Ch01. Nature and Scope of Economics – Part 1
1-The main contribution of Adam Smith is in the field of:
(a) Economics of state
(b) Wealth of Nations
(c) Value and price
(d) Theory of demand
Ans: b
2- The main contribution of Alfred Marshal is in the field of:
(a) Research in mathematical economics
(b) Economics of labor
(c) Theory of production
(d) Theory of demand
Ans: d
3- The main contribution of Prof.Robbins is in the field of:
(a) human welfare
(b) national income
(c) multiplicity of wants and scarcity of resources
(d) theory of production
Ans: c
4- The main contribution of Prof. R.G.D.Allen is in the field of:
(a) fixation of price
(b) Arc elasticity of demand
(c) Cross elasticity of demand
(d) Wage theory
Ans: b
5- The main contribution of Malthus is in the field of:
(a) Consumption expenditure
(b) Theory of population
(c) Division of labor
(d) Theory of demand
Ans: b
6- The main contribution of Prof. Lord Keynes is in the field of:
(a) Determination of the rate of interest
(b) Determination of the market price
(c) Determination of the wage rate
(d) Determination of production of firm
Ans: a
7- The main contribution of David Ricardo is in the field of:
(a) Wages of labor
(b) Factor pricing
(c) Theory of rent
(d) Determination of the rate of interest
Ans: c
8- In 1776, a famous book “An enquiry into the nature and causes of the wealth of nation”
was written by:
(a) J.S.Mill
(b) Adam Smith
(c) Robert Malthus
(d) David Ricardo
Ans: b
9- In 1932, “The nature and significance of economic science” was written by:
(a) Prof. Adam Smith
(b) Prof. Alfred Marshal
(c) Prof. Robbins
(d) J.S.Mill
Ans: c
10- In 1890, “Principles of Economics” was written by:
(a) Prof. Robbins
(b) Alfred Marshal
(c) Prof. Senior
(d) Adam Smith
Ans: b
11- “Liquidity of Preference Theory” was introduced by:
(a) Alfred Marshal
(b) Lord Keynes
(c) Karl Marx
(d) Prof. Robbins
Ans: b
12- Loanable funds theory of Interest” was developed by:
(a) Wicksell
(b) Robert San
(c) Ruskin
(d) J.B.Say
Ans: a {Explanation: Loanable funds theory of
Interest►According to the Loanable Funds Theory of
Interest, the rate of interest is calculated on the basis of demand and supply of loanable
funds present in the capital market. The concept formulated by
Knut Wicksell, the well-known Swedish economist, is among the most important economic
theories. The
Loanable Funds Theory of Interest advocates that both savings and investments are
responsible for the determination of the rates of interest in the long run. On the other hand,
short-term interest rates are calculated on the basis of the financial conditions of a
particular economy. The determination of the interest rates in case of the
Loanable Funds Theory of the Rate of Interest, depends essentially on the availability of
loan amounts. The availability of such loan amounts is based on certain factors like the net
increase in currency deposits, the amount of savings made, willingness to enhance cash
balances and opportunities for the formation of fresh capitals.}
13- “Time Preference Theory of Interest” was presented by:
(a) Adam Smith
(b) Carl Menger
(c) Ruskin
(d) J.B.Say
Ans: b{ Explanation: Time Preference Theory of
Interest►This theory was initially presented by an
Austrian economist ‘Carl Menger’ in 1871 and by later developed by ‘Bohn Bawerk. Time
preference theory of interest is the analysis of how individuals or firms will sacrifice
present utility in the hope of greater future returns. This theory examines the nature of
consumerism, and the factors that influence consumers to delay current consumption or
expenditures in anticipation of greater future returns. The rate of time preference itself can
be quantified as the amount of money required to compensate the consumer for foregoing
current consumption. This theory also attempts to tie interest rates into the equation by
comparing the perceived value of expected future returns with the rate of interest paid on
current savings.}
14- “Abstinence or Waiting theory of Interest” was presented by:
(a) Lord Keynes
(b) J.S.Mill
(c) Alfred Marshal
(d) Prof.Senior
Ans: d
Explanation: Abstinence or Waiting theory of
Interest ►This theory of interest is associated with the name of Senior. According to the
theory
"Interest is a reward for abstinence. When a person saves money from his income and
lends it to somebody else, he in fact makes sacrifice. Sacrifice in the sense, that he abstains
from consuming the whole of his income which he could have easily spent. As abstaining
from consumption is disagreeable and painful, so the lender must be rewarded for this.
Thus, according to Senior, interest is the reward for abstinence from the use of capital on
the part of the lender".
This theory is rejected on the ground that saving does not necessarily involve discomfort or
sacrifice. A millionaire may save and lend a major part of his income without undergoing
any hardship or suffering.}
15- According to Robbins, economics is a:
(a) Science of wealth
(b) Science of national welfare
(c) Science of optimality
(d) Science of scarcity
Ans: d
16- Robbin’s definition of economics was criticised by:
(a) Alfred Marshal
(b) Adam Smith
(c) J.B.Clark
(d) Hicks, Longe and Durbin
Ans: d
17- Marshall’s definition of economics was strongly criticised by:
(a) Adam Smith
(b) Prof.Pigno
(c) Prof. Robbins
(d) J.B.Clark
Ans: c
18- If a person behaves against the laws of economics then:
(a) He should be condemned
(b) He may lose his respect from society
(c) He should be punished
(d) He should not be punished or even criticised
Ans: d
19- Rotten eggs are:
(a) Free goods
(b) Economic goods
(c) Luxury goods
(d) None of the above
Ans: a
20- Scarcity is:
(a) A relative term
(b) An economic term
(c) A dynamic term
(d) As a whole term
Ans: a
21- In economic term water is a:
(a) Free good
(b) Economic good
(c) Both of the above
(d) None of the above
Ans: a
22- Human wants are:
(a) Thousands
(b) Few
(c) Innumerable
(d) Hundreds
Ans: c
23- Economics is a:
(a) Physical science
(b) Social science
(c) Natural science
(d) Basic science
Ans: b
24- Economics is a:
(a) Exact science
(b) Inexact science
(c) Pure science
(d) All of the above
Ans: b
25- The word “ECONOMICS” is derived from the Greek terms meanings:
(a) Political economy
(b) Household Management
(c) Production and consumption
(d) Financial Accounting
Ans: b
26-The basic and essential economic problems in a community are related to choice and:
(a) Freedom
(b) Scarcity
(c) Social class
(d) Politics
Ans: b
27- The situation in between the extremes of the govt. controlled, planned economy and
the perfectly free, unplanned economy is known as:
(a) Developed economy
(b) Laissez-fair economy
(c) Mixed economy
(d) Capitalistic economy
Ans: c
28- By “scarcity” the economist means that all goods are scarce relative the people’s:
(a) Desire for them
(b) Purchases
(c) Production
(d) Consumption
Ans: a
29- Economic laws are:
(a) Conditional
(b) Moral by nature
(c) Predicted
(d) Like laws of sports
Ans: a
30- The basic subject matter of economics is:
(a) Money
(b) Capital resources
(c) Scarcity
(d) Inflation
Ans: b
31- All of the following are capital resources except:
(a) Warehouses
(b) Buildings
(c) Dams
(d) Share of stock
Ans: d
32- Economics define technology as:
(a) Society’s knowledge of production
(b) Applied science
(c) Knowledge of science and mathematics
(d) None of the above
Ans: a
33- The fundamental choices that a society must make about the use of its resources
include:
(a) How much to produce
(b) How to produce
(c) How to distribute
(d) All of the above
Ans: d
34- The central problem of economics is:
(a) Declining productivity
(b) Increasing consumption
(c) Limited material wants
(d) Limited resources and unlimited wants
Ans: d
35- Rational economic behavior on the part of the consumer means that he will:
(a) Save as much of his income as possible
(b) Spend as much of his income as possible
(c) Buy everything at the lowest possible price
(d) Make wise choices among available economic goods
Ans: d
36- The Law of Proportionality is another name of:
(a) The law of diminishing marginal utility
(b) The law of demand
(c) The Law of Diminishing Returns
(d) The law of supply
Ans: c
37-The Latin term ‘citeris paribus’ means:
(a) Other things being equal
(b) Because of this
(c) Due to this
(d) All the factors changes at the same rate
Ans: a
38-In microeconomics, we study:
(a) Aggregates of the economy
(b) Few units of the economy
(c) Large units of the economy
(d) Individual units of the economy
Ans: d
39-Microeconomics is also known as:
(a) Price theory
(b) Demand theory
(c) Supply theory
(d) Income theory
Ans: a
40-J.R.Hicks was:
(a) Neo-classical economist
(b) Classical economist
(c) Keynesian economist
(d) Post-Keynesian economist
Ans: a
41- Revealed Preference Theory was presented by:
(a) Ricardo
(b) Adam Smith
(c) Pigou
(d) Samuelson
Ans: d
42- Law of Variable Proportions is regarding in:
(a) Short-Run
(b) Long-Run
(c) Medium-Run
(d) None of the above
Ans: a
43- Marginal Productivity Theory deals with the theory of:
(a) Distribution
(b) Exchange
(c) Market structure
(d) Consumer behaviour
Ans: a
44- General Equilibrium deals with the equilibrium of the:
(a) Consumer
(b) Producer
(c) Farmer
(d) All the producers and consumers
Ans: d
45- The cost of production is faced by a:
(a) Producer
(b) Consumer
(c) Seller
(d) Firm
Ans: d
46- Regarding economic decisions, economics of uncertainty identifies:
(a) No risks
(b) Risks
(c) Safety
(d) None of the above
Ans: b
47- An ‘economic model’ describing the working of an economy consists of:
(a) Functional relationships
(b) Family relationships
(c) Economic position
(d) Stagnant relationships
Ans: a
48- The water diamond paradox was firstly resolved with the help of:
(a) Labor theory of value
(b) Individual theory of value
(c) Producer theory of value
(d) Consumer theory of value
Ans: a {Explanation: The paradox of value (also known as the diamond-water paradox)
is the apparent contradiction that, although water is on the whole more useful, in terms of
survival, than diamonds, diamonds command a higher price in the market. The philosopher
Adam Smith is often considered to be the classic presenter of this paradox The real price of
every thing, what every thing really costs to the man who wants to acquire it, is the toil and
trouble of acquiring it. Hence, Smith denied a necessary relationship between price and
utility. Price on this view was related to a factor of production (namely, labor) and not to
the point of view of the consumer. Proponents of the labor theory of value saw that as the
resolution of the paradox.
The labor theory of value has lost popularity in mainstream economics and has been
replaced by the theory of marginal utility.}
49- Government planners play a central role in allocating resources:
(a) Only under socialism(communism)
(b) Only under capitalism
(c) Under both (a) and (b)
(d) None of the above
Ans: a
50- Karl Marx:
(a) Led the Russian Revolution
(b) Provided the theoretical basis for socialism(communism)
(c) Developed his theory in response to the
Great Depression of the 1930s
(d) None of the above
Ans: b
51- Labor theory was firstly rejected by:
(a) Adam Smith
(b) Karl Marx
(c) Ricardo
(d) Pigou
Ans: b
52- Price mechanism has also given the name:
(a) Labor theory
(b) Production theory
(c) Laisseze-faire
(d) None of the above
Ans: c
53- General equilibrium is concerned with simultaneous equilibrium of:
(a) Few economic agents
(b) All the economic agents
(c) Two economic agents
(d) Many economic agents
Ans: b
54- In Recardian theory of value, the stress has been made on:
(a) Marginal cost
(b) Production cost
(c) Labor cost
(d) Supply cost
Ans: a
55- Traditionally, the study of determination of price is called:
(a) Theory of price
(b) Theory of value
(c) Theory of labor
(d) Theory of cost
Ans: b
56- According to Marginalists, the price of any commodity is determined by:
(a) Marginal usefulness
(b) Marginal cost
(c) Both of them
(d) None of them
Ans: c
57- With the decrease in marginal valuation of a specific commodity, the price offered by
the people:
(a) Decreases
(b) Increases
(c) Become very high
(d) Remain unchanged
Ans: a
58- According to Smith, by value we mean the value with respect to use, and the price we
mean the value with respect to:
(a) Production
(b) Consumption
(c) Exchange
(d) Formation
Ans: c
59- The production possibility curve (PPC) is concerned with:
(a) Resources of the economy
(b) Interests of the economy
(c) Limitations of the economy
(d) Qualities of the economy
Ans: a
60- Scarcity means:
(a) Nil resources
(b) Limited resources
(c) Many resources
(d) Extra resources
Ans: b
61- The partial equilibrium model keeps other things:
(a) Variable
(b) Constant
(c) Increasing
(d) Decreasing
Ans: b
62- As the price of diamond is higher, so it has:
(a) Higher marginal valuation for consumer
(b) Lower marginal cost for producer
(c) Higher marginal cost for producer
(d) Both (a) and (c)
Ans: d
63- From analysis, it is clear that both Marshal and
Walras market models are:
(a) Unstable
(b) Stable
(c) Variable
(d) Fluctuating
Ans: b
64- The cobweb model will divergent when the slope of:
(a) Demand curve is more than supply curve
(b) Supply curve is more than demand curve
(c) Supply curve is equal to demand curve
(d) None of the above
Ans: b
65- The cobweb model will convergent when the slope of:
(a) Demand curve is more than supply curve
(b) Supply curve is more than demand curve
(c) Supply curve is equal to demand curve
(d) None of the above
Ans: a
66- Stable cobweb model is a:
(a) Simple model
(b) Dynamic model
(c) Both of them
(d) None of them
Ans: c
67- The model which gives us information about price and output changes in different
periods is:
(a) Stable cobweb model
(b) Perpetual oscillation
(c) Both(a) and(b)
(d) None of them
Ans: c
68- An economic theory is :
(a) An axiom
(b) A proposition
(c) A hypothesis
(d) A tested hypothesis
Ans: d
69- Formulation of an economic theory involves:
(a) Statements of various assumptions or postulates
(b) Logical deductions from the assumptions made
(c) Testing the hypothesis against empirical evidence
(d) All of the above
Ans: d
70- Market allocation fundamentally relies upon:
(a) A system of relative prices
(b) A belief that employees work for the good of society
(c) Government ownership of the means of production
(d) Moral incentives to encourage productive efficiency
Ans: a (Explanation: Market allocation relies upon the information provided by relative
prices that is conveyed to both consumers and producers)
71-In economist the term ‘invisible hand’ is refers to:
(a) Hand of God
(b) Market self regulating system
(c) Hands of invisible people
(d) Regulations of government
Ans: b {Explanation: The term ‘invisible hand’ is refers to the market self regulating system
working through the forces of supply and demand. In economics, the invisible hand, also
known as invisible hand of the market, is the term economists use to describe the selfregulating nature of the marketplace. This term is firstly used by Adam
Smith.}
72- In a socialist (communist) economy the invisible hand: (a) Guides most resource
allocation decisions
(b) Operates effectively only in the labor market
(c) Operates effectively only in the market for capital
(d) Is prevented from operating effectively
Ans: d (Explanation: The invisible hand is prevented from working because prices are set
by government planners rather than determined by market forces)
73- Microeconomics deals with the:
(a) Allocation of resources of the economy as between production of different goods and
services
(b) Determination of prices of goods and services
(c) Behavior of industrial decision makers
(d) All of the above
Ans: d
74- The study of economics just in theoretical way is called:
(a) Positive Economics
(b) Normative Economics
(c) Micro Economics
(d) Development Economics
Ans: a {Explanation: Positive Economics►Positive economics is the branch of economics
that concerns the description and explanation of economic phenomenon. It focuses on facts
and cause-and-effect behavioral relationships and includes the development and testing of
economics theories.}
75- The study of economic theory for the sake of certain objective is called:
(a) Positive Economics
(b) Normative Economics
(c) Micro Economics
(d) Development Economics
Ans: b {Explanation: Normative Economics►Normative economics is that part of
economics that expresses value judgments (normative judgements) about economic
fairness or what the economy ought to be like or what goals of public policy ought to be. It
is common to distinguish normative economics ("what ought to be" in economic matters)
from positive economics ("what is"). }
76- Which is not an essential feature of a socialist economy?
(a) Social ownership of the means of production
(b) Freedom of enterprise
(c) Use of centralized planning
(d) Government decisions
Ans: b
77-In an economy based on the price system the decision on what shall be produced is
made by:
(a) Government
(b) Consumer
(c) Producer
(d) Stock holder
Ans: b
78- The right of individuals to control productive resources is known as:
(a) Monopoly
(b) Private property
(c) Workable competition
(d) Oligopoly
Ans: b
79- A mixed economy is characterized by the coexistence of:
(a) Modern and traditional industries
(b) Public and private sectors
(c) Foreign and domestic investments
(d) Commercial and subsistence farming
Ans: b
80-The name of the system of direct exchange is:
(a) Price system
(b) Barter system
(c) Islamic economic system
(d) Socialistic system
Ans: b
81- The spending of money by the producer to influence consumers is an example of:
(a) Derived demand
(b) Joint demand
(c) Demand creation
(d) Compressed demand
Ans: c
82 -Which is not a central problem of an economy?
(a) What to produce
(b) How to produce
(c) How to maximize private profit
(d) For whom to produce
Ans: c
83-Micro economics is concerned with:
(a) Product markets
(b) Factor markets
(c) Supply and demand
(d) a, b and c
Ans: d
84- Economic problems arise because:
(a) Wants are unlimited
(b) Resources are scarce
(c) Scarce resources have alternative uses
(d) All of the above
Ans: D