ECO 101

PRACTICE QUESTIONS
(PREPARED, EDITED AND COMPILED BY LAOLU MAKAY)
(PREPARED, EDITED AND COMPILED BY LAOLU MAKAY)

IMPORTANT NOTICE!!!

These practice questions were carefully prepared, edited and compiled

based on the course outline given by the lecturer for the 2024/2025
academic session. It is intended to assist student and complement
their reading process.

These practice questions are not alternatives to classes and lecturer

note. Therefore, students are encouraged to attend classes regularly.

The recommended texts (if provided) are not alternatives to the

lecturers recommended text book so students are encouraged to study
the lecturers recommended text books.

GOOD LUCK!!!

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1. What is the fundamental problem of economics? a) Unlimited resources b) Scarcity and

choice c) Abundance of goods d) Elimination of opportunity cost
2. Which of the following best describes economics as a science? a) It studies only money-
related activities b) It is a physical science c) It is a social science concerned with
decision-making d) It ignores human behavior
3. Which method is most commonly used in economic analysis? a) Deductive reasoning b)
Inductive reasoning c) Both a and b d) None of the above
4. Which of these is NOT a major area of economic specialization? a) Microeconomics b)
Macroeconomics c) Quantum economics d) International economics
5. Who is considered the father of modern economics? a) Karl Marx b) Adam Smith c) John
Maynard Keynes d) Alfred Marshall
6. Which school of thought introduced the concept of "the invisible hand"? a) Classical
economics b) Neo-classical economics c) Keynesian economics d) Welfare economics
7. In microeconomics, partial equilibrium analysis focuses on: a) The entire economy b) A
single market c) Government policies d) Exchange rate determination
8. A major assumption in partial equilibrium analysis is: a) The economy operates in a
vacuum b) All other markets remain unchanged c) Only macroeconomic variables are
considered d) Demand and supply are independent
9. The law of demand states that: a) As price increases, quantity demanded increases b) As
price increases, quantity demanded decreases c) Price and demand are unrelated d)
Quantity demanded remains constant regardless of price
10. The law of supply states that: a) As price decreases, supply increases b) As price
increases, supply increases c) Supply is independent of price d) Quantity supplied
remains constant regardless of price
11. Which of the following is NOT a determinant of demand? a) Consumer preferences b)
Cost of production c) Income levels d) Price of related goods
12. Complementary goods are: a) Goods that serve the same purpose b) Goods that are
consumed together c) Goods that have no relationship d) Goods that have an indirect
effect on demand
13. The short-run production function assumes: a) All factors of production are variable b) At
least one factor is fixed c) No costs are incurred d) Production is infinite
14. Which market structure is characterized by a single seller? a) Monopoly b) Oligopoly c)
Perfect competition d) Monopolistic competition
15. What is the primary goal of a firm in a competitive market? a) Maximizing revenue b)
Maximizing profit c) Reducing production d) Increasing employment
16. Which of the following is an example of a variable cost? a) Rent b) Machinery purchase
c) Raw materials d) Insurance premium

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17. A perfectly competitive market is characterized by: a) Few sellers and many buyers b)
Many sellers and many buyers c) A single seller d) Government intervention
18. In the long run, firms in a perfectly competitive market earn: a) Negative economic profit
b) Zero economic profit c) Positive economic profit d) No revenue at all
19. What happens when a firm experiences increasing returns to scale? a) Doubling inputs
leads to less than double the output b) Doubling inputs leads to exactly double the output
c) Doubling inputs leads to more than double the output d) Inputs and outputs remain
constant
20. Which market structure is characterized by few firms that dominate the market? a)
Monopoly b) Oligopoly c) Perfect competition d) Monopolistic competition
21. A monopolistic competition market structure is characterized by: a) A single seller b)
Differentiated products c) No competition d) Homogeneous products
22. The shut-down point of a firm occurs when: a) Total revenue equals total cost b) Price
falls below average variable cost c) Price is above marginal cost d) Fixed costs exceed
variable costs
23. In an oligopoly, firms tend to: a) Act independently without concern for competitors b)
Rely on government support c) Consider the actions of competitors when making
decisions d) Operate without barriers to entry
24. Which of the following is NOT a feature of a perfectly competitive market? a)
Homogeneous products b) No barriers to entry c) Single buyer dominance d) Large
number of buyers and sellers
25. What is the term for the additional cost incurred from producing one more unit of a good?
a) Total cost b) Marginal cost c) Average cost d) Opportunity cost
26. In microeconomics, utility refers to: a) The physical weight of a product b) The ability of
a good to satisfy a consumer’s wants c) The production efficiency of a firm d) The
government’s role in pricing
27. The law of diminishing marginal returns states that: a) Increasing inputs always leads to
proportional increases in output b) After a certain point, additional inputs result in smaller
increases in output c) Output remains constant regardless of input increases d) There is no
relationship between input and output
28. Price elasticity of demand measures: a) How much demand changes when income
changes b) How much demand changes when price changes c) The relationship between
supply and demand d) The ability of firms to adjust prices
29. When the demand for a good is inelastic: a) Consumers respond strongly to price changes
b) The percentage change in quantity demanded is smaller than the percentage change in
price c) Total revenue decreases when price increases d) The good has many substitutes
30. The income elasticity of demand for normal goods is: a) Positive b) Negative c) Zero d)
Unrelated to consumer income

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31. Cross elasticity of demand measures the responsiveness of: a) Demand for one good to
changes in income b) Demand for one good to changes in the price of another good c)
Supply to changes in technology d) Government policies on taxation
32. Which of the following factors does NOT affect price elasticity of demand? a)
Availability of substitutes b) Necessity of the good c) Production cost d) Time horizon
33. If a good has an elasticity coefficient greater than 1, it is considered: a) Inelastic b) Unit
elastic c) Elastic d) Perfectly inelastic
34. A firm maximizes profit where: a) Marginal revenue equals marginal cost b) Total cost is
minimized c) Average cost is at its lowest point d) Price is higher than demand
35. A government-imposed price ceiling typically leads to: a) Surpluses b) Shortages c)
Equilibrium pricing d) Increased production
36. A price floor set above equilibrium price results in: a) Shortages b) Surpluses c) No
change in market outcomes d) Decreased production costs
37. An increase in minimum wage is an example of: a) A price ceiling b) A price floor c) An
equilibrium adjustment d) A taxation policy
38. If two goods are substitutes, an increase in the price of one will: a) Decrease demand for
the other b) Increase demand for the other c) Have no effect d) Decrease supply of both
39. If two goods are complements, an increase in the price of one will: a) Decrease demand
for the other b) Increase demand for the other c) Have no effect d) Increase supply of
both
40. The production possibility frontier (PPF) represents: a) The maximum combination of
goods an economy can produce with available resources b) The total revenue generated
by firms c) The total government spending in an economy d) The relationship between
supply and demand
41. A movement along the production possibility frontier is caused by: a) A change in
available resources b) A change in technology c) A change in the production of one good
relative to another d) Government intervention
42. Opportunity cost is best defined as: a) The total cost of production b) The value of the
next best alternative foregone c) The difference between revenue and costs d) The money
spent on resources
43. A major reason for increasing opportunity cost is: a) Specialization of resources b)
Decreasing returns to scale c) Homogeneous resource allocation d) An increase in
consumer demand
44. In the short run, firms can adjust: a) All factors of production b) Only some factors of
production c) None of their factors of production d) Government policies
45. A perfectly elastic demand curve is represented by: a) A vertical line b) A horizontal line
c) A downward-sloping curve d) An upward-sloping curve

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46. A perfectly inelastic supply curve means: a) The quantity supplied is highly responsive to
price changes b) The quantity supplied does not change with price c) The market is
highly competitive d) There are no barriers to entry
47. In the long run, all costs are: a) Fixed b) Variable c) Constant d) Unimportant
48. An externality is: a) A cost or benefit that affects a third party b) A government-imposed
tax c) A profit-maximizing strategy d) A measure of economic growth
49. Negative externalities lead to: a) Overproduction of goods b) Underproduction of goods
c) No impact on production d) A decrease in government intervention
50. A public good is characterized by: a) Excludability and rivalry b) Non-excludability and
non-rivalry c) High production costs d) Government ownership
51. The law of demand states that as price increases: a) Demand increases b) Demand
decreases c) Demand remains constant d) Demand fluctuates unpredictably
52. The law of supply states that as price increases: a) Supply increases b) Supply decreases
c) Supply remains unchanged d) Supply fluctuates unpredictably
53. A demand curve typically slopes: a) Upward b) Downward c) Horizontally d) Vertically
54. A supply curve typically slopes: a) Upward b) Downward c) Horizontally d) Vertically
55. If the price of a substitute good increases, the demand for the original good: a) Increases
b) Decreases c) Remains unchanged d) Becomes perfectly elastic
56. If the price of a complement good increases, the demand for the original good: a)
Increases b) Decreases c) Remains unchanged d) Becomes perfectly inelastic
57. A rightward shift in the demand curve indicates: a) An increase in demand b) A decrease
in demand c) A movement along the curve d) No change in demand
58. A leftward shift in the demand curve indicates: a) An increase in demand b) A decrease
in demand c) A movement along the curve d) No change in demand
59. Which of the following factors does NOT shift the demand curve? a) Changes in income
b) Changes in consumer tastes c) Changes in the price of the good itself d) Changes in
population size
60. A rightward shift in the supply curve indicates: a) An increase in supply b) A decrease in
supply c) No change in supply d) A movement along the curve
61. A leftward shift in the supply curve indicates: a) An increase in supply b) A decrease in
supply c) No change in supply d) A movement along the curve
62. The price at which quantity demanded equals quantity supplied is called: a) Market price
b) Equilibrium price c) Minimum price d) Maximum price
63. A surplus occurs when: a) Quantity demanded exceeds quantity supplied b) Quantity
supplied exceeds quantity demanded c) Price is below equilibrium d) Supply curve shifts
leftward

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64. A shortage occurs when: a) Quantity demanded exceeds quantity supplied b) Quantity
supplied exceeds quantity demanded c) Price is above equilibrium d) Demand curve
shifts leftward
65. Price elasticity of demand measures: a) The responsiveness of quantity demanded to price
changes b) The responsiveness of quantity supplied to price changes c) The effect of
price on production costs d) The overall economic growth rate
66. A perfectly inelastic demand curve is: a) Vertical b) Horizontal c) Downward-sloping d)
Upward-sloping
67. A perfectly elastic demand curve is: a) Vertical b) Horizontal c) Downward-sloping d)
Upward-sloping
68. The cross-price elasticity of demand for substitute goods is: a) Positive b) Negative c)
Zero d) Unrelated
69. The cross-price elasticity of demand for complementary goods is: a) Positive b) Negative
c) Zero d) Unrelated
70. The income elasticity of demand for inferior goods is: a) Positive b) Negative c) Zero d)
Infinite
71. Price equilibrium is achieved when: a) Demand exceeds supply b) Supply exceeds
demand c) Quantity demanded equals quantity supplied d) Prices are regulated by the
government
72. A market surplus occurs when: a) Price is below equilibrium b) Quantity supplied
exceeds quantity demanded c) Demand is perfectly elastic d) Government sets a price
floor below equilibrium
73. A market shortage occurs when: a) Supply exceeds demand b) Demand exceeds supply c)
The market is at equilibrium d) Prices are too high
74. If demand increases while supply remains constant, equilibrium price will: a) Increase b)
Decrease c) Remain unchanged d) Become perfectly elastic
75. If supply increases while demand remains constant, equilibrium price will: a) Increase b)
Decrease c) Stay the same d) Fluctuate unpredictably
76. A shift in both demand and supply curves can lead to: a) No change in equilibrium price
b) An increase in quantity but an indeterminate effect on price c) No effect on market
equilibrium d) A fixed supply curve
77. Government intervention in price equilibrium often results in: a) A perfectly competitive
market b) Market efficiency c) Surpluses or shortages d) Elimination of opportunity cost
78. The role of price in a market economy is to: a) Set wages for all workers b) Act as a
signal for resource allocation c) Ensure all products are sold at cost price d) Reduce
consumer choices

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79. If both demand and supply decrease simultaneously, equilibrium price: a) Will always
increase b) Will always decrease c) May increase, decrease, or remain unchanged d) Will
remain constant
80. When demand is perfectly inelastic, changes in supply will: a) Have no effect on
equilibrium price b) Only affect equilibrium quantity c) Lead to drastic price fluctuations
d) Cause proportional changes in price and quantity
81. Elasticity of demand measures: a) How much demand changes with supply changes b)
How much demand changes with price changes c) How much supply changes with price
changes d) The relationship between income and consumption
82. If a good has an elasticity coefficient less than 1, it is considered: a) Elastic b) Unit elastic
c) Inelastic d) Perfectly elastic
83. When demand is perfectly elastic, the demand curve is: a) Vertical b) Horizontal c)
Downward-sloping d) Upward-sloping
84. The elasticity of supply depends primarily on: a) The number of buyers in the market b)
The availability of substitutes c) The ability of producers to change production levels d)
The level of consumer income
85. Cross-price elasticity of demand measures: a) The responsiveness of demand to changes
in consumer income b) The relationship between two different goods c) How demand
changes when supply changes d) The effect of taxation on goods
86. If cross-price elasticity between two goods is positive, the goods are: a) Complements b)
Unrelated c) Substitutes d) Inferior goods
87. A perfectly inelastic supply curve means: a) Quantity supplied does not change with price
b) Quantity supplied increases with price c) Quantity supplied decreases with price d)
The supply curve is horizontal
88. Income elasticity of demand measures: a) How quantity demanded responds to price
changes b) How quantity demanded responds to income changes c) How supply changes
with consumer demand d) The responsiveness of supply to price
89. A normal good has: a) Negative income elasticity b) Positive income elasticity c) Zero
income elasticity d) Infinite elasticity
90. If a good has a negative income elasticity of demand, it is classified as: a) A normal good
b) A luxury good c) An inferior good d) A substitute good
91. The concept of consumer surplus refers to: a) The difference between what consumers
are willing to pay and what they actually pay b) The excess supply in a market c) The
total revenue earned by producers d) The total cost of production
92. Producer surplus is defined as: a) The difference between the price received by producers
and their minimum acceptable price b) The total revenue minus total costs c) The
additional cost incurred by firms in production d) The profit earned by monopolistic
firms

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93. Tax incidence refers to: a) The amount of tax imposed by the government b) The burden
of tax shared between buyers and sellers c) The total tax revenue collected d) The
elasticity of taxation on income
94. A tax on a good with perfectly inelastic demand will: a) Be entirely paid by consumers b)
Be entirely paid by producers c) Be shared equally between consumers and producers d)
Have no effect on price
95. Deadweight loss due to taxation arises when: a) The tax leads to a decrease in market
transactions b) The tax increases total revenue c) The tax eliminates market inefficiencies
d) The government provides subsidies
96. The concept of economic efficiency is achieved when: a) Total surplus is maximized b)
Prices are set by the government c) Firms earn maximum profit d) There are no
externalities in the market
97. Market failure occurs when: a) A market produces an inefficient outcome b) There is
excess demand in a market c) The government intervenes in the economy d) Firms
experience losses in competition
98. A price ceiling set below equilibrium price results in: a) A shortage b) A surplus c) No
change in quantity demanded d) Increased production
99. A price floor set above equilibrium price results in: a) A shortage b) A surplus c) A
perfectly elastic demand d) Increased market efficiency
100. The Coase theorem suggests that externalities can be resolved through: a) Government
intervention b) Private bargaining c) Market failure d) Price controls

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Answers:
1. b) Scarcity and choice
2. c) It is a social science concerned with decision-making
3. c) Both a and b
4. c) Quantum economics
5. b) Adam Smith
6. a) Classical economics
7. b) A single market
8. b) All other markets remain unchanged
9. b) As price increases, quantity demanded decreases
10. b) As price increases, supply increases
11. b) Cost of production
12. b) Goods that are consumed together
13. b) At least one factor is fixed
14. a) Monopoly
15. b) Maximizing profit
16. c) Raw materials
17. b) Many sellers and many buyers
18. b) Zero economic profit
19. c) Doubling inputs leads to more than double the output
20. b) Oligopoly
21. b) Differentiated products
22. b) Price falls below average variable cost
23. c) Consider the actions of competitors when making decisions
24. c) Single buyer dominance
25. b) Marginal cost
26. b) The ability of a good to satisfy a consumer’s wants
27. b) After a certain point, additional inputs result in smaller increases in output
28. b) How much demand changes when price changes

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29. b) The percentage change in quantity demanded is smaller than the percentage change in
price
30. a) Positive
31. b) Demand for one good to changes in the price of another good
32. c) Production cost
33. c) Elastic
34. a) Marginal revenue equals marginal cost
35. b) Shortages
36. b) Surpluses
37. b) A price floor
38. b) Increase demand for the other
39. a) Decrease demand for the other
40. a) The maximum combination of goods an economy can produce with available resources
41. c) A change in the production of one good relative to another
42. b) The value of the next best alternative foregone
43. a) Specialization of resources
44. b) Only some factors of production
45. b) A horizontal line
46. b) The quantity supplied does not change with price
47. b) Variable
48. a) A cost or benefit that affects a third party
49. a) Overproduction of goods
50. b) Non-excludability and non-rivalry
51. b) Demand decreases
52. a) Supply increases
53. b) Downward
54. a) Upward
55. a) Increases
56. b) Decreases
57. a) An increase in demand

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58. b) A decrease in demand

59. c) Changes in the price of the good itself
60. a) An increase in supply
61. b) A decrease in supply
62. b) Equilibrium price
63. b) Quantity supplied exceeds quantity demanded
64. a) Quantity demanded exceeds quantity supplied
65. a) The responsiveness of quantity demanded to price changes
66. a) Vertical
67. b) Horizontal
68. a) Positive
69. b) Negative
70. b) Negative
71. c) Quantity demanded equals quantity supplied
72. b) Quantity supplied exceeds quantity demanded
73. b) Demand exceeds supply
74. a) Increase
75. b) Decrease
76. b) An increase in quantity but an indeterminate effect on price
77. c) Surpluses or shortages
78. b) Act as a signal for resource allocation
79. c) May increase, decrease, or remain unchanged
80. b) Only affect equilibrium quantity Answers:
81. b) How much demand changes with price changes
82. c) Inelastic
83. b) Horizontal
84. c) The ability of producers to change production levels
85. b) The relationship between two different goods
86. c) Substitutes
87. a) Quantity supplied does not change with price

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88. b) How quantity demanded responds to income changes

89. b) Positive income elasticity
90. c) An inferior good
91. a) The difference between what consumers are willing to pay and what they actually pay
92. a) The difference between the price received by producers and their minimum acceptable
price
93. b) The burden of tax shared between buyers and sellers
94. a) Be entirely paid by consumers
95. a) The tax leads to a decrease in market transactions
96. a) Total surplus is maximized
97. a) A market produces an inefficient outcome
98. a) A shortage
99. b) A surplus
100. b) Private bargaining

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