Economics Questions (MCQs) for Competitive Examinations
Economics Multiple Choice Questions (MCQs) for General Studies and GK preparation of SSC, NDA, CDS, UPSC, UPPSC and State PSC Examinations.
21. What does low price elasticity of demand for a commodity show?
[A] Necessity of good
[B] It is luxury good
[C] It doesn’t have importance
[D] It is inferior good
Show Answer
Correct Answer: A [Necessity of good]
Notes:
Price Elasticity is the measure of the degree of responsiveness of demand for a commodity to change in its price. That means the low price elasticity is demand doesn’t change with the price. These are the necessary goods.
22. What is perfectly inelastic demand?
[A] Demand doesn’t change with price
[B] Demand change with price
[C] Change in demand is equal to price
[D] Demand changes infinitely
Show Answer
Correct Answer: A [Demand doesn’t change with price]
Notes:
Price elasticity = 0, Perfectly inelastic- Demand does not change as price changes
Price elasticity < 1, less than unit elastic- % change in demand is less than that in price
Price elasticity = 1, Unit elastic – % change in demand is equal that in price
Price elasticity > 1, more than unit elastic – % change in demand is more than that in price
Price elasticity = ∞ , Perfectly elastic Demand changes infinitely
23. Which among the following is an example of substitute goods?
[A] Milk and Coffee
[B] Pen and Paper
[C] Ink and Pen
[D] Tea and coffee
Show Answer
Correct Answer: D [Tea and coffee]
Notes:
Substitution Effect refers to the substitution of the commodity in place of other commodity when it becomes relatively cheaper. In the given question if the price of Coffee increases, Tea can replace it.
24. Which of the below is a correct statement regarding inferior goods?
[A] Demand of a good decreases with increases in peoples income
[B] Demand of a good increases with increases in peoples income
[C] Demand of a good decreases with decrease in peoples income
[D] Demand of a good increase with decrease in peoples income
Show Answer
Correct Answer: A [Demand of a good decreases with increases in peoples income]
Notes:
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.
25. Which among the following is related to utility?
[A] Satisfaction and wants
[B] Necessity and wants
[C] Usefulness and need
[D] None of the above
Show Answer
Correct Answer: A [Satisfaction and wants]
Notes:
Utility is the power or capacity of a commodity to satisfy a human want or it is the amount of satisfaction that a person gets from the consumption of a good or service. It is measured in utils.
26. In which of the following circumstances, the total utility is maximum?
[A] Marginal utility is maximum
[B] Marginal utility = 0
[C] Marginal utility is minimum
[D] None of the above
Show Answer
Correct Answer: B [Marginal utility = 0]
Notes:
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.
27. Which of the following is the basis for the law of demand?
[A] Diminishing marginal utility
[B] Demand and supply relation
[C] Total utility of a good
[D] None of the above
Show Answer
Correct Answer: A [Diminishing marginal utility]
Notes:
The law of demand which states that quantity demanded of a commodity is inversely related to the price of a commodity the demand of good and the price. This is based on the law of diminishing marginal utility. This is because Marginal utility affects the demand of the good.
28. What restricts the spending of a person in a market?
[A] Marginal Utility
[B] Purchasing power
[C] Demand curve
[D] None of the above
Show Answer
Correct Answer: B [Purchasing power]
Notes:
The purchasing power of a person is the reason for his limited spending. He has budget constraints which inturn affect the market as a whole. The budget constraint is used to analyze consumers choices.
29. What is a free good?
[A] Opportunity cost = Maximum
[B] Opportunity cost = Negative
[C] Opportunity cost = 0
[D] A good which is freely available to all
Show Answer
Correct Answer: C [Opportunity cost = 0]
Notes:
A free good is a good with zero opportunity cost. This means it can be consumed in as much quantity as needed without reducing its availability to others. For Example sunlight, ideas, music or air.
30. When does a monopoly by a specific business entity occur in the market?
[A] When there are numerous buyers and sellers
[B] When homogeneous products flood the market
[C] When a distinctive product is exclusively sold by a single seller
[D] When firms are merely price takers
Show Answer
Correct Answer: C [When a distinctive product is exclusively sold by a single seller]
Notes:
A monopoly exists when a specific entity is the sole supplier of a particular commodity. This market condition can only occur if the unique product is exclusively sold by one seller, eliminating any form of direct competition. It is regulated by certain laws to prevent marketplace inefficiency. However, a monopoly can lead to innovation as other companies strive to create an alternative or similar product.
