MBA 703 Economics Test Questions and
Answers
Module 1: Foundations of Economics for Managers
1. What is the primary focus of microeconomics?
a) The behavior of the entire economy
b) The overall price level and inflation
c) The decision-making of individual households and firms ✓
d) National income and output
2. The fundamental economic problem that all societies face is:
a) A lack of economic growth
b) Corruption and poor governance
c) Unlimited wants and limited resources ✓
d) High unemployment rates
3. The concept of 'opportunity cost' is best defined as:
a) The financial cost of a decision
b) The value of the next best alternative forgone ✓
c) The total cost of production
d) The cost of sunk investments
4. A point inside the Production Possibilities Frontier (PPF) indicates:
a) Efficient use of all resources
b) An unattainable combination of goods
c) Economic growth
d) Inefficiency or unemployed resources ✓
5. An outward shift of the Production Possibilities Frontier (PPF) is caused by:
a) A decrease in unemployment
b) An improvement in technology ✓
c) A shift from producing capital to consumer goods
d) Inflation
6. The law of demand states that, other things being equal:
a) As price increases, quantity demanded increases
b) As price decreases, quantity demanded decreases
,c) As price increases, quantity demanded decreases ✓
d) Price and quantity demanded are unrelated
7. A movement along a demand curve is caused by a change in:
a) Consumer income
b) The price of the good itself ✓
c) Consumer tastes and preferences
d) The price of a related good
8. Which of the following would cause the demand curve for cars to shift to the right?
a) An increase in the price of cars
b) A decrease in consumer income
c) An increase in the price of gasoline
d) An increase in consumer confidence ✓
9. If two goods are substitutes, an increase in the price of one will:
a) Decrease the demand for the other
b) Increase the demand for the other ✓
c) Decrease the quantity demanded of the other
d) Have no effect on the demand for the other
10. The law of supply states that, other things being equal:
a) As price increases, quantity supplied increases ✓
b) As price increases, quantity supplied decreases
c) As price decreases, quantity supplied increases
d) Price and quantity supplied are unrelated
11. A shift of the supply curve to the left could be caused by:
a) An improvement in production technology
b) A decrease in the price of raw materials
c) An increase in the wages paid to workers ✓
d) An increase in the number of firms in the market
12. Market equilibrium occurs where:
a) Quantity demanded is zero
b) Quantity supplied is zero
c) The demand curve intersects the price axis
d) Quantity demanded equals quantity supplied ✓
13. If there is a surplus in a market, we would expect:
a) Price to rise
, b) Price to fall ✓
c) Demand to increase
d) Supply to decrease
14. The price elasticity of demand measures the responsiveness of:
a) Quantity demanded to a change in price ✓
b) Price to a change in demand
c) Quantity supplied to a change in price
d) Demand to a change in income
15. If demand is price elastic, a decrease in price will lead to:
a) A decrease in total revenue
b) An increase in total revenue ✓
c) No change in total revenue
d) A proportional decrease in quantity demanded
16. A product with an elasticity of demand of 0.8 is considered:
a) Elastic
b) Unit elastic
c) Inelastic ✓
d) Perfectly elastic
17. Which of the following goods would most likely have the most inelastic demand?
a) Restaurant meals
b) A specific brand of coffee
c) Insulin for a diabetic ✓
d) Foreign holidays
18. Cross-price elasticity of demand measures the responsiveness of the quantity demanded
of one good to a change in:
a) Its own price
b) Consumer income
c) The price of another good ✓
d) Advertising
19. If the cross-price elasticity between two goods is positive, the goods are:
a) Complements
b) Substitutes ✓
c) Inferior goods
d) Unrelated goods
Answers
Module 1: Foundations of Economics for Managers
1. What is the primary focus of microeconomics?
a) The behavior of the entire economy
b) The overall price level and inflation
c) The decision-making of individual households and firms ✓
d) National income and output
2. The fundamental economic problem that all societies face is:
a) A lack of economic growth
b) Corruption and poor governance
c) Unlimited wants and limited resources ✓
d) High unemployment rates
3. The concept of 'opportunity cost' is best defined as:
a) The financial cost of a decision
b) The value of the next best alternative forgone ✓
c) The total cost of production
d) The cost of sunk investments
4. A point inside the Production Possibilities Frontier (PPF) indicates:
a) Efficient use of all resources
b) An unattainable combination of goods
c) Economic growth
d) Inefficiency or unemployed resources ✓
5. An outward shift of the Production Possibilities Frontier (PPF) is caused by:
a) A decrease in unemployment
b) An improvement in technology ✓
c) A shift from producing capital to consumer goods
d) Inflation
6. The law of demand states that, other things being equal:
a) As price increases, quantity demanded increases
b) As price decreases, quantity demanded decreases
,c) As price increases, quantity demanded decreases ✓
d) Price and quantity demanded are unrelated
7. A movement along a demand curve is caused by a change in:
a) Consumer income
b) The price of the good itself ✓
c) Consumer tastes and preferences
d) The price of a related good
8. Which of the following would cause the demand curve for cars to shift to the right?
a) An increase in the price of cars
b) A decrease in consumer income
c) An increase in the price of gasoline
d) An increase in consumer confidence ✓
9. If two goods are substitutes, an increase in the price of one will:
a) Decrease the demand for the other
b) Increase the demand for the other ✓
c) Decrease the quantity demanded of the other
d) Have no effect on the demand for the other
10. The law of supply states that, other things being equal:
a) As price increases, quantity supplied increases ✓
b) As price increases, quantity supplied decreases
c) As price decreases, quantity supplied increases
d) Price and quantity supplied are unrelated
11. A shift of the supply curve to the left could be caused by:
a) An improvement in production technology
b) A decrease in the price of raw materials
c) An increase in the wages paid to workers ✓
d) An increase in the number of firms in the market
12. Market equilibrium occurs where:
a) Quantity demanded is zero
b) Quantity supplied is zero
c) The demand curve intersects the price axis
d) Quantity demanded equals quantity supplied ✓
13. If there is a surplus in a market, we would expect:
a) Price to rise
, b) Price to fall ✓
c) Demand to increase
d) Supply to decrease
14. The price elasticity of demand measures the responsiveness of:
a) Quantity demanded to a change in price ✓
b) Price to a change in demand
c) Quantity supplied to a change in price
d) Demand to a change in income
15. If demand is price elastic, a decrease in price will lead to:
a) A decrease in total revenue
b) An increase in total revenue ✓
c) No change in total revenue
d) A proportional decrease in quantity demanded
16. A product with an elasticity of demand of 0.8 is considered:
a) Elastic
b) Unit elastic
c) Inelastic ✓
d) Perfectly elastic
17. Which of the following goods would most likely have the most inelastic demand?
a) Restaurant meals
b) A specific brand of coffee
c) Insulin for a diabetic ✓
d) Foreign holidays
18. Cross-price elasticity of demand measures the responsiveness of the quantity demanded
of one good to a change in:
a) Its own price
b) Consumer income
c) The price of another good ✓
d) Advertising
19. If the cross-price elasticity between two goods is positive, the goods are:
a) Complements
b) Substitutes ✓
c) Inferior goods
d) Unrelated goods
