Economics MCQ -Best Set 1 Free MCQ
In this post, you will find 32 multiple choice questions with explanations on the Economics MCQ , Basics Concept of Economics. The questions cover various aspects of economic thought, from ancient philosophers like Aristotle to modern economists like Ronald Coase. Test your knowledge and learn more about the evolution of economic ideas and theories.
Economics MCQ – Basic Concept of Economics
Sure, here are 32 multiple choice questions on the basics of economics along with their explanations:
MCQ.1 Which of the following is a factor of production?
a) Money
b) Labor
c) Technology
d) All of the above
Answer: b) Labor.
Explaination :- Factors of production are the resources used to produce goods and services. They include land, labor, capital, and entrepreneurship.
MCQ.2 Which of the following is an example of a nonrenewable resource?
a) Coal
b) Solar power
c) Wind power
d) Water
Answer: a) Coal.
Explaination :- Nonrenewable resources are those that cannot be replenished within a reasonable amount of time, such as fossil fuels like coal, oil, and natural gas.
MCQ.3. The law of demand states that:
a) As the price of a good or service increases, the quantity demanded will increase.
b) As the price of a good or service increases, the quantity demanded will decrease.
c) As the price of a good or service decreases, the quantity demanded will increase.
d) As the price of a good or service decreases, the quantity demanded will decrease.
Answer: b) As the price of a good or service increases, the quantity demanded will decrease.
Explaination :- The law of demand is a fundamental principle of economics that states that as the price of a good or service increases, the quantity demanded will decrease, and vice versa.
MCQ.4. Which of the following is an example of a fixed cost?
a) Rent
b) Raw materials
c) Labor
d) Advertising
Answer: a) Rent.
Explaination :- Fixed costs are those that do not vary with the level of output, such as rent, property taxes, and insurance.
MCQ.5. What is economics?
a) The study of how society manages its scarce resources.
b) The study of how people make choices under conditions of scarcity.
c) The study of how markets work and how they can be made more efficient.
d) The study of how to maximize profits.
Answer: b) The study of how people make choices under conditions of scarcity.
Explaination :- Economics is the social science that studies how people allocate scarce resources to satisfy unlimited wants and needs.
MCQ.6. Which of the following is a scarce resource?
a) Water
b) Air
c) Sunshine
d) None of the above
Answer: a) Water.
Explaination :- A scarce resource is one that is limited in supply relative to demand.
MCQ.7. Which of the following is an example of an opportunity cost?
a) Spending money on a vacation.
b) Buying a new car.
c) Giving up a job to attend college.
d) All of the above.
Answer: c) Giving up a job to attend college.
Explaination :- Opportunity cost is the cost of the next best alternative foregone. In this example, the opportunity cost of attending college is the income that could have been earned if the person had continued working instead.
MCQ.8. What is the difference between microeconomics and macroeconomics?
a) Microeconomics studies individual markets, while macroeconomics studies the economy as a whole.
b) Microeconomics studies the behavior of individual consumers and firms, while macroeconomics studies the overall behavior of the economy.
c) Microeconomics is concerned with the allocation of resources at the individual level, while macroeconomics is concerned with the allocation of resources at the national level.
d) There is no difference between microeconomics and macroeconomics.
Answer: a) Microeconomics studies individual markets, while macroeconomics studies the economy as a whole.
Explaination :- Microeconomics focuses on the behavior of individual consumers and firms in specific markets, while macroeconomics looks at the overall performance of the economy, including factors such as inflation, unemployment, and economic growth.
MCQ.9. What is the role of incentives in economics?
a) Incentives are used to encourage people to act in their own self-interest.
b) Incentives are used to discourage people from acting in their own self-interest.
c) Incentives have no role in economics.
d) None of the above.
Answer: a) Incentives are used to encourage people to act in their own self-interest.
Explaination :- Incentives are a key aspect of economic analysis, as they influence people’s behavior and decision-making. By creating the right incentives, policymakers can encourage individuals and firms to act in ways that benefit society as a whole.
MCQ.10. Which of the following is an example of a positive economic statement?
a) People should pay more taxes to support social programs.
b) The minimum wage should be increased to reduce poverty.
c) An increase in government spending will lead to economic growth.
d) All of the above.
Answer: c) An increase in government spending will lead to economic growth.
Explaination :- A positive economic statement is a statement that can be tested and verified using data and evidence. This statement can be tested to see if it is true or false.
MCQ.11. What is the difference between a market economy and a command economy?
a) In a market economy, prices are determined by supply and demand, while in a command economy, prices are set by the government.
b) In a market economy, private individuals and firms own the means of production, while in a command economy, the government owns the means of production.
c) In a market economy, decisions are made by individual buyers and sellers, while in a command economy, decisions are made by the government.
d) All of the above.
Answer: d) All of the above.
Explaination :- A market economy is one in which prices are determined by supply and demand, and decisions are made by individual buyers and sellers. A command economy is one in which the government controls the means of production and makes all economic decisions.
MCQ.12. Which of the following is an example of a public good?
a) A restaurant meal
b) A concert ticket
c) National defense
d) All of the above.
Answer: c) National defense.
Explaination :- A public good is a good or service that is non-excludable and non-rivalrous, meaning that it is available to all members of society and one person’s consumption of the good does not reduce the availability of the good for others.
MCQ.13. Which of the following is an example of a normative economic statement?
a) The government should increase spending on education.
b) An increase in the minimum wage will reduce poverty.
c) An increase in interest rates will reduce inflation.
d) All of the above.
Answer: a) The government should increase spending on education.
Explaination :- A normative economic statement is a statement that involves a value judgment or opinion. It cannot be tested or verified using data and evidence.
MCQ.14. Which of the following is an example of a production possibility frontier?
a) A graph showing the relationship between price and quantity demanded.
b) A graph showing the relationship between price and quantity supplied.
c) A graph showing the maximum amount of goods that can be produced given existing resources and technology.
d) A graph showing the relationship between income and consumption.
Answer: c) A graph showing the maximum amount of goods that can be produced given existing resources and technology.
Explaination :- A production possibility frontier is a graphical representation of the maximum output that can be produced from a given set of resources and technology. It shows the trade-offs between producing one good or service over another.
MCQ.15. What is the opportunity cost of a decision?
a) The monetary cost of the decision.
b) The benefits of the decision.
c) The value of the next best alternative that is forgone as a result of the decision.
d) The time spent making the decision.
Answer: c) The value of the next best alternative that is forgone as a result of the decision.
Explaination :- Opportunity cost is the value of the best alternative that must be forgone in order to pursue a certain action or decision.
MCQ.16. What is the law of demand?
a) The higher the price of a good, the lower the quantity demanded.
b) The higher the price of a good, the higher the quantity demanded.
c) The lower the price of a good, the higher the quantity demanded.
d) The lower the price of a good, the lower the quantity demanded.
Answer: a) The higher the price of a good, the lower the quantity demanded.
Explaination :- The law of demand states that there is an inverse relationship between the price of a good and the quantity of the good that consumers are willing and able to purchase.
MCQ.17. What is the difference between a normal good and an inferior good?
a) Normal goods are luxury items, while inferior goods are necessities.
b) Normal goods are goods for which demand increases as income increases, while inferior goods are goods for which demand decreases as income increases.
c) Normal goods are goods for which demand decreases as income increases, while inferior goods are goods for which demand increases as income increases.
d) There is no difference between a normal good and an inferior good.
Answer: b) Normal goods are goods for which demand increases as income increases, while inferior goods are goods for which demand decreases as income increases.
Explaination :- Normal goods are those for which demand is positively related to income, meaning that as income increases, demand for the good also increases. Inferior goods are those for which demand is negatively related to income, meaning that as income increases, demand for the good decreases.
MCQ.18. What is the law of supply?
a) The higher the price of a good, the lower the quantity supplied.
b) The higher the price of a good, the higher the quantity supplied.
c) The lower the price of a good, the higher the quantity supplied.
d) The lower the price of a good, the lower the quantity supplied.
Answer: b) The higher the price of a good, the higher the quantity supplied.
Explaination :- The law of supply states that there is a direct relationship between the price of a good and the quantity of the good that producers are willing and able to supply.
MCQ.19. What is elasticity of demand?
a) The measure of how much the quantity demanded of a good changes in response to a change in price.
b) The measure of how much the quantity supplied of a good changes in response to a change in price.
c) The measure of how much the quantity demanded of a good changes in response to a change in income.
d) The measure of how much the quantity supplied of a good changes in response to a change in income.
Answer: a) The measure of how much the quantity demanded of a good changes in response to a change in price.
Explaination :- Elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
MCQ.20. Who is considered the “father of economics”?
a) Adam Smith
b) John Maynard Keynes
c) Karl Marx
d) Milton Friedman
Answer: a) Adam Smith.
Explaination :- Adam Smith is widely considered the “father of economics” due to his groundbreaking work in the late 18th century, particularly his book “The Wealth of Nations”.
MCQ.21. What was the focus of early economic thought?
a) The study of how economies functioned at a macro level.
b) The study of how individuals and firms made decisions about what goods and services to produce and consume.
c) The study of how governments could most efficiently manage economic activity.
d) The study of how to maximize social welfare.
Answer: b) The study of how individuals and firms made decisions about what goods and services to produce and consume.
Explaination :- Early economic thought, as seen in the works of Adam Smith and other classical economists, focused primarily on the behavior of individuals and firms in the market.
MCQ.22. Which school of economic thought emphasized the importance of government intervention in the economy?
a) Classical economics
b) Keynesian economics
c) Neoclassical economics
d) Austrian economics
Answer: b) Keynesian economics.
Explaination :- Keynesian economics, which emerged in the early 20th century, emphasized the role of government intervention in the economy, particularly during times of economic crisis.
MCQ.23. Who introduced the concept of the “invisible hand” in economics?
a) Adam Smith
b) John Maynard Keynes
c) Karl Marx
d) Milton Friedman
Answer: a) Adam Smith.
Explaination :- The concept of the “invisible hand” was introduced by Adam Smith in his book “The Wealth of Nations”. It refers to the idea that in a free market, the pursuit of individual self-interest can lead to a desirable outcome for society as a whole, without the need for central coordination.
MCQ.24. What was the focus of mercantilist economic thought?
a) Encouraging exports and limiting imports to build up a nation’s wealth.
b) Maximizing social welfare.
c) Achieving economic efficiency through competition.
d) Minimizing government intervention in the economy.
Answer: a) Encouraging exports and limiting imports to build up a nation’s wealth.
Explaination :- Mercantilist economic thought, which was prevalent in Europe from the 16th to the 18th century, emphasized the importance of accumulating wealth through trade, particularly by promoting exports and limiting imports.
MCQ.25. Which economist is known for his contributions to the study of economic growth?
a) Adam Smith
b) David Ricardo
c) Joseph Schumpeter
d) John Stuart Mill
Answer: c) Joseph Schumpeter.
Explaination :- Joseph Schumpeter, an Austrian economist who lived in the early 20th century, is known for his contributions to the study of economic growth, particularly his concept of “creative destruction”.
MCQ.26. Which economist is known for his work on international trade and comparative advantage?
a) Adam Smith
b) David Ricardo
c) Joseph Schumpeter
d) John Stuart Mill
Answer: b) David Ricardo.
Explaination :- David Ricardo, an early 19th century economist, is known for his work on international trade and the theory of comparative advantage, which argues that countries can benefit from specializing in the production of goods for which they have a comparative advantage.
MCQ.27. Which economist is known for his work on market failure and public goods?
a) Adam Smith
b) John Maynard Keynes
c) Paul Samuelson
d) Friedrich Hayek
Answer: c) Paul Samuelson.
Explaination :- Paul Samuelson, who lived in the 20th century, is known for his work on market failure and public goods, particularly his analysis
MCQ.28. Which ancient philosopher is often credited with laying the foundations for economic thought?
a) Plato
b) Aristotle
c) Socrates
d) Epicurus
Answer: b) Aristotle.
Explaination :- Aristotle, who lived in ancient Greece, is often credited with laying the foundations for economic thought, particularly through his analysis of exchange and trade.
MCQ.29. What was the focus of the physiocratic school of economic thought?
a) Maximizing social welfare through government intervention in the economy.
b) Achieving economic efficiency through competition.
c) Encouraging exports and limiting imports to build up a nation’s wealth.
d) Emphasizing the importance of agriculture as the foundation of the economy.
Answer: d) Emphasizing the importance of agriculture as the foundation of the economy.
Explaination :- The physiocratic school of economic thought, which emerged in France in the mid-18th century, emphasized the importance of agriculture as the foundation of the economy and the source of all wealth.
MCQ.30. Which economist is known for his work on the labor theory of value?
a) Adam Smith
b) David Ricardo
c) Karl Marx
d) Friedrich Hayek
Answer: c) Karl Marx.
Explaination :- Karl Marx, who lived in the 19th century, is known for his work on the labor theory of value, which argues that the value of a product is determined by the amount of labor that went into producing it.
MCQ.31. Which economist is known for his work on the theory of the firm?
a) Ronald Coase
b) Milton Friedman
c) Friedrich Hayek
d) Joseph Stiglitz
Answer: a) Ronald Coase.
Explaination :- Ronald Coase, who lived in the 20th century, is known for his work on the theory of the firm, particularly his analysis of why firms exist and how they operate.
MCQ.32. Which economic concept is often associated with the French economist Jean-Baptiste Say?
a) The quantity theory of money.
b) The marginal productivity theory of income distribution.
c) The law of supply and demand.
d) The circular flow of income.
Answer: c) The law of supply and demand.
Explaination :- Jean-Baptiste Say, a French economist who lived in the early 19th century, is often associated with the law of supply and demand, which states that the price of a good or service is determined by the interaction of its supply and demand.
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