Economics Multiple Choice Questions

Which statement about the concept of utility is correct?

• Diminishing marginal utility means that producers become less efficient the more they

  produce.

• If marginal utility is above average utility, average utility must be rising.

• The equi-marginal principle says that a consumer gets equal total satisfaction from each item

  purchased.

• Total utility continually rises as the level of consumption rises.

The diagram shows indifference curves I1, I2 and a budget line T.

Which combination of X and Y gives the consumer maximum satisfaction?

• 100 X and 0Y

• 70 X and 15Y

• 50 X and 25Y

• 20 X and 40Y

A medical team provides vaccinations for children to prevent an outbreak of an infectious disease.

Why would this be described as a positive externality?

• Additional benefit might be gained as the disease no longer spreads

• Any kind of medical help will improve the condition of the children.

• No action would be taken unless the medical team intervened.

• The social benefits of vaccination are less than the social costs

The diagram shows the cost and revenue curves for a firm.

Which output level will enable a firm to achieve its objective of maximising its revenue?

• A

• B

• C

• D

Oligopoly firms seek to maximise profits.

How will this affect the pricing behaviour of oligopoly firms involved in a non-collusive market?

• A price is fixed for the product that never changes throughout its life cycle.

• Firms will agree on the level of advertising costs for a new product.

• If one firm raises its price, other firms will maintain their original price to increase their market

  share.

• If one firm lowers its price, other firms will increase their price.

An economic activity definitely creates a net social benefit when the value of social benefit minus

• private benefit is zero.

• private benefit is negative.

• social cost is positive.

• social cost is negative.

Which assumption is essential for a market to be contestable?

• The market is supplied by a large number of firms.

• Firms are free to enter and leave the market.

• Firms cannot earn abnormal profits in the short run.

• Firms produce differentiated goods.

A firm that raises capital through a share issue has to satisfy both shareholders’ expectations and management aims. The management aims to produce at a non-profit maximum output.

Which strategy would necessarily prevent this aim?

• fixing output where MC = MR in the long run

• operating price discrimination to maximise revenue

• rewarding shareholders more than returns to innovation

• separating ownership and control of the firm

A major UK chemical firm was bought by its rival, a Dutch chemical firm.

What definitely occurred when the Dutch firm bought the UK firm?

• a partnership

• economies of scale

• horizontal integration

• increased profits

Which statement is correct for a firm classed as a natural monopoly?

• It will always operate in the public sector and earn normal profits.

• It will have high barriers to entry and be the dominant producer

• It will easily benefit from external economies of scale.

• It will have higher average costs than a monopolistically competitive firm.