50 questions. Try each one, then open the answer to check yourself and read the explanation.
If the price elasticity of demand for a good is 0.43, an increase in the price of the good will result in
Answer: B (a net gain)
An elasticity of 0.43 is less than 1, so demand is inelastic. Raising the price cuts quantity by a smaller proportion, so total revenue rises: a net gain.
In a free market economy, the price system allocates resources
Answer: C (to their best alternative uses)
In a free market, prices guide resources to the uses where they earn the most, that is, their best alternative uses.
At consumer equilibrium, the slope of the indifference curve is
Answer: B (equal to the slope of the budget constraint line)
The consumer is in equilibrium where the budget line just touches (is tangent to) the highest indifference curve, so their slopes are equal.
For a supply curve, an increase in the price of a commodity will result in
Answer: D (an increase in the quantity supplied)
A change in the good's own price causes a movement along the supply curve, so a higher price raises the quantity supplied (not supply itself).
A normal good with close substitutes is likely to have its price elasticity of demand
Answer: D (greater than unity)
When close substitutes exist, buyers switch easily if the price rises, so demand is elastic: elasticity greater than 1.
Economics is regarded as a social science because it
Answer: C (adopts the scientific method in the study of human behaviour)
Economics studies how people behave when making choices, and it does so using scientific methods of observation, hypothesis and testing.
The diagram above shows the total utility curve. At the point M, marginal utility
Answer: D (is zero)
Use the diagram to answer the question. Point M is the top of the total utility curve, where total utility stops rising, so marginal utility there is zero.
A change in supply is best described as a
Answer: B (shift of the supply curve to the left or to the right)
A change in supply is caused by factors other than the good's own price and shows as a shift of the whole curve, either left (decrease) or right (increase).
When a generalization is made based on observed facts, it is known as
Answer: B (inductive reasoning)
Inductive reasoning moves from observed facts to a general rule; deductive reasoning starts from a general assumption and reasons down to particular cases.
A major problem facing all economies is how to
Answer: D (allocate scarce resources)
Every economy has limited resources and unlimited wants, so all must decide how to allocate scarce resources.
A vertical supply curve indicates that
Answer: B (the same fixed quantity will be supplied no matter the price)
A vertical supply curve means perfectly inelastic supply: the same quantity is supplied at every price.
In a demand curve, the relationship between price and quantity is
Answer: D (inverse)
By the law of demand, as price rises quantity demanded falls, so the relationship is inverse.
If the arithmetic mean of 1, 2, 5, 6, x, 16 and 18 is 8.0, find the value of x.
Answer: D (8.0)
Seven numbers with mean 8 add up to 56. The known numbers add up to 48, so x = 56 − 48 = 8.
The fixing of the price of an item above or below the equilibrium price is most likely to take place in a
Answer: A (centrally planned economy)
In a centrally planned economy the government, not the market, sets prices, so prices are often fixed above or below equilibrium.
A consumer's scale of preference is an arrangement of his
Answer: B (needs in order of importance)
A scale of preference is a list of a person's needs/wants arranged in order of importance, so the most pressing are satisfied first.
A firm's shut-down point is reached when the average revenue fails to cover the
Answer: A (average variable cost)
In the short run a firm keeps producing as long as price (average revenue) covers average variable cost; below that it shuts down.
Internal economies of scale are expected to bring about
Answer: C (a decrease in long-run average cost)
Internal economies of scale are the savings a firm gets as it grows larger, which lower its long-run average cost.
In the long-run, a monopolist maximizes his profit when the marginal cost equals
Answer: B (marginal revenue)
Every profit-maximising firm, including a monopolist, produces where marginal cost equals marginal revenue.
The long run is a period during which a firm
Answer: B (varies all its inputs)
In the long run there are no fixed factors: the firm can change the quantity of all its inputs.
An important feature of perfect competition is that
Answer: B (there is adequate knowledge of existing prices)
Perfect competition assumes buyers and sellers have perfect knowledge of market prices.
If government fixes price below the equilibrium price, what effect will it have on demand?
Answer: C (Quantity demanded will increase)
A lower price makes buyers want more, so quantity demanded rises (and exceeds quantity supplied, causing a shortage).
An imperfect market exists where
Answer: D (the location of some sellers gives them an advantage over others)
A seller's location advantage means the market is not perfect; the other options are features of perfect competition.
A production function relates
Answer: D (output to input)
A production function shows the relationship between the quantity of inputs used and the output produced.
The table below shows a demand schedule for eggs.
Price per dozen (₦) | Qty. demanded (in dozen) | Qty. supplied (in dozen)
100 | 410 | 570
90 | 450 | 530
80 | 490 | 490
70 | 530 | 450
60 | 570 | 410
What is the equilibrium price?
Answer: D (₦80)
Equilibrium is where quantity demanded equals quantity supplied. At ₦80 both are 490 dozen.
A major advantage of specialization and division of labour is that
Answer: A (time wastage will be minimized)
With division of labour each worker stays on one task and does not move between jobs, so time is saved.
Which of the following is an example of a fixed cost?
Answer: C (Rent on building)
Rent must be paid whatever the level of output, so it is a fixed cost; fuel, electricity and transport vary with output.
In the agricultural sector, improved extension services facilitate
Answer: A (acquisition of techniques)
Extension workers teach farmers new methods, so extension services help farmers acquire improved techniques.
A disadvantage of concentrating industries in an area is that it could
Answer: C (bring about diseconomies of scale)
When too many firms crowd into one area they suffer external diseconomies of scale such as congestion, pollution and higher land and labour costs.
The losses suffered by a sole proprietor are
Answer: D (not limited to the amount invested)
A sole proprietor has unlimited liability, so his personal property can be taken to pay the business's debts.
To facilitate the exportation of crude oil from Nigeria, special
Answer: C (pipelines were laid to connect the major oil wells to the ports)
Crude oil is moved from the oil fields to the export terminals mainly through pipelines.
An industry is a
Answer: B (group of firms producing related commodities)
An industry is a group of firms producing similar or related goods, e.g. the textile industry.
The raising of funds by selling stocks to the public is called
Answer: A (equity financing)
Selling shares gives buyers ownership (equity) in the company, so raising money this way is equity financing.
A tax that increases at a higher percentage as income increases is called
Answer: C (a progressive tax)
Under a progressive tax the rate rises as income rises, so higher earners pay a larger percentage.
The price paid for labour services is the
Answer: B (wage rate)
The reward for labour is wages, so the price of labour services is the wage rate.
The capital market is a market for trading of financial assets such as
Answer: C (long-term securities)
The capital market deals in long-term funds such as shares and bonds; treasury bills, commercial papers and bankers' acceptances are short-term money-market instruments.
In national income accounting, NNP is derived by subtracting from the GNP
Answer: D (capital consumption)
Net National Product = GNP − capital consumption (depreciation), the value of capital worn out in producing the output.
Economic growth can be accelerated through
Answer: B (postponement of current consumption)
Postponing consumption means more saving, which provides funds for investment in capital goods, and investment speeds up growth.
An increase in the discount rate is an indication of a central bank's intention to pursue
Answer: D (a contractionary monetary policy)
Raising the discount (bank) rate makes borrowing dearer, reducing the money supply: a contractionary (tight) monetary policy.
The efficiency of labour can be increased by
Answer: A (constant training of workers)
Regular training improves workers' skills, so they produce more and better output.
In Nigeria, revenue sharing from the Federation Account is between the
Answer: D (federal, state and local governments)
Money in the Federation Account is shared among the three tiers of government: federal, state and local governments.
The reduction of high fertility rate is a measure in population control designed to make the
Answer: D (growth in population more sustainable)
Lowering the fertility rate slows population growth so that it can be supported by the country's resources.
National debt is an expected outcome of a
Answer: A (deficit budget)
When a government spends more than its revenue (a deficit budget), it borrows to cover the gap, creating national debt.
The distribution channel that contributes most to the cost of production is
Answer: D (producer–wholesaler–retailer–consumer)
The longest chain of middlemen (producer–wholesaler–retailer–consumer) adds the most handling costs and profit margins.
Money may not be accepted as a store of value if
Answer: A (its value is unstable)
People only store wealth in money if it keeps its value; if its value is unstable (e.g. high inflation), they prefer other assets.
In order to accelerate economic development, a country must
Answer: C (pursue a rational population policy)
A sensible (rational) population policy keeps population growth in line with resources, which helps development.
If the labour force in a given community is 2,000,000, in the wage employment 200,000 and the unemployed are 80,000, what is the unemployment rate in the community?
Answer: D (4.0%)
Unemployment rate = unemployed ÷ labour force × 100 = 80,000 ÷ 2,000,000 × 100 = 4%.
GNP is not a good measure of social welfare because there are unrecorded
Answer: B (social costs)
GNP does not deduct social costs such as pollution and congestion, which reduce welfare but are not recorded.
The loans from the World Bank to developing countries are mainly to support
Answer: C (infrastructural investments)
The World Bank lends mainly for long-term development projects such as roads, power and water: infrastructure.
The major reason why nations engage in international trade is that
Answer: C (nations are substantially different in their endowments of economic resources)
Countries have different resources, so each can specialise in what it produces best and trade for the rest.
A country with over-valued currency will
Answer: D (decrease her foreign reserve)
An over-valued currency makes exports dear and imports cheap, so the country tends to run deficits and loses foreign reserves.