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Junior Economist Qualification study materials
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Junior Economist Qualification practice questions

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Question 1Microeconomics

In microeconomic theory, the central problem of scarcity arises because:

  1. Resources are unlimited but technology is fixed
  2. Governments restrict the supply of most goods
  3. Human wants are unlimited while productive resources are limited Correct answer.
  4. Human wants are limited while productive resources are unlimited

Explanation

Scarcity is defined by the mismatch between unlimited wants and the finite resources available to satisfy them. Because resources have alternative uses, every society must choose what, how, and for whom to produce.

Question 2Microeconomics

A movement along a single demand curve for a good is caused by a change in:

  1. The price of a substitute good
  2. Consumer preferences
  3. The price of the good itself Correct answer.
  4. Consumer income

Explanation

A change in the good's own price changes quantity demanded and is shown as a movement along the existing demand curve. The other listed factors shift the entire curve to a new position.

Question 3Microeconomics

If the price of a good rises and total revenue earned by sellers falls, the price elasticity of demand for the good is:

  1. Perfectly inelastic
  2. Unit elastic
  3. Inelastic
  4. Elastic Correct answer.

Explanation

When demand is elastic, the percentage fall in quantity demanded exceeds the percentage rise in price, so total revenue falls. This revenue test links elasticity directly to the direction of the revenue change.

Question 4Microeconomics

A binding price ceiling set below the equilibrium price will typically produce:

  1. A surplus because quantity supplied exceeds quantity demanded
  2. No effect because the market clears at equilibrium
  3. A shortage because quantity demanded exceeds quantity supplied Correct answer.
  4. An upward shift of the supply curve

Explanation

At a price below equilibrium, the quantity demanded exceeds the quantity supplied, creating excess demand or a shortage. Non-price rationing mechanisms such as queues or black markets often emerge.

Question 5Microeconomics

The law of diminishing marginal utility states that as a consumer consumes more units of a good in a given period:

  1. Marginal utility becomes negative immediately
  2. Total utility eventually declines from the first unit
  3. The price the consumer is willing to pay rises with each unit
  4. The additional satisfaction from each extra unit eventually falls Correct answer.

Explanation

Diminishing marginal utility means successive units add smaller increments to total utility, though total utility may still rise. Marginal utility turns negative only after satiation, which is a separate point.

Question 6Microeconomics

An indifference curve that is convex to the origin reflects:

  1. A diminishing marginal rate of substitution between the two goods Correct answer.
  2. That one good is a bad rather than a good
  3. That the two goods are perfect substitutes
  4. A constant marginal rate of substitution between the two goods

Explanation

Convexity of an indifference curve means the slope, the marginal rate of substitution, falls in absolute value as more of the horizontal good is consumed. This follows from diminishing marginal utility along an indifference set.

Question 7Microeconomics

A consumer maximizes utility subject to a budget constraint when:

  1. Total expenditure equals total income regardless of prices
  2. The marginal utility of each good is equal
  3. The price of each good is equal
  4. The marginal utility per unit of money spent is equal across all goods purchased Correct answer.

Explanation

The equimarginal principle requires that the last unit of money spent on each good yields the same marginal utility, that is MUx/Px equals MUy/Py. Otherwise reallocating spending could raise total utility.

Question 8Microeconomics

In the short run, a firm should shut down production if price falls below:

  1. Marginal cost
  2. Minimum average variable cost Correct answer.
  3. Average total cost
  4. Average fixed cost

Explanation

If price cannot cover average variable cost, the firm loses less by producing nothing and paying only fixed costs. The shutdown point is the minimum of the average variable cost curve.

Question 9Microeconomics

In a perfectly competitive market, a profit-maximizing firm in long-run equilibrium produces where price equals:

  1. Average fixed cost
  2. Marginal revenue but above average total cost
  3. Minimum average total cost Correct answer.
  4. The highest point of the marginal cost curve

Explanation

Free entry and exit drive price to the minimum of long-run average total cost, where firms earn only normal profit. At this point price equals marginal cost and minimum average total cost simultaneously.

Question 10Microeconomics

A monopolist maximizes profit by choosing the output at which:

  1. Price equals marginal cost
  2. Marginal revenue equals marginal cost Correct answer.
  3. Average total cost is minimized
  4. Marginal revenue is zero

Explanation

Any firm maximizes profit where marginal revenue equals marginal cost. The monopolist then charges the price given by the demand curve at that quantity, which exceeds marginal cost.

Question 11Microeconomics

Compared with a competitive market, a profit-maximizing monopolist that charges a single price typically generates:

  1. A larger quantity at a higher price
  2. The same quantity at a higher price
  3. A smaller quantity and a higher price Correct answer.
  4. A larger quantity and a lower price

Explanation

Because the monopolist restricts output to where marginal revenue equals marginal cost, quantity is lower and price higher than under competition. This creates a deadweight loss relative to the efficient outcome.

Question 12Microeconomics

Price discrimination requires that a seller be able to:

  1. Produce at zero marginal cost
  2. Operate under government price regulation
  3. Prevent resale between customer groups and identify groups with different elasticities Correct answer.
  4. Sell only to a single buyer

Explanation

Successful price discrimination needs market separation to prevent arbitrage and the ability to segment buyers by willingness to pay. The firm then charges higher prices to less elastic groups.

Question 13Microeconomics

In the kinked demand curve model of oligopoly, the demand curve is steeper below the current price because rivals are assumed to:

  1. Ignore both price increases and price cuts
  2. Ignore price increases but match price cuts Correct answer.
  3. Match price increases but ignore price cuts
  4. Match both price increases and price cuts

Explanation

The kink arises because rivals are assumed to ignore a price rise, leaving the firm with elastic demand, but to match a price cut, making demand inelastic below the current price. This asymmetry can produce price rigidity.

Question 14Microeconomics

A cartel agreement among oligopolists is difficult to sustain primarily because:

  1. Each member has an incentive to cheat by producing above its quota Correct answer.
  2. Cartels are always illegal in every country
  3. Marginal costs are identical across all firms
  4. Demand curves are perfectly inelastic

Explanation

The cartel outcome resembles a monopoly, but each firm can gain by secretly expanding output at the agreed price. This prisoner's dilemma structure makes collusion unstable without enforcement.

Question 15Microeconomics

A firm's production function exhibits increasing returns to scale when:

  1. Doubling all inputs exactly doubles output
  2. Doubling all inputs more than doubles output Correct answer.
  3. Adding one more unit of labor raises output
  4. Doubling all inputs less than doubles output

Explanation

Returns to scale concern the response of output to proportional changes in all inputs. Increasing returns occur when output rises by a larger proportion than the inputs.

Question 16Microeconomics

When the marginal product of labor exceeds the average product of labor, the average product is:

  1. Falling
  2. Constant
  3. At its maximum
  4. Rising Correct answer.

Explanation

The average product rises whenever the marginal product lies above it, because the new worker adds more than the existing average. The average peaks where marginal product equals average product.

Question 17Microeconomics

In the short run, a firm's total cost curve is the vertical sum of:

  1. Marginal cost and average total cost
  2. Average fixed cost and average variable cost
  3. Explicit cost and marginal cost
  4. Total fixed cost and total variable cost Correct answer.

Explanation

Total cost equals total fixed cost plus total variable cost. Fixed costs do not vary with output while variable costs rise with the quantity produced.

Question 18Microeconomics

A firm operating in a perfectly competitive market faces a horizontal demand curve because:

  1. All firms in the market produce identical products at different prices
  2. Consumers have identical preferences
  3. The firm's output is too small to affect the market price Correct answer.
  4. The government sets the price

Explanation

An individual competitive firm is a price taker: its output is a negligible share of the market, so it can sell any quantity at the prevailing price. The market demand curve itself is downward sloping.

Question 19Microeconomics

A negative externality in production, such as pollution, causes the private market to produce:

  1. More than the socially optimal quantity at a higher price
  2. More than the socially optimal quantity at a lower price Correct answer.
  3. Less than the socially optimal quantity at a lower price
  4. The socially optimal quantity because firms internalize the cost

Explanation

When producers do not bear the full social cost, private marginal cost lies below social marginal cost. The result is overproduction relative to the social optimum and a price that is too low.

Question 20Microeconomics

A good that is non-rival in consumption and non-excludable is classified as:

  1. A common-pool resource
  2. A private good
  3. A club good
  4. A public good Correct answer.

Explanation

Public goods combine non-rivalry, meaning one person's use does not reduce another's, with non-excludability, meaning users cannot be prevented from consuming. These features create free-rider problems and justify public provision.

Question 21Microeconomics

The Coase theorem suggests that, in the absence of transaction costs and with clearly defined property rights, externalities can be resolved through:

  1. Bargaining between the affected parties Correct answer.
  2. Nationalization of the polluting firm
  3. A Pigouvian tax set by the government
  4. Direct government provision of the good

Explanation

The Coase theorem holds that private bargaining can reach an efficient allocation regardless of the initial assignment of property rights, provided transaction costs are zero. The distribution of gains, however, depends on who holds the rights.

Question 22Microeconomics

In a competitive labor market, a profit-maximizing firm hires workers up to the point where the wage equals:

  1. The average product of labor
  2. The marginal cost of capital
  3. The value of the marginal product of labor Correct answer.
  4. Total revenue divided by employment

Explanation

The firm hires additional labor as long as the revenue generated by the extra worker exceeds the wage. Equilibrium occurs where the wage equals the value of the marginal product of labor.

Question 23Microeconomics

Which of the following best describes the substitution effect of a wage increase on an individual's labor supply?

  1. It has no effect on hours worked
  2. It encourages more leisure because income rises
  3. It encourages more work because leisure becomes more expensive Correct answer.
  4. It reduces the wage rate faced by the worker

Explanation

A higher wage raises the opportunity cost of leisure, so the substitution effect pushes workers toward more hours. The income effect works in the opposite direction, and the net effect depends on which dominates.

Question 24Microeconomics

The marginal rate of technical substitution between two inputs measures:

  1. The rate at which one input can replace another while holding output constant Correct answer.
  2. The rate at which output rises when all inputs increase
  3. The total cost of producing one unit of output
  4. The ratio of input prices

Explanation

The marginal rate of technical substitution is the slope of an isoquant and shows how much of one input can be reduced when another is increased, keeping output unchanged. Cost minimization sets it equal to the input price ratio.

Question 25Microeconomics

A natural monopoly is characterized by:

  1. A patent granted to a single firm
  2. Rising marginal cost throughout the market
  3. Perfectly elastic market demand
  4. Declining long-run average cost over the relevant range of market demand Correct answer.

Explanation

A natural monopoly arises when economies of scale are so large that one firm can supply the entire market at lower average cost than several firms. Regulation often replaces competition in such markets.

Question 26Microeconomics

A consumer's budget line shifts outward in a parallel fashion when:

  1. both prices fall by the same proportion while money income is constant
  2. the consumer's preferences shift toward the cheaper good
  3. the price of one good falls while money income is constant
  4. money income rises while both prices remain constant Correct answer.

Explanation

The intercepts of a budget line are income divided by each price, so a rise in money income with unchanged prices raises both intercepts proportionally and produces a parallel outward shift. A change in relative prices alters the slope rather than shifting the line parallel. Preferences do not enter the budget constraint at all.

Question 27Microeconomics

A firm's short-run average variable cost curve intersects its short-run marginal cost curve at the point where:

  1. marginal cost is at its minimum
  2. total fixed cost begins to decline
  3. average variable cost is at its minimum Correct answer.
  4. average total cost is at its minimum

Explanation

Marginal cost pulls the average whenever the two differ: when MC is below AVC the average falls, and when MC is above AVC the average rises, so the crossing point is the minimum of AVC. The same logic makes MC cross average total cost at the minimum of ATC, which is a different output level because fixed cost is spread over a larger range. Fixed cost never declines in the short run.

Question 28Microeconomics

A price ceiling set below the equilibrium price in a competitive market will typically produce:

  1. a shortage, because quantity demanded exceeds quantity supplied at the ceiling price Correct answer.
  2. no change in quantity traded, because the ceiling merely redistributes surplus
  3. a surplus, because suppliers expand output to meet the higher demand
  4. an increase in total surplus, because consumers gain more than producers lose

Explanation

At a binding ceiling the quantity supplied falls along the supply curve while quantity demanded rises along the demand curve, so the short side of the market governs and a shortage appears. The ceiling also reduces total surplus by eliminating mutually beneficial trades. A surplus arises only from a binding price floor.

Question 29Microeconomics

The deadweight loss from a per-unit tax on a good is larger when:

  1. demand and supply are both relatively elastic Correct answer.
  2. the tax is levied on buyers rather than sellers
  3. supply is perfectly inelastic
  4. demand is perfectly inelastic

Explanation

Deadweight loss depends on how much the tax reduces the quantity traded, which is governed by the elasticities of demand and supply. When both sides are elastic, the quantity falls sharply and the welfare triangle is large. Statutory incidence does not affect the size of the loss.

Question 30Microeconomics

A consumer's demand curve for a normal good can be derived from indifference curve analysis by:

  1. measuring the vertical distance between the budget line and the highest attainable indifference curve
  2. holding utility constant and recording the slope of the indifference curve at a single point
  3. varying the good's price and recording the quantity at each new tangency point with the budget line Correct answer.
  4. shifting the budget line outward while holding relative prices fixed

Explanation

The demand curve traces how the chosen quantity responds to price, so each price generates a new budget line whose tangency with an indifference curve identifies a quantity. Plotting price against those quantities yields the ordinary demand curve. Holding utility constant produces a compensated demand curve, a different construct.

Question 31Microeconomics

If a firm's marginal revenue is less than its marginal cost at the current output level, the firm should:

  1. reduce output until marginal revenue equals marginal cost Correct answer.
  2. raise price without changing output to restore equality
  3. keep output unchanged because average cost is minimized
  4. expand output because additional units add to profit

Explanation

Profit rises when the revenue from an extra unit exceeds its cost, and falls when marginal cost exceeds marginal revenue, so the firm should contract output toward the point where the two are equal. Expanding output would add further losses on the margin. Minimizing average cost is a different objective from maximizing profit.

Question 32Microeconomics

A monopsonist in a labor market faces an upward-sloping labor supply curve, so its marginal cost of labor:

  1. is below the wage because the firm can bargain down the going rate
  2. equals the wage because the firm is a price taker in the labor market
  3. exceeds the wage because hiring an extra worker raises the wage paid to all workers Correct answer.
  4. equals the marginal revenue product of labor at the competitive equilibrium

Explanation

To attract one more worker the monopsonist must offer a higher wage, and that higher wage applies to all inframarginal workers, so the marginal cost of labor lies above the supply curve. The firm hires where marginal cost of labor equals marginal revenue product, which yields a wage below the competitive level. A price taker in the labor market faces a horizontal supply curve.

Question 33Microeconomics

A negative externality of consumption, such as the harm from second-hand smoke, implies that the free market:

  1. produces more than the socially efficient quantity because marginal social benefit is below marginal private benefit Correct answer.
  2. produces the socially efficient quantity because consumers internalize the harm
  3. produces less than the socially efficient quantity because the good is underprovided
  4. produces less than the socially efficient quantity because marginal social cost exceeds marginal private cost

Explanation

When consumption harms third parties, the marginal social benefit of the good is lower than the private benefit that consumers perceive, so the demand curve overstates social value and the market quantity exceeds the efficient level. A corrective tax or regulation could move output toward the optimum. Externalities of production, not consumption, shift the cost side.

Question 34Microeconomics

A firm's long-run average cost curve is downward sloping over the range of output where the firm experiences:

  1. diminishing marginal returns to a variable input
  2. constant returns to scale
  3. diseconomies of scale
  4. economies of scale Correct answer.

Explanation

Economies of scale mean that average cost falls as the scale of the plant and all inputs expand, which is exactly a downward-sloping long-run average cost curve. Diseconomies of scale correspond to the upward-sloping range. Diminishing marginal returns is a short-run concept tied to a fixed input.

Question 35Microeconomics

In a market with a positive externality in production, the socially optimal output exceeds the competitive equilibrium output because:

  1. marginal social cost is below marginal private cost, so the supply curve understates the true cost saving to society Correct answer.
  2. the Coase theorem guarantees that private bargaining will reach the optimum
  3. marginal social benefit exceeds marginal private benefit, so demand understates social value
  4. the good is non-excludable and therefore underprovided by private firms

Explanation

A positive production externality means the firm's activity confers benefits that lower social cost relative to private cost, so the social supply curve lies below the private one and the socially optimal quantity is larger than the market quantity. A Pigouvian subsidy can close the gap. The Coase theorem concerns bargaining under zero transaction costs and does not by itself guarantee an optimum in practice.

Question 36Microeconomics

The own-price elasticity of demand for a good is estimated at -0.4. This implies that demand is:

  1. inelastic, so a price increase lowers total revenue
  2. unit elastic, so total revenue is unaffected by price changes
  3. inelastic, so a price increase raises total revenue Correct answer.
  4. elastic, so a price increase raises total revenue

Explanation

An elasticity of -0.4 has absolute value below one, meaning quantity demanded falls proportionally less than price rises. Total revenue therefore moves in the same direction as price, so a price increase raises revenue. Revenue falls with a price increase only when demand is elastic.

Question 37Microeconomics

Two consumers have different preferences but face the same prices and income. At their respective optimal bundles, their marginal rates of substitution:

  1. differ because their tastes differ
  2. are equal to each other but not necessarily to the price ratio
  3. are undefined because preferences are ordinal
  4. are equal to each other and to the price ratio Correct answer.

Explanation

Each consumer optimizes by equating the marginal rate of substitution to the ratio of prices, so with identical prices both MRS values coincide with that ratio even though the chosen bundles differ. This is the basis for the efficiency of competitive exchange. Ordinal preferences still yield a well-defined MRS at a smooth tangency.

Question 38Microeconomics

A firm price-discriminates between two markets. To maximize profit it should charge the higher price in the market where:

  1. demand is less elastic at the profit-maximizing quantity Correct answer.
  2. demand is more elastic at the profit-maximizing quantity
  3. the number of buyers is larger
  4. marginal cost is higher

Explanation

The inverse elasticity rule implies that the markup over marginal cost is larger where demand is less elastic, since buyers there are less able to switch away. Charging more in the more elastic market would drive away too many customers. Differences in marginal cost and market size do not by themselves determine which price is higher.

Question 39Microeconomics

A firm's short-run production function shows total product rising at a decreasing rate as more labor is added. This indicates that:

  1. the average product of labor is rising
  2. the marginal product of labor is positive but falling Correct answer.
  3. the marginal product of labor is negative
  4. total product has reached its maximum

Explanation

A total product curve that is increasing but at a diminishing rate means each additional worker still adds output, so marginal product is positive, yet the additions are getting smaller, so it is falling. This is the stage of diminishing marginal returns. Total product reaches its maximum only where marginal product becomes zero.

Question 40Microeconomics

A public good that is non-rival and non-excludable tends to be underprovided by private markets because:

  1. each consumer has an incentive to free ride, so revealed willingness to pay falls short of total value Correct answer.
  2. private firms cannot produce goods that generate external benefits
  3. the marginal cost of providing it to an additional user is high
  4. consumers always prefer private goods to public goods

Explanation

Because no one can be excluded, each person hopes others will pay and understates demand, so voluntary contributions sum to less than the good's total value. The efficient condition requires the sum of marginal rates of substitution to equal marginal cost. Non-rivalry also implies that the efficient price for additional users is zero.

Question 41Macroeconomics

A country's nominal GDP rises from 500 billion to 550 billion over one year, while the GDP deflator rises from 100 to 110. What happened to real GDP?

  1. Real GDP rose to 505 billion
  2. Real GDP rose to 550 billion
  3. Real GDP fell to 495 billion
  4. Real GDP stayed unchanged at 500 billion Correct answer.

Explanation

Real GDP equals nominal GDP divided by the deflator expressed in hundredths. Here 550/1.10 = 500, identical to the base-year value of 500/1.00, so all nominal growth was pure price inflation and real output did not change.

Question 42Macroeconomics

Which transaction is excluded from a country's GDP for the current year?

  1. A newly built apartment sold to a first-time buyer
  2. A consultant's fee paid by a domestic firm
  3. A used car sold by one household to another Correct answer.
  4. A restaurant meal purchased by a tourist

Explanation

GDP counts only output produced during the period, so resale of an existing asset merely transfers ownership and is excluded. The apartment is new construction, the meal is current service output, and the consulting fee is current production, so all three enter GDP.

Question 43Macroeconomics

In the expenditure approach, which component of GDP is most directly reduced when households increase their saving out of a given disposable income?

  1. Household final consumption expenditure Correct answer.
  2. Government final consumption expenditure
  3. Gross fixed capital formation
  4. Net exports of goods and services

Explanation

Saving out of disposable income is income not spent on consumption, so household final consumption expenditure falls by construction. The other components are determined by government, firms and foreign demand, not directly by the household saving decision.

Question 44Macroeconomics

The consumer price index rises from 120 to 126 over a year. What is the inflation rate measured by this index?

  1. 1.05 percent
  2. 4.8 percent
  3. 6.0 percent
  4. 5.0 percent Correct answer.

Explanation

The inflation rate is the percentage change in the index: (126 - 120)/120 = 0.05, or 5 percent. Dividing the point change by the new index level instead of the old one gives the common error of 4.8 percent.

Question 45Macroeconomics

Which group is typically counted as unemployed in the standard labour force survey?

  1. A person without work who actively sought a job in the past four weeks Correct answer.
  2. A full-time student who is not looking for work
  3. A retiree receiving a pension
  4. A person working ten hours a week for pay

Explanation

Unemployment requires being without work, available to start, and actively searching during the reference period. Students not seeking work and retirees are outside the labour force, while a person working ten hours is classified as employed.

Question 46Macroeconomics

A country's labour force is 50 million, of whom 45 million are employed. What is the unemployment rate?

  1. 90.0 percent
  2. 5.0 percent
  3. 11.1 percent
  4. 10.0 percent Correct answer.

Explanation

Unemployed persons equal 50 - 45 = 5 million, and the unemployment rate is unemployed divided by the labour force: 5/50 = 10 percent. The denominator must be the labour force, not the employed population.

Question 47Macroeconomics

In the circular flow of income, which of the following is an injection into the domestic income stream?

  1. Household saving
  2. Taxes paid to government
  3. Imports of goods and services
  4. Business investment spending Correct answer.

Explanation

Injections add to the circular flow and comprise investment, government spending and exports. Saving, taxes and imports are withdrawals that leak out of the domestic spending stream.

Question 48Macroeconomics

Which of the following best describes the automatic stabiliser role of progressive income tax during an economic downturn?

  1. Tax rates are legislated upward to close the output gap
  2. Tax revenue falls faster than income, cushioning the fall in disposable income Correct answer.
  3. Tax revenue is unaffected because rates are fixed by statute
  4. Tax revenue rises because more people become liable at higher rates

Explanation

With progressive rates, average tax falls as incomes decline, so disposable income falls proportionally less than gross income, dampening the multiplier effect without any new legislation. This is the defining feature of an automatic stabiliser as opposed to discretionary fiscal action.

Question 49Macroeconomics

An economy has a marginal propensity to consume of 0.8 and no income taxes or imports. What is the simple expenditure multiplier for an increase in autonomous investment?

  1. 4
  2. 1.25
  3. 5 Correct answer.
  4. 0.8

Explanation

The simple multiplier is 1/(1 - MPC), which here is 1/(1 - 0.8) = 5. Each round of spending generates 0.8 of the previous round, and the geometric sum converges to five times the initial injection.

Question 50Macroeconomics

If the required reserve ratio is 10 percent and banks hold no excess reserves while the public holds no currency, what is the maximum deposit expansion from a new 200 million deposit?

  1. 20 million
  2. 200 million
  3. 1,800 million
  4. 2,000 million Correct answer.

Explanation

The simple deposit multiplier is 1 divided by the reserve ratio, so 1/0.10 = 10 and the maximum new deposits are 200 x 10 = 2,000 million. This is the theoretical ceiling under the stated zero-leakage assumptions.