Economics Questions (MCQs) for Competitive Examinations

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An isoquant is a firm’s counterpart of the consumer’s indifference curve. An isoquant is a curve that shows all the combinations of inputs that yield the same level of output. ‘Iso’ means equal and ‘quant’ means quantity.

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Gresham’s law states that bad money drives out good. For example, if there are two forms of commodity money in circulation, which are accepted by law as having similar face value, the more valuable commodity will gradually disappear from circulation.
The law holds that bad money drives out good money in circulation. Bad money is then the currency that is considered to have equal or less value compared to its face value. Meanwhile, good money is currency that is believed to have greater value or more potential for greater value than its face value. Logically, consumers will choose to use bad money over good money because good money has the potential to be worth more than its face value.

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Micro Economics is that branch of economics which deals with the behaviour of individual economic units of the economy such as individual households, individual firms or industry. It revolves around the determination of prices of individual commodities and factors.

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The demand curve is the graphical representation of the relationship between the quantity demanded of a commodity and its prices. It is downward sloping from left to right because of the law of diminishing marginal utility, income effect, and price effect.

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An inferior good is an economic term that describes a good whose demand drops when people’s incomes rise. This occurs when a good has more costly substitutes that see an increase in demand as incomes and the economy improve. Inferior goods are the opposite of normal goods where in normal goods, a consumer would demand less of if they had a higher level of real income. 

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Marginal Utility is the additional utility derived from the consumption of an additional unit of commodity. It quantifies the added satisfaction that a consumer garners from consuming additional units of goods or services. 

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Total Utility is the sum of all the utilities derived from the consumption of all the units of a particular commodity. So when the marginal utility decreases total utility increases and is maximum when marginal utility is 0.

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Opportunity costs represent the benefits an individual, investor or business misses out on when choosing one alternative over another. It is the “cost” incurred by not enjoying the benefit associated with the best alternative choice.

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Fixed cost is the Expenditure on hiring/purchasing of fixed inputs which is land. Whereas labor is variable cost as the input is variable with time. The other costs available are Explicit and Implicit cost.

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Tax is the cost imposed by the government over goods and services in an economy to generate revenue for the government for its expenditure. This includes capital as well as revenue expenditure.