to advance more loans

7. A and B

Answer is 7

5=. Every country establishes central bank to

A. 0ssue notes

B. 6upervise commercial banks

C. 8ive loans to businessmen

7. A and B

Answer is 7

5<. !hich is a monetary measure to increase employment"

A. 0ncerease in 8ovt . e-penditure

B. Leduce 8ovt. e-penditure

C. 0ncrease in 0nterest rate

7. Leducing interest rate

Answer is 7

('. 3reasury bill is used for

A. 8etting short term loans

B. 8etting long term loans

C. 3reasury bill is not credit instrument7. 3reasury bill is a 8ovt. ta- bill

Answer is A

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