Master Microeconomics 1: Online Quizzes and Practice Questions

Question 1

According to the law of diminishing marginal utility, what happens as the consumption of a particular good or service increases?

Accepted Answer

The marginal utility derived from each additional unit decreases.

Answer

The total utility obtained remains constant.

Answer

The marginal utility remains constant.

Answer

The marginal utility increases.

Question 2

Which statement is NOT a fundamental assumption of the neoclassical theory of consumer choice?

Accepted Answer

Goods are indivisible and must be purchased in whole units.

Answer

Individuals are rational decision-makers.

Answer

Preferences are consistent and transitive.

Answer

Consumers have a limited budget.

Question 3

A consumer's utility function is U(x,y) = min(2x, y). What shape do the indifference curves take?

Accepted Answer

L-shaped

Answer

Linear and parallel

Answer

Convex to the origin

Answer

Upward-sloping

Question 4

Which of the following actions is consistent with the behavior of a rational consumer?

Accepted Answer

Selecting the bundle that maximizes their total satisfaction

Answer

Choosing the bundle with the lowest total cost

Answer

Opting for the bundle with the greatest variety

Answer

Selecting the bundle that is most popular among other consumers

Question 5

In a perfectly competitive market, what factor primarily determines the price of a good?

Accepted Answer

Interaction of supply and demand

Answer

Average cost of production

Answer

Government intervention

Answer

Firm with the lowest cost of production

Question 6

Which factor does NOT directly affect the demand curve for a good?

Accepted Answer

Number of suppliers in the market

Answer

Price of the good

Answer

Consumer income

Answer

Consumer tastes and preferences

Question 7

An individual's income increases, while all other factors remain unchanged. How will this affect the position of the budget constraint relative to the indifference curves?

Accepted Answer

The budget constraint will shift outwards, allowing the individual to reach higher indifference curves.

Answer

The budget constraint will shift inwards, forcing the individual to consume on lower indifference curves.

Answer

The budget constraint will remain unchanged, as income has no impact on consumption possibilities.

Answer

The budget constraint will rotate around a fixed point, maintaining the same tangency point with the indifference curves.

Question 8

Which of the following statements contradicts consumer choice theory?

Accepted Answer

Demand curves for goods typically slope upward, indicating that consumers demand more of a good as its price rises.

Answer

Consumers strive to maximize their satisfaction within their budget constraints.

Answer

Indifference curves represent combinations of goods that yield equal satisfaction.

Answer

Marginal utility measures the additional satisfaction derived from consuming an additional unit of a good.

Question 9

According to consumer theory, what do rational consumers strive to maximize?

Accepted Answer

Total utility

Answer

Marginal utility per dollar

Answer

Budget

Answer

Savings

Question 10

Which fundamental assumption is the cornerstone of utility theory?

Accepted Answer

Consumers can compare and rank different combinations of goods.

Answer

The additional satisfaction gained from a product remains constant.

Answer

Indifference curves are convex relative to the origin.

Answer

Utility can be objectively measured and compared between individuals.

Question 11

Which of the following is NOT a fundamental assumption of utility theory, the theory that individuals make decisions that maximize their satisfaction?

Accepted Answer

Utility can be measured precisely.

Answer

Consumers are rational.

Answer

Preferences are consistent.

Question 12

Which of the following does NOT directly affect the demand for a good or service?

Accepted Answer

Popularity of the good or service on social media

Answer

Price of the good or service

Answer

Income of consumers

Question 13

In consumer choice theory, what do indifference curves depict?

Accepted Answer

Combinations of goods yielding equal satisfaction to the consumer

Answer

Combinations of goods within the consumer's budget

Answer

Combinations of goods minimizing the consumer's spending

Answer

Combinations of goods available in the market

Question 14

How does the availability of substitutes affect the price elasticity of demand for a product?

Accepted Answer

Greater availability of substitutes increases demand elasticity.

Answer

Substitutes have no impact on price elasticity of demand.

Answer

Greater availability of substitutes decreases demand elasticity.

Answer

The relationship between substitutes and demand elasticity is unrelated.

Question 15

Which factor is unlikely to impact a firm's long-run average total cost (LAC)?

Accepted Answer

Government subsidies

Answer

Production scale adjustments

Answer

Technological innovations

Answer

Factor price fluctuations

Question 16

In the context of a production function, what term describes the increase in output resulting from employing an additional unit of a variable input, while holding all other inputs constant?

Accepted Answer

Marginal product

Answer

Average product

Answer

Total product

Answer

Fixed cost

Question 17

In a perfectly competitive market, profit-maximizing firms produce output at the point where:

Accepted Answer

Marginal revenue equals marginal cost (MR = MC).

Answer

Fixed costs are minimized.

Answer

Market share is maximized.

Answer

Total revenue is maximized.

Question 18

In microeconomics, which concept is crucial for understanding consumer behavior and constructing demand curves?

Accepted Answer

Indifference curves

Answer

Production function

Answer

Marginal cost

Answer

Perfect competition

Question 19

In an oligopolistic market, how do firms account for the potential reactions of their competitors when making decisions about pricing and output?

Accepted Answer

Firms carefully consider the potential responses of their competitors when determining their pricing and output strategies, recognizing the interdependent nature of the market.

Answer

Firms assume their competitors will not alter their prices or output in response to their actions.

Answer

Firms engage in aggressive price wars to eliminate competitors from the market.

Answer

Firms collaborate to set prices and output levels, eliminating competition.

Question 20

In a perfectly competitive market where firms are price takers, what will happen to the economic profits of firms in the long run?

Accepted Answer

All firms will earn zero economic profit in the long run.

Answer

All firms will continue to operate indefinitely, even if they incur losses in the short run.

Answer

The most efficient firms will earn positive economic profits in the long run.

Answer

The industry supply curve will shift to the right as new firms enter the market.

Question 21

In a competitive market, a decrease in the price of a product generally results in what?

Accepted Answer

Increased demand

Answer

Decreased demand

Answer

Unpredictable change in demand

Answer

No change in demand

Question 22

What key factor influences an individual's preferences and the shape of their utility function?

Accepted Answer

Personal experiences, beliefs, and cultural background

Answer

Current market prices of goods and services

Answer

Government regulations and advertising campaigns

Question 23

In the short-run production process, if a firm experiences diminishing marginal product with increased output, what happens to its average variable cost (AVC)?

Accepted Answer

AVC increases, as the cost of producing each additional unit rises.

Answer

AVC decreases, as the cost of producing each additional unit falls.

Answer

AVC remains unchanged, as the change in variable cost is balanced by changes in output.

Answer

AVC cannot be determined without more information on the firm's cost structure.

Question 24

In a perfectly competitive market, which condition must be met for firms to earn normal profits (zero economic profits) in the long run?

Accepted Answer

Price equals average total cost

Answer

Price exceeds marginal cost

Answer

Marginal cost exceeds average variable cost

Answer

Total revenue exceeds total cost

Question 25

In a free market economy, what is the main factor that brings supply and demand into balance?

Accepted Answer

The interaction between buyers and sellers

Answer

Government regulations

Answer

Technological advancements

Answer

Fixed prices

Question 26

In a supply and demand model, a price reduction typically results in an increase in the quantity supplied. Which economic factor is the primary driver of this increase?

Accepted Answer

Profit incentive

Answer

Reduced demand

Answer

Increased production costs

Question 27

Which factor does NOT directly influence consumer demand?

Accepted Answer

Market supply

Answer

Price of the good

Answer

Consumer income

Answer

Consumer preferences

Question 28

In a perfectly competitive market, firms compete aggressively on price to gain market share. What is the long-term impact of this price competition on the market's equilibrium price and quantity?

Accepted Answer

Equilibrium price decreases, while quantity increases.

Answer

Equilibrium price and quantity both increase.

Answer

Equilibrium price increases, but quantity remains unchanged.

Question 29

How does a rise in income affect demand for normal and inferior goods? Explain your answer using economic reasoning.

Accepted Answer

Income increases lead to increased demand for normal goods and decreased demand for inferior goods.

Answer

Income increases always reduce demand for both normal and inferior goods.

Answer

Income increases always increase demand for both normal and inferior goods.

Question 30

Which of the following is an inaccurate assumption of a perfectly competitive market?

Accepted Answer

Limited information asymmetry

Answer

Numerous buyers and sellers

Answer

Identical products

Answer

No barriers to entry or exit

Question 31

In a perfectly elastic supply curve, the quantity provided:

Accepted Answer

Can attain any desired value

Answer

Increases infinitely with a rise in price

Answer

Is always equal to zero

Answer

Decreases indefinitely with a rise in price

Question 32

The marginal utility of a good reflects:

Accepted Answer

Incremental satisfaction gained from consuming an additional unit of a good

Answer

Overall satisfaction derived from consuming all units of a good

Answer

Monetary value of the good

Answer

Scarcity of the good

Question 33

Which of the following is not a factor that determines equilibrium price?

Accepted Answer

Population demographics

Answer

Market supply and demand

Answer

Government regulations

Answer

Advancements in technology

Question 34

In a market characterized by price discrimination, the seller:

Accepted Answer

Charges different prices to distinct consumer groups for the same unit

Answer

Offers all units at the same price

Answer

Purchases different units at varying prices

Answer

Produces different units at diverse costs

Question 35

A distinguishing feature of a Giffen good is its:

Accepted Answer

Inverse relationship between price and quantity demanded

Answer

Positive relationship between price and quantity demanded

Answer

Elastic demand curve

Answer

Inferior good classification

Question 36

Which of the following is NOT a defining characteristic of a perfectly competitive market?

Accepted Answer

Barriers to entry

Answer

Many buyers and sellers

Answer

Homogeneous products

Answer

Price takers

Question 37

The demand curve depicts the relationship between:

Accepted Answer

Price and quantity demanded

Answer

Price and quantity supplied

Answer

Quantity demanded and quantity supplied

Question 38

Which of the following would lead to a decrease in consumer demand for a product?

Accepted Answer

Reduced consumer preferences

Answer

Higher consumer income

Answer

Lower price of substitutes

Answer

Higher price of complements

Question 39

The price elasticity of demand measures the:

Accepted Answer

Responsiveness of quantity demanded to price changes

Answer

Responsiveness of quantity supplied to price changes

Answer

Responsiveness of price to quantity demanded changes

Answer

Responsiveness of price to quantity supplied changes

Question 40

Which of the following production functions exhibits constant returns to scale?

Accepted Answer

Q = K^0.5L^0.5

Answer

Q = K^2L^2

Answer

Q = 0.5K^3L^3

Answer

Q = e^(K+L)

Question 41

The short-run total cost curve:

Accepted Answer

Is generally U-shaped

Answer

Is L-shaped

Answer

Is parabolic

Answer

Is S-shaped

Question 42

In a monopoly, the marginal revenue curve:

Accepted Answer

Lies below the demand curve

Answer

Is equal to the demand curve

Answer

Lies above the demand curve

Answer

Is always positive

Question 43

Which of the following is NOT a type of externality?

Accepted Answer

Internalized

Answer

Positive

Answer

Negative

Answer

Pecuniary

Question 44

How does behavioral economics challenge the assumptions of traditional microeconomic models?

Accepted Answer

By incorporating psychological insights into economic models.

Answer

By assuming consumers and firms are perfectly rational and self-interested.

Answer

By focusing solely on market outcomes, ignoring individual behavior.

Question 45

In a perfectly competitive market, what happens to the quantity demanded of a good as its price increases, assuming all other factors remain constant?

Accepted Answer

Quantity demanded decreases.

Answer

Quantity demanded remains unchanged.

Answer

Quantity demanded increases.

Answer

The impact on quantity demanded cannot be determined.

Question 46

In a perfectly competitive market, each firm is a:

Accepted Answer

Price taker

Answer

Price setter

Answer

Monopolist

Answer

Oligarch

Question 47

The equilibrium price in a market is the price at which:

Accepted Answer

Quantity supplied equals quantity demanded

Answer

Quantity supplied exceeds quantity demanded

Answer

Quantity demanded exceeds quantity supplied

Answer

Total revenue is maximised

Question 48

A firm's marginal cost curve is typically:

Accepted Answer

Upward sloping

Answer

Downward sloping

Answer

U-shaped

Answer

L-shaped

Question 49

Which of the following is NOT a factor that can cause market failure?

Accepted Answer

Perfect competition

Answer

Externalities

Answer

Public goods

Answer

Information asymmetry

Question 50

The elasticity of supply measures:

Accepted Answer

The responsiveness of quantity supplied to a change in price

Answer

The responsiveness of quantity demanded to a change in price

Answer

The responsiveness of price to a change in quantity supplied

Answer

The responsiveness of price to a change in quantity demanded

Question 51

A firm in a monopolistic competition market has:

Accepted Answer

Some market power but faces competition

Answer

No market power

Answer

Monopoly power

Answer

Oligopoly power

Question 52

Which of the following is a characteristic of a Pareto efficient allocation?

Accepted Answer

No individual can be made better off without making another individual worse off

Answer

Total output is maximised

Answer

Consumer surplus is maximised

Answer

Producer surplus is maximised

Question 53

The central objective of microeconomics is to:

Accepted Answer

Examine the decision-making behavior of individuals and firms in specific markets

Answer

Analyze the behavior of the national economy as a whole

Answer

Forecast future economic conditions

Answer

Formulate economic policies for governments

Question 54

A market characterized by numerous buyers and sellers, identical products, and ease of entry and exit is known as a:

Accepted Answer

Perfect competition

Answer

Monopoly

Answer

Oligopoly

Answer

Monopolistic competition

Question 55

According to the law of demand:

Accepted Answer

As the price of a good decreases, quantity demanded increases, ceteris paribus

Answer

As the price of a good increases, quantity demanded increases

Answer

Changes in price have no predictable effect on quantity demanded

Answer

Quantity demanded is independent of price

Question 56

Which of the following is NOT a type of market failure?

Accepted Answer

Perfect competition

Answer

Externalities

Answer

Public goods

Answer

Natural monopolies

Question 57

Elasticity measures the:

Accepted Answer

Responsiveness of quantity demanded to a change in any determinant of demand

Answer

Relationship between price and quantity supplied

Answer

Responsiveness of quantity supplied to a change in price

Answer

Difference between price and marginal cost

Question 58

In perfect competition, profit maximization occurs when:

Accepted Answer

Marginal cost equals marginal revenue

Answer

Average total cost is minimized

Answer

Total revenue exceeds total cost

Answer

Price is equal to marginal cost

Question 59

Which fundamental concept in microeconomics involves the additional satisfaction derived from consuming an extra unit of a good or service?

Accepted Answer

Marginal utility

Answer

Aggregate demand

Answer

Market failure

Answer

Economic equilibrium

Question 60

In a perfectly competitive market structure, firms:

Accepted Answer

Are price takers and have no control over market prices

Answer

Have substantial market influence

Answer

Produce unique and differentiated products

Answer

Charge prices above their marginal cost of production

Question 61

The elasticity of demand measures the:

Accepted Answer

Change in quantity demanded in response to a change in price

Answer

Change in quantity demanded in response to a change in income

Answer

Change in quantity demanded in response to a change in consumer tastes and preferences

Answer

Change in quantity demanded in response to technological advancements

Question 62

Behavioral economics challenges the neoclassical assumption of:

Accepted Answer

Perfectly rational economic agents

Answer

Self-interested behavior

Answer

Equilibrium as the norm in markets

Answer

Perfect information among market participants

Question 63

In perfect competition, which assumption holds true?

Accepted Answer

Barriers to market entry and exit are minimal.

Answer

Firms have significant market power.

Answer

Products are highly differentiated.

Answer

Firms can set prices above the market equilibrium.

Question 64

According to the consumer choice theory, consumers aim to maximize their:

Accepted Answer

Utility.

Answer

Expenditure.

Answer

Economic profit.

Answer

Market share.