Explore topic-wise MCQs in Master of Arts in Economics (M.A. Economics).

This section includes 113 Mcqs, each offering curated multiple-choice questions to sharpen your Master of Arts in Economics (M.A. Economics) knowledge and support exam preparation. Choose a topic below to get started.

1.

The quantity of present goods that must be forgone to increase future consumption by 1 unit iscalled

A. the relative price of future goods
B. indifference curve
C. production possibility curve
D. contract curve
Answer» B. indifference curve
Discussion
2.

The risk premium for a capital investment by comparing the expected return on thatinvestment with the expected return on the entire stock market is measured by

A. diversifiable risk
B. non diversifiable risk
C. capital asset pricing model
D. none of the above
Answer» D. none of the above
Discussion
3.

An important mechanism through which sellers and buyers deal with the problem ofasymmetric information is

A. market signalling
B. insurance markets
C. moral hazard
D. principal-agent problem
Answer» B. insurance markets
Discussion
4.

The concept of market signalling was first developed by

A. michael spence
B. kaldor
C. garrett hardin
D. pareto
Answer» B. kaldor
Discussion
5.

A scientific paper titled “The Tragedy of the Commons” was written by

A. walras
B. kaldor
C. garrett hardin
D. pareto
Answer» D. pareto
Discussion
6.

Points where the slopes of the isoquants are equal

A. indifference curve
B. contract curve
C. production possibility curve
D. edgewoth box
Answer» C. production possibility curve
Discussion
7.

The marginal conditions must be satisfied for the attainment of a Pareto-efficient situation inan economy :

A. efficiency in exchange
B. efficiency of production
C. efficiency in the product-mix, or composition of output
D. all the above
Answer» E.
Discussion
8.

The sum of forgone interest and depreciation costs the machine’s owner must pay is the

A. competitive rental rate
B. capital asset pricing
C. risk premium
D. all of the above
Answer» B. capital asset pricing
Discussion
9.

Who argued that welfare is improved when ‘the greatest good (is secured) for the greatestnumber’

A. walras
B. adamsmith
C. bentham
D. pareto
Answer» D. pareto
Discussion
10.

Several combination of commodities x and y that the economy can produce by fully utilizingall of the fixed amounts of labour and capital with the best technology available is depicted by I. production possibility frontier II. transformation curve III. production possibility curve

A. both i & ii
B. both ii & iii
C. both i & iii
D. all the above
Answer» E.
Discussion
11.

The permanent increment to future consumption expressed as a fraction of the initialconsumption forgone is.....

A. rate of return
B. perpetual rate of return
C. expected return
D. all the above
Answer» C. expected return
Discussion
12.

The “lemons model” predicts quality deterioration in the used car market because

A. used cars require increasing maintenance.
B. suppliers and demanders have different information about cars’ quality.
C. used cars are generally of a lower quality than new cars.
D. people will usually buy new cars if they are available.
Answer» C. used cars are generally of a lower quality than new cars.
Discussion
13.

A market participant who obeys the principles of rational expectations will base his or herexpectations of market price on

A. all possible information about supply and demand curves.
B. all possible information about the history of price movements.
C. rational behaviour by other market participants.
D. rational behaviour by government regulators.
Answer» B. all possible information about the history of price movements.
Discussion
14.

In volatile markets, “speculators” would be expected to provide some stability because

A. they will be required to do so by the government.
B. they will use current price moves to predict future moves.
C. they will buy when price is below equilibrium and sell when it is above equilibrium.
D. they will buy when price is above equilibrium and sell when it is below equilibrium.
Answer» D. they will buy when price is above equilibrium and sell when it is below equilibrium.
Discussion
15.

One way the “lemons problem” in the used-car industry can be mitigated is by

A. raising the price of used cars.
B. hiring auto experts to sell used cars.
C. requiring sellers to guarantee trouble-free cars.
D. allowing owners to trade in their own cars when they purchase a used car.
Answer» D. allowing owners to trade in their own cars when they purchase a used car.
Discussion
16.

Adverse selection can occur when

A. all persons involved in a transaction have full information.
B. one person has information not available to others.
C. post-agreement incentives result in workers shirking.
D. nobody has any information about a particular product.
Answer» C. post-agreement incentives result in workers shirking.
Discussion
17.

If the government subsidizes the health insurance costs of individuals because individuals donot sufficiently realize the importance of having health insurance, which of the following justifications for government intervention is being used?

A. high administrative costs
B. redistribution
C. ignorance
D. externalities
Answer» D. externalities
Discussion
18.

Suppose that you have complete health insurance that covers all expenses. You will usemedical care up to the point where your:

A. total benefits equal the costs of providing the medical care.
B. marginal benefit is zero.
C. marginal benefit is equal to the marginal cost of the medical care.
D. marginal benefit is equal to the total costs of providing the medical care. as
Answer» C. marginal benefit is equal to the marginal cost of the medical care.
Discussion
19.

In the economic analysis of the market for new drugs, it is critical to take into account

A. inefficiency from monopoly power granted by patents
B. inequity generated by drug makers charging more than a medication costs to make
C. incentives for innovation by inventing new drugs
D. all of the above
Answer» E.
Discussion
20.

Which of the following is not an assumption used in class for reaching the conclusion, usingutilitarian reasoning, that income should be divided equally:

A. everybody has the same utility function
B. there is a fixed amount of income to be divided
C. marginal utility is a diminishing function of income
D. some people are more productive than others
Answer» E.
Discussion
21.

When people behave in ways that involve increased risk because they have insurance, this isknown as

A. adverse selection.
B. moral hazard.
C. asymmetric information.
D. a hmo.
Answer» C. asymmetric information.
Discussion
22.

The government can address by providing universal health insurance coverage and charginguniform premiums.

A. expected utility
B. asymmetric information
C. commodity egalitarianism
D. adverse selection
Answer» E.
Discussion
23.

Taking into account the utility of all persons in society is referred to as

A. a utilitarian social welfare function.
B. equalizing social welfare function.
C. an in-kind transfer.
D. a pareto equilibrium.
Answer» B. equalizing social welfare function.
Discussion
24.

When the average buyer of an insurance policy is likely to have higher risk than others in hisclass, this is known as

A. adverse selection.
B. moral hazard.
C. asymmetric information.
D. an hmo.
Answer» B. moral hazard.
Discussion
25.

A situation where people who have taken out insurance behave more recklessly as a result isknown as:

A. asymmetric information.
B. bad luck.
C. adverse selection.
D. moral hazard.
Answer» E.
Discussion
26.

A negative production externality means:

A. the social marginal cost is greater than the private marginal cost
B. the social marginal benefit is greater than the private marginal cost
C. the social marginal cost is greater than the private marginal benefit
D. the social marginal cost is less than the private marginal cost
Answer» B. the social marginal benefit is greater than the private marginal cost
Discussion
27.

Monopoly power in a market is likely to:

A. increase consumer surplus
B. increase community surplus
C. lead to higher producer surplus
D. lead to lower prices and lower output
Answer» D. lead to lower prices and lower output
Discussion
28.

Which of the following statements is NOT true?In the free market changes in the price of a product:

A. can act as a signal to producers
B. can provide an incentive to reallocate resources
C. can act as a rationing device
D. are set by the government
Answer» E.
Discussion
29.

Externalities between two firms can be “internalized” if: I. The two firms merge. II. Bargaining costs are zero.III. The externalities affect each firm equally. IV. Marginal costs for both firms are constant. Which statement(s) correctly complete(s) the sentence?

A. only ii.
B. all except iii.
C. i and ii, but not iii and iv.
D. i and iv, but not ii and iii.
Answer» D. i and iv, but not ii and iii.
Discussion
30.

In drilling a new oil well in an existing oil field, the fact that output on existing wells isreduced means that

A. existing wells have negatively sloped marginal cost curves.
B. existing wells and new wells are owned by different people.
C. existing wells and new wells are owned by the same people.
D. there is a discrepancy between private and social marginal costs.
Answer» E.
Discussion
31.

In perfect competition, environmental externalities need not distort the allocation ofresources providing

A. transactions costs are zero.
B. average costs are constant for all output levels.
C. firms install pollution control equipment.
D. the government sets realistic pollution standards.
Answer» B. average costs are constant for all output levels.
Discussion
32.

To reach an economically efficient output level, the size of an excise tax imposed on a firmgenerating a negative externality should be

A. the firm’s marginal cost.
B. the social marginal cost.
C. the difference between the social marginal cost and the firm’s marginal cost.
D. the sum of the social marginal cost and the firm’s marginal cost.
Answer» D. the sum of the social marginal cost and the firm’s marginal cost.
Discussion
33.

A perfectly competitive steel mill that produces large amounts of pollution (a negativeexternality) will, from a social point of view

A. produce too little steel
B. produce the socially optimal quantity of steel.
C. produce too much steel.
D. produce too much steel only if it installs pollution control equipment.
Answer» D. produce too much steel only if it installs pollution control equipment.
Discussion
34.

In the case of a negative externality, the social marginal cost will

A. exceed the private marginal cost.
B. be equal to private marginal cost.
C. fall short of private marginal cost.
D. bear no significant relation to private marginal cost.
Answer» B. be equal to private marginal cost.
Discussion
35.

There are strong theoretical reasons to expect that changes in wealth are responsible for changes in consumption. Nonetheless, one reason that we observe a tight link betweenconsumption and disposable income is...

A. credit rationing which changes the intertemporal budget constraint for borrowers.
B. households attempt to smooth their consumption.
C. household saving provides a buffer between income and expenditure.
D. ricardian equivalence.
Answer» B. households attempt to smooth their consumption.
Discussion
36.

If, for John’s current intertemporal consumption pattern (satisfying his intertemporal budgetconstraint), his marginal rate of intertemporal substitution is 1 and the real rate of interest is positive, then...

A. the interest rate will fall to zero.
B. john could increase his lifetime utility by consuming more today.
C. john could increase his lifetime utility by consuming less today.
D. john is necessarily a borrower.
Answer» D. john is necessarily a borrower.
Discussion
37.

According to a required reading by P.J. O’Rourke, which of the following statements isfalse?

A. in most of the world, food production has well outpaced the growth of population
B. democracy may be able to help prevent famines from occurring
C. in countries experiencing famine, security and order must be established before the famine can be contained
D. famines are mainly caused by natural disasters or pestilence
Answer» E.
Discussion
38.

According to a required reading from the 2003 Economist, the biggest problem facingIndonesia’s economy is

A. terrorism
B. an organic approach to public policy questions
C. inadequate rule of law
D. geographical (e) hobbits
Answer» D. geographical (e) hobbits
Discussion
39.

According to the required reading from the 2003 Washington Post, a recent study by the U.S.Office of Management and Budget found that

A. the benefits of tough new clean-air regulations in the past decade were five to seven times greater than their costs
B. the most efficient way to control pollution is through pigouvian taxes
C. the 1990 clean air act has not affected the problem of acid rain
D. environmentalists are generally supportive of cost-benefit calculations in assessing
Answer» B. the most efficient way to control pollution is through pigouvian taxes
Discussion
40.

The M RTS L,K between any two inputs be equal in the production of all commodities.3. The MRPTx,y be equal to the MRSx,y for any two goods.

A. condition 1&2 are satisfied
B. condition 1 &3 are satisfied
C. condition 2 &3 are satisfied
D. condition 1, 2 &3 are satisfied
Answer» E.
Discussion
41.

The tragedy of the commons results in

A. overconsumption
B. under investment
C. depletion of the resource
D. all the above
Answer» E.
Discussion
42.

Non diversifiable risk arises because

A. a firm’s profits tend to depend on the overall economy
B. a firm’s profits tend to depend on that firm only
C. both a & b
D. none of them
Answer» D. none of them
Discussion
43.

A negative externality from consumption occurs if there is a

A. bandwagon effect
B. snob effect
C. veblen effect
D. all the above z
Answer» C. veblen effect
Discussion
44.

A scientific paper titled “The Tragedy of the Commons” was written by

A. walras
B. kaldor
C. garrett hardin
D. pareto
Answer» D. pareto
Discussion
45.

The set of all Pareto efficient allocations in an Edgeworth box diagram is called the

A. indifference curve
B. contract curve
C. production possibility curve
D. edgewoth box
Answer» C. production possibility curve
Discussion
46.

Which criterion refers to economic efficiency which can be objectively measured

A. ‘cardinalist’ criterion
B. bentham’s criterion
C. the pareto-optimality criterion
D. the kaldor-hicks ‘compensation criterion’
Answer» D. the kaldor-hicks ‘compensation criterion’
Discussion
47.

Who opined that economic growth meant bringing W closer to W*

A. walras
B. adamsmith
C. bentham
D. pareto
Answer» C. bentham
Discussion
48.

Non diversifiable risk affects I. the opportunity cost of capital II. should enter into the risk premium

A. only i
B. only ii
C. both i &ii
D. none of them
Answer» D. none of them
Discussion
49.

Diversifiable risk can be eliminated by

A. investing in many projects.
B. by holding the stocks of many companies.
C. both a and b
D. none of them
Answer» D. none of them
Discussion
50.

Which of the following statements is correct about behavioural economics

A. it builds upon the standard economic model
B. it does not use the methodology of positive economics
C. it rejects the standard economic model
D. it is the same as economic psychology
Answer» B. it does not use the methodology of positive economics
Discussion