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BUSINESS ECONOMICS MULTIPLE CHOICE QUESTIONS

1. In a circular flow model, the real variables are:

A. Money that flows from the factor market to the households

B. Only the goods and services that are produced
C. Only the resources that are used
D. Both the goods and services produced and the resources that are used

Answer: Both the goods and services produced and the resources that are used

2. Income and revenues that are created within a country

A. Always will remain within that country

B. Can leave that country only when goods are exported
C. Can leave that country when goods are imported
D. Can leave that country when capital flows into that country's financial
institutions

Answer: Can leave that country when goods are imported

3. The three fundamental questions of economic organization are:

A. When, for whom, and how

B. How, what, and for whom
C. Who, how, and when
D. What, who, and why

Answer: How, what, and for whom

4. The ultimate effect of the "invisible hand" of Adam Smith is that, in a

competitive economy, everyone:

A. Benefits if each acts in his/her own interest

B. Will increase their profits in a free market
C. Should act to maximize economic growth
D. Should act to promote the public interest

Answer: Benefits if each acts in his/her own interest

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5. Invisible hand theory is give by

A. Lord Robbins
B. Samuelson
C. Marshal
D. Adam Smith

Answer: Adam Smith

6. In a free-market economy the allocation of resources is determined by:

A. Votes taken by consumers

B. A central planning authority
C. By consumer preferences
D. The level of profits of firms

Answer: By consumer preferences

7. A rational person does not act unless

A. The action is ethical

B. The action produces marginal costs that exceed marginal benefits
C. The action produces marginal benefits that exceed marginal costs
D. The action makes money for the person

Answer: The action produces marginal benefits that exceed marginal costs

8. Economics is a science which deals with human wants and their satisfaction

A. Social
B. Political
C. Natural
D. Physical

Answer: Social

9. .....defined economics as a study of mankind in the ordinary business of life

A. Adam smith
B. Lionel Robbins
C. Samuelson

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D. Alfred Marshall

Answer: Alfred Marshall

10. The growth of an economy is indicated by an

A. Increase in savings
B. Increase in investment
C. Increase in general prices
D. Increase in national income

Answer: Increase in national income

11. .......equals revenue minus all explicit costs

A. Accounting profit
B. Economic profit
C. C Normal profit
D. Loss

Answer: Accounting profit

12. Unemployment means that

A. People are not willing to work at the going wage rate.

B. At the going wage rate, there are people who want to work but cannot find
work.
C. There are some people who will not work at the going wage rate.
D. There is excess demand in the labour market.

Answer: At the going wage rate, there are people who want to work but cannot
find work.

13. Opportunity cost is

A. A cost that cannot be avoided, regardless of what is done in the future.

B. The cost incurred in the past before we make a decision about what to do
in the future.
C. That which we forgo, or give up, when we make a choice or a decision.
D. The additional benefit of buying an additional unit of a product.

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Answer: That which we forgo, or give up, when we make a choice or a decision.

14. The circular flow of goods and incomes shows the relationship between:

A. Firms and households.

B. Goods and services.
C. Income and money.
D. Wages and salaries.

Answer: Firms and households.

15. In a planned or command economy, all the economic decisions are taken by
the:

A. Workers
B. Consumers
C. Voters
D. Government

Answer: Government

16. Which one of the following is a normative statement?

A. The richest 10 per cent of the population has had a bigger percentage
increase in incomes over the past 10 years than the poorest 10 per cent
B. The proportion of people's income paid in taxes is higher under this
government than under the previous one
C. Inflation is rising
D. Inequality in the distribution of income is a more serious problem than
unemployment

Answer: Inequality in the distribution of income is a more serious problem than

unemployment.

17. Goods and Services bought and sold in:

A. Product Market
B. Factor Market
C. Capital Market
D. Money Market

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Answer: Product Market

18. In Product market money flows from:

A. Individual to firm
B. Business to households
C. Government to household
D. All of these

Answer: Individual to firm

19. In factor market suppliers are:

A. Firms
B. Households
C. Government
D. None of these

Answer: Households.

20. In economic activities which are the outflows:

A. Government spending
B. Investment
C. Savings
D. None of these

Answer: Savings

21. Implicit Cost added in:

A. Accounting cost
B. Economic cost
C. Both
D. None

Answer: Economic cost.

22. Business Economics is also known as………….

A. Managerial Economics
B. Economics for Executives

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C. Economic analysis for business decisions
D. All the above

Answer: All the above

23. State whether economics is

A. A positive science only

B. Neither a positive nor normative science
C. A science but not art
D. A science or an art depending on who uses economics and for what
purpose

Answer: A science or an art depending on who uses economics and for what
purpose.

24. The branch of economics wherein mathematics and statistics are used to
measure and analyze economics activities is called……………..

A. Applied Economics
B. Econometrics
C. Statistics
D. Macro Economics

Answer: Econometrics

25. The opportunity cost of a machine which can produce only one product is:

A. Low
B. Infinite
C. High
D. Medium

Answer: Low

26. Economic profit is

A. The difference between total revenue and explicit costs.

B. The difference between total revenue and the opportunity cost of all the
resources used in production.
C. The difference between accounting profit and explicit costs.

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D. The difference between accounting profit and the opportunity cost of the
market-supplied resources used by the firm.

Answer: The difference between total revenue and the opportunity cost of all the
resources used in production.

27. The father of New Economics is

A. Marshall
B. J.M.Keynes
C. Adam Smith
D. Karl Marx

Answer: J.M.Keynes

28. The problem refers to the possibility that owners and their managers may
have different objectives.

A. Company- Manager problem

B. Principal-Agent Problem
C. Firm-Employee problem
D. Problem of different objectives

Answer: Principal-Agent Problem

29. Economic profit refers to.....minus all relevant costs , both explicit and
implicit.

A. Profit
B. Cost
C. Expenses
D. Revenues

Answer: Revenues

30. The interaction of individuals and firms in a market can be described as

a......of money, goods and services and resources through product and factor
markets.

A. Constant flow
B. Stable flow

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C. Circular Flow
D. Regular Flow

Answer: Circular Flow

31. An economic system:

A. Requires a grouping of private markets linked to one another.

B. Is a particular set of institutional arrangements and a coordinating
mechanism used to respond to the economizing problem.
C. Requires some sort of centralized authority (such as government) to
coordinate economic activity.
D. Is a plan or scheme that allows a firm to make money at some other firm's
expense

Answer: Is a particular set of institutional arrangements and a coordinating

mechanism used to respond to the economizing problem.

32. The regulatory mechanism of the market system is:

A. Self-interest
B. Private property.
C. Competition.
D. Specialization.

Answer: Competition.

33. That profit functions as an incentive for innovation was among the key
contributions to economic thought by:

A. Karl Marx.
B. Frank Knight.
C. Joseph Schumpeter.
D. Adam Smith.

Answer: Joseph Schumpeter.

34. Economic profit is…

A. Negative when costs exceed revenues.

B. Generally larger than accounting profit.

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C. a theoretical measure of a firm's performance and has little value in real
world decision- making.
D. Calculated by subtracting implicit costs of using owner-supplied resources
from the firm's total revenue.

Answer: Negative when costs exceed revenues.

35. The value of an entrepreneur‟s resources that she uses in production are
known as:

A. Implicit costs.
B. Explicit costs
C. Sunk costs.
D. Operating expenses.

Answer: Implicit costs.

36. The total demand for goods and services in an economy is known as:

A. Aggregate demand.
B. Gross national product.
C. Economy-wide demand.
D. National demand.

Answer: Aggregate demand.

37. An input should be so allocated that the value added by the last unit is the
same in all cases.

A. Opportunity Cost Principle

B. Equi-Marginal Principle
C. Discounting Principle
D. Incremental Principle

Answer: Equi-Marginal Principle

38. One of the most important differences between a firm‟s economic profit
and its accounting profit is the subtraction of:

A. Costs incurred when hiring labor, capital, and land.

B. Any explicit cost incurred by the entrepreneur for risk taking.

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C. Any implicit charges for the use of capital owned by the entrepreneur.
D. Any taxes on the retained earnings of the firm.

Answer: Any implicit charges for the use of capital owned by the entrepreneur.

39. The two basic markets shown by the simple circular flow model are:

A. Capital goods and consumer goods.

B. Free and controlled.
C. Product and resource.
D. Household and business.

Answer: Product and resource.

40. Which of the following is a limitation of the simple circular flow model?

A. Product markets are ignored.

B. Resource markets are ignored.
C. The determination of product and resource prices is not explained.
D. Households are included, but not businesses.

Answer: The determination of product and resource prices is not explained.

41. In economics the central problem is:

A. Money
B. Scarcity
C. Allocation
D. Production

Answer: Scarcity

42. Macroeconomics deals with:

A. The behavior of firms.

B. Economic aggregates.
C. The behavior of the electronics industry.
D. The activities of individual units.

Answer: Economic aggregates.

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43. It refers to the determination of prices of all goods and services by the
interaction of the forces of demand and supply without any external
interference.

A. Product-mechanism
B. Price-mechanism
C. Cost-mechanism
D. None of these

Answer: Price-mechanism

44. The principle reasons behind economic problems

A. Unlimited wants
B. Limited or Scarce of Means
C. Alternatives Uses of Means
D. All of the above

Answer: All of the above

45. Factors of production are

A. Inputs into the production process.

B. Weather, social, and political conditions that affect production.
C. The physical relationships between economic inputs and outputs.
D. The mathematical calculations firms make to determine production.

Answer: Inputs into the production process.

46. In the circular-flow diagram,

A. Firms are sellers in the resource market and the product market.
B. Households are sellers in the resource market.
C. Firms are buyers in the product market.
D. Spending on goods and services flow from firms to households.

Answer: Households are sellers in the resource market.

47. In the circular-flow diagram,

A. Spending on goods and services flow from firms to households.

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B. Goods and services flow from households to firms.
C. Factors of production flow from firms to households.
D. Income from factors of production flows from firms to households.

Answer: Spending on goods and services flow from firms to households.

48. Microeconomics is not concerned with the behavior of:

A. Consumers
B. Aggregate demand
C. Firms
D. Industries

Answer: Aggregate demand.

49. According to Simon if a firm fails to achieve its target initially results in:

A. A sense of helplessness
B. Search behavior
C. Sacking of its managerial team
D. Appropriate revision of the aspiration level

Answer: Search behavior

50. It is the study of economic actions of individuals and small groups of

individuals:

A. Micro – Economics
B. Macro Economics
C. Managerial Economics
D. Business Economics

Answer: Micro – Economics

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