Economics - Microeconomics Topics
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quiz Questions
Q1
Which of the following describes the law of supply?
Direct relationship between price and quantity supplied
Inverse relationship between price and quantity supplied
Direct relationship between price and demand
Inverse relationship between price and demand
Explanation
The law of supply states that, ceteris paribus, an increase in price results in an increase in quantity supplied.
Q2
A movement along the supply curve is caused by a change in which factor?
Price of the commodity itself
Technology
Price of inputs
Government policy
Explanation
A movement along the supply curve (extension or contraction) occurs only due to a change in the commodity's own price.
Q3
If the market price of a good increases, what happens to the producer surplus?
It increases
It decreases
It remains unchanged
It becomes zero
Explanation
Producer surplus increases when the market price rises, as sellers receive a higher price for the units they sell.
Q4
An improvement in production technology shifts the supply curve in which direction?
Rightward
Leftward
Upward
No shift occurs
Explanation
Technological progress reduces production costs, increasing profitability and shifting the supply curve to the right.
Q5
If the price elasticity of supply is greater than 1, the supply is considered to be:
Elastic
Inelastic
Unitary elastic
Perfectly inelastic
Explanation
When the percentage change in quantity supplied is greater than the percentage change in price, supply is elastic (Es > 1).
Q6
A vertical supply curve parallel to the Y-axis represents which type of elasticity?
Perfectly inelastic supply
Perfectly elastic supply
Unitary elastic supply
Highly elastic supply
Explanation
A vertical supply curve indicates perfectly inelastic supply, meaning quantity supplied remains constant regardless of price.
Q7
An increase in the price of raw materials will cause the supply curve to shift:
Leftward
Rightward
Downward
Nowhere, it causes a movement along the curve
Explanation
Higher input costs increase production expenses, reducing profit margins and shifting the supply curve to the left (decrease in supply).
Q8
What is the elasticity of supply for a straight-line supply curve passing through the origin at a 45-degree angle?
Equal to one
Greater than one
Less than one
Zero
Explanation
Any straight-line supply curve that originates from the origin has a price elasticity of supply equal to one (unitary elastic), regardless of its angle.
Q9
Which of the following horizons typically features a more elastic supply curve?
Long run
Short run
Very short run (Market period)
Elasticity remains identical in all periods
Explanation
In the long run, firms can easily adjust all factors of production and expand capacity, making supply more elastic compared to the short run.
Q10
An excise duty imposed by the government on the production of a firm leads to:
A leftward shift of the supply curve
A rightward shift of the supply curve
An extension of supply along the curve
A contraction of supply along the curve
Explanation
Excise duty increases the marginal cost of production, which decreases supply and shifts the supply curve to the left.