1.

Classical Economics promoted the idea of

a) Socialist Economy
b) Free Market Economy
c) Economy with Government intervention
d) None of the above

2. Indian economy is an example of:

a) Command Economy
b) Mixed Economy
c) Market Economy
d) Socialist Economy

3. Which of the following will not shift a country’s PPF?

a) An increase in the retirement age
b) Purchase of the new capital
c) The fall in unemployment
d) Introduction of new improved technology

4. The opportunity cost of buying an economics text book is:

a) The cost of producing the book
b) The money you paid to buy the book
c) The movie ticket that you could have bought from the same money
d) The time you spent studying the book

5. Economics can be defined as

a) how society manages its scarce resources
b) how to run the business profitably
c) how to predict inflation, unemployment, and stock prices
d) how government can stop the harm from unchecked self interest

6. When is an economy said to be in recession?

a) If the actual output falls
b) If the actual output falls for two consecutive quarters
c) If the actual output falls below the potential output
d) If the actual output falls below the trend output

7. Which of the following is an example of positive externality?

a) Aditya mows Priyanka’s lawn and is paid Rs 500 for performing the service
b) While mowing the lawn, Aditya’s lawnmower spews out smoke that Priyanka’s
neighbour Juhi has to breathe
c) Priyanka’s newly cut lawn makes her neighbourhood more attractive and beautiful
d) Priyanka’s neighbours pay her if she promises to get her lawn cut on a regular
basis

8. Adam Smith’s invisible hand theory refers to:

 a) the subtle and often hidden methods that businesses use to profit at consumers’
expense
b) the ability of free markets to reach desirable outcomes, despite the self-interest of
market participants
c) the ability of government regulation to benefit consumers, even if the consumers
are unaware of the regulations
d) the way in which producers or consumers in unregulated markets impose costs on
innocent bystanders

9. A club wants to raise just enough income to cover its costs. Its income comes partly from
membership fees and partly from selling tickets for its nightly discos. Attendance at the
discos currently leads to overcrowding of the club's room. The demand for membership is
price inelastic and the demand for discos is price elastic. To reduce the crowding without
changing its total income, what should the club do?
a) Raise both the disco ticket price and the membership fee
b) Lower both the disco ticket price and the membership fee
c) Raise the disco ticket price but lower the membership fee
d) Lower the disco ticket price but raise the membership fee

10. Suppose the price of a product increases from 12 to 20 and the quantity demanded falls
from 55 a week to 45. What is the Price Elasticity of Demand?
a) 0.27
b) -0.27
c) 2.5
d) -2.5

11. A study recently came out that butterscotch flavour is not good for the health and should
not be consumed. As a result, there is a sudden decrease in the demand of the butterscotch
ice cream in your city despite no change in the price. This change in the demand is an
example of
a) Leftward shift in the demand curve
b) Contraction in the demand
c) Expansion in the demand
d) Rightward shift in the demand curve

12. Suppose a market is in equilibrium, and then the demand increases. Which of the
following would be shown on a graph that illustrated the effects?
a) An excess demand at the initial equilibrium price
b) An excess demand at the new equilibrium price
c) An excess supply at the initial equilibrium price
d) An excess supply at the new equilibrium price