MCQ Book Economics

PREFACE
First of all I would like to thank my parents, my guide, my

teachers, colleagues, my beloved students and almighty for
continuously inspiring me and showing me the right path.
Lots of efforts and research was involved in curating this

book. I feel delighted to introduce the new and revised version of
Business Economics, 1st edition. The book is drafted keeping ICAI New
syllabus guidelines and previous exam questions. The book is made
with utmost detail keeping in mind the level of exams; however some
errors may creep-in unintentionally. Learning is a continuous process
and thus I feel glad to update the errors, if any.
ABOUT THE BOOKS
The books are divided into Two Volumes of Ten chapters

each. Volume 1 is concept book covering all relevant concepts of ICAI.
Volume 2 is MCQ book covering all the past year questions, ICAI
Study Material Questions and MTPs. First 4 Chapters covers Micro
Economics and Next 6 Chapters Covers Macro Economics. Material is
drafted for giving full conceptual clarity keeping in mind exam
requirements.
Efforts were made to include 100% syllabus in the book

however some part which was considered irrelevant from knowledge
as well as exam point of view was eliminated.
22nd January, 2024
Pune CA. Aditya Sharma

INDEX
MICRO & MACRO ECONOMICS -MCQ
Name of the chapter Page No.
Section A - Business Economics

Chapter 1- Nature and Scope of Business Economics…………………………
Additional MCQ – Part A – Basics ……………………………………… 1.1—1.9
Past Year Questions…………………………………………………………… 1.10 – 1.15
Chapter 2- Utility, Demand and Supply Analysis ………………………………..

Additional MCQ – Part A – Utility Analysis ………………………… 2.1—2.11
Additional MCQ – Part B – Demand Analysis ……………………… 2.12—2.31
Additional MCQ – Part C – Supply Analysis ………………………… 2.32—3.39
Past Year Questions…………………………………………………………… 2.40—2.50
Chapter 3- Production, cost and Revenue Concepts ………………………….

Additional MCQ - Part A Production Analysis……………………… 3.1—3.26
Additional MCQ - Part B Cost and Revenue Concepts………. 3.27—3.52
Past Year Questions………………………………………………………… 3.53—3.66
Chapter 4 - Market and Its Types……………………………………………………….

Additional MCQ ………………………………………………………………… 4.1—4.22
Past Year Questions………………………………………………………… 4.23—4.37
Chapter 5 - Business Cycle…………………………………………………………………

Additional MCQ ………………………………………………………………… 5.1—5.3
Past Year Questions…………………………………………………………… 5.4—5.7
Chapter 6 – National Income ………………………………………………………….. 6.1 – 6.49
Chapter 7 – Public Finance ………………………………………………………....... 7.1 - 7.65
Chapter 8 – Money Market …………………………………………………………… 8.1 - 8.6
Chapter 9 – International Trade ……………………………………………………. 9.1 – 9.9
Chapter 10 – Indian Economy ………………………………………………………… 10.1 - 10.4
Section B - Additional
Additional Question Set from ICAI 1 ………………………………………..……….. 11.1—11.5
Chapter – 1 Nature _ Scope of Q 10. Which of the following is not an economic
Business Economics activity?
(a) Housewife doing household duties
Basics of Business Economics (b) Manufacturing of garments at subsidized rate.
(c) Medical facility rendered by charitable trust
Q 1. The word ‘Economics’ originates from the word (d) A CA doing his own practice.
………………
(a) Oikomnomikos (b) Oikonomia Q 11. Which of the following is an economic activity?
(c) Eikonomikos (d) Ekconomics (a) Housewife doing household duties
(b) Listening to music on radio
Q 2. The word ‘Economics’ originates from the ………… (c) Medical facility rendered by charitable trust
world ‘Oikonomia’ (d) Teaching one’s own son at home
(a) Roman (b) French
(c) Greek (d) European Q 12. The law of Scarcity-
(a) Does not apply to developed and rich countries
Q 3. Till 19th century Economics was known as (b) Applies only to less developed countries
(a) Political Economy (b) Social Economy (c) Implies that the consumers’ want will be satisfied in a
(c) Both (a) and (b) (d) Neither (a) nor (b) socialist economy
(d) Implies that consumers’ want will never be completely
Q 4. The meaning of Greek word ‘oikonomia’ is ……. satisfied.
(a) Wealth Management (b) House Management
(c) Business Economics (d) Business Management Q 13. What does the scarcity of resource implies…
(a) We must develop way to decrease our individual
Q 5. Human wants are…... and means to satisfy these wants
wants are…... (b) Not all wants can be satisfied
(a) Limited, scarce (b) Unlimited, unlimited (c) Resources can not satisfy any want
(c) Unlimited, scarce (d) Limited, Unlimited (d) Resources are very scarce and shall not be used at all
Q 6. The meaning of the word ‘Economic’ is closely Q 14. Rational decision making requires-
connected with the word- (a) One’s choice never vary
(a) Scarce (b) Unlimited (b) One’s choice be consistent with one’s goal
(c) Restricted (d) Both (a) and (b) (c) One makes choices that do not involve trade-offs
(d) One must be graduate to make decision
Q 7. In Business economics ‘ends’ refers to-
(a) Human wants (b) Resources Q 15. …….. DefinedBusiness Economics in terms of the
(c) Both (a) and (b) (d) Neither (a) nor (b) use of economic analysis in the formulation of business
policies?
Q 8. In Business economics ‘Means’ refers to- (a) J.B Say
(a) Human wants (b) Resources (b) Alfred Marshall
(c) Both (a) and (b) (d) Neither (a) nor (b) (c) Walker
(d) Joel Dean
Q 9. Which of the following is an economic activity?
(a) Boy helping his friend to solve puzzle. Q 16. Business Economics is also known as…………
(b) Teams playing friendly football match (a) Managerial Economics
(c) A teacher teaching to class (b) Social Economics
(d) Watching Television (c) Environmental Economics
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(d) Money Market Economics (d) Which production method should be used for
manufacturing of goods?
Q 17. Which of the following statement is not correct?
(a) Business Economics refers to the integration of Q 23. Pragmatic approach means -
economic theory with business practice (a) Realistic (b) Practical.
(b) Business Economics is not only valuable to business (c) Both (a) and (b) (c) Neither (a) nor (b)
decision makers, but also useful for managers of ‘not-
Q 24.
for-profit’ organisations Positive Science explains-
(c) theories of Economics provide the tools which explain (a) “What is” (b) “What was”
various concepts such as demand, supply, costs, price, (c) “What ought to be” (d) “What will”
competition etc
(d)Business Economics is concerned only with Micro Q 25. Normative Science explains-
Economics (a) “What is” (b) “What ought to be”.
(c) “What will” (d) Both (a) and (b)
Q 18.
Economic theories are….…
(a) Simplistic (b) Hypothetical Q 26. Positive science is-
(c) Old (d) Both (a) and (b) (a) Descriptive (b) Prescriptive
(c) Explanatory (d) Imaginary
Q 19. Consider the following and decide, which economy
(if any) is without scarcity Q 27. Normative science is-
(a) American economy (a) Descriptive (b) Prescriptive
(b) Indian economy between 1947-2000 (c) Explanatory (d) Imaginary
(c) Pre independent Indian economy
(d) None of the above Q 28. The study of economic behavior of an individual
firm or industry in national economy is called as ……
Q 20. ………..refers to the process of selecting an (a) Micro Economics (b) Macro Economics
appropriate alternative that will provide the most (c) Business Economics (d) Behavioral Economics
efficient means of attaining a desired end, from two or
Q 29.
more alternative courses of action? Macro Economics deals with
(a) Problem solving (a) External value of money
(b) Problem analyzing (b) Employment and economic growth
(c) Managerial expertise (c) General price level
(d) Decision making (d) All of above
Q 21. Which of the following involves Business decision Q 30.

We mainly study the following in Micro-
making? Economics: ………………
(a) Continue or shut down decision (a) General price level
(b) Launching of new product (b) National income and output
(c) Proper debt and equity mix (c) Location of industry
(d) All of the above (d) Employment and economic growth
Q 22. Which of the following does not involve Business Q 31. We mainly study the following in Macro-
decision making? Economics: ………………
(a) Lease or purchase of an asset (a) External value of money
(b) Deciding which movie to watch on weekend (b) Product pricing
(c) In-house production or outsource (c) National income and output
(d) (a) and (c)
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(a) Positive or pure science
Q 32. Micro and macro are not two independent (b) Normative science
approaches to economic analysis but they are (c) None of the above
complementary to each other. (d) All of above
(a) False (b) True
(c) Partly true (d) Partly false Q 41. ……….evaluates and pass value judgment
(a) Positive science (b) Pure science
Q 33.
Inventory does not includes (c) Social Science (d) Normative Science
(a) Raw Material (b) Work in progress
(c) Finished goods (d) None of the above Q 42. Business economics is not affected by external
factors
Q 34. The study of behavior of consumers in the market (a) True (b) False
and the effect of changes in the determinants of demand (c) Partially true (d) Cannot be commented
is called as
(a) Demand analysis (b) Demand forecasting Q 43. State which of the following statement is not true
(c) Cost analysis (d) Market analysis (a) Business economics is inter-disciplinary
(b) There are three types of economy- Socialist Economy,
Q 35. ………. is the technique of predicting future demand Capitalist Economy and Mixed Economy
of goods and services on the basis of past behavior of (c) Business Economics used the theory of Market and
factor. Private Enterprises
(a) Demand analysis (b) Demand Forecasting (d) The term Micro-Economics is Derived from Greek
(c) Market analysis (d) Price analysis work ‘Makros’
Q 36. …………explains the relationship between input and Q 44.

……enables the firm to recognise the behaviour of
output costs when variables such as output, time period and size
(a) Cost theory (b) Supply theory of plant changes.
(c) Demand theory (d) Production theory (a) Cost analysis (b) Accounting cost
(c) Production analysis (d) Demand analysis
Q 37.
Degree of market power is determined by-
(a) Demand analysis Q 45. Economics is a …………
(b) Cost analysis (a) Science (b) Art
(c) Market structure analysis (c) Both (a) and (b) (d) Neither (a) nor (b)
(d) All of the above
Q 46. What is the “fundamental premise of the
Q 38. ……..also called as ‘Price Theory’ as it explains the economics?”
composition of total production. (a) Natural Resources will always be scarce
(a) Micro economics (b) Macro Economics (b) Individuals are capable of establishing goals and
(c) Demand theory (d) Supply theory acting in manner consistent with achievement of
those goals
Q 39. …….also called as ‘Income Theory’ as it explains (c) Individuals chose alternative for which they believe
level of total production, total consumption, total savings the net gain to be the greatest.
and total investment and the rice or fall in these levels. (d) No matter what the circumstance, individual choice
(a) Micro economics (b) Macro economics always involves a trade- off
(c) Demand Theory (d) Supply theory
Q 47. Wants can be satisfied by consumpotion
Q 40. ……..analyses cause and effect relationship but of………../ are economic wants
does not pass any value judgment. (a) Goods (b) Services
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(c) Goods and services (d) None of the above (c) All countries, without exception, face problem of
scarcity.
Q 48. In Mixed economy, private sector- (d) Developed countries do not face Central Economic
(a) Are absolutely free to make any type of decisions Problems
(b) Works only for social objectives
(c) Are regulated directly and / or indirectly by Q 54. Which of the following is not a central economic
government problem?
(d) Does not exists at all (a) What to produce? (b) When to produce?
(c) How to produce? (d) For whom to produce?
Q 49. ……….. systematized the concept in the form the
Q 55.
book which was entitled as, ‘‘An Enquiry intothe Nature Central Problems arises in case of-
and Cause of the Wealth of Nations’’ (a) Capitalist Economy (b) Socialist Economy
(a) George Bernard Shaw (c) Mixed Economy (d) All of the above
(b) Adam Smith.
Q 56.
(c) Alfred Marshall If there is adequate recourse in an economy, then
(d) A. C. Pigou there is no economy problem at all. This statement is-
(a) False
Q 50. Adam smith published his masterpiece “An enquiry (b) True
into the nature and causes of wealth of nation” in the (c) Partially True
year …………. (d) Cannot be commented at all
(a) 1776 (b) 1786
(c) 1756 (d) 1766 Q 57. The Problem of ‘What to Produce’ covers the
issue relating to-
B. Central Economic Problem (a) What goods are to be produced?
(b) What quantities of goods are to be produced?
Q 51. The Central Economic problem is that of- (c) Both (a) and (b)
(a) Allocating the scarce recourse in such a manner that (d) Neither (a) nor (b)
society’s unlimited wants are satisfied as far as
possible Q 58. The economy which uses all its recourses on
(b) Giving jobs to poor and backward. production of …… goods only, con not provide for future
(c) Guaranteeing that the production occurs in most growth prospect.
efficient manner (a) Consumer goods only (b) Capital goods only
(d) All of above (c) Both (a) and (b) (d) Neither (a) nor (b)
Q 52. Which of the following is the cause of central Q 59. Productive efficiency means -
economic problem? (a) Recourses are employed in their most valued uses
(a) Scarcity of recourses (b) Total number of goods produced is more
(b) Unlimited wants (c) Goods and services are produced at least cost without
(c) Alternative use wastage
(d) All of the above (d) Best recourse are employed
Q 53. State which of the following statement is not true Q 60. In deciding ‘ how to produce’ the economy should
(a) If the recourses were unlimited, people would be able decide on-
to satisfy their wants. (a) Types to goods to be produced
(b) If recourse has only single use, then also economic (b) Consumer goods or capital goods
problem would not arise. (c) Method of production
(d) Quantity of goods to be produced
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(a) Share of different people in total output of goods and
Q 61. While solving the question of ’ how to produce’ the services
economy should consider- (b) How to distribute and share the national product.
(a) Labour intensive technique (c) Both (a) and (b)
(b) Capital intensive technique (d) Neither (a) nor (b)
(c) Both (a) and (b)
(d) Neither (a) nor (b) Q 68. An economy can spend on all its recourses on
current consumption without making provision for
Q 62.
While solving the question of ’ how to produce’ the economic growth
choice of appropriate method of production depends (a) True (b) False
upon- (c) Partially true (d) Cannot be commented at all
(a) Availability of factor of production
Q 69.
(b) Price of different factor of production In the context of capitalist economy, which of the
(c) Both (a) and (b) following statement if false- {Omit this question}
(d) Neither (a) nor (b) (a) Private property is the mainstay of capitalism
(b) Profit is the driving force in capitalist economy
Q 63. Which of the following statement is not true- (c) Decision of customers and businesses determines
(a) There are various alternative techniques of producing economic activity.
a commodity. (d) None of above
(b) A society cannot satisfy each and every want of
society. Q 70. Laissez-faire economy is another term used for
(c) If society uses all the resources for current (a) Mixed economy (b) Capitalist economy
consumption and no provision is made for future (c) Socialist economy (d) None of the above
production, the society’s production capacity would
not increase.. Q 71. Which of the following is not the feature of
(d) None of above capitalist economy:
(a) Right to private property.
Q 64.
Capital intensive technique would get chosen in (b) Freedom of economic choice.
(a) Capital surplus economy (c) Collective ownership
(b) Labour surplus economy (d) Consumer Sovereignty
(c) Developed economy
(d) Developing economy Q 72. Consumer Sovereignty means-
(a) that buyers ultimately determine which goods and
Q 65. Labour intensive technique would get chosen in services will be produced and in what quantities.
(a) Capital surplus economy (b) consumer will pay only how much he can.
(b) Labour surplus economy (c) consumer will help the producer in manufacture of
(c) Developed economy goods or rendering of services
(d) Developing economy (d) consumer have unlimited purchasing power.
Q 66. Q 73.
Distribution and sharing of national product .…… determines which goods and services will be
relates to the problem of produced and in what quantity
(a) How to provide for economic growth (a) Buyer (b) Seller
(b) What to produce (c) Government (d) All of the above
(c) How to produce
(d) For whom to produce Q 74. Capitalist economy uses……… to solve economic
problem
Q 67. The problem of ‘ for whom to produce’ deals with (a) impersonal forces of market demand and supply.
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(b) price mechanism. Q 81. Free market economy driving force is-
(c) external reports (a) Welfare of the people
(d) economic theories. (b) Profit motive
(c) Rising income and level of living
Q 75.
An entrepreneur will produce goods and services (d) None of the above
choosing that technique of production which renders his
cost of production…… Q 82. Under………..economy, government has no
(a) Minimum. control over price fluctuations
(b) Maximum. (a) Mixed economy (b) Free Market
(c) Exactly similar to other competitors. (c) Socialist economy (d) None of the above
(d) Higher compared to other competitor
Q 83. Which type of economy gives rise to most
Q 76. Which of the following statement is true in context efficient allocation of recourse and capital in the
with economic problem of ‘ for whom to produce’ standard Micro-Economic framework?
(a) Higher the income, higher will be the buying capacity (a) Free market economy
and higher will be his demand for goods in general. (b) Mixed economy
(b) Higher the income, lower will be the buying capacity (c) Controlled market economy
and higher will be his demand for goods in general (d) None of the above
(c) Goods will be produced for those who do not have
buying capacity Q 84. Under capitalist economies, the answer to the
(d) income one will be able to make depends only on the fundamental questions-what, how and for whom to
amount of work he does produce are obtained by–
(a) Market forces of demand and supply.
Q 77. For analysing ownership and utilisation of (b) Government regulation
recourses, economies are classified into- (c) Cost benefit analysis
(a) Mixed economy (b) Capitalist economy (d) All of the above.
(c) Socialist economy (d) All of the above
Q 85.
In a free market economy the allocation of
Q 78. Capitalist economy is characterised by- resources is determined by –
(a) Profit motive (a) Votes taken by consumers
(b) Competition among buyers and sellers (b) A central planning authority
(c) Inequality of income. (c) Consumer preference
(d) All of the above (d) The level of profits of firms
Q 79. An economic system in which all means of Q 86. The concept of “competition” in a capitalist
production are owned and controlled by private economy refers to-
individuals for profit is called as…………… economy (a) Competition among sellers to sell goods.
(a) Capital (b) Social (b) Competition among buyers to obtain the goods to
(c) Mixed (d) None of the above satisfy their wants
Q 80. Which of the following is not a feature of capitalist (d) Neither (a) nor (b)
economy-
(a) Right to private property Q 87. Discounts, price cutting, Advertisements, etc in
(b) Profit motive capitalist economy are-
(c) Freedom of enterprise (a) Types of government regulation
(d) Equal distribution of income (b) Effects of consumer sovereignty.
(c) Method of handling competition.
1.6 | Page
(d) None of the above. (c) Central planning authority
(d) Consumer forum,
Q 88. Inequalities of income refers to?
(a) All workers do not get equal wages Q 95. National income is more often evenly distributed
(b) Gap between rich and poor in-
(c) All companies do not earn same profit (a) Mixed economy
(d) All of the above (b) Command economy
Q 89. Socialist economy is also known as- (d) Neither (a) nor (b)
(a) Free market economy (b) Mixed economy
(c) Traditional economy (d) Command economy Q 96. In Socialist economy, the concept of consumer
sovereignty is-
Q 90. Under Socialist economy………… takes decision for (a) Restricted (b) Unrestricted
allocation of recourses (c) Recognised. (d) None of the above
(a) Central planned authority
(b) Seller Q 97. Pure form of socialist economy does not exist in
(c) Buyer present days
(d) Foreign diplomats (a) False
(b) True
Q 91.
Which of the following not the feature of socialist (c) Partially true
economy- (d) Cannot be commented at all
(a) Collective ownership
(b) Profit Motive Q 98. Identify the correct statement-
(c) Absence of economic choice (a) In capitalist economy, people are not free to spend
(d) Relatively equal income distribution their income as they like
(b) In socialist economy right to work is guaranteed but
Q 92. Socialist economy is characterised by- the choice of occupation gets restricted.
(a) Selective production of goods (c) In Socialist economy, a relative inequality in income is
(b) Relative equality of income an important feature
(c) Secondary role of price mechanism (d) In Socialist economy, people are not allowed to
(d) All of the above choose between available range of choice
Q 93. Which of the following applies to socialist Q 99. Which of the following is not a micro economic
economy- subject matter?
(a) Balance between social objective and economic (a) The price of mangoes
activity (b) The cost of producing a fire truck for the fire
(b) Private ownership of all recourses and factor of department of Delhi, India.
productions (c) The quantity of mangoes produced for the mangoes
(c) Total absence of government regulation market.
(d) Market mechanism to solve central economic (d) The national economy’s annual rate of growth.
problem
Q 100. In Mixed economy there are ….. sectors of
Q 94. Under command economy, all the decision from industries
allocation of recourse to distribution of end product, is (a) One (b) Two
taken care by (c) Three (d) Four
(a) Producers
(b) Cartels
Q 101.
1.7 | Page
In mixed economy, industries are found in…… A Mixed economy focuses on ensuring
(a) Joint Sector (b) Private sector (a) Productive efficiency of capitalism
(c) Public sector (d) All of the above (b) Distributive justice of Socialism
Q 102.
In Mixed economy, industries in private sectors (d) Neither (a) nor (b)
have…. as their objective and driving force, while public
sector have……..as their objective and driving force ?
(a) profit motive, community welfare
(b) community welfare, profit motive
(c) community welfare, own profit
(d) None of the above
Q 103. In India areas like atomic energy, defence, etc are

in the hands of….
(a) Public sector (b) Private sector
(c) Joint sector (d) All of the above
Q 104. ……….. is the demerit of capitalist economy

(a) Low cost of production
(b) High regulation of government
(c) No incentive for hard work
(d) Inequality of income
Q 105. Indian economy is an example of………

(a) Mixed economy (b) Socialist economy
(c) Capitalist economy (d) None of the above
Q 106.
1.8 | Page
Que Ans Que Ans Que Ans Que Ans Que Ans
1. B 23. C 45. C 67. C 89. D
2. C 24. A 46 C 68. B 90. A
3. A 25. B 47. C 69. D 91. B
4. B 26. A 48. C 70. B 92. D
5. C 27 B 49. B 71. C 93. A
6. A 28. A 50. A 72. A 94. C
7. A 29. D 51. A 73. A 95. B
8. B 30. C 52. D 74. D 96. A
9. C 31. D 53. D 75. A 97. B
10. A 32. B 54. B 76. A 98. B
11. C 33. D 55. D 77. D 99. D
12. D 34. A 56. A 78. D 100. C
13. B 35. B 57. C 79. A 101. D
14. B 36. D 58. A 80. D 102 A
15. D 37. C 59. C 81. B 103. A
16. A 38. A 60. C 82. B 104 D
17. D 39. B 61. C 83. A 105 A
18. D 40. A 62. C 84. A 106. C
19. D 41 D 63. D 85. C
20. D 42. B 64. A 86. C
21. D 43 D 65. B 87. C
22. B 44. A 66. D 88. B
1.9 | Page
Chapter 1- Nature and Scope of Q.8. In a free-market economy, when consumers
increase their purchase of a goods and the level of
Business Economics exceeds then prices tend to rise :
Past Year & Most Frequent MCQ (a) demand, supply (b) supply, demand
(c) prices, demand (d) profits, supply
Q.1. 'Economics is the study of mankind in the ordinary
business of life was given by Q.9. According to Robbins, 'means' are:
(a) Adam Smith (b) Lord Robbins (a) Scarce (b) Unlimited
(c) Alfred Marshall (d) Samuelson (c) Undefined (d) All of these
Q.2. The branch of economic theory that deals with the Q.10. Economics is the study of
problem of allocation of resources is (a) How society manages its unlimited resources
(a) Micro economics (b) Macroeconomics (b) How to reduce our wants until we are satisfied
(c) Econometrics (d) None of these (c) How society manages its scarce resources
(d) How to fully satisfy our unlimited wants
Q.3. Capitalistic Economy uses __ as principal means of
allocating Resources Q.11. A mixed economy means :
(a) demand (b) supply (a) Co-existence of small and large industries
(c) price (d) all of the above (b) Promoting both agriculture and industries in the
economy
Q.4. A study of how an increase in the corporate income (c) Co-existence of rich and poor
tax rate will affect the natural unemployment rate is an (d) Co-existence of public and private sectors
example of:
(a) Macroeconomics Q.12. Who defines Economics in terms of Dynamic
(b) Descriptive Economics Growth and Development?
(c) Microeconomics (a) Robbins (b) Paul A Samuelson
(d) Normative Economics (c) Adam Smith (d) None
Q.5. In which type of economy do consumers and Q.13. A Free Market economy, solves its Central
producers make their choices based on the market Problems through
forces demand and supply? (a) planning authority
(a) Open Economy (b) Controlled Economy (b) market mechanism
(c) Command Economy (d) Market Economy (c) both
(d) none
Q.6. Under a free economy, prices are:
(a) Regulated Q.14. Normative aspect of Economics is given by :
(b) Determined through a free interplay of demand and (a) Marshall (b) Robbins
supply (c) Adam Smith (d) Samuelson
(c) Partly regulated
(d) None of these Q.15. Which one is not the characteristic of a
capitalistic economy?
Q.7. Which of the following falls under microeconomics? (a) Profit motive (b) Income inequality
(a) National income (c) Free employment (d) Collective ownership
(b) General price level
(c) Factor pricing Q.16. Mixed economy means
(d) National saving and investment (a) All economic decisions are taken by the Central
Authority
Page | 1.10
(b) All economic decisions are taken by private Q.25. Which of these is an example of macroeconomics:
entrepreneurs (a) The problem of unemployment in India
(c) Economic decisions are partly taken by the state and (b) The rising price level in the country
partly by private entrepreneurs (c) Increase in disparities of income
(d) None of these (d) All of the above
Q.17. Economic Problem arises when : Q.26. In a capitalist economy the allocation of resources
(a) Wants are unlimited is performed by:
(b) Resources are limited (a) Producers (b) Government
(c) Alternative uses of resources (c) Planners (d) Price mechanism
Q.27. Which of the following statements is incorrect?
Q.18. Micro economics is also known as (a) Alfred Marshall propagated the wealth definition of
(a) public economics (b) price theory Economics
(c) income theory (d) demand theory (b) L. Robbins introduced the 'Scarcity' definition of
Economics
Q.19. A developed economy uses technique in (c) Samuelson emphasized upon the "growth" aspect of
production Economics
(a) labour intensive (b) capital intensive (d) A.C Pigou believed in the 'welfare' aspect of
(c) home-based (d) traditional Economics
Q.20. Which one is the feature of Marshall's definition? Q.28. Inequalities of income do not perpetuate in
(a) Limited ends (a) socialism (b) mixed economy
(b) Scarce means (c) capitalism (d) none
(c) Study of wealth as well as study of man
(d) Study of allocation of resources Q.29. Which of the following are the features of a mixed
economy?
Q.21. Which one in the following is not correct : (a) Planned economy
(a) There are limited wants (b) Dual system of pricing exists
(b) Means are scarce (C) Balanced regional development
(c) Resources have alternative uses (d) All of the above.
(d) Economics is science
Q.30. Normative Economics is based on:
Q.22. Micro Economics is concerned with: (a) Ethical Considerations
(a) Consumer Behaviour (b) Product pricing (b) Facts and Generalization
(c) Factor Pricing (d) All of the above (c) What is?
Q.23. Who gave the positive aspect of science?
(a) Alfred Marshall (b) A.C. Pigou Q.31. The dual system of pricing exists in:
(c) Adam Smith (d) Robbins (a) Free market economy
(b) Socialistic economy
Q.24. Which of these is a part of microeconomics? (c) Mixed economy
(a) Factor pricing (b) National Income (d) None of the above
(c) Balance of payment (d) None
Q.32. A Capitalist Economy follows the policy of:
(a) Laissez-faire
(b) Regulated markets
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(c) Promoting public sector Q.40. Economics which is concerned with welfare
(d) None of the above. propositions is called
(a) Socialistic economics
Q.33. "Economics is the science of choice-making' (b) Capitalistic economics
implies:- (c) Positive economics
(a) No choice is to be made (d) Normative economics
(b) The choice to be made between alternative uses
(c) The choice to be made between means and ends Q.41. In which among the following systems the right to
(d) None of the above property' exists
(a) Mixed economy (b) Capitalist economy
Q.34. Which of the following is a part of the subject (c) Socialist economy (d) Traditional economy
matter of macro economics?
(a) Study of firms Q.42. Positive science only explains
(b) Aggregate profits of a firm (a) What is?
(c) Market demand for a product (b) What ought to be?
(d) Net national product. (c) What is right or wrong
Q.35. A capitalist economy is by and large
(a) a closed economy Q.43. Socialist Economy is also known as
(b) a free market economy (a) Mixed Economy (b) Planned Economy
(c) a centrally controlled economy (c) Capitalist Economy (d) None of the above
(d) an economy in which a government neither collects
any taxes nor incurs any expenditure Q.44. Who has defined economics as "Science which
deals with wealth"?
Q.36. A free-market economy's driving force is: (a) Adam Smith (b) Canon
(a) Profit motive (c) J.B. Say (d) A.C. Pigou
(b) Welfare of the people
(c) Rising income and levels of living Q.45. Which of the following is not a feature of a
(d) None of the above capitalist economy?
(a) Right to private property
Q.37. "Economics is neutral between ends". The (b) Restrictions on consumers right to choose
statement is given by: (c) Profit motive
(a) L. Robbins (b) Mrs. Joan (d) Freedom of enterprise
(c) Alfred Marshall (d) A.C. Pigou
Q.46. The most important function of an entrepreneur is
Q.38. A system of economy in which all the means of to
production are owned and controlled by the private a) innovate
individuals for the purpose of profit is called (b) bear the sense of responsibility
(a) Socialist Economy (b) Capitalist Economy (c) finance
(c) Mixed Economy (d) All of the above (d) earn profit
Q.39. Where does the price mechanism exist? Q.47. The meaning of time element in economics is:
(a) Capitalist Economy (a) Calendar time
(b) Socialist Economy (b) Clock time
(c) Both types of economies (c) Operational time in which supply adjusts with the
(d) None of the above market demand
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(d) To provide job to every job seeker.
Q.48. All wants of an individual are not of:
(a) Equal importance Q.55. Socialist Economy was propounded by:
(b) Immediate importance (a) Karl Marx & Fredut Angles
(c) Fixed importance (b) Samuelson
(d) All of the above (c) A.C. Pigou
(d) Adam Smith
Q.49. Micro economics does not study
(a) Consumer behavior (b) Factor pricing Q.56. Concept of Business Economics was given by:
(c) General price level (d) Firms equilibrium. (a) Joel Dean (b) Alfred Marshall
(c) Adam Smith (d) L. Robbins
Q.50. Find out the correct statement
(a) Higher the prices, lower the quality demanded of a Q.57. A business economy involves the theory of
product is a normative statement Business economics with
(b) Micro and macro-economics are interdependent (a) Normative Economics (b) Business practices
(c) In a capitalist economy, the economic problems are (c) Micro Economics (d) Macro Economics
solved by planning commission
(d) In deductive method logic proceeds from particular Q.58. Which is not included in Economics?
to the general (a) Family Structure
(b) Managerial Economics
Q.51. Microeconomics is the study of: (c) Micro Economics
(a) Individual parts of the economy (d) Macro Economics
(b) The economy as a whole
(c) Choice making Q.59. In which economy market and government both
(d) Development of the economy play an important role?
(a) Mixed economy (b) Socialistic economy
Q.52. The definition of economics given by Robbins does (c) Capitalistic economy (d) Business economy
not deal with one of the following aspects. Indicate that
aspect. Q.60. Which factor is included in business Economics?
(a) Scarce means (b) Limited ends (a) Business Economics is an art
(c) Alternative uses d) Economics is a science (b) Interdisciplinary in nature
(c) Normative in nature
Q.53. Which Economic System is described by (d) All of the above
Schumpeter as 'capitalism in the oxygen tent?
(a) Laissez-Faire Economy Q.61. Which out of these are the features of capitalism?
(b) Command Economy (i) Profit motive
(c) Mixed Economy (ii) Human welfare
(d) Agrarian Economy (iii) Work through price mechanism
(a) (i) and (ii)
Q.54. The Central problem in every economic society is: (b) (ii) and (iii)
(a) To ensure a minimum level of income for every (c) (i) and (iii)
individual. (d) All of these
(b) To allocate scarce resources in such a manner that
society, unlimited wants are satisfied in the best Q.62. Socialism ensures
possible manner. (a) Rapid growth and balanced development
(c) To ensure that production occurs in the most efficient (b) Right to work
manner. (c) Incentives for efficient economic decisions
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(d) Both (a) and (b) (d) Primary importance in satisfying social requirements
(1 mark)
Q.63. Macroeconomics includes
(a) Product pricing Q.69. Due to recession, employment rate and output
(b) Consumer behavior (a) Rises ; rises (b) Falls, falls
c) External value of money (c) Rises falls (d) Falls; rises
(d) Location of industry
Q.70. ______refers to the work area where surplus
Q.64. Exploitation and inequality will be more in manpower is employed out of which some individuals
(a) Socialism (b) Capitalism have zero or almost zero marginal productivity, such
(c) Mixed (d) All of the above that if they are removed the total level of output
remains unchanged.
Q.65. Shyam: This year due to heavy rainfall my anion (a) Voluntary (b) Disguised
crop was damaged Krishna : Climates affect crop yields. (c) Structural (d) Technological
Some years are bad, others are good
Q.71. Socialist economy is
Hari: Don't worry - Price increase will compensate for (a) Self-regulation
the fall in quantity supplied (b) Profit Oriented
(c) Command economy
Radhe: The Government ought to guarantee that our (d) Allocation of resources as per market requirements
income will not fall. (1 mark)
In this conversation, the normative statement is made
by Q.72. In a market economy all assets are held by:
(a) Shyam (b) Krishna (a) Investors (b) Privately
(c) Hari (d) Radhe (c) Government (d) Jointly by government
Q.66. A capitalist economy consists of Q.73. The branch of economic theory that deals with
(a) Central planning authority problem of allocating resources
(b) A mechanism to decide as to what, how and for (a) Micro economics (b) Marc economics
whom to produce (c) Econometrics (d) None
(d) None of the above Q.74. Larger production of goods would lead to higher
production in future.
Q.67. Applied economics includes (a) consumer goods (b) capital goods
(a) Regression analysis and mathematical linear (c) agricultural goods (d) public goods
programming
(b) Capital budgeting Q.75.Which of the following is not within the scope of
(c) Both (a) and (b) business economics?
(d) None (a) Capital budgeting (b) Risk analysis
(c) Business cycle (d) Accounting Standards
Q.68. Economic goods are considered as scarce
resources because Q.76. Which type of scarcity is referred to in economics
(a) Inadequate quantity to satisfy the needs of the (a) Relative scarcity (b) Absolute scarcity
society (c) Both (a) and (b) (d) None
(b) Not possible to increase the quantity
(c) Limited hands to make goods
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Q.77. Cons
umer sovereignty is which of the following characteristics?
(a) Capitalist economy (b) Mixed economy
(c) Socialist economy (d) Democracy
Qn. no Ans Qn. no Ans Qn. no Ans Qn. no Ans

1 C 21 A 41 B 61 C
2 A 22 D 42 A 62 D
3 C 23 D 43 B 63 C
4 A 24 A 44 A 64 B
5 D 25 D 45 B 65 D
6 B 26 D 46 A 66 B
7 C 27 A 47 C 67 C
8 A 28 A 48 D 68 A
9 A 29 D 49 C 69 B
10 C 30 A 50 B 70 B
11 D 31 C 51 A 71 C
12 B 32 A 52 B 72 B
13 B 33 B 53 C 73 A
14 A 34 D 54 B 74 B
15 D 35 B 55 A 75 D
16 C 36 A 56 A 76 A
17 D 37 A 57 B 77 A
18 B 38 B 58 A
19 B 39 A 59 A
20 C 40 A 60 D
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Chapter 2 - Part A - Utility Analysis Q 8. Which of the following is not a consumption
(a) Burning of crackers in diwali
Q 1. ………… is the power of a commodity to satisfy a (b) Eating ice cream
human want (c) Burning gas when cooking food
(a) Utility (b) Money (d) Burning of bike in an accident of fire
(c) Price (d) None of the above.
Q 9. As per the cardinal approach-utility
Q 2. Utility - is………aspect.
(a) Differs from person to person (a) psychological (b) non quantifiable
(b) Differs from time to time (c) quantifiable (d) irrelevant
(c) Differs from product to product
Q 10.
(d) All of the above All wants of an individuals are not of:
(a) Immediate importance
Q 3. Utility is applicable - (b) Fixed importance
(a) Only for socially desirable goods (c) Equal importance
(b) Only for harmful goods like liquor, cigarettes etc (d) All of the above
(d) Neither (a) nor (b) Cardinal Approach- Basics
Q 4. Q 11.
Utility is a……….. aspect and differs from person to State whether the given statement is true or
person false in context of cardinal approach to utility ‘Human
(a) Absolute (b) Subjective satisfaction can be expressed in monetary terms, and
(c) Objective (d) Irrelevant price of a commodity in the market indicates the level of
consumer satisfaction’
Q 5.
State whether the given statement is true or false-‘ (a) True
Utility means usefulness (b) False
(a) True (c) Partially true
(b) False (d) Cannot be commented at all
(c) Partially true
(d) Cannot be commented at all Q 12. Marginal utility approach to demand was given
by
Q 6.
The concept of utility is ethically neutral- this (a) Hicks and Allen (b) J.B say
statement is (c) Alfred Marshall (d) Dean Joel
(a) True
(b) False Q 13. Which of the following statement is not correct
(c) Partially true (a) Cardinal approach provides basis for law of demand
(d) Cannot be commented at all (b) Cardinal approach assumes money measurement
concept
Q 7. Utility theories seek to explain how a consumer (c) Cardinal approach to utility explains the
spends his income on different goods and services so as relationship between demand, supply and price.
to ………. (d) Cardinal approach to utility do not assume
(a) Become wealthy consistency of money
(b) survive
(c) Match standard of living Q 14. Utility can be measure and quantified under-
(d) Attain maximum satisfaction (a) Cardinal Approach (b) Ordinal approach
(c) Both (a) and (b) (d) Neither (a) nor (b)
2.1 | Page
Q 15. Q 23. The cardinal approach of utility analysis assumes
Under marginal utility analysis, utility is assumed
to be a- that utility is measurable and quantifiable. This means-
(a) Cardinal concept (b) Ordinal concept (a) Utility can be expressed in numbers
(c) Infinite concept (d) Modern concept (b) Utility can be ranked across the products
(c) Utility schedule is derived by the consumer
Q 16.
Marshallian utility analysis is known as ……………. (d) All of the above
analysis
(a) Ordinal (b) cardinal Q 24. Cardinal approach to utility assumes Marginal
(c) Classic (d) Modern utility of money is-.
(a) Zero (b) Constant
Q 17.
According to Marginal utility analysis, utility can (c) Increasing (d) Decreasing
be measured in
(a) Ranks (b) Nominal value Total utility and Marginal utility
(c) Cardinal numbers (d) All of the above
Q 25. ……… is derived from different units of
Q 18. Which of the theories are applicable under commodity consumed by a consumer.
cardinal approach to utility? (a) Total utility (b) Marginal utility
(a) Law of diminishing marginal utility (c) Average utility (d) Ordinal utility
(b) Law of Equi-Marginal utility
(c) Consumer surplus theory Q 26.……… is the additional utility derived from
(d) All of the above additional unit of a commodity
(a) Marginal utility (b) Total utility
Q 19. Which of the following is not a necessary (c) Ordinal utility (d) Average utility
assumption to cardinal utility theory?
(a) Rationality of the consumer Q 27. Marginal utility can be stated as-
(b) Constant marginal utility of money (a) TUn-TUn-1
(c) Additively of utility (b) Additional utility derived from additional unit of a
(d) Perfect competitive market commodity.
(c) Change in total utility / change in quantity
Q 20. Cardinal approach to utility analyses-. (d) All of the above
(a) One commodity at a time
(b) Two commodities at a time Q 28. Marginal utility-
(c) Many commodities at a time (a) Will always be positive
(d) Does not analyse any commodity at a time (b) Will always be negative
(c) Can be positive or negative but not zero
Q 21. Under Cardinal approach to utility, …….. is the (d) Can be positive or negative or zero
measuring rod of utility
(a) Money (b) Time Q 29. Total utility-
(c) Customer satisfaction (d) All of the above (a) Will always be positive
(b) Will always be negative
Q 22.
Which of the following is not an assumption (c) Can be positive or negative but not zero
under cardinal approach of utility analysis (d) Can be positive or negative or zero
(a) Utility is goods are independent of one another
(b) Marginal utility of money is constant. Q 30. Total utility is maximum when-
(c) Utility is comparable across the goods (a) Marginal utility is zero
(d) Utility cannot be measured, but only ranked (b) MU is at its highest point
2.2 | Page
(c) MU is equal to average utility
(d) Average utility is maximum Q 40. When the economists speak of utility of a
certain product, they are referring to-
Q 31. When total utility increases at diminishing rate, the (a) Demand of the product
marginal utility is……… (b) Usefulness of the product
(e) Diminishing (f) Zero (c) Satisfaction derived from the product
(g) Maximum (h) One (d) Price of the commodity
Q 32. Marginal utility will always show- Practical problems with hints
(a) Increasing trend (b) Decreasing trend.
(c) Both (a) and (b) (d) Neither (a) nor (b) Q 41. Total utility derived by Miss Katrina by
consuming 10 Mangoes is 99, where the total utility on
Q 33. The Law of Diminishing Marginal Utility states that consumption of 11 Mangoes is 95. What is the marginal
all else equal as consumption increases the marginal utility of 11th Mango?
utility derived from each additional unit…….. (a) -4 (b) 4
(a) declines (b) increases (c) 194 (d) -194
(c) goes up to zero (d) remains constant
Q 42. Total utility that Mr. Khan derives from
Q 34. Each want is ………. consumption of 10 Frooti is 250. MU of 11th frooti is -
(a) Non satiable (b) Limited 60. What will be the total utility of 11 frooti?
(c) unlimited (d) Satiable (a) -60 (b) 250
(c) 190 (d) 310
Q 35. Total utility increases at a………
(a) Increasing rate (b) Decreasing rate Q 43. Total utility that Mr. Rowdy derives from
(c) Constant rate (d) None of the above consumption of 6 Apple is 300. MU of 7th Apple is 30.
What will be the total utility of 7 Apple?
Q 36. Marginal utility curve is………. (a) 330 (b) 270
(a) Downward sloping (c) 300 (d) 30
(b) Slopes from left to right
(c) Negatively sloped No. of units Total Utility Marginal utility
(d) All of the above 0 0 ?
1 900 A
Q 37. Marginal utility varies………. With the supply. 2 B 800
(a) directly (b) inversely 3 2400 C
(c) simultaneously (d) None of the above 4 D 600
5 3500 E
Q 38. 6 F 400
Marginal utility of goods increases as the
quantity …………. Goods with the consumer increases. 7 4200 G
(a) Complementary (b) Substitute 8 4400 H
(c) Giffen (d) All of the above 9 I 100
10 J
Q 39. 11 4400 K
MU of the goods decreases as the quantity of
………. goods with the consumer increases. 12 L -300
(a) complementary (b) Substitute
(c) Both (a) and (b) (d) None of the above Use the given table and solve next 13 questions
2.3 | Page
Q 44. What is the value of “?” in the above table?
(a) 0 (b) 1 Q 52. Marginal utility of a commodity depends on its
(c) -1 (d) 900 quantity and is-
(a) Inversely proportional to its quantity
Q 45. What is the value of “A” in the above table? (b) Not proportional to it quantity
(a) 0 (b) 1 (c) Independent of its quantity
(c) 900 (d) Cannot be determined (d) None of the above
Q 46. What is the value of “B” in the above table? Q 53. Which of the following is not an assumption of
(a) 2 (b) 1700 law of Diminishing Marginal Utility?
(c) 800 (d) Cannot be determined (a) Different units consumed should be identical in all
respect
Q 47. What is the value of “C” in the above table? (b) There should be no time gap between consumption
(a) 3 (b) 2400 of one unit and another unit.
(c) 700 (d) Cannot be determined (c) Different unit consumed must be standard unit.
Q 48. What is the value of “D” in the above table?
(a) 3000 (b) 4 Q 54. Law of diminishing marginal utility, continuous
(c) 600 (d) Cannot be determined consumption means there should be…………… between
consumption of one unit and another unit.
Q 49. What is the value of “E” in the above table? (a) Equal time gap (b) No time gap
(c) Long time gap (d) Any of the above
(a) 3500 (b) 5
(c) 500 (d) Cannot be determined Q 55. Law of diminishing marginal utility will not hold
good income of the consumer-
Law of diminishing Marginal utility (a) Increases (b) Decreases
(c) Remains constant (d) Both (a) and (b)
Q 50. Which law states that the more a consumer
consumes a product, he derive lesser Utility from Q 56. As per assumption to Law of diminishing
additional consumption marginal utility, in case of Money, gold, etc. greater
(a) Law of Equi-marginal utility quantity may-
(b) Law of diminishing marginal utility (a) Increases the lust and utility thereof
(c) Law of cardinal utility (b) decreases the lust and utility thereof
(d) Law of Demand (c) No effect on utility at all
(d) Nothing can be said
Q 51. After reaching a saturation point, consumption Q 57. Law of diminishing marginal utility is based on
of additional units of commodity causes- the assumption that the habits and tastes of the
(a) Total utility & Marginal utility both to increases consumer-
(b) Total Utility to fall and Marginal utility to increase (a) Must remain constant
(c) Total utility to fall & Marginal utility to become (b) Must change
negative (c) Both (a) and (b)
(d) Total utility to become negative & Marginal utility (d) Neither (a) nor (b)
to fall
Q 58. Utility may be affected by presence of?
(a) Complementary goods
2.4 | Page
(b) Substitute goods (c) One’s choices never vary
(c) Both (a) and (b) (d) One’s choice be consistent with one’s goals
(d) Neither (a) nor (b)
Q 65.
Buyer’s willingness to pay is that buyer’s-
Q 59. Law of diminishing marginal utility applies only (a) Minimum amount he is willing to pay for a product
if………..measurement to utility is assumed. (b) Producer’s surplus
(a) Cardinal (b) Ordinal (c) Maximum amount he is willing to pay for a product
(c) Both (a) and (b) (d) Neither (a) nor (b) (d) Consumer’s surplus
Q 66.
Law of Equi-Marginal utility As per which principle-‘The consumer will be
willing to buy a commodity, as long as the MU
Q 60. As per which law, ‘If marginal utility of money (additional satisfaction) derived is equal to price of
spent on commodity X is greater than marginal utility of the commodity’?
money spent on commodity Y, then the consumer will (a) Consumers Equilibrium
withdraw some money from purchase of Product Y and (b) Consumer’s surplus
will spent on purchase of X, till MU of money in two (c) Consumer advantage
cases becomes equal’? (d) Consumer exploitation
(a) Law of demand
(b) Law of supply Q 67. If the price paid by the consumer is more than
(c) Law of Equi-marginal utility the additional satisfaction derived from that item, the
(d) Law of diminishing marginal utility consumer will-
(a) Stop buying the item
Q 61. The consumer will attain maximum satisfaction, (b) Start selling the item
and will be in equilibrium when MU of money spent on (c) Start buying the item
various goods that he buys are- (d) Nothing can be said
(a) Equal (b) Decreasing
(c) Zero (d) Increasing Q 68. Consumer surplus means-
(a) The area between average revenue and marginal
Q 62. Law of Equi-marginal utility applies because- revenue curves
(a) Consumer will try to maximize his satisfaction (b) The area inside budget line
(b) There may be substitute available for each product (c) Difference between the maximum amount a person
in the market. is willing to pay for a good and its market price.
(c) The consumer will substitute one item for the other (d) Both (b) and (c)
such that his MU>Price
(d) All of the above Q 69. Law of consumer surplus is based on-
(a) Law of diminishing marginal utility
Consumer Equilibrium and Consumer Surplus (b) Reveled preference theory
(c) Law of substitution
Q 63.
Rational person does not act unless- (d) All of the above
(a) The action makes money for the person
(b) The action is ethical Q 70. Consumer surplus arises because-
(c) Marginal benefits exceeds marginal cost (a) MU is initially higher than the price
(d) Marginal cost exceeds marginal benefits (b) MU is always equal to price
(c) MU is always equal to zero
Q 64. Rational decision means- (d) MU is initially lower than the price
(a) Error-free decision
(b) One’s choice that do not involve trade-off
2.5 | Page
Q 71. MUx is the marginal utility of product X and Px is Q 78. Consumer surplus is higher in case of-
the price of the product, a rational consumer will (a) Luxuries (b) Comfort
consume Product X until- (c) necessities (d) All of the above
(a) MUx> Px (b) Mux< Px
(c) MUx=0 (d) MUx= Px Q 79. A monopolist will try to take maximum
advantage of consumer surplus by adopting-
Q 72. “The excess of the price which he would be (a) Price Equilibrium (b) Price Exploitation
willing to pay rather than go without the thing over that (c) Price rigidity (d) Price discrimination
which he actually does pay in economic measure of his
surplus satisfaction” is given by Q 80. Which of the following statements regarding
(a) Alfred Marshall (b) Lionel Ribbins consumer surplus is not true?
(c) J.R. Hicks (d) Edge Worth. (a) It is useful for designing government policies and
implementing welfare programs
Q 73. Consumer surplus is the area- (b) It helps in monopolist to fix the price of a
(a) Below demand curve and above price line commodity
(b) Above supply cure and below price line (c) On the basis of consumer surplus only domestic
(c) Above Demand curve and below price line trade can be advocated and international trade
(d) Any of the above should be avoided
(d) It can also be used to measure health of the
Q 74. The concept of Consumer surplus arises because - economy
(a) MU increases but price remains constant
(b) MU declines but price remains constant Q 81. ………. Consumer surplus indicates higher level of
(c) MU increases but price decreases efficiency in economy.
(d) MU decreases but price increases (a) Higher (b) Lower
(c) Balanced (d) Negative
Q 75.
At the point of consumer’s equilibrium
(a) Consumer’s surplus is maximum Q 82. ……………... is useful for designing government
(b) Consumer’s surplus is negative policies and implementing welfare programs.
(c) Consumer’s surplus is zero (a) Law of diminishing return
(d) All of the above (b) Consumer surplus
(c) Law of Equi-marginal utility
Q 76. In the concept of consumer Equilibrium and (d) Income and substitution effect
consumer surplus, for the quantity purchased at
equilibrium level marginal utility is- Q 83. Under which of the following market type
(a) Positive (b) Negative consumer surplus will be generally maximum?
(c) Equal to price (d) Zero (a) Perfect competition
(b) Monopolistic competition
Q 77. Consumer surplus arise in respect of- (c) Monopoly
(a) All quantities purchased up to consumer’s (d) All of the above
equilibrium level
(b) All quantities purchased beyond `consumer’s Q 84. If MUx/Px> MUy/Py then the consumer will-
equilibrium level (a) Increase consumption of X and reduce consumption
(c) Quantities purchased at equilibrium level only of Y
(d) None of the above (b) Increase consumption of Y and reduce consumption
of X
2.6 | Page
(c) Will increase consumption of both the products X Q 90. Consumer consumed three products. MU
and Y derived from consumption of first two units is INR 400,
(d) Will decrease consumption of both the products X INR 350. If the price of the product is INR 300 and the
and Y consumer is in equilibrium at 3 units, the MU of 3rd unit
is-
Q 85.
In case of necessaries, the Marginal utility for (a) 100 (b) 200
first few items will be- (c) 300 (d) 400
(a) Zero (b) High
Q 91.
(c) Infinite (d) None of the above If the prices of ice-cream and chocolate are 40
and 30 respectively and MU of chocolate is 150, what is
Q 86. Which of the following statement/s is true - MU of ice cream assuming consumer is in equilibrium?
i. The consumer surplus derived from a product is (a) 112.5 (b) 125
affect by availability of substitute (c) 200 (d) 225
ii. The consumer surplus derived from a product is
affect by availability of complementary items Q 92. Suppose the price of new phone is 5000 and Mr.
iii. The concept of consumer surplus fails in case of Ranveer values new phone at 7000. What will be the
articles which are used for their prestigious value. consumer surplus if Mr. Ranveer buys the phone?
Example diamond. (a) 2000 (b) 3000
iv. If we make assumption that utility cannot be (c) 12000 (d) 5000
expressed in monetary terms, the concept of
consumer surplus will still apply Q 93. Suppose the price of new bike is 15000 and Mr.
(a) i,ii,iv (b) i,ii,iii,iv M.S values new bike at 14000. What will be the
(c) i,ii,iii (d) Only iv consumer surplus if Mr. Dhoni buys the bike?
(a) 29000 (b) -1000
Q 87. The concept of consumer surplus is based on the (c) 0 (d) Nothing can be said
assumption that Marginal utility of the money is-
(a) Zero (b) Infinite Q 94. Suppose there are three computes available to
(c) Negative (d) Constant be purchased. Mr Shyam is willing to pay 25000, Mr
Raju is willing to pay 20000 and Mr. Babubhai is ready
Q 88. Which of the following is the drawback of to pay 15000. If the price of the computer is 20000,
consumer surplus- what is the consumer surplus in this market and how
(a) It cannot be measured in terms of money as the many units will be sold?
marginal utility of money of money changes (a) Consumer surplus is 5000 and 2 units will be sold.
(b) It is highly hypothetical concept (b) Consumer surplus is 60,000 and 2 units will be sold.
(c) It ignores interdependency of the goods (c) No consumer surplus and 2 units will be sold
(d) All of the above (d) Consumer surplus is 5000 and 3 units will be sold.
Use the following diagram to solve the next 5 questions-
Practical problems on Consumer equilibrium and Y M
consumer surplus
Q 89. Consumer consumed three products. MU derived

from consumption of three products is INR 400, INR 350,
and INR 300. If price of the product is 300, what is the
consumer surplus? M’
(a) 0 (b) 100 0 Q MU
(c) 150 (d) 50 C X
2.7 | Page
(a) Cardinal (b) Ordinal
Quantity of commodity along X axis (c) Both (a) and (b) (d) Neither (a) nor (b)
Price and Marginal utility along Y axis
Q 103. Ordinal approach to utility analyses-
Q 95. In the above diagram, market price at consumer (a) One commodity at a time.
equilibrium is given by- (b) Two commodities at a time
(a) OA (b) OC (c) Many commodities at a time
(c) MM’ (d) None of the above (d) Does not analyses any commodity at all
Q 96. Q 104.
In the above diagram, consumers total utility is Ordinal utility approach is also called as-
given by- (a) Indifference curve approach
(a) Area under OMBC (b) Area under OABC (b) Hicks and Allen approach
(c) Area under AMB (d) None of the above (c) Both (a) and (b)
Q 97. In the above diagram, price paid by the consumer
is given by- Q 105. Which of the approaches dispense with money
(a) Area under OMBC (b) Area under OABC measurement concept of utility?
(c) Area under AMB (d) None of the above (a) Cardinal approach (b) Ordinal approach
Q 98. In the above diagram, consumer surplus is given
by- Q 106. Which of the approaches helps to explain the
(a) Area under OMBC (b) Area under OABC Law of Demand?
(c) Area under AMB (d) None of the above (A) Cardinal (B) Ordinal
(C) Both (a) and (b) (D) Neither (a) nor (b)
Q 99. In the above diagram, consumer attains
equilibrium by consuming……. units Q 107. ………… shows various combinations of two
(a) OA (b) OC goods that give same amount of satisfaction.
(c) MM’ (d) None of the above (a) Isoquants (b) Isocost curve
(c) Marginal utility curve (d) Indifference curve
4. Ordinal Approach.
Q 108. Indifference curve shows various combinations
Q 100. As per the ordinal approach- Measurement of of two goods that give…… amount of satisfaction –
utility us not possible through n=money (a) Lower (B) Higher
(a) Measurement of utility is possible but cannot be (C) Same/ equal (D) Constant
ranked
(b) Measurement of utility is not possible in cardinal Q 109. All point in indifference curve represents-
number but can be ranked (a) Same satisfaction (b) Equal satisfaction
(c) None of the above (c) Similar satisfaction (d) All of the above
Q 101. Which of the following Economists are not Q 110. Consumer is said to be …….. among different
concerned with ordinal approach to utility points on IC–
(a) Hicks (b) Allen (a) Intelligent (b) Irrational
(c) Marshall (d) All of the above (c) Indifferent (d) Intersecting
Q 102. As per………… approach to utility ‘Human Q 111. Indifference curve slopes-

Satisfaction is psychological phenomenon and cannot be (a) Downward to the right
measured quantitatively? (b) Upward to the right
2.8 | Page
(c) Downward to the left (B) The elasticity of substitution between two goods to
(d) Upward to the left a consumer is zero.
(C) Convexity of the curve is due to diminishing nature
Q 112. Indifference curve is convex to the origin, the of MRS
reason is- (D) Total effect of a change in price of a product on its
(a) Increasing marginal rate of substitution quantity demanded is called as price effect.
(b) Constant marginal rate of substitution
(c) Diminishing Marginal rate of substitution Q 119. If an indifference curve is L shaped, then two
(d) None of the above goods will be-
(A) Perfect Substitute goods
Q 113. The reason for downward sloping Indifference (B) Perfect Complementary goods
curve is- (C) Substitute goods
(a) Diminishing MRS (b) Increasing MRS (D) Complementary goods
(c) Constant MRS (d) None
Q 120. ………… depicts complete picture of customer’s
Q 114. Indifference curve – taste and preferences
(a) Is downward sloping (a) Supply curve
(b) Had negative slope (b) Budget line
(c) Slopes downwards towards right (c) Indifference map
(d) All of the above (d) Demand curve
Q 115. Indifference curve slopes down towards right, Q 121. The farther the IC is from the Origin, then-
this is because more of one commodity and less of (A) The lower is the satisfaction level
another gives - (B) The higher is the satisfaction level
(a) Same satisfaction (C) Same satisfaction level will be obtained
(b) Less satisfaction (D) Nothing can be said
(c) Maximum satisfaction
(d) Infinite satisfaction Q 122. A set of indifference curves is called as ………….
(a) Price map
Q 116. If two goods are perfect substitute of each (b) Consumer preference
other, then Indifference curve relating to two goods will (c) Budget line
be- (d) Indifference map
(a) Concave (b) Curvilinear
(c) Parallel to X axis (d) Linear Q 123. Combination lying on higher Indifference curve
contains more of-
Q 117. If two goods are perfect substitute of each (A) One commodity only
other, then Indifference curve relating to two goods (B) More of both commodity
will be- (C) Either (a) or (b)
(A) Convex with constant MRS (D) Neither (a) nor (b)
(B) Straight line with constant MRS.
(C) Straight line parallel to Y axis Q 124. ……………..indicates how much of one commodity
(D) Concave to the origin is substituted for how much of another commodity
(A) Marginal utility
Q 118.
Which of the following is not a feature of (B) Marginal income
Indifference curve- (C) Marginal rate of substitutions
(A) IC must be downward sloping to the right (D) Marginal cost
2.9 | Page
(C) L shaped
Q 125.
Marginal rate of substitution is indicated by- (D) None of the above
(A) Slope of Indifference curve at a particular point.
(B) Angle between IC and X axis. Q 132. Budget line/ price line of a consumer is-
(C) Angle between IC and Y axis (A) Parallel to X axis
(D) None of the above (B) Parallel to Y axis
(C) Straight line join ing two axis
Q 126. Marginal rate of substitution indicates (D) None of the above
movement-
(A) From higher IC to Lower IC Q 133. If a combination is below price line, it indicates
(B) From Lower IC to Higher IC that there is-
(C) Along the Same IC (A) Over utilisation of resources
(D) Any of the above (B) Underutilisation of resources
(C) Optimum utilisation of resources
Q 127. General assumption in consumer behavior under (D) None of the above
Indifference curve analysis is that more goods are
preferred to less of them. This statement is Q 134. If a combination is above price line, it indicates
(a) True that there is
(b) False (A) Over utilisation of resources
(c) Partially true (B) Optimum utilisation of resources
(d) Cannot be commented at all (C) Under-utilisation of resources
(D) None of the above
Q 128. ………….. Shows all those combinations of two
goods which a consumer can buy spending his given Q 135. Budget line shows all the combination of…….
money income on two goods at their given prices. products
(A) Budget line (A) Two (B) Three
(B) Indifference curve (C) Many (D) None of the above
(C) Demand curve
(D) Supply curve Q 136. As the consumer’s income and spending
increase, the price/ budget line
Q 129.
Every point on Budget line represents ….. (A) Remains at the same level
spending by the consumer (B) Shifts towards the origin
(A) Over (B) Under (C) Shifts away from the origin
(C) Full (D) Any of the above (D) None of the above
Q 130. In order to get maximum satisfaction, the Q 137. As per Indifference curve analysis, in order to
consumer as to work under some constrains. These maximise satisfaction, a consumer will try to-
constrains are explained by- (a) Reach to higher IC possible
(A) Price line (b) Reach to lowest IC possible
(B) Budget line (c) Will remain on same IC
(C) Price opportunity line (d) IC has no relation with consumer’s satisfaction
(D) All of the above
Q 138. The consumer is in equilibrium at a point where
Q 131. If Marginal rate of substitution is increasing the Budget line-
then shape of Indifference curve is- (A) Cut an indifference curve
(A) Concave to the origin (B) Is tangential to an indifference curve
(B) Convex to the origin (C) Is below Indifference curve
2.10 | Page
(D) Is above the Indifference curve Q Ans Q Ans Q Ans Q Ans Q Ans
1 A 31 A 61 A 91 C 121 B
Q 139. The consumer is in equilibrium when - 2 D 32 B 62 D 92 A 122 D
(A) He save at least one-third of his income 3 C 33 A 63 C 93 B 123 C
(B) EMI is less than Salary of consumer 4 B 34 D 64 D 94 A 124 C
(C) Slope of price line is equal to slope of Indifference 5 B 35 B 65 C 95 A 125 A
curve 6 A 36 D 66 A 96 A 126 C
(D) Any of the above 7 D 37 B 67 A 97 B 127 A
, 8 D 38 A 68 C 98 C 128 A
Q 140. When the consumer is at equilibrium point on 9 C 39 B 69 A 99 B 129 C
Indifference curve, which of the following equation is 10 D 40 C 70 A 100 B 130 D
satisfied 11 A 41 A 71 D 101 C 131 A
(A) MRSXY=MUX/MUY= PX/PY 12 C 42 C 72 A 102 B 132 C
(B) MUX/PX= MUY/PY 13 D 43 A 73 A 103 B 133 B
(C) Both A&B 14 A 44 A 74 B 104 C 134 A
(D) None of the above 15 A 45 C 75 C 105 B 135 A
16 B 46 B 76 C 106 C 136 C
Q 141. Under Income effect, the consumer will- 17 C 47 C 77 A 107 D 137 A
(A) Moves along original Indifference curve 18 D 48 A 78 C 108 C 138 B
(B) Moves to higher or lower Indifference curve 19 D 49 C 79 D 109 D 139 C
(C) Always purchase higher quantity of both the 20 A 50 B 80 C 110 C 140 C
commodities 21 A 51 C 81 A 111 A 141 B
(D) None of the above 22 D 52 A 82 B 112 C 142 B
23 A 53 D 83 A 113 A 143 C
Q 142. In consumer Equilibrium analysis under 24 B 54 B 84 A 114 D
Indifference curve approach, the consumer is assumed 25 A 55 D 85 C 115 A
to spend his income............. on two goods 26 A 56 A 86 C 116 D
(a) Keeping 20 % Margin 27 D 57 A 87 D 117 B
(b) Wholly 28 D 58 C 88 D 118 B
(c) Partially 29 A 59 A 89 C 119 B
(d) Either (b) or (c) 30 A 60 C 90 C 120 C
Q 143. MUx of X is 100 and MUy is 300. If the price of Y

is 6000, what will be the price of X at Equilibrium?
(a) 6000 (b) 9000
(c) 2000 (d) 4000
2.11 | Page
Chapter 2B Q 7. Demand arises in respect of
Demand Basics (a) Socially desirable goods, e.g. food, clothing
(b) Harmful goods, e.g. liquor
Q 1. _______refers to refers to the quantity of goods (c) Both A & B
or services those Consumers are willing and able to (d) Neither A nor B
purchase / buy in a given market, at various prices, in a
given period of time. Q 8. In the context of Demand, the availability of
(a) Supply (b) D em nd money with the Consumer, in order to purchase the
(c) Utility (d) Surplus Commodity is called —
(a) Consumer Surplus (b) Purchasing Power
Q 2. Demand for a commodity refers to — (c) Cost of living (d) Standard of living
(a) Desire for the commodity
Q 9.
(b) Need for the commodity Purchasing Power refers to —
(c) Quantity demanded of that commodity (a) Desire to buy the product
(d) Quantity of the commodity demanded at a certain (b) Necessity to buy the product
price during any particular period of time (c) Ability to buy the product
(d) Utility of the product
Q 3. On which of the following the Effective Demand for
a thing depends? Q 10. Purchasing power of money fall when
(a) Desire (a) Price level increases
(b) Means to purchase (Ability to Buy) (b) Price level decreases
(c) Willingness to use those means (c) Income level increases
(d) All of these (d) Money supply falls
Q 4. For want to become an Effective Demand, it must Q 11. Unless Demand is backed by purchasing power
be backed by the — or ability to pay, it does not constitute Deman(d)
(a) Ability to buy the product This statement is —
(b) Necessity to buy the product (a) True (b) False
(c) Desire to buy the product (c) Partially True (d) Nothing can be said
(d) Utility of the product
Q 12. Demand arises in respect of —
(a) Capital Goods only
Q 5. Which of the following is an important aspect in (b) Consumer Goods only
demand? (c) Both (a) and (b)
(a) Ability to buy the product (d) Neither (a) nor (b)
(b) Willingness to spend
(c) Availability of the product in the market Q 13. Demand for Final Consumption arises in —
(d) All of the above (a) Household Sector only
(b) Government Sector only
Q 6. For Demand to be effective, the Commodity (c) Both Household and Government Sectors
should be available — (d) Neither Household nor Government Sector
(a) At a certain price
(b) At a certain place Q 14. Demand for Intermediate Consumption arises in
(c) At a certain time (a) Household Consumers
(d) All of the above (b) Government Enterprises only
(c) Corporate Enterprises only
| Page 2.12
(d) All Producing Sectors of the economy (a) There is only one Producer
(b) There is only one Consumer
Q 15. Demand for Resources and Factors of Production (c) Both (a) and (b)
is – (d) Neither (a) nor (b)
(a) Direct Demand
(b) Derived Demand Q 23. A relative price is
(c) Irrelevant in Economics (a)Price expressed in terms of money
(d) Not a Demand at all (b)What you get paid for baby-sitting your cousin
(c)The ratio of one money price to another
INDIVIDUAL AND MARKET DEMAND (d)Equal to a money price
Q 16. Individual Demand is also called —

Q 24.
(a) Industrial Demand (b) Market Demand Which of the following influence most the price
(c) Household Demand (d) All of the above level in the very short—run period?
(a) Demand (b) Supply
Q 17.
Individual Demand shows the quantities of (c) Cost (d) Production
demand for a commodity at various prices by —
(a) A particular consumer Q 25. Which of the following is not a determinant of
(b) The entire market Demand?
(c) Both (a) and (b) (a) Price of the Commodity
(d) Neither (a) nor (b) (b) Price of Related Commodities
(c) Level of Consumers' Income
Q 18. Industry Demand is also called - (d) None of these
(a) Household Demand (b) Market Demand
(c) Individual Demand (d) All of the above Q 26. All of the following are determinants of demand
except
Q 19. Market Demand shows the quantities of demand (a) Tastes and Preferences
for a commodity at various prices by — (b) Quantity supplied
(a) a particular consumer (c) Income
(b) the entire market (d) Price of related goods
(d) Neither (a) nor (b) Q 27. Which of the following is a determinant of
Individual demand?
Q 20. Market Demand is the sum total of — (a) Cost of Production
(a) All quantities that Producers can produce (b) Nature of Product, i.e. socially desirable vs other
(b) All quantities actually sold in the market goods
(c) All quantities demanded by individual households (c) Tastes and Preferences of Consumers
and consumers (d) Economic Policies of the Government
Q 28. When a Consumer prefers a commodity due to
Q 21. If A = Household Demand and B = Market prestige attached to it, it is known as
Demand, then — (a) Substitution Effect (b) Demonstration Effect
(a) A > B (b) A < B (c) Income Effect (d) All of the above
(c) A = B = 0 (d) None of the above
Q 29. When a Consumer wants a product by seeing
Q 22. If Household Demand and Market Demand are another person use that product, it is called —
equal in a situation, it means that — (a) Disturbance Effect (b) Comparison Effect
| Page 2.13
(c) Demonstration Effect (d) Marshallian Effect (c) Increase the demand for the other product
(d) Not affect the demand for the other product
Q 30. Demonstration Effect is generally found in Q 37. If X and Y are Complementary Goods, the price
respect of of X and the Demand of Y are —
(a) Necessary Goods (a) directly related
(b) Luxury and Quasi—Luxury Goods (b) inversely related
(c) Both (a) and (b) (c) proportionally related
(d) Neither (a) nor (b) (d) any of the above
Q 31. Q 38. If X and Y are Complementary Goods, if there is

Goods covered by Demonstration Effect can be
best described as - an increase in Price of X, then —
(a) Necessities of Life (a) Demand of X will decrease and Demand of Y will
(b) Conspicuous Necessities increase.
(c) Absolute Luxuries (b) Demand of X will increase and Demand of Y will
(d) All of the above decrease.
(c) Demand of X and Y will increase.
Q 32. In which of the following will the Demonstration (d) Demand of X and Y will decrease.
Effect be high?
Q 39.
(a) Water (b) Rice _______are goods which are consumed in place
(c) Cellphone (d) Plant and Machinery of one another.
(a) Inferior Goods
Q 33. _______are goods which are consumed together (b) Normal Goods
or simultaneously. (c) Complementary Goods
(a) Inferior Goods (d) Substitute Goods
(b) Normal Goods
(c) Complementary Goods Q 40. In case of Substitute Goods, increase in price of
(d) Substitute Goods a product will —
(a) Decrease the demand for the other product
Q 34. If an increase in the price of Blue Jeans leads to an (b) Increase the price of the other product
increase in the demand for Tennis Shoes, then Blue (c) Increase the demand for the other product
Jeans and Tennis Shoes are (d) Not affect the demand for the other product
(a) Complements (b) Inferior Goods
(c) Normal Goods (d) Substitutes Q 41. If X and Y are Substitute Goods, the price of X
and the Demand of Y are —
Q 35. If two goods are Complements, it means that a (a) Directly related
rise in the price of one commodity will lead to — (b) Inversely related
(a) Upward Shift in demand for the other commodity (c) Proportionally related
(b) Rise in the price of the other commodity (d) Any of the above
(c) Downward Shift in demand for the other
Q 42.
commodity If the Price of Product A increases relative to the
(d) No shift in the demand for the other commodity Price of Substitute B & C, the demand for —
(a) B will increase (b) C will increase
Q 36. In case of Complementary Goods, increase in (c) B and C will increase (d) B and C will decrease
price of a product will —
(a) Decrease the demand for the other product Q.43 If Tea and Coffee are Substitutes, a fall in the
(b) Increase the price of the other product Prices of Tea leads to —
| Page 2.14
(i) Rise in the demand for Tea Q 49. If Income Levels increase, and the demand for
(ii) Fall in the supply of Coffee goods increase by less than proportionate extent, such
(iii) Fall in the demand for Coffee goods will be —
(iv) Rise in the supply of Tea (a) Inferior Goods (b) Necessary Goods
(a) Both (ii) and (iv) above (c) Luxury Goods (d) Nothing can be said
(b) Both (i) and (iii) above
(c) Both (ii) and (iii) above Q 50. If Income Levels increase, and the demand for
(d) Both (iii) and (iv) goods increase by more than proportionate extent, such
goods will be —
Q 44. Which of the following Statements is not true (a) Inferior Goods (b) Necessary Goods
about Individual Demand? (c) Luxury Goods (d) Nothing can be said
(a) The decision to purchase is always influenced by the
Income Constraint. Q 51. As Income Levels increase beyond a certain
(b) Selection of products and services are based on the extent, the propensity to consume —
Opportunity Cost. (a) Reduces (b) Increases
(c) Consumers measure their Opportunity Cost in terms (c) Remains constant (d) Becomes zero
of the price they pay for the products and services
they forego. Q 52. Generally, larger size of population of a country
(d) Decision to purchase is never influenced or or a region implies for all commodities as such.
concerned with the Income Constraint. (a) Higher demand (b) Lower demand
(c) No demand (d) Ineffective demand
Q 45. What effect does an increase in the price of a
product have on the Purchasing Power of the Q 53. In case of unequal distribution of income in the
Consumer? country, the propensity to consume will be ...., and
(a) Increases demand for Consumer Goods will be
(b) Decreases (a) Higher, lower (b) Higher, higher
(c) No effect (c) Lower, higher (d) Lower, lower
(d) Decreases initially, but increases
Q 54. If the Consumers expect a decrease in prices of
Q 46. If demand decreases with an increase in money the product in the future, its current demand will be —
income of Consumers, such goods are called — (a) higher (b) lower
(a) Normal Goods (b) Inferior Goods (c) Nil (d) Nothing can be said
(c) Luxury Goods (d) All of the above
Q 55. Demand is affected by weather conditions and
Q 47. The Giffen Effect in respect of Inferior Goods was seasonal aspects also. This statement is —
observed in the case of — (a) Tr ue (b) False
(a) Rice and Wheat (b) Wheat and Meat (c) Partially True (d) Nothing can be said
(c) Bread and Meat (d) Bread and Rice
DEMAND CURVE
Q 48. As income levels increase, the demand for goods
satisfying Necessities of life, will be to the increase in Q 56. Demand Schedule shows the relation between —
income. (a) Price and Quantity supplied
(a) Less than proportionate (b) Price and Quantity demanded
(b) More than proportionate (c) Income and Quantity supplied
(c) Proportionate (d) Income and Quantity demanded
| Page 2.15
Q 57. Indicates the changes in Consumers' purchasing
Q 64.
habits, depending on the price variation of a particular All but one of the following are assumed to
product. remain the same while drawing an individual's Demand
(a) Total Utility Curve Curve for a product. Which one is it?
(b) Demand Schedule (a) Preference of the individual
(c) Production Possibility Curve (b) His monetary income
(d) Purchasing Power Parity (c) Price
(d) Price of related goods
Q 58. A Demand Curve shows —
Q 65.
(a) Quantity demanded of a product at various levels of What is the other name given to the Demand
income of the Consumer. Curve?
(b) Quantity demanded of a product, at various levels (a) Profit Curve (b) Average Revenue Curve
of price of the product (c) Average Cost Curve (d) Indifference Curve
(c) Amount of money spent by a Consumer on a
product at various levels of price Q 66. Why is the Demand Curve otherwise known as
(d) Quantity supplied of a product at various levels of the Average Revenue Curve?
price of the product (a) Price paid for each unit by the Consumer, is the
Average Revenue per unit for the Seller
Q 59. A Demand Curve deals with — (b) Price paid for each unit by the Consumer, is the
(a) One product at a time Total Revenue for the Seller
(b) Two products at a time (c) Price paid by Consumer is equal to the Seller's
(c) Many products at a time willingness to sell the product.
(d) None of the above (d) All of the above
Q 60. While drawing the Demand Curve, the change Q 67.

The Total Area under the Demand Curve of a
takes place in which of the following factors? product measures —
(a) Supply of the product (a) Marginal Utility (b) Total Utility
(b) Quality of the product (c) Consumer's Surplus (d) Producers' Surplus
(c) Price of the product
(d) Technology used in offering the product Q 68. If Marginal Utility of .a product remains
constant, the Demand Curve will be —
Q 61. Demand Curve in most cases slopes— (a) Convex (b) Concave
(a) Upward towards left (c) Straight line (d) None of the above
(b) Vertical and parallel to Y—axis
Q 69.
(c) Downward towards right In a Demand Curve, the Horizontal Axis will be—
(d) Horizontal and parallel to X—axis (a) Quantity Demanded
(b) Price of the Product
Q 62. Demand Curve in most cases has a — (c) Income Levels of Consumer
(a) Positive Slope (d) Any of the above
(b) Negative Slope Zero Slope
Q 70.
(c) Infinity Slope In a Demand Curve, the Vertical Axis will be —
(a) Quantity Demanded
Q 63.
Demand Curve— (b) Price of the Product
(a) Will be a Straight Line (c) Income Levels of Consumer
(b) Will be a Curve (d) Any of the above
(c) Either (a) or (b)
| Page 2.16
Q 79. When we say that the Demand for a commodity
Q 71.
The Law of Demand is explained by — depends upon the money income of the Consumer, we
(a) Cardinal Approach (b) Ordinal Approach are referring to —
(c) Both (a) and (b) (d) Neither (a) nor (b) (a) Income Effect
(b) Substitution Effect
Q 72. The Law of Demand is — (c) Demonstration Effect
(a) A quantitative statement (d) Utility Effect
(b) A qualitative statement
(c) Both (a) and (b) Q 80. As a result of a fall in prices of the commodity,
(d) Neither (a) nor (b) the Consumer's increases.
(a) Real Income (b) Purchasing Power
Q 73.
The Law of Demand is a — (c) Both (a) and (b) (d) Neither (a) nor (b)
(a) Positive Statement
Q 81.
(b) Normative Statement When increase in his Real Income induces a
(c) Both (a) and (b) Consumer to buy more of a Commodity whose prices
(d) Neither (a) nor (b) has fallen, it is called —
(a) Inducement Effect
Q 74.
The and is a principle relating to— (b) Substitution Effect
(a) Micro—Economics (b) Macro—Economics (c) Income Effect
(c) Both (a) and (b) (d) Neither (a) nor (b) (d) Utility Effect
Q 75. The term "Ceteris Paribus" in the Law of Demand Q 82.

Which of the following statements best
denotes — describes the Income Effect?
(a) All factors remaining constant (a) It is the change in quantity demanded as a result of
(b) All factors except one remaining constant the changes in the income, keeping other things
(c) All factors being variable constant
(d) All of the above (b) It is the change in quantity demanded of substitute
goods, as a result of change in the price of a
Q 76.
Which of these is a variable factor in the Law of product, keeping the income constant
Demand? (c) It is the change in quantity demanded of a product,
(a) Consumers' Income Level as a result of change in the real income because of
(b) Economic Conditions of Boom / Recession change the price of the product
(c) Quality of the Product (d) It is the change in the price of a good because of a
(d) Price of the Product rise or fail in the real income of the consumer
Q 77. Q 83.
Why does the Law of Demand operate? When the price of a Commodity falls, the
(a) Income Effect (b) Substitution Effect Consumer
(c) Both (a) and (b) (d) Neither (a) nor (b) (a) Can buy the same quantity of the commodity with
lesser money
Q 78.
The total effect of a price change of a commodity (b) Can buy more of the same commodity with the
is same money
(a) Substitution Effect + Price Effect (c) Both (a) and (b)
(b) Substitution Effect + Income Effect (d) Neither (a) nor (b)
(c) Substitution Effect + Demonstration Effect
(d) Substitution Effect minus Income Effect
| Page 2.17
When the price of a Reynolds pen falls, ceteris When the price of a product falls, its Demand
paribus, Buyers substitute Reynolds Pen for other pens increases because —
that are now relatively more expensive. This is called — (a) New Consumers start buying the product
(a) Price Effect (b) Substitution Effect (b) Existing Consumers buy more quantities of the
(c) Income Effect (d) Veblen Effect product
Q 85.
The 'Substitution Effect' takes place due to change (d) Neither (a) nor (b)
in
(a) Income of the Consumer Q 91. The Law of Demand is explained by —
(b) Prices of the Commodity (a) Law of Diminishing Marginal Utility
(c) Relative Prices of the commodities (b) Law of Indifference Curves
(d) All of the above (c) Both (a) and (b)
Q 86.
Refers to the Consumer's Reaction to a change in
Q 92.
the relative prices of two products, keeping the Total Under the Law of Diminishing Marginal Utility,
Utility constant. Consumers continue buying till Price equals Marginal
(a) Consumer Surplus Utility. Hence at lower prices —
(b) Income Effect (a) Higher quantities will be demanded
(c) Substitution Effect (b) Lower quantities will be demanded
(d) Law of Diminishing Marginal Utility (c) No quantities will be demanded
Q 87.
Which of the following statement best describes
the Substitution Effect? Q 93. Under the Indifference Curve approach, if the
(a) When the price of a product rises, Consumers stop price of a product is lower, the Consumer will attain
consuming the product. equilibrium —
(b) When the price of a product rises, Consumers tend (a) At a higher Indifference Curve
to substitute it with a relatively expensive product (b) At a lower Indifference Curve
(c) When the price of a product rises, Consumers tend (c) At the origin point
to substitute it with a relatively inexpensive product (d) At infinity
(d) When the price of a product fails, consumers tend
to substitute in with a more expensive product EXCEPTIONS TO THE LAW
Q 88. Q 94.
In normal circumstances, if the Government Conspicuous Goods are also called —
increases the tax on any product, the demand for the (a) Necessary Goods (b) Prestige Goods
product in the short run (c) Giffen Goods (d) Basic Goods
(a) Increases
Q 95.
(b) Decreases Conspicuous goods are also called as:
(c) Remain unchanged (a) Veblen (b) Snob
(d) Tax has nothing to do with the demand for any (c) Prestigious (d) All of the above
product
Q 96. Conspicuous Goods —
Q 89. The segregation between Income Effect and (a) Are an exception the Law of Demand
Substitution Effect is adequately explained by — (b) Follow the Law of Demand
(a) Cardinal Approach (b) Ordinal Approach (c) Either (a) or (b)
(c) Both (a) and (b) (d) Neither (a) nor (b) (d) Neither (a) nor (b)
| Page 2.18
(a) Conspicuous Goods
When Consumers feel that if the commodity is
(b) Normal Goods
expensive, that it has got more utility, we are referring
(c) Conspicuous Necessities
to —
(d) Giffen Goods
(a) Inferior Goods (b) Normal Goods
(c) Conspicuous Goods (d) Giffen Goods Q 106.
Under which of the following situations the Law
Q 98. Which of the following is an example of of Demand will not operate?
(a) Conspicuous Goods (b) Giffen Goods
Conspicuous Goods?
(c) Absolute Necessities (d) All of the above
(a) Diamonds (b) Cooking Gas
(c) Petrol (d) Rice
Q 107. Under which of the following situations the Law
Q 99. If the demand for Petrol remains the same even of Demand will not operate?
(a) Price Change expected by Consumer
after the increase in petrol prices, it means Petrol is a —
(b) Consumer's lack of knowledge about prices
(a) Normal Good (b) Necessity
(c) Irrational purchasing pattern by Consumer
(c) Luxury Good (d) Inferior Good
Q 100.
Giffen Goods are those goods — Q 108.
In case of Contraction of Demand, there is a
(a) For which Demand increases as Price increases
—
(b) Which have a high income elasticity of demand
(a) Inward shift of the Demand Curve
(c) Which are in short supply
(b) Outward shift of the Demand Curve
(d) None of these
(c) Upward movement on the same Curve
Q 101. (d) Downward movement on the same Curve
An Inferior Commodity is one which is consumed
in smaller quantities when the income of consumer —
INCREASE OR DECREASE IN DEMAND
(a) Becomes nil (b) Remains the same
(c) Falls (d) Rises Q 109. Change in Demand as a result of the factors
Q 102. Giffen Goods are goods which — other than Price is known as —
(a) Shift in Demand
(a) Are considered inferior by Consumers
(b) Increases and Decrease in demand
(b) Occupy a substantial place in the Consumer's
(c) Change in Demand
budget
(d) All of these
(d) Neither (a) nor (b) Q 110. Increase in Demand leads to —
Q 103. Giffen Goods are — (a) Inward shift of the Demand Curve
(b) Outward shift of the Demand Curve
(a) Conspicuous Goods
(c) Upward movement on the same Curve
(b) Normal Goods
(d) Downward movement on the same Curve
(c) Conspicuous Necessities
(d) Inferior Goods Q 111. Which of the following results in a shifting of the
Q 104. When people buy more of a product when its Demand Curve?
(a) Increase in the tax on cigarettes leading to their fall
price goes up, the product will be —
in demand
(a) Conspicuous Goods (b) Normal Goods
(b) Slashing of ad rates by a television channel
(c) Inferior Goods (d) Luxury Goods
resulting in a rise in the number of ads
Q 105. When due to their constant usage, certain goods (c) Rise in the electricity harges leading to lesser
consumption
have become necessities of life, they are referred to as_
| Page 2.19
(d) All of these
Fall in the price of Substitute Goods leads to
(a) Increase in Demand
Q 112. In which of the following cases, does a shift in
(b) Decrease in Demand
demand take place?{Omit this question}
(c) Expansion of Demand
(a) Fall in demand for cigarettes, as a result of
(d) Contraction of Demand
increased taxes
(b) Rise in the demand for two wheelers due to Q 118. Which of the factors does not cause Increase in
decrease in the sales tax
Demand?
(c) Decline in electric power consumption due to rise in
(a) Rise in the price of Substitute Goods
the power charges
(b) Fall in price of this product
(d) Decline in the sales of Diwali crackers due to sudden
(c) Increase in population
rains and floods
(d) Increase in Income Levels of Buyers
Q 113.
Shift in demand does not take place due to — Q 119. Increase in Demand is caused by —
(a) Change in the price of the product
(a) Change in Buyer Preferences and Tastes in favour of
(b) Change in the tastes and preferences
this commodity
(c) Change in consumer habits
(b) Re—distribution of income to Consumers who
(d) Change in population
favour this commodity
Q 114. An Increase in Demand can result from — (c) Increase in population
(d) All the above
(a) Decline in Market Price
(b) Increase in Income
(c) Reduction in the Price of Substitutes
(C) ELASTICITY OF DEMAND — MCQs ELASTICITY BASICS
(d) Increase in the Price of Complements
Q 120. The concept of Elasticity of Demand was
Q 115. A drought in India leads to unusually low level of
developed by —
wheat production. This would lead to a rise in the price
(a) Alfred Marshall (b) Edwin Cannon
of wheat and fall in the quantity of wheat demanded
(c) Paul Samuelson (d) Fredric Bonham
due to
(a) Excess Demand at the original price Q 121. Two important factors which make difference in
(b) Excess Supply at the original price
the Elasticity of Demand for different commodities are
(c) Supply Curve shifting to the right
(a) Preferences and Income
(d) Demand Curve shifting to the left
(b) Income and Expenditure
Q 116. (c) Quantity and Price of the Commodity
Suppose consumer tastes shift toward the
(d) Tax Rates and Level of Income
consumption of apples. Which of the following
statements is an accurate description of the impact of Q 122. Elasticity of Demand refers to —
this event on the market for apples?
(a) The responsiveness of the quantity demanded of a
(a) There is an increase in quantity demanded of apples
commodity, to changes in one of the variables on
and in supply of apples.
which demand depends.
(b) There is an increase in the demand and supply of
(b) The percentage change in quantity demanded,
apples.
divided by the percentage change in one of the
(c) There is an increase in the demand for apples and a
factors on which demand depends.
decrease in supply of apples.
(d) There is an increase in the demand for apples and
an increase in the quantity Supplied
Q 123. Elasticity of Demand is attributed to —
| Page 2.20
(a) Changes in Prices (b) Changes in Incomes (a) Highly Elastic (b) Highly Inelastic
(c) Both (a) and (b) (d) Neither (a) nor (b) (c) Slightly Elastic (d) Slightly Inelastic
Q 124. Elasticity of Demand is measured in case of — Q 130. Demand for which of the following products
(a) Changes in Price of the Commodity is/are relatively inelastic?
(b) Changes in Incomes of the Consumers (a) Water (b)
(c) Changes in Prices of related commodities Electricity
(d) All of the above (c) Movie Tickets (d)
Both (a) and (b)
Q 125.
Which of the following statements regarding
Elasticity of Demand is true? Q 131. Which of the following products has highly
(a) Elasticity can be positive or negative inelastic demand?
(b) Elasticity always has a negative value (a) Jewellery (b) Imported sofa set
(c) Elasticity always has a positive value (c) Sa l t (d) Sports car
(d) Elasticity can never be zero
Q 132.
Amongst the following which item has highest
Q 126.
Which of the following statements is true with Price Elasticity?
regard to the elasticity of demand? (a) Sal t (b) Petrol
(a) The elasticity of demand remains same, both in (c) Indian Oil's Petrol (d) Rice
short run and in long run
Q 133.
(b) Demand is more elastic in the short run than in long Goods which have more close or perfect
run substitutes are
(c) Demand is more inelastic in the long run than in (a) Less Elastic (b) Unit Elastic
short run (c) More Elastic (d) Zero Elastic
(d) Demand is more elastic in the long run than in short
Q 134.
run Goods which have fewer substitutes are —
(a) Less Elastic (b) Unit Elastic
Q 127.
Price Elasticity of Demand is defined as — (c) More Elastic (d) Zero Elastic
(e) Change in quantity demanded ÷ Change in price
(a) Proportionate change in quantity demanded ÷ Q 135. Goods having higher proportion of the
Change in Price Consumers' spending are —
(b) Change in quantity demanded ÷ Proportionate (a) Less Elastic (b) Unit Elastic
change in Price (c) More Elastic (d) Zero Elastic
(c) Proportionate change in quantity demanded
Proportionate change in price Q 136. Goods having lower share in the Consumers'
Budget are —
Q 128. Price Elasticity of Demand for a product is — (a) Less Elastic (b) Unit Elastic
(a) Change in the quantity demanded of the product (c) More Elastic (d) Zero Elastic
when price increases by 30%
Q 137.
(b) Percentage increase in the quantity demanded of Luxury Goods are considered Necessity Goods.
the product when the price falls by 1% (a) Less Elastic (b) Unit Elastic
(c) Increase in the demand for the product when its (c) More Elastic (d) Zero Elastic
price falls by 10%
Q 138.
(d) Decrease in the quantity demanded of the product Goods which can be put to multiple uses are —
when its price falls by 1% (a) Less Elastic (b) Unit Elastic
(c) More Elastic (d) Zero Elastic
Q 129.
Usually, the demand for Necessities is —
| Page 2.21
Goods which have a specified and particular If a product has perfectly inelastic demand,
use are and there is a change in its price, which of the following
is correct?
(a) Less Elastic (b) Unit Elastic (a) Percent Change in Quantity demanded will be
(c) More Elastic (d) Zero Elastic greater than Percent Change in Price
(b) Percent Change in Quantity demanded will be lesser
Q 140.
Demand for electricity is elastic because — than Percent Change in Price
(a) It is very expensive. (c) Percent Change in Quantity demanded will be equal
(b) It has a number of close substitutes. to Percent Change in Price
(c) It has alternative uses. (d) Quantity demanded will not change at all
(d) None of the above.
LESS ELASTIC
Q 141.
Goods in respect of which the Consumers have
more time to adjust or modify their consumption Q 148. Identify the factor which generally keeps the
pattern are — Price—Elasticity of Demand for a product low.
(a) Less Elastic (b) Unit Elastic (a) Variety of Uses for that product
(c) More Elastic (d) Zero Elastic (b) Its Low Price
(c) Close Substitutes for that product
Q 142. Goods in respect of which the use or consumption (d) High proportion of the Consumer's Income spent on
can be postponed are — it
(a) Less Elastic (b) Unit Elastic
(c) More Elastic (d) Zero Elastic Q.149 Identify the coefficient of price—elasticity of
demand when the percentage increase in the quantity
Q 143.
Goods which are required for immediate or demanded of a product is smaller than the percentage
urgent consumption are — fall in its price.
(a) Less Elastic (b) Unit Elastic (a) Equal to one (b) Greater than one
(c) More Elastic (d) Zero Elastic (c) Smaller than one (d) Zero
Q 144. Q 150.
Medicines have less elastic demand since — Price Elasticity of Demand for addictive products
(a) They have alternative uses like cigarettes and alcohol would be
(b) They have to be used immediately, and their —
purchase and use cannot be delayed (a) Greater than 1 (b) Less than 1
(c) There are fewer substitutes available (c) Infinity (d) One
Q 151. If Electricity Demand is inelastic, and electric
Q 145.
Goods which are subject to Consumer Habits, e.g. rates increase, which of the following is likely to occur?
Cigarette, Liquor, et(c) are — (a) Quantity demanded will fall by a relatively large
(a) Less Elastic (b) Unit Elastic amount
(c) More Elastic (d) Zero Elastic (b) Quantity demanded will fall by a relatively small
amount
Q 146.
If the demand for a commodity is ..., entire (c) Quantity demanded will rise in the short run, but
burden of indirect tax will fall on the consumer. fall in the long run
(a) Relatively inelastic (b) Perfectly inelastic (d) Quantity demanded will fall in the short run, but
(c) Perfectly elastic (d) Relatively elastic rise in the long run
Q 152. If the demand for the good is less elastic, the

Demand Curve will be —
| Page 2.22
(a) Horizontal Line
When quantity demanded changes by larger
(b) Vertical Line
percentage than Price, Elasticity is termed as —
(c) Downward Sloping to the right, flatter
(a) Inelastic (b) Perfectly elastic
(d) Downward Sloping to the right, steeper
(c) Elastic (d) Perfectly inelastic
Q 153. If a product has less elastic demand, and there
Q 159. Suppose the demand for meals at a medium—
is a change in its price, which of the following is correct?
priced restaurant is elasti(c) If the management of the
(a) Percent Change in Quantity demanded will be
restaurant is considering raising prices, it can expect a
greater than Percent Change in Price
relatively —
(b) Percent Change in Quantity demanded will be lesser
(a) Large fall in quantity demanded
than Percent Change in Price
(b) Large fall in demand
(c) Percent Change in Quantity demanded will be equal
(c) Small fall in quantity demanded
to Percent Change in Price
(d) Small fall in demand
(d) Quantity demanded will not change at all
Q 160.
If the demand for the good is more elastic, the
UNIT ELASTIC
Demand Curve will be —
Q 154. (a) Horizontal Line
If the demand for a good is unit elastic, the value
(b) Vertical Line
of the elasticity of demand would be —
(c) Downward Sloping to the right, flatter
(a) 0 (b) 1
(d) Downward Sloping to the right, steeper
(c) In finity (d) Less than 0
Q 155. PERFECTLY ELASTIC

If the demand for the good is unit elastic, and E is
the measure of Elasticity, which of the following is true? Q 161. What would be the value of Elasticity of
(a)E=0 (b)0<E<1
Demand, if the demand for the good is perfectly elastic?
(c) E=1 (d) E>1
(a) 0 (b) 1
Q 156. If the demand for the good is unit elastic, the (c) Infinity (d) Less than 0
Demand Curve will be — Q 162.

If the demand for the good is perfectly elastic,
(a) 45 degree Straight Line, sloping downward to the
the Demand Curve will be —
right
(a) Horizontal Line
(b) Rectangular Hyperbola
(b) Vertical Line
(c) Equilateral Hyperbola
(c) Rectangular Hyperbola
(d) Any of the above
(d) Downward Sloping to the right
MORE ELASTIC Q 163. What is the mean by price elasticity of demand
Q 157. greater than 1-

Identify the coefficient of price—elasticity of
(a) % change in quantity demanded is less than %
demand when the percentage increase in the quantity
change in price.
demanded of a product is more than the percentage fall
(b) % change in quantity demanded is more than
in its price.
%change in price,
(a)Equal to one
(c) No change in quantity and price
(b) Greater than one
(d) None of these
(c) Smaller than one
(d) Zero
| Page 2.23
DETERMINANTS OF PRICE ELASTICITY
Suppose a Department Store has a sale on its
silverware. If the Price of a plate- setting is reduced from
Q 164. Price Elasticity of Demand would be higher for
₹ 300 to ₹ 200 and the quantity demaAed increases
those products which have —
from 3,000 plate settings to 5,000 plate-settings, what
(a) A larger number of Substitutes
is the Price Elasticity of Demand for that item?
(b) Fewer Substitutes
(a) 0.8 (b) 2.0
(c) No Substitutes
(c) 1.25 (d) 1.5
(d) Fewer Complementary Goods
Q 171.
Q 165. What is the new quantity demanded when Price
The Elasticity of Substitution between two
Elasticity is 1 and price changes from ₹ 15 to ₹ 10 and
Perfect Substitutes is —
the original quantity demanded was 10 units?
(a) Zero (b) Greater than zero
(a) 15 units (b) 20 units
(c) Less than infinity (d) Infinite
(c) 8 units (d) 12 units
Q 166. Which is correct about price elasticity of Q 172.
What will be the price elasticity if original price
demand?
is ₹5, original quantity is 8 units and changed price is ₹6
(a) It is several degrees and natures
changed quantity is 4 units?
(b) It is unaffected due to change in price of other
(a) 2.5 (b) 2.0
goods
(c) 1.5 (d) 1.0
(c) It is immeasurable concept
(d) It is due to direction of change in price Q 173. The original price of commodity is 2500 and
quantity demanded is 20 kgs. If price rises to₹ 750 and
PROPORTXONATE METHOD
quantity demanded reduce to 15 kgs, price elasticity o f
demand is
Q.167 If the demand for a product reduces by 5% as a
(a) 0.25 (b) 0.50
result of an increase in the price by 25%. What is the
(c) 1.00 (d) 1.50
Price Elasticity of Demand?
(a) 0 . 2 (b) – 0.5
POINT ELASTICITY
(c) -0.25 (d) 0.2
Q 174.
The Elasticity at a given point on a Demand
Q 168. If Price of Coffee decreases from ₹ 5 to ₹ 4.50, and
Curve is known as -
as a result the Consumer's Demand for Coffee increase
(a) Point Elasticity (b) Income Elasticity
from 60 grams to 75 grams, the absolute Price Elasticity
(c) Arc Elasticity (d) Cross Elasticity
of Demand of Coffee is -
(a) 1.5 (b) 3.0 Q 175.
Point Elasticity of Demand is calculated as -
(c) 2.0 (d) 2.5
(a) Upper Segment + Lower Segment
(b) Lower Segment ÷ Upper Segment
Q 169 Suppose the price of movies seen at a Theatre
rises from ₹ 120 to ₹ 200 per person. The Theatre
Manager observes that the rise in price causes
attendance at a given movie to fall from 300 persons to Q 176. Point Elasticity is useful for which of the
200 persons. What is the Price Elasticity of Demand for
following situations -
Movies?
(a) The bookstore is considering doubling the price of
(a) 0.5 (b) 0.8
notebooks
(c) 1.0 (d) 1.2
(b) A restaurant is considering lowering the price of its
most expensive dishes by 50%
| Page 2.24
(c) An automobile producer is interested in price from Z 220 to Z 190, the Price Elasticity of Demand
determining the response of consumers to the price for Blankets using Arc Method is —
of cars being lowered by Z 50,000 ( a) 0.69 ( b) 1.0
(d) None of the above ( c) 1.46 ( d) 2.66
Q 177. Q 183.
Which of the following statements regarding What is the Original Price of a Product when Price
Elasticity of Demand is true? Elasticity is 0.71 and Demand changes from 20 units to
(a) Elasticity of demand decreases as one goes down a 15 units and the new price is ₹ 10? (Use Arc Method for
Straight Line Demand Curve computation)
(b) Elasticity of Demand increases as one goes down a (a) ₹15 (b) ₹18
Straight Line Demand Curve (c) ₹ 20 (d) ₹ 8
(c) Elasticity of Demand is constant throughout the
Straight Line Demand Curve TOTAL OUTLAY I REVENUE METHOD
Q 184. Under Total Outlay Method, if as a result of
Q 178. If a point on a Demand Curve of any Product lies the decrease in price of a product, the total expenditure
on X Axis, then Price Elasticity of Demand of that on the product rises, we say that Price Elasticity of
commodity at that point will be - Demand is —
(a) Infinite (a) Equal to unity (b) Greater than unity
(b) More than zero (c) Less than zero (d) Zero (c) Less than unity (d) Zero
Q 179. Q 185.
If a point on a Demand Curve of any Product lies Under Total Outlay Method, if Price and
on Y Axis, then Price Elasticity of Demand of that Consumer's Total Expenditure on the product move in
commodity at that point will be - opposite directions, then, Price Elasticity of Demand is
(a) Infinite —
(b) More than zero (c) Less than zero (d) Zero (a) Equal to unity (b) Greater than unity
(c) Less than unity (d) Zero
Q 180.
What is the elasticity between midpoint & upper
extreme point of a straight line continuous demand Q 186. The demand for a product is elastic, an
curve? increase in its price will cause the Total Expenditure of
(a) Infinite (b) Ze ro the Consumers to —
(c) >1 (d) <1 (a) Remain the same (b) Increase
(c) Decrease (d) Any of these
ARC ELASTICITY
Q 181. At a price of ₹ 300 per month, there are 30,000 Q 187. Under Total Outlay Method, if as a result of the
subscribers to Cable TV in a Small Town. If the Cable decrease in price of a product, the total expenditure on
Company raises its price to Z 400 per month, the the product decreases, we say that Price Elasticity of
number of subscribers will fall to 20,000. Using the mid- Demand is —
point method for calculating the elasticity, what is the (a) Equal to unity (b) Greater than unity
Price Elasticity of Demand for Cable TV? (c) Less than unity (d) Zero
(a) 1.4 (b) 0 . 66
Q 188.
(c) 0 . 75 (d) 2.0 If the demand for a product is inelastic, an
decrease in its price will cause the Total Expenditure of
Q 182. 1f the quantity of blankets demanded increases the Consumers to —
from 4,600 to 5,700 in response to a decrease in their (a) Remain the same (b) Increase
(c) Decrease (d) Any of these
| Page 2.25
(c) If the demand for the product is inelastic, an
Q 189. Total Expenditure of a Consumer increases if — increase in price will have a negative effect on the
(i) Demand is elastic and price rises total revenue of the Firm
(ii) Demand is elastic and price falls (d) If the demand for the product is inelastic, a
(iii) Demand is inelastic and price rises decrease in price will have a positive effect on the
(iv) Demand is inelastic and price falls total revenue of the Firm
(a) Only (ii) (b) Only (iii)
Q 195.
(c) Both (i) and (iii) (d) Both (ii) and (iii) If a good has price elasticity greater than one
then —
Q 190.
Given the following four possibilities, which one (a) Demand is unit elastic and a change in price does
results in an increase in Total Consumer Expenditure? not affect sellers' revenue.
(a) Demand is unitary elastic and price falls (b) Demand is elastic and a change in price causes
(b) Demand is elastic and price rises Sellers' Revenue to change in the opposite direction.
(c) Demand is inelastic and price falls (c) Demand is inelastic and a change in price causes
(d) Demand is inelastic and price rises Sellers' Revenue to change in the same direction.
(d) None of the above is correct.
Q 191. Due to change in price of the commodity, the
Q 196.
Total Expenditure remains the same as before, then Ceteris paribus, what would be the impact on
Elasticity under Total Outlay Method is — foreign exchange earnings for a given falling export
(a) Equal to unity (b) Greater than unity prices, if the demand for the country's exports is
(c) Less than unity (d) Zero inelastic?
(a) Foreign Exchange Earnings decrease
Q 192.
When Increase in prices is exactly balanced by a (b) Foreign Exchange Earnings increase
proportionate reduction in the purchase quantity, then (c) No effect on Foreign Exchange Earnings
Elasticity under Total Outlay Method is — (d) Foreign Exchange Earnings increase for a brief
(a) Equal to unity (b) Greater than unity period and decrease drastically later on
(c) Less than unity (d) Z e r o
Q 197. If the Railways are making losses on passenger
Q 193. An increase in price will result in an increase in traffic, they should lower their fares. The suggested
Total Revenue if — remedy would only work if the demand for Rail Travel
(a) Percentage Change in quantity demanded is less had a price elasticity of —
than the Percentage Change in Price (a) Z e r o
(b) Percentage Change in quantity demanded is more (b) Greater than zero but less than one.
than Percentage Change in price (c) One
(c) Demand is elastic (d) Greater than one
(d) Consumer is operating along a Linear Demand
Curve at a point at which the price is very high and INCOME ELASTICITY
the quantity demanded is very low
Q 198.
Income Elasticity of Demand is defined as the
Q 194.
Which of the following statements regarding responsiveness of —
Elasticity of Demand is true? (a) Price to a change in quantity demanded
(a) If the demand for the product is inelastic, an (b) Quantity demanded to a Change in Price
increase in price will have a positive effect on the (c) Price to a Change in Income
total revenue of the Firm (d) Quantity demanded to a change in income
(b) If the demand for the product is elastic, an increase
Q 199.
in price will have a positive effect on the total Positive Income Elasticity implies that as
revenue of the Firm income rises, demand for the commodity —
| Page 2.26
(a) Rises (b) Falls
(c) Remains unchanged (d) Becomes zero (a) Below 1 (b) Above 1
(c) Zero (d) Between —1 and 0
Q 200. If Income—Elasticity is greater than zero, then
Q 208.
the product is — For goods increase in income leads to increase in
(a) Superior (b) Norma l deman (d)
(c) Infe rior (d) Both (a) & (b) (a) Abnormal (b) Normal
(c) Inferior (d) Superior
Q 201.
... have a positive Income Elasticity of
Q 209.
Deman(d) If Income Elasticity > 1, it means that proportion
(a) Complementary Goods of Income spent on goods , as income of the Consumers
(b) Substitute Goods increases.
(c) Normal Goods (a) Increases (b) Decreases
(d) Inferior Goods (c) Remains constant (d) Nothing can be said
Q 202. Q 210. For a product to be called income elastic, its

For what type of goods does demand fall with rise
in income levels of households? Income Elasticity has to be —
(a) Inferior Goods (b) Substitutes (a) Below1 (b) Above1
(c) Luxuries (d) Necessities (c) Zero (d) Between—1 and 0
Q 203. Negative Income Elasticity implies that as income Q 211.

Services like Air Travel and Movies have an
rises, demand for the commodity — income elasticity of —
(a) Rises (b) F a l l s (a) More than1 (b) 0
(c) Remains unchanged (d) Becomes zero (c) Less than 1 (d) Between 0 and 1
Q 204. Q 212. What would be the value of Income Elasticity of

What type of goods does a consumer eventually
stop buying, when his income rises? demand for the meals in a costly restaurant?
(a) Goods with Positive Income Elasticity (a) Lesser than one (b) Between 0 and 1
(b) Goods with Negative Income Elasticity (c) 1 (d) More than1
(c) Goods with Zero Income Elasticity
(d) No relationship exists between the type of the Q 213. Goods having Income Elasticity > 1 are
goods bought and rise in income considered as -
(a) Luxury Goods (b) Necessities
Q 205.
In Demand—Supply Analysis, if the income of the (c) Normal Goods (d) Inferior Goods
Consumer increases, the Demand Curve for an inferior
good — Q 214. The Income of a Household rises by 20%, the
(a) Shifts upward to the right demand for Computer rises by 25%, this means
(b) Shifts downward to the left Computer (in Economics) is a/an
(c) Shifts upward to the left (a) Inferior Good (b) Luxury Good
(d) Shifts downward to the right (c) Necessity (d) Nothing can be said
Q 206. Have a negative Income Elasticity of Deman(d) Q 215. If Income Elasticity for the household for
(a) Luxury Goods (b) Necessities Product A is 2 then A is -
(c) Normal Goods (d) Inferior Goods (a) Necessity Item (b) Inferior Goods
(c) Luxurious Item (d) Comfortable Item
Q 207. If quantity demanded does not change as Income
changes, then Income Elasticity of Demand is —
| Page 2.27
Q .216 If Income Elasticity = 1, it means that (c) Inferior Goods (d) Economic Goods
proportion of Income spent on goods , as income of
the Consumers increases. Q 224. Income of a household increases by 10%, and the
(a) Increase (b) Decreases demand for TV rises by 20%. This means that TV is an
(c) Remains constant (d) Nothing can be said example of —
(a) Normal Goods (b) Luxurious Goods
(c) Inferior Goods (d) Economic Goods
If Consumers always spend 15% of their
income on food, then the Income Elasticity of Demand Q 225.
of a household increases by 5%, and the demand
for Food is
for Bajra falls by 2%. In this case, Bajra is an example of
(a) 1 .50. (b) 1 .15.
—
(c) 1 . 00 (d) 0 .15.
Q 218. Meals in a costly restaurant Necessity is defined (c) Inferior Goods (d) Economic Goods
Income
as a good having -
CROSS ELASTICITY
(a) Positive Income Elasticity of Demand
(b) Negative Income Elasticity of Demand Q 226. In order to assess the effect of a change in
(c) Income Elasticity of Demand less than 1.
price of one product on the demand for other products,
(d) Price Elasticity of Demand less than 1.
which type of elasticity is often used?
Q 219 (a) Cross Elasticity (b) Income Elasticity
Goods having Income Elasticity < 1 are considered
(c) Price Elasticity (d) Supply Elasticity
as-
(a) Luxury Goods (b) Necessities Q 227.
Cross Elasticity measures the responsiveness
(c) Normal Goods (d) Inferior Goods
of quantity demanded of a commodity to —
Q 220. (a) Changes in Price of that Commodity
Which of the following is not a determinant of the
(b) Changes in Price of other Commodities
Advertising Elasticity of Demand?
(c) Changes in Income Levels of Buyers
(a) Effect of Time
(b) Stages of Product
(c) Advertising by Competitors Q 228.
In measuring Cross Elasticity, is / are
(d) Income Level of the Consumers
considere(d)
Q 221. If income increases by 10% and demand increases (a) Only one product (b) Two products
(c) Many products (d) No products
by 5%, then income elasticity of demand is:
( a) + 0 . 5 ( b) - 0 . 5 Q 229. Which of the following statements regarding
( c) + 0.05 ( d) - 0 . 05
Cross Elasticity is true?
Q 222. Concerned about the poor state of the economy, (a) It is always negative
(b) It is always positive
a Car Dealer estimates that if income decreases by 4%,
(c) It can be either positive or negative
Car Sales will fall from 352 to 335. Consequently, the
(d) It always lies between 0 and 1
Income Elasticity of Demand for cars is approximately -
(a) - 1 . 2 (b) 0 . 01 Q 230.
If Goods X and Y are complementary, their
(c) 0.4 (d) 1.2
Cross Elasticity is —
Q 223. (a) Infinity
Income of a household increases by 10%, and the
(b) Greater than zero but less than infinity
demand for Wheat rises by 5%. This means that Wheat
(c) Zero
is an example of —
(d) Negative
| Page 2.28
(a) Negative (b) Positive
Q 231. What will be the Slope of Demand Curve when ( c ) Zero ( d ) Infinite
it shows the Cross Elasticity between two
Q 239.
Complementary Goods? The cross elasticity of demand between two
(a) Negative (b) Positive perfect substitutes will be- *
(c) Horizontal (d) None of these (a) Z e r o (b) I nf i ni ty
(c) Very high (d) Very low
Q 232.
Cross Elasticity between Tea and Sugar is —
(a) Less than 0 Q 240. Goods having positive Cross Elasticity are —
(b) Greater than 1 (a) Mostly complementary goods
(c) Zero (b) Always complementary goods
(d) Greater than 0, but less than 1 (c) Mostly substitute goods
(d) Always substitute goods
Q 233.
Goods having negative Cross Elasticity are —
Q 241.
(a) Mostly complementary goods Positive Cross Elasticity always implies that the
(b) Always complementary goods goods are substitute goods. This statement is —
(c) Mostly substitute goods (a) Tru e (b) False
(d) Always substitute goods (c) Partially True (d) Nothing can be said
Q 234. Negative Cross Elasticity always implies that the Q 242.

If Cross Elasticity of Demand is Infinity, it means
goods are complementary in nature. This statement is that the goods are —
—{Omit this question} (a) Perfect Complementary Goods
( a ) True ( b ) False (b) Perfect Substitute Goods
( c ) Partially True ( d ) Nothing can be said (c) Inferior Goods
(d) Normal Goods
Q 235.
Goods having zero Cross Elasticity are —
(a) Complementary goods Q 243. If the quantity demanded of Tea increases by
(b) Unrelated goods 5% when the price of Coffee increases by 20%, the Cross
(c) Substitute goods Elasticity of demand between Tea and Coffee is —
(d) All of the above (a) —0.25 (b) 0 . 25
(c) 4 (d) 4
Q 236.
Cross Elasticity of Demand between Tea and
Q 244.
Coffee is The Cross Elasticity of monthly demand for ink
(a) Positive (b) Negative pen, when the price of gel pen increases by 25% and
(c) Zero (d) Infinity demand for ink pen increases by 50% is equal to —
( a) + 2.00. ( b) —2.00.
Q 237. If the co—efficient of Cross Elasticity of Demand ( c) 2 . 09 . ( d) + 2.09.
of X for Y is 3, it means that X and Y are —
Q 245.
(a) Complementary Goods Cross Elasticity of Demand for Gel Pen when the
(b) Substitute Goods Price of Refills increases by 20%
(c) Inferior Goods and demand for Gel Pens falls by 30% is equal to —
(d) Normal Goods ( a ) 0 . 71 ( b ) + 0.25.
( c ) 0 . 19 . ( d ) -1.5
Q 238.
When Cola Companies Coke and Pepsi, introduced
Colas in mini bottles at a low price, the demand for Tea Q 246. If the quantity demanded of Product X increases
and Coffee is small tea stalls declined drastically. The from 8 to 12 units in response to an increase in the price
Cross Elasticity between the Colas and Tea / Coffee is — of Product Y from Z 23 to Z 27, the Cross Elasticity of
| Page 2.29
Demand for X with respect to Price of Y is approximately (c) -2.89. (d) +2.89
—
(a) 0.35 and X and Y are Complements. Q 253. What can be said about Fresh Milk and Powdered
(b) 0.35 and X and Y are Substitutes. Milk?
(c) 2.5 and X and Y are Complements. (a) They are Complementary Goods
(d) 2.5 and X and Y are Substitutes. (b) They are Substitute Goods
(c) They are Unrelated Goods
Q 247.
Use the following data for the next 8 questions. (d) Nothing can be said
A Grocery Shop used to sell fresh milk at Z 20 per litre, at
which price 400 litres of milk were sold per month. Q 254. If Income of the Consumers increases by 50%
After some time, the price was raised to Z 30 per and the quantity of Fresh Milk demanded increases by
litre. Following are the consequences: 30%. What is Income Elasticity of Demand for Fresh
• Only 200 litres of milk was sold every month. Milk?
• The number of boxes of cereal customers bought (a) 0.5 (b) 0.6
went down from 200 to 140. (c) 1.25 (d) 1.50
• The number of packets of powdered milk customers
bought went up from 90 to 220 per month. Q 255. We can say that Fresh Milk in economics sense
is an example of -
Q 248 The Price Elasticity of Demand when fresh milk's (a) Luxury Goods (b) Inferior Goods
price increases from Z 20 per litre to Z 30 per litre is (c) Normal Goods (d) Nothing can be sai(d)
equal to
Q 256.
(a) 2.5 (b) 1.0 Advertisement Elasticity is also Know as:-
(c) 1 . 66 (d) 2 . 66 (a) Marketing Elasticity
(b) Promotional Elasticity
Q 249. What can be said about the Price Elasticity of (c) Commercial Elasticity
Demand for Fresh Milk? (d) All of the above
(a) It is perfectly elastic
(b) It is elastic Q 257. The responsiveness of a good's demand to
(c) It is perfectly inelastic changes in the Firm's spending on advertising is called
(d) It is inelastic —
(a) ) Demand elasticity
Q 250.
The Cross Elasticity of Demand for Cereals when (b) ) Supply elasticity
the price of Fresh Milk increases from ₹ 20 to Z 30 is (c) ) Advertisement elasticity
equal to (d) ) None of the above
(a) -0.6 (b) +0.6
(c) -0.19. (d) +0.38. Q 258. Advertisement Elasticity is the percentage change in
(a) Supply that occurs for every 1% change in Advertising
Q 251. Expenditure.
What can be said about Fresh Milk & Cereals?
(b) Demand that occurs for every 1% change in Advertising
(a) They are Complementary Goods Expenditure.
(b) They are Substitute Goods (c) Advertisement expense that occurs for every 1% change in
(c) They are Unrelated Goods Demand
Q 259.
Q 252. The Cross Elasticity of Demand for Powdered Milk, Advertising Elasticity is generally
(a) Positive (b) Negative
when the price of Fresh Milk increases from Z 20 to Z 30
(c) Z e r o (d) None of the above
per litre is equal to -
(a) +1.05. (b) -L05.
| Page 2.30
(b) Lower the value of Advertising Elasticity, greater
Q 260. Which of the following statements is correct? will be the responsiveness of demand to change in
(a) Higher the value of Advertising Elasticity, greater advertisement.
will be the responsiveness of demand to change in (c) Higher the value of Advertising Elasticity, lesser will
advertisement. be the responsiveness of demand to change in
advertisement.
Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n

1 B 52 A 103 D 154 B 205 B 256 B
2 D 53 D 104 A 155 C 206 B 257 C
3 D 54 B 105 C 156 D 207 D 258 B
4 A 55 A 106 D 157 B 208 C 259 A
5 D 56 B 107 D 158 C 209 B 260 A
6 D 57 B 108 C 159 A 210 A
7 C 58 B 109 D 160 C 211 B
8 B 59 A 110 B 161 C 212 A
9 C 60 C 111 D 162 A 213 D
10 A 61 C 112 C 163 B 214 A
11 A 62 B 113 A 164 A 215 B
12 C 63 C 114 B 165 D 216 C
13 C 64 C 115 A 166 A 217 C
14 D 65 B 116 D 167 A 218 C
15 B 66 A 117 B 168 D 219
16 C 67 B 118 B 169 220 C
17 A 68 C 119 D 170 A 221 D
18 B 69 A 120 A 171 B 222 A
19 B 70 B 121 C 172 A 223 D
20 C 71 C 122 C 173 A 224 A
21 B 72 B 123 C 174 B 225 B
22 B 73 A 124 D 175 A 226 C
23 C 74 A 125 A 176 B 227 A
24 A 75 B 126 D 177 C 228 B
25 D 76 D 127 D 178 A 229 B
26 B 77 C 128 B 179 D 230 C
27 C 78 B 129 B 180 A 231 D
28 B 79 A 130 D 181 C 232 A
29 C 80 C 131 C 182 A 233 A
30 B 81 C 132 C 183 C 234 A
31 B 82 C 133 C 184 A 235 B
32 C 83 C 134 A 185 B 236 B
33 C 84 B 135 C 186 B 237 A
34 D 85 C 136 A 187 C 238 B
35 C 86 C 137 C 188 C 239 B
36 A 87 C 138 C 189 C 240 B
37 B 88 B 139 A 190 D 241 D
38 D 89 B 140 C 191 D 242 A
39 D 90 C 141 C 192 A 243 B
40 C 91 A 142 C 193 A 244 B
41 A 92 A 143 A 194 A 245 A
42 C 93 A 144 B 195 A 246 D
43 B 94 B 145 A 196 B 247 D
44 D 95 D 146 B 197 A 248 B
45 B 96 A 147 D 198 D 249 B
46 B 97 C 148 B 199 D 250 A
47 C 98 A 149 C 200 A 251 A
48 A 99 B 150 B 201 D 252 D
49 B 100 A 151 B 202 C 253 B
50 C 101 D 152 D 203 A 254 B
51 A 102 C 153 B 204 B 255 C
| Page 2.31
Chapter – 2 part C- Theory of Supply Q 8. Supply refers to the by Producing Firms.
Supply Basics (a) Quantities offered for sale
Q 1. Supply can be referred as — (b) Prices offered
(a) Those goods which Firms offers for sale (c) Sales achieved
(b) Amount of goods, Firms sells in the market (d) Profits earned
(c) Amount of goods all people want
Q 9.
(d) None of the above Period in which supply cannot be increased is
called
Q 2. The Supply of a product refers to — (a) Market Period (b) Short Run
(a) Actual production of the product (c) Long Run (d) None of these
(b) Total existing stock of the product
(c) Stock available for sale Q 10. ______is the total volume of the commodity
(d) Amount of the product offered for sale at a which can be brought into the market for sale at a short
particular price per unit of time notice.
(a) Demand (b) Supply
Q 3. Supply of a Commodity is a — (c) Stock (d) Sales
(a) Stock Concept
(b) Flow Concept Q 11. ______refers to the quantity which is actually
(c) Both Stock and Flow Concept. brought in the market.
(d) None of these. (a) Demand (b) Supply
(c) Stock (d) Sales
Q 4. Supply refers to the quantity of goods or services,
that are willing and able to offer to the market at Q 12. Supply is different from Stock. This statement is
various prices during a period of time. (a) True (b) False
(a) Producers (b) Consumers (c) Partially True (d) None of the above
(c) Economists (d) Accountants
Q 13.
Stock is potential supply.
Q 5. Supply Quantity is the same as Sales Quantity. (a) True (b) False
This statement is — (c) Partially True (d) None of the above
(a) True (b) False
Q 14.
(c) Partially True (d) None of the above Stock refers to quantity into the market,
whereas Supply refers to quantity into the market.
Q 6. Supply refers to what Firms offer for sale, and not (a) Actually brought, actually brought
necessarily to what they succeed in selling. This (b) Can be brought, actually brought
statement is — (c) Can be brought, actually brought
(a) True (b) False (d) Can be brought, can be brought
(c) Partially True (d) None of the above
Q 15.
The meaning of time element in economics is
Q 7. To constitute Supply, the Producing Firms must (a) Calendar time
have (b) Clock time
(a) Ability, i.e. productive capacity (c) Operational time which supply adjusts with the
(b) Willingness, i.e. ready to supply market demand
(c) Both (a) and (b) (d) None of these
2.32 | Page
DETERMINANTS OF SUPPLY (b) Reduction in the supply quantity of products that
are displaced
Q 16. Generally, higher the prices of products, higher (c) Both (a) and (b)
the (d) Neither (a) nor (b)
(a) Profits of Producing Firms
(b) Satisfaction Level of Consumers Q 24. Other things being equal, the supply quantity of
(c) Tax Rates a product is related to its price.
(d) All of the above (a) Directly (b) Inversely
(c) Proportionally (d) Not at all
Q 17. Producing Firms are guided by —
(a) Service Motive (b) Profit Motive Q 25. Other things being equal, the supply quantity of
(c) Both (a) and (b) (d) Neither (a) nor (b) a product is related to price of related goods.
(a) Directly (b) Inversely
Q 18. Other things being equal, if the price of the (c) Proportionally (d) Not at all
commodity is higher, quantities thereof will be supplied
to the market. Q 26. Other things being equal, the supply quantity of
(a) Equal (b) Lower a product is related to the Cost of Production of that
(c) Greater (d) Zero product.
(a) Directly (b) Inversely
Q 19. Supply of a Product decreases when the prices of (c) Proportionally (d) Not at all
other related goods increase. This is because
(a) Customers start demanding more of other goods Q 27. Generally, if there are incentives like Subsidies
(b) Those goods become relatively more profitable to which reduce the cost of production, the supply quantity
the Firm to produce and sell will —
(c) Customers preferences and tastes will change (a) Increase (b) Decrease
(d) Producing Firms' profit motive changes (c) Remain Constant (d) Become Zero
Q 20. If there is an decrease in the Prices of Factors of Q 28. In case of failure of rains, floods, fires, etc. the
Production, Cost of Production of that product will — supply of agricultural commodities will —
(a) Increase (b) Decrease (a) Increase (b) Decrease
(c) Remain Constant (d) Become Zero (c) Remain Constant (d) Become Zero
Q 21. Other things being equal, if the Cost of Production LAW OF SUPPLY AND SUPPLY CURVE
of a commodity is higher, quantities thereof will be
supplied to the market. Q 29. Which of the following is the determinant in the
(a) Equal (b) Lower Law of Supply?
(c) Greater (d) Zero (a) Technology (b) Price of related goods
(c) Price of the product (d) None of these
Q 22. Inventions and Innovations lead to —
(a) Lower Cost of Production in existing products Q 30. As per Law of Supply, other things being equal,
(b) Production of more or better goods if the Price of a Commodity increases, its Supply
(c) Both (a) and (b) Quantity will
(d) Neither (a) nor (b) (a) Increase (b) Decrease
(c) Remain Constant (d) Become Zero
Q 23. Inventions and Innovations lead to —
(a) Increase in supply quantity of new products
2.33 | Page
Q 31. Generally, the Supply Curve — Q 38. Increase in quantity supplied, due to changes in
(a) Slopes downwards from left to right price, may also be called —
(b) Slopes upwards from right to left (a) Contraction of Supply
(c) Slopes upwards from left to right (b) Expansion of Supply
(d) Nothing can be sai (c) Decrease in Supply
(d) Increase in Supply
Q 32.
Generally, the Supply Curve —
Q 39.
(a) Positively sloped Decrease in quantity supplied, due to changes
(b) Negatively sloped in price, may also be called —
(c) Zero—sloped (a) Contraction of Supply
(d) Nothing can be said (b) Expansion of Supply
(c) Decrease in Supply
Q 33.
The Market Supply Curve is a lateral summation (d) Increase in Supply
(totalling) of Individual Supply Curves of all Producing
Firms. This statement is — Q 40. When more units of the product are supplied at
(a) True (b) False a higher price, it is called —
(c) Partially True (d) None of the above (a) Contraction of Supply
(b) Increase in Supply
Q 34. What would be the shape of the Supply Curve of (c) Change in Supply
the toys, if a Seller offers to sell any number of toys as (d) Expansion of Supply
100?
(a) Vertical (b) Downward sloping Q 41. Contraction of Supply is the result of —
(c) Horizontal (d) Upward sloping (a) Decrease in the number of Producers
(b) Decrease in the price of the product concerned
INCREASE / DECREASE IN QUANTITY SUPPLIED (c) Increase in the prices of other goods
(d) Decrease in the Outlay of Sellers
Q 35.
Increase or Decrease in the quantity supplied
occurs due to —{Omit this question} INCREASE / DECREASE IN SUPPLY
(a) Changes in Price
(b) Changes in Factors other than Price Q 42. Increase or Decrease in Supply occurs due to —
(c) Both (a) and (b) (a) Changes in Price
(d) Neither (a) nor (b) (b) Changes in Factors other than Price
Q 36. While recognizing Increase or Decrease in the (d) Neither (a) nor (b)
quantity supplied, we assume remain constant.
Q 43.
(a) Price While recognizing Increase or Decrease in the
(b) All Factors other than Price Supply, we assume remain constant.
(c) Both (a) and (b) (a) Price
(d) Neither (a) nor (b) (b) All Factors other than Price
Q 37. When there is a movement on the Supply Curve, (d) Neither (a) nor (b)
we are referring to —
(a) Change in Supply Q 44. Change in Supply means —
(b) Change in Quantity Supplied (a) A movement on the same Supply Curve
(c) Both (a) and (b) (b) Shift of the Supply Curve
(d) Neither (a) nor (b) (c) Both (a) and (b)
2.34 | Page
Q 50. Movement from So to S2 is called —
Q 45. When higher quantities are supplied, due to (a) Contraction of Supply
changes in factors other than price, it called (b) Expansion of Supply
(a) Contraction of Supply (c) Decrease in Supply
(b) Expansion of Supply (d) Increase in Supply
(c) Decrease in Supply
(d) Increase in Supply Q 51. Reduction in the price of Related Commodities
will cause a movement from —
Q 46. Which of the following factors will not result in (a) Movement from So to Si
the shifting of Supply Curve for Software Packages? (b) Movement from So to S2
(a) Increase in the wages of computer professionals (c) Movement on So itself
(b) Government tariffs on software export and imports (d) No change at all
(c) Fall in the prices of software packages
Q 52.
(d) All of the above result in the shifting of the curve Increase in the price of Related Commodities
Q 47.
An Increase in the Supply of a product is caused (a) Movement from So to Si
by (b) Movement from So to 52
(a) Improvements in Technology (c) Movement on So itself
(b) Fall in the Prices of other goods (d) No change at all
(c) Fall in the Prices of Factors of Production
Q 53.
(d) All of these Reduction in Cost of Production of this
Commodity will cause a movement from —
Q 48. Use the following diagram to answer the next 11 (a) Movement from So to Si
questions. (b) Movement from So to S2
Y (c) Movement on So itself
(d) No change at all
Q 54. Inventions and Innovations on this commodity

Si (a) Movement from 50 to S1
S0 (b) Movement from So to S2
S2 X (c) Movement on So itself
(d) No change at all
Movement from So to Si is called —
(a) Contraction of Supply Elasticity of supply
(b) Expansion of Supply
(c) Decrease in Supply Q 55. Elasticity of Supply refers to the degree of
(d) Increase in Supply responsiveness of supply of a good to changes in its
(a) Demand (b) Price
Q 49. Movement from So to Si is caused by — (c) Cost of Production (d) State of Technology
(a) Changes in Price of the product
(b) Changes in Factors other than price Q 56. Which of the following has the lowest Price
(c) Both (a) and (b) Elasticity of Supply?
(d) Neither (a) nor (b) (a) Luxury Items
(b) Necessities
(c) Perishable Goods
(d) Items that have the least budgetary allocation
2.35 | Page
(b) Proportionate change in supply is greater than
Q 57. Given the Market Demand, the burden of specific proportionate change in price
.
tax that will be borne by the Consumer (Buyer) depends (c) Proportionate change in supply is equal to
on the — proportionate change in price.
(a) Price Elasticity of Supply (d) All of the above.
(b) Price Elasticity of Demand
(c) Consumer's Ability Q 65. A Horizontal Supply Curve parallel to the
.
(d) Type of the Product quantity axis implies that the Elasticity of Supply is —
(a) Zero
Q 58. Elasticity of Supply can be measured using — (b) Infinite
(a). Percentage Change or Proportional Method (c) Equal to one
(b) Point Elasticity Method (d) Greater than zero but less than one.
(c) Arc Elasticity Method
Q 66.
(d) All the above When change in the quantity supplied is
.
proportionate to the change in the price, the product is
Q 59. Which of the following method is not used for said to have —
.
measuring elasticity of supply? (a) Unitary Elastic Supply
(a) Arc Method (b) Percentage Method (b) Perfectly Elastic Supply
(c) Total outlay Method (d) Point Method (c) Relatively Elastic Supply
(d) Perfectly Inelastic Supply
Q 60.
If Quantity Supplied increases by 60% for a 500/o
. Q 67. Price is fallen by 20% brings above 10% fall in
increase in Price, Elasticity of Supply is —
.
(a) —1.2 (b) +1.2 quantity supplied then elasticity of supply is
(c) —0.83 (d) +0.83 (a) 2.0 (b) 0.5
(c) 1.0 (d) 1.5
Q 61. If Price is 15, quantity supplied is 150 units. IfPrice
.
is 25, quantity supplied is 300 units. Compute Price EQUILIBRIUM PRICE WITH DEMAND & SUPPLY
Elasticity of Supply using Arc Method.
(a) —1.09 (b) +1.09 Q 68. Market Forces refer to —
.
(c) —0.98 (d) +0.98 (a) Demand (b) Supply
Q 62. When Supply is perfectly inelastic, Elasticity of
.
Supply is equal to — Q 69. Demand & Supply interact in determining—
.
(a) +1 (b) 0 (a) Price and Output (b) Cost and Revenue
(c) —1 (d) Infinity (c) Both (a) and (b) (d) Neither (a) nor (b)
Q 63. If as a result of a change in price, the quantity Q 70. Equilibrium price is where
.
supplied of a product remains unchanged, we conclude (a) Market supply and market demand are equal
that — (b) Firm supply ad market demand are equal
(a) Elasticity of Supply is perfectly inelastic (c) Firm demand and market supply are equal
(b) Elasticity of Supply is relatively greater elastic (d) None of these
(c) Elasticity of Supply is inelastic
(d) Elasticity of Supply is relatively less elastic Q 71. Other things being equal, as Demand increases,
Equilibrium Price —
Q 64. Elasticity of Supply is greater than one when (a) decreases (b) increases
.
(a) Proportionate change in price is greater than (c) does not change at all (d) cannot be commented
proportionate change in supply upon.
2.36 | Page
Q 72. Other things being equal, as Demand increases, Q 79. Other things being equal, as Supply decreases,
Quantity at the Equilibrium Price level — Equilibrium Price —
(a) increases (a) Decreases
(b) decreases (b) Increases
(c) does not change at all (c) Does not change at all
(d) cannot be commented upon. (d) Cannot be commented upon.
Q 73. Other things being equal, as Demand increases Q 80.

Other things being equal, as Supply decreases
(a) Equilibrium Price and Quantity both increase. Equilibrium Price and Quantity both increase.
(b) Equilibrium Price and Quantity both decrease. (a) Equilibrium Price and Quantity both decrease.
(c) Equilibrium Price increases and Quantity decreases. (b) Equilibrium Price increases and Quantity decreases.
(d) Equilibrium Price decreases and Quantity increases. (c) Equilibrium Price decreases and Quantity increases.
Q 74. Other things being equal, as Demand decreases,
Equilibrium Price — Q 81. If increase in demand is greater than the
(a) decreases increase in supply, then the Equilibrium Price —
(b) increases (a) Decreases
(c) does not change at all (b) Increases
(d) cannot be commented upon (c) Does not change at all
(d) Cannot be commented upon.
Q 75. Other things being equal, as Demand decreases,
Quantity at the Equilibrium Price level — Q 82. If increase in demand is greater than the
(a) increases increase in supply, then Quantity at the Equilibrium
(b) decreases Price level —
(c) does not change at all (a) Increases
(d) cannot be commented upon. (b) Decreases
(c) Does not change at all
Q 76. Other things being equal, as Supply increases, (d) Cannot be commented upon.
Equilibrium Price —
(a) Decreases Q 83. If increase in demand is greater than the
(b) Increases increase in supply, then —
(c) Does not change at all (a) Equilibrium Price and Quantity both increase.
(d) Cannot be commented upon. (b) Equilibrium Price and Quantity both decrease.
(c) Equilibrium Price increases and Quantity decreases.
Q 77.
Other things being equal, as Supply increases, (d) Equilibrium Price decreases and Quantity increases.
Quantity at the Equilibrium Price level —
(a) Increases Q 84. If decrease in demand is greater than the
(b) Decreases decrease in supply, then —
(c) Does not change at all (a) Equilibrium Price and Quantity both increase.
(d) Cannot be commented upon. (b) Equilibrium Price and Quantity both decrease.
(c) Equilibrium Price increases and Quantity decreases.
Q 78. Other things being equal, as Supply increases — (d) Equilibrium Price decreases and Quantity increases.
(a) Equilibrium Price and Quantity both increase.
(b) Equilibrium Price and Quantity both decrease. Q 85. If increase in demand is equal to the increase in
(c) Equilibrium Price increases and Quantity decreases. supply, then the Quantity at the Equilibrium Price level
(d) Equilibrium Price decreases and Quantity increases. —
2.37 | Page
(a) Increases
(b) Decreases Q 91. If the Supply of a commodity is perfectly
(c) Does not change at all inelastic, an increase in Demand will result in —
(d) Cannot be commented upon. (a) Decrease in both Price and Quantity at equilibrium
(b) Increase in both Price and Quantity at equilibrium
Q 86. If increase in demand is equal to the increase in (c) Increase in Equilibrium Quantity, Equilibrium Price
supply, then — remaining constant
(a) Equilibrium Price and Quantity both increase. (d) Increase in Equilibrium Price, Equilibrium Quantity
(b) Equilibrium Price and Quantity both decrease. remaining constant
(c) Equilibrium Price remains the same but Quantity
increases. Q 92. If the Demand of a commodity is perfectly
(d) Equilibrium Price remains the same but Quantity elastic, an increase in Supply will result in —
increases. (a) Decrease in both Price and Quantity at equilibrium
Q 87.
If decrease in demand is less than the decrease in (c) Increase in Equilibrium Quantity, Equilibrium Price
supply, then the Equilibrium Price — remaining constant
(a) decreases (d) Increase in Equilibrium Price, Equilibrium Quantity
(b) increases remaining constant
(c) does not change at all
Q 93.
(d) cannot be commented upon. If the Demand of a commodity is perfectly
elastic, a decrease in Supply will result in —
Q 88. Which of the following situation does not lead to (a) Decrease in both Price and Quantity at equilibrium
an increase in Equilibrium Price? (b) Increase in both Price and Quantity at equilibrium
(a) An increase in demand, without a change in supply. (c) Decrease in Equilibrium Quantity, Equilibrium Price
(b) A decrease in supply accompanied by an increase in remaining constant
demand. (d) Decrease in Equilibrium Price, Equilibrium Quantity
(c) A decrease in supply without a change in demand. remaining constant
(d) An increase in supply accompanied by a decrease in
demand. Q 94. If a fisherman must sell all of his daily catch
before it spoils for whatever price he is offered once the
Q 89. If the Supply of a commodity is perfectly elastic, fish are caught. The Fisherman's Price Elasticity of
an increase in Demand will result in — Supply for fresh fish is —
(a) Decrease in both Price and Quantity at equilibrium (a) Zero (b) Infinity
(b) Increase in both Price and Quantity at equilibrium (c) One (d) cannot be determined
(c) Increase in Equilibrium Quantity, Equilibrium Price
remaining constant The Below 7 Questions are based on the demand and
(d) Increase in Equilibrium Price, Equilibrium Quantity supply diagrams below. S1 and D1 are the original
remaining constant demand and supply curves. D2, D3, S2 and S3 are
possible new demand and supply curves. Starting from
Q 90. If the Supply of a commodity is perfectly elastic, a initial equilibrium point (1) what point on the graph is
decrease in Demand will result in — most likely to result from each change?
(a) Decrease in both Price and Quantity at equilibrium
(c) Decrease in Equilibrium Quantity, Equilibrium Price
remaining constant
(d) Decrease in Equilibrium Price, Equilibrium Quantity
remaining constant
2.38 | Page
(c) When supply increases and demand increases.
(d) When demand decreases and supply decreases.
Q 100. When a market is in equilibrium:

(a) No shortages exist.
(b) Quantity demanded equals quantity supplied.
(c) A price is established that clears the market.
(d) All of the above are correct.
Q 101. The market of computers is not in equilibrium,

then which of the following statements is definitely
true?
(a) The prices of computer will rise
Q 95. Assume X is a normal good. Holding everything (b) The prices of computer will fall
else constant, assume that income rises and the price of (c) The prices of computers will change, but not
a factor of production also increases. What point in enough information is given to determine the
Figure 1 is most likely to be the new equilibrium price direction of the change.
and quantity? (d) None of the above
(a) Point 9 (b) Point 5
(c) Point 3 (d) Point 2.
Q Ans Q Ans Q Ans Q Ans Q Ans
Q 96. We are analyzing the market for good Z. The price 1 A 23. C 45. D 67. B 89. C
2 D 24. A 46 C 68. C 90. C
of a complement good, good Y, declines. At the same
3 B 25. B 47. D 69. A 91. D
time, there is a technological advance in the production
4 A 26. B 48. C 70. A 92. C
of good Z. What point Figure 1 is most likely to be the 5 B 27 A 49. B 71. B 93. C
new equilibrium price and quantity? 6 A 28. B 50. D 72. A 94. A
(a) Point 4. (b) Point 5 7 C 29. C 51. B 73. A 95. D
(c) Point 8 (d) Point 7 8 A 30. A 52. A 74. A 96. D
9 A 31. C 53. B 75. B 97. B
Q 97. Heavy rains in Maharashtra during 2005 and 10 C 32. A 54. B 76. A 98. B
2006 caused havoc with the rice crop. What point in 11 B 33. A 55. B 77. A 99. D
12 A 34. C 56. C 78. D 100 D
Figure 1 is most likely to be the new equilibrium price
13 A 35. A 57. A 79. B 101 C
and quantity?
14 C 36. B 58. D 80. B
(a) Point 6 (b) Point 3 15 C 37. B 59. C 81. B
(c) Point 7 (d) Point 8 16 A 38. B 60. B 82. A
17 B 39. A 61. B 83. A
Q 98. Assume that consumers expect the prices on new 18 C 40. D 62. B 84. B
cars to significantly increase next year. What point in 19 B 41 B 63. A 85. A
Figure is most likely to be the new equilibrium price and 20 B 42. B 64. B 86. C
21 B 43 A 65. B 87. B
quantity?
22 C 44. B 66. A 88. D
(a) Point 6 (b) Point 5
(c) Point 3 (d) Point 8
Q 99. What combinations of changes would most likely

decrease the equilibrium quantity?
(a) When supply increases and demand decreases.
(b) When demand increases and supply decreases
2.39 | Page
Q.7. For what type of goods does demand fall with a rise
Chapter 2- Utility + Demand+ Supply in income levels of households?
Past Year Exam + Most Repeated Question (a) Inferior goods (b) Substitutes
(c) Luxuries (d) Necessities
Q.1. “High priced goods consumed by status seeking rich
people to satisfy their need for conspicuous goods” is: Q.8. Which economist said that money is the measuring
(a) Veblen effect (b) Bandwagon effect rod of utility?
(c) Snob effect (d) Demonstration effect (a) A.C Pigou (b) Marshall
(c) Adam Smith (d) Robbins
Q.2.
Q.9. Elasticity between two points:
(a) Point elasticity (b) Arc elasticity
(c) Cross elasticity (d) None.
Q.10. An indifference curve is L shaped, then two goods

will be:
(a) Perfect substitute goods
(b) Substitute goods
(a) elasticity at point A=∞, at B= > 1, at C = 1,at D = < 1 (c) Perfect complementary goods
and at E = 0 (d) Complementary goods
(b) elasticity at A = 0, at B = < 1 , at C = 1 , at D = > 1 and
at E = ∞ Q.11.The concept of consumer’s surplus is derived from:
(c) elasticity at A = 0 , at B > 1, at C = 1, at D = < 1 and at (a) The law of diminishing marginal utility.
E=0 (b) The law of equal-marginal utility
(d) None of these. (c) The law of diminishing returns
(d) Engel’s law
Q.3. Cardinal approach is related to:
(a) Indifference curve Q.12. When supply curve shifts to the right there is:
(b) Equi marginal utility (a) An increase (b) expansion
(c) Law of diminishing returns (c) Contraction (d) decrease
(d) None of these.
Q.13. Short- run price is also called by the name of:
Q.4. An Increase in demand can result from: (a) Market price (b) Showroom price
(a) A decline in the market price (c) Maximum retail price (d) None of these.
(b) An increase in income
(c) Reduction in the price of substitutes Q.14. When supply price increase in the short run, the
(d) An increase in the price of complements. profit of the producer ______.
(a) Increases (b) decreases
Q.5. Cross elasticity of perfect substitutes is (c) Remains constant (d) decreases marginally
(a) Zero (b) Negative
(c) One (d) Infinity Q.15. When Price of a commodity increases what will be
the effect on quantity demanded?
Q.6.Supply is a ______ concept (a) Increases (b) Decreases
(a) Flow (b) Stock (c) No change (d) None of these
(c) Flow and Stock, both (d) Qualitative
2.40 | Page
Q.16. According to the law of supply, change in supply is Q.23. The scope of the indifference curve shows
related to? consumer equilibrium at the point where
(a) Price of goods 𝑃𝑥
𝑀𝑅𝑆(𝑥𝑦) ___ 𝑃 𝑦 (Price line)
(b) Price of related goods
(a) Less than (b) More than
(c) Factors of production
(c) Equal to (d) None of the above
Q.24. Which of the following is not the property of the
Q.17. In case of inferior goods, with a rise in the income indifference curve?
of consumers, demand for Giffen goods will (a) IC is convex to the origin
(a) Increases (b) Decreases (b) IC scopes downwards from left to right
(c) No change (d) None of the above (c) Two IC can touch each other
(d) IC cannot touch either of the axes
Q.18. In case of necessaries, consumer surplus is?
(a) Infinite (b) Zero Q.25. Case of Normal goods, rise in price leads to
(c) Equals to one (d) More than one ______?
(a) Fall in demand
Q.19. When the price of a commodity rises from 200 to ₹ (b) Rise in demand
300 and Quantity supply increases from 2000 to 5000 (c) No change
units, find the elasticity of supply? (d) Initially rise then ultimately fall
(a) 3.0 (b) 2.5
(c) 0.3 (d) 3.5 Q.26. Method of demand forecasting does not include?
(a) Mathematical method
Q.20. From the following data given below answer (b) Barometric method
question 20 and 21- (c) Expert opinion method
Units TU MU (d) Statistical method
1 200 -
Q.27. An IC shows MRS between the commodity?
2 - 180 (a) Increasing (b) Decreasing
3 480 - (c) Constant (d) Zero
Q.28. Forecasting of demand is the Art and Science of

predicting?
(a) Actual demand for a product at the same future date
(b) Probable demand in future
Total utility derived from 2nd unit
(c) Total demand in future
(a) 380 (b) 20 (d) None of these.
(c) 100 (d) 280
Q.29. Addition made to total utility refers to?
Q.21. Marginal utility of 3𝑟𝑑 unit is? (a) Total utility (b) Average utility
(a) 200 (b) 280 (c) Marginal utility (d) All of the above.
(c) 100 (d) 50
Q.30. The elasticity of supply is zero means?
Q.22. Which Equation is correct— a) Perfectly inelastic (b) Perfectly elastic
𝑀𝑈𝑥 𝑃𝑥 𝑀𝑈𝑥 𝑃𝑥
(a) = (b) > (c) Imperfectly elastic (d) All of the above.
𝑀𝑈𝑦 𝑃𝑦 𝑀𝑈𝑦 𝑃𝑦
𝑀𝑈𝑥 𝑃𝑥 𝑀𝑈𝑥 𝑃𝑥
(c) 𝑀𝑈𝑦
< 𝑃𝑦
(d)𝑀 𝑈 𝑦 ≠ 𝑃 𝑦
Q.31. The Consumer is in equilibrium when the following
condition is satisfied:
2.41 | Page
(a) Budget line is tangent to the Ic curve (d) None
𝑀𝑈 𝑀𝑈𝑦 𝑀𝑈𝑧
(b) 𝑃𝑥𝑥 = 𝑃𝑦
= 𝑃𝑧
Q.38. Which of the following is not the property of an
indifference curve?
(a) Slopes downwards to the right
(b) Always convex to the origin
Q.32. Which of the following statement is correct? (c) Intersects each other
(a) Supply is inversely related to its cost of production (d) Will not touch either of the axes
(b)Price and quantity demand of a good have a direct
relationship Q.39. Which of the following is correct ?
(c) Taxes and subsidy has no impact on the supply of the (a) Elasticity on the lower segment of demand curve is
product greater than unity
(d) Seasonal changes have no impact on the supply of the (b) Elasticity on the upper segment of demand curve is
commodity lesser than unity
(c) Elasticity at the middle of the demand curve is equal
Q.33. When the supply of a product is perfectly inelastic to unity
then the curve will be (d) Elasticity decreases as one moves from the lower part
(a) Parallel to Y-axis of the mark demand curve to upper part
(b) Parallel to X-axis
(c) At the angle of 45° Q.40. Which of the following will affect the demand for
(d) Sloping upwards non-durable goods?
(a) Disposable (b) Income Price
Q.34. In the case of, there is an inverse relationship (c) Demography (d) All of the above
between income and demand for a product.
(a) Substitute goods Q.41. When the price of tea decreases, people reduce the
(b) Complementary goods consumption of coffee. Then the goods are
(c) Giffen Goods (a) Complementaries (b) Substitutes
(d) None of the above (c) Inferior goods (d) Normal goods
Q.35. If maize has - 0.30 as income elasticity of demand, Q.42. Which of the following relation is true with MU?
then maize will be considered as _ (a) When MU is positive, Total utility rises at a
(a) Necessity (b) Inferior good diminishing rate
(c) Superior good (d) None (b) When marginal utility is zero, total utility is maximum
(c) When marginal utility is negative, total utility is
Q.36. If price decreases from 80 to 60 and elasticity of diminishing
demand is 1.25 then ______. (d) All of the above
(a) Demand increase by 25%
(b) demand decrease by 25% Q.43. Contraction of supply implies ______.
(c) Remains constant (a) Decrease in cost of production
(d) None of the above (b) Decrease in price of the good concerned
(c) Decrease in price of related good mark
Q.37. Which of the following is / are the conditions of (d) Increase in price of the good concerned
theory of consumer surplus if the price is same for all the
units he purchased? Q.44. Perishable commodities will have
(a) The consumer gains extra utility or surplus (a) Perfectly elastic curve
(b) Consumer surplus for the last commodity is zero (b) Perfectly inelastic curve
(c) Both (c) Elastic
2.42 | Page
(d) Inelastic Q.52. Suppose the price of movies seen person to at a
theatre rises from 120 per 200 per person. The theatre
Q.45. Budget line is also called manager observed that the rise in prices has lead to a fall
a) Price line (b) Iso cost line in attendance at a given movie from 300 persons to 200
(c) Iso-quant (d) None persons. What is the price elasticity of demand for the
movie? (Arc elasticity)
Q.46. The Quantity supplied of a goods or services is the (a) 0.50 (b) 0.8
amount that (c) 1.00 (d) None of these.
(a) As actually bought during a given time period at given
price. Q.53. In case of an inferior good, the income elasticity of
(b) Producers wish, they could sell at higher price demand is:
(c) Producers plan to sell during a given time period at (a) Positive (b) Zero
given price. (c) Negative (d) Infinite
(d) People are willing to buy during a given their period
at a given price. Q.54. For what type of goods does demand fall with a
rise in income levels of households?
Q.47. Luxury goods have income elasticity (a) Inferior goods (b) Luxuries
(a) Negative and less than 1 (c) Substitutes (d) Necessities
(b) Positive and greater than 1
(c) Zero Q.55. In case of Inferior goods like bajra, a fall in its price
(d) None tends to:
(a) Make the demand remain constant
Q.48. An in difference curve slopes down towards right (b) Reduce the demand
since more of one commodity and of another commodity (c) Increase the demand
result in (d) Change the demand in an abnormal way
(a) Same level of satisfaction
(b) Maximum satisfaction Q.56. Movement along the same demand curve shows:
(c) Greater satisfaction (a) Expansion of demand
(d) Less satisfaction (b) Expansion of supply
(c) Expansion and contraction of demand (d) Increase and
Q.49. Elasticity for habitual goods is decrease of demand
(a) Perfectly elastic (b) Elastic
(c) Perfectly inelastic (d) Inelastic Q.57. The price of hot-dogs increases by 22% and the
quantity demanded falls by 25% this indicates that
Q.50. Diminishing marginal returns for the first four units demand for hot dogs is:
of variable inputs is exhibited by the total product (a) Elastic (b) Inelastic
sequences. (c) Unitary elastic (d) perfectly elastic
(a) 50,100,150,200 (b)50,50,50,50
(c) 50,110,150,260 (d) 50,90,120,140 Q.58. The quantity demanded does not respond to price
change and so the elasticity is:
Q.51. Demand for a commodity refers to: (a) Zero (c) Infinite
(a) A desire for the commodity (b) One (d) None
(b) Need for the commodity
(c) Quantity demanded of that commodity Q.59. Which factor generally keeps the price-elasticity of
(d) Quantity of the commodity demanded at a certain demand for a good low:
price during any particular period of time. (a) Variety of uses for that goods
(b) Its low price
2.43 | Page
(c) Close substitutes for that goods (c) 0.33 (b) None
(d) A high proportion of the consumer's income spent on
it Q.68. If demand is parallel to the X- axis, what will be the
nature of elasticity?
Q.60. In case of a straight- line demand curve meeting (a) Perfectly elastic (b) Inelastic
the two axes, the price elasticity of demand at the mid- (c) Elastic (d) Highly elastic
point of the line would be:
(a) 0 (b) 1 Q.69. Giffen Paradox is an exception of
(c) 1.5 (d) 2 (a) Demand (b) Supply Production Utility
(c) Production (d) Uitility
Q.61. An increase in demand can result from:
(a) A decline in the market price Q.70. Law of demand is a _________.
(b) An increase in income (a) Quantitative statement (b) qualitative statement
(c) A reduction in the price of substitutes (c) Both (a) & (b) (d) Hypothetical
(d) An increase in the price of complements
Q.71. The demand for which type of goods do not
Q.62. Compute income elasticity of demand increases by decrease with the increase in its price
5% and income by 1%. (a) Comforts (b) Luxury
(a) 5 (b) 1/5 (c) Necessities (d) Capital goods
(c) 0 (d) None
Q.72. Increase in Price from ₹4 to ₹6 then decrease in
Q.63. For a commodity with a unitary elastic demand demand from 15 units to 10 units. What is the price
curve if the price of the commodity rises, then the elasticity? ( Point elasticity )
consumer's total expenditure on this commodity would : (a)0.66 (b)15
(a) Increase (c)-1.5 (b) 2
(b)Decrease
(c)Remains constant Q.73. Expansion & contraction of the demand curve
(d) Either increase or decrease occurs due to:
(a) Change in the price of commodity
Q.64. What is the value of elasticity of demand if the (b) Change in price of substitute or complementary goods
demand for the goods is perfectly elastic? (c) Change in income
(a) 0 (b) 1 (d) None
(c) Infinity (d) Less than 0
Q.74. The elasticity between two points:
Q.65. If the price of a complementary good rises : (a) Point elasticity (b) Arc elasticity
(a)Demand curve shifts to the left (c) Cross elasticity (d) None
(b) Demand curve shifts to the right
(c) Demand curve moves downwards Q.75. When price remains constant and quantity
(d)Demand curve moves upwards demanded changes, then the elasticity of demand will be:
(a) Vertical to X-axis (b)Horizontal to X-axis
Q.66. Cross elasticity of demand in Monopoly market is : (c) Either (a) or (b) (d) None
(a) Elastic (b) Zero
(c)Infinite (d) One Q.76. cDemand of aommodity depends upon:
(a) Price (b) Income
Q.67. What is income elasticity of demand, when income (c) Price of related good (d)All of the above
changes by 20% and demand changes by 40%
(a) 1/2 (b) 2
2.44 | Page
Q.77. In case of substitute goods, cross elasticity (b) negative but greater than one
Is_______. (c) positive but greater than one
(a) Negative (b) Zero (d) positive but less than one
(c) Positive (d) None of these
Q.85. The case of a straight-line demand curve meeting
Q.78. The prices of a commodity were increased from % two axes, the price elasticity of demand at the point
4 to 6. As a result, demand decreased from 15 units to 10 where the curve meets y-axis would Be_____.
units. What is the price elasticity? (Point elasticity) (a)zero (b) greater than one
(a) 0.66 (b) 0.33 (c) less than one (d) infinity
(c) 1.00 (d) 1.5
Q.86. Calculate income elasticity for the household when
Q.79. Other things remaining constant, if the price of the the income of the household increases by 10% and the
inferior goods decreases then what will be the effect? demand for cars rises by 20%.
(a) Demand increases (a) +2 (b) -2
(b) Demand decreases (c) +5 (d) -5
(c) Quantity demanded increases
(d) Quantity demand decreases. Q.87. The commodity whose demand is associated with
the name of Sir Robert Giffen?
Q.80. Consumer spends ₹80 on purchasing a commodity (a) Necessary good (b) Luxury good
when its price is ₹1 per unit and spends ₹96 when the (c) Inferior good (d) Ordinary good
price is ₹2 per unit. Calculate the price elasticity of
demand. Q.88. In expansion and contraction of demand _____.
(a) 0.2 (b) 0.3 (a) Demand curve remains unchanged (b)demand curve
(c) 0.4 (d) 0.5 changes
(c) The slope of the demand curve changes
Q.81. When the price of cylinder rises from ₹120 to ₹200, (d) both (a) & (c) above
the demand falls from 300 to 200. Calculate the price
elasticity of demand. Q.89. Certain goods for which Quantity demanded
(a) 1.00 (b) 0.50 decreases when Income Increases are called______
(c) 5.00 (d) None goods.
(a) superior (b)inferior
Q.82. Demand for electricity power is elastic Because (c) prestige (d) conspicuous
________.
(a) it is available at a very high price Q.90. When the price falls by 5% and the demand in rises
(b) it is essential for life by 6%, then elasticity of demand is ______.
(c) it has many uses (a)elastic (b) inelastic
(d) it has many substitutes (c) unitary elastic (d) zero
Q.83. If the income of a person increases by 10% and his Q.91. Cross elasticity of complementary goods is :
demand for goods increases by 30%, income elasticity (a)Positive (b) Negative
will be (c) Infinity (d) None of these.
(a) equal to one (b) less than one
(c) More than one (d) None of these Q.92.Demand of i-pod increases from 950 to 980 and
income increases from 9,000 to 9,800. What is income
Q.84. The case of luxury goods, the income elasticity of elasticity?
demand will be (a) 0.53 (b) 0.35
(a) zero (c) 0.43 (d) None
2.45 | Page
(b) Change in the taste and preference of the buyer
Q.93. Contraction of demand results due to (c) Change in the price of the commodity
(a) increase in the price of the goods (d) Change in the price of the related goods.
(b) decrease in the no. of the producers
(c) decrease in the output of the sellers Q.101. Fall in the price of normal goods leads to:
(d) decrease in the price of the goods. (a) A shift in the demand curve
(b) Fall in demand
Q.94. Bricks for houses is an example of which kind of (c) Arise in consumers real income
demand? (d) A fall in consumers real income.
(a) Composite (b) Competitive
(c) Joint (d) Derived. Q.102. 10% increase in the price of tea results is an 8%
increase in the demand for coffee. Cross elasticity of
Q.95. Normal goods have demand will be :
(a) zero income elasticity (a) 0.80 (b) 1.25
(b) negative income elasticity (c) 1.50 (d) 0.80
(c) positive income elasticity
(d) infinite income elasticity Q.103. When the total expenditure incurred by the
consumers on a commodity due to a change is its price
Q.96. In which of the following cases the demand for remains the same, then the elasticity of demand for that
goods tends to be less elastic? commodity will be:-
(a) Good is necessary (a) Zero (b) One
(b) The time-period is shorter (c) More than one (d) Less than one
(c) Number of close substitutes is less
(d) All of the above Q.104. What will be the price elasticity if the original
price is ₹5, the original quantity is 8 units and the
Q.97. Which of the following elasticity of demand changed price is ₹6, and the changed quantity is 4 units:
measures a movement along the demand curve rather (a) 2.5 (b) 2.0
than a shift in the curve? (c) 15 (d) 1.0
(a) Income elasticity of demand
(b) Price elasticity of demand Q.105. The original price of a commodity is ₹500 and
(c) Substitution elasticity of demand quantity demanded of that is 20 kgs. If the price rises to
(d) None of these. ₹750 and the quantity demanded falls to 15 kgs. The
price elasticity of demand will be:
Q.98. If the price elasticity of demand is zero, the shape (a) 0.25 (b) 0.50
of the curve will be: (c) 1.00 (d) 1.50
If the price elasticity of demand is zero, the shape of
the curve will be: Q.106. The demand for factors of production is —
(a) Fundamental demand
Q.99. If a 20% fall in the price of a commodity brings (b) Derived demand
about a 40% increase in its demand, then the demand for (c) Market demand
the commodity will be termed as: (d) Joint demand.
(a) Inelastic (b) Elastic
(c) Highly elastic (d) Perfectly elastic Q.107. The price of a Tiffin Box is ₹100 per unit and the
quantity demanded in the market is 1,25,000 units.
Q.100. Expansion and contraction in demand are caused Company increased the price to ₹125. Due to this
by increase in price, the quantity demanded decreases to
(a) Change in the income of the buyer
2.46 | Page
1,00,000 units. What will be the price elasticity of
demand? Q.115. Other things being equal, a fall in the price of the
(a) 0.25 (b) 0.80 complementary goods will cause the of the other to rise.
(c) 1.00 (d) None (a) Price (b) Supply
(c) Demand (d) Utility
Q.108. The price of a commodity decreases from 10 to 8
and the quantity demanded of it increases from 25 to 30 Q.116. A horizontal demand curve parallel to X-axis
units, then the coefficient of price elasticity will be_____. shows that the elasticity of demand is:
(a) 1.00 (b)-1.00 (a) Zero (b) Equal to unity
(c) 1.5 (d) -1.5 (c) Greater than unity (d) Infinite.
Q.109. Which of the following is not a determinant of Q.117. When the price of a commodity increases from Z
demand? 8 to 9, its demand decreases by 10%. The price elasticity
(a) Consumer's tastes and preferences of demand for the commodity
(b) Quality supplied of a commodity (a) 0.8 (b) 0.9
(c) Income of the consumers (c) 1.0 (d) 1.1
(d) Price of related goods
Q.118. Which one of the following is correct about the
Q.110. Demand curve parallel to the Y-axis implies: price elasticity of demand for a commodity?
(a) Ep = 0 (b) Ep = 1 (a) It remains the same under all situations
(c) Ep < 1 (d) Ep > 1 (b) It has several degrees/nature
(c) It remains unaffected by the price of any other
Q.111. If the quantity demanded of X commodity commodity
increases by 5% when the price of Y commodity increases (d)It is an immeasurable concept.
by 20%, the cross-price elasticity of demand between X
and Y commodity will be: Q.119. The supply of a good refers to :
(a) -0.25 (b) 0.25 (a) Actual production of goods
(c) -4.00 (d) 4.00 (b) Total stock of goods
(c) Stock available for sale
Q.112. Which amongst the following is the right formula (d) Amount of goods offered for sale at a particular price
for calculating the price elasticity of demand using ratio per unit of time
method?
(a) (ΔQ/ΔP) x (P/Q ) (b) (ΔP/ΔQ) x (Q/P) Q.120. Increase or Decrease in Supply means:
(c) (ΔQ/ΔP) x (Q/P) (d) (ΔP/ΔQ) x (1/P ) (a) Shift in Supply curve
(b) Movement along the same supply curve
Q.113. Straight line demand curve at the point of meeting (c) Both (a) and (b)
the x-axis will indicate elasticity coefficient Equal to (d) Neither (a) or (b)
_______.
(a) One (b) Infinity Q.121. When supply price increase in the short run, the
(c) Zero (d) More than one profit of the producer _______.
(a) Increases (b) Decreases
Q.114. Changes in the quantity demanded in response to (c) Remains constant (d)Decreases marginally
changes in the price of the same commodity is called:
(a) Change in demand Q.122. A change in the supply of a commodity along with
(b)Change in quantity demanded the same supply curve may occur due to:
(c) Income demand (a) Change in the price of the commodity
(d) Cross demand (b) Change in the prices of related goods
2.47 | Page
(c) Change in future expectations about the price of the (a) 0.75 (b) 0.67
goods (c) 00.67 (d) 00.77
(d) Change in the cost of inputs
Q.123. What is the elasticity of supply, when price Q.129. Increase or decrease in supply means:
changes from ₹15 t0 ₹12 and supply change from 6 units (a) Change in supply due to change in its own price
to 5 units? (b) Change in supply due to change in factors other than
(a) 0.77 (b) 0.87 its own price
(c) 0.833 (d) 0.58 (c) Both of the above
Q.124. If the supply of a commodity is perfectly elastic,
an increase in demand will result in: Q.130. When Supply Curve shifts to the right there is
(a) Decrease in both the price and quantity at equilibrium ______ in Supply.
(b) Increase in both the price and quantity at equilibrium (a) In increase (b) Expansion
(c) Increase in equilibrium quantity, equilibrium price (c) Contraction (d) Decrease.
remaining constant
(d) Increase in equilibrium price, equilibrium quantity Q.131. The supply of the commodity implies?
remaining constant (a) Total Output during a specified period
(b) Its total stock
Q.125. When the change in the quantity supplied is (c) Its stock available for sale
proportionate to the change in the price, the producer is (d) Its Quantity Offered for sale at a particular price per
said to have _____. unit of time
(a) Perfectly elastic supply
(b) Relatively elastic supply Q.132. Supply of a commodity is a _____.
(c) Unitary elastic supply (a) Stock concept
(d) Perfectly inelastic supply (b) Flow concept
(c) Both stock and Flow concept
Q.126. Expansion in supply refers to a situation when the (d) Wholesale concept
producers are willing to supply a:
(a) Larger quantity of the commodity at an increased Q.133. The price of mangoes increases from ₹30 per
price kilogram to ₹40 per kilogram and the supply increases
(b) Larger quantity of the commodity due to increased from 240 kilograms the 300 kilograms. What will be the
taxation on that commodity elasticity of supply for mangoes?
(c) Larger quantity of the commodity at the same price (a) -0.67 (b) + 0.67
(d) Larger quantity of the commodity at the decreased (c) -0.77 (d) + 0.75
price
Q.134. If a 20% fall in price brings about a 10% fall in
Q.127. If there is an improvement in the technology quantity supplied, in such a case elasticity of supply will
_____. be equal to:
(a) The supply curve shifts to the left (a) 2.0 (b) 0.5
(b) The supply curve shifts to (c) 1.0 (d) 1.5
(c) The right quantity supplied increase
(d) Both (b) and (c) Q.135. At a price of ₹25 per kg, the supply of a commodity
is 10,000 kg per week. An increase in its price to ₹30 per
Q.128. If the price of apples rises from ₹30 per Kg to ₹40 kg, increases the supply of the commodity to 12,000 kg
per Kg and the supply increases from 240 Kg to 300 Kg. per week. The elasticity of supply will be:
Elasticity of supply is : (a) 0.75 (b) 1.00
2.48 | Page
(c) 1.50 (d) 1.75 (a) Price of the commodity concerned
(b) Prices of the factors of production
(c) State of technology used in the production process
Q.136. Short- run price is also called by the name of (d) Customs and traditions in society
______.
(a) Market price (b) Showroom price Q.143. The Supply Curve shifts to the right because of:
(c) Maximum retail price (d) None of these. (a) Improved technology
(b) Increased price of factors of production
Q.137. The elasticity of supply is greater than one when: (c) Increased excise duty
(a) Proportionate change in price is more than the (d) All of the above.
proportionate change in quantity supplied
(b) Proportionate change in quantity supplied is more
than the proportionate change in price
(c) Change in price and quantity supplied are equal
Q.138. After reaching saturation point consumption of

additional units of commodity causes
(a) Total utility to fall and marginal utility to increase
(b) Total and marginal utility both to increase
(c) Total utility to fall and marginal utility to become
negative
(d) Total utility to become negative and marginal utility
to fall
Q.139. As the price of a commodity increases, normally,

its supply:
(a) Decreases (b) Remains unchanged
(c) Increases (d) Cannot be determined
Q.140. If equilibrium is present in a market then it can be

said that:
(a) The price of the product will tend to rise
(b) Quantity demanded equals quantity supplied
(c) Quantity demanded exceeds quantity supplied
(d) Quantity supplied exceeds quantity demanded
Q.141. An increase in supply denotes a shift in the supply

curve to the right. If there is an increase in supply without
a change in demand, the equilibrium price will and the
quantity demanded will go up.
(a) Fall (b) Remain constant
(c) Increase (d) Becomes zero.
Q.142. Which among the following is not a determinant

of supply?
2.49 | Page
Q. Ans. Q. Ans. Q. Ans. Q. Ans. Q. Ans.
1 A 31 C 61 B 91 B 121 A
2 A 32 A 62 A 92 B 122 A
3 B 33 A 63 C 93 A 123 C
4 B 34 C 64 C 94 D 124 C
5 D 35 B 65 A 95 C 125 C
6 A 36 D 66 B 96 D 126 A
7 A 37 C 67 B 97 B 127 B
8 A 38 C 68 A 98 B 128 A
9 B 39 C 69 A 99 C 129 B
10 C 40 D 70 B 100 C 130 A
11 A 41 B 71 C 101 C 131 D
12 A 42 D 72 A 102 A 132 B
13 A 43 B 73 A 103 B 133 D
14 A 44 B 74 B 104 A 134 B
15 B 45 A 75 B 105 B 135 B
16 A 46 C 76 D 106 B 136 A
17 B 47 B 77 C 107 B 137 B
18 A 48 A 78 A 108 B 138 C
19 A 49 C 79 D 109 B 139 C
20 A 50 D 80 C 110 A 140 B
21 C 51 D 81 B 111 B 141 A
22 A 52 D 82 C 112 A 142 D
23 C 53 C 83 C 113 C 143 A
24 C 54 A 84 C 114 B
25 A 55 B 85 D 115 C
26 A 56 C 86 A 116 D
27 B 57 A 87 C 117 A
28 B 58 A 88 D 118 B
29 C 59 B 89 B 119 D
30 A 60 B 90 A 120 A
2.41 | Page
PRODUCTION BASICS
Q 9. Production refers to —
(a) Creation of value
Q 1. In Economics,______ refers to any economic (b) Addition of value
activity, which is directed towards satisfaction of human (c) Both (a) and (b)
wants. (d) Neither (a) nor (b)
(a) Production (b) Distribution
(c) Consumption (d) Economics Q 10. Production refers to —
(a) Tangible goods and products
Q. 2 In Economics, Production refers to any economic (b) Intangible services
activity — (c) Both (a) and (b)
(a) Which results in a tangible product or commodity (d) Neither (a) nor (b)
(b) Which is directed at the satisfaction of human wants.
(c) Both (a) and (b) Q 11. Production is defined as
(d) Neither (a) nor (b) (a) Creation of matter
(b) Creation of utility in matter
Q 3. Which of the following statement is True? (c) Creation of infrastructural facilities
Production can be defined as— (d) None of these
(a) Creation or addition of utility
(b) Conversion of raw material into finished goods Q 12. Which of the following statements regarding
(c) An activity of making something immaterial Service Industry is true?
(d) All of thesezz (a) Service Industry uses less Capital Equipment
(b) Service Industry uses more Capital
Q 4. In Economics, Production refers — (c) Service Industry uses no Capital Equipment
(a) Creation of utility (b) Satisfaction of utility (d) Service Industry uses less Variable Factors
Q 13. Production refers to —
Q 5.
Production may be defined as an act of— (a) Capital Goods only
(a) Creating utility. (b) Earning profit. (b) Consumer Goods only
(c) Destroying utility. (d) Providing services. (c) Both (a) and (b)
Q 6. Production is a / an activity.
(a) Charitable (b) Beneficial Q 14. Production includes —
(c) Economic (d) Successful (a) Mining (b) Manufacturing
(c) Service providing (d) All of above
Q 7. Production does not consist of which of the
following activities? Q 15. Which of the following is considered Production
(a) Changing the from of natural resources in Economics?
(b) Changing the place of the resources (a) Tilling of soil
(c) Both of the above (b) Singing a song before friends
(d) None of the above (c) Preventing a child from falling into manhole on the
road
Q 8. Production = Satisfaction of Utility. This statement (d) Painting a picture for pleasure
is
Q 16.
(a) True (b) False Which of the following statements is true?
(c) Partially True (d) None of the above (a) Services of a Doctor are considered Production
3.1 | Page
(b) Man can create matter (a) Form Utility (b) Place Utility
(c) Services of a Housewife are considered Production (c) Time Utility (d) Personal Utility
(d) When a man creates a table, he creates matter
(e) None of the above Q 25. Raw Material converted into Finished Product in
the manufacturing process, refers to creation of
Q 17. Work of a Professional (like Chartered Accountant) (a) Form Utility (b) Place Utility
does not result in any tangible output. Hence, it is not a (c) Time Utility (d) Personal Utility
Production Activity in Economics. This statement is —
(a) True Q 26. If Apples from Kashmir are available for Sale in
(b) False Chennai, it refers to creation of —
(c) Partially True (a) Form Utility (b) Place Utility
(d) None of the above (c) Time Utility (d) Personal Utility
Q 18. Which of these is a Production Activity? Q 27. Extraction from coal, minerals, gold, etc. from
(a) Sale of Apples and Mangoes Earth, refers to creation of —
(b) Sale of Crackers during Festival Season (a) Form Utility (b) Place Utility
(c) Distributing Water Packets in a temple festival (c) Time Utility (d) Personal Utility
Q 28.
Place Utility involves Changing the place of the
Q 19. Production Activity involves creation of Utility. Such resources, from the place where they are of use, to
Utility can be created as — another place where they are of use.
(a) Form Utility (b) Place Utility (a) Lesser, greater
(c) Time Utility (d) All of the above (b) Greater, lesser
(c) Specific, general
Q 20. In Production Activity, one of the ways of creating (d) General, specific
Utility is —
Q 29.
(a) Form Utility (b) Marginal Utility Storing harvested foodgrains for use till next
(c) Total Utility (d) All of the above harvest is an example of creation of —
(a) Form Utility (b) Place Utility
Q 21. Utility refers to physically changing the form of (c) Time Utility (d) Personal Utility
natural resources.
(a) Form Utility (b) Place Utility Q 30. Work of Professionals like Doctors, Chartered
(c) Time Utility (d) Personal Utility Accountants, etc. can be considered under —
(a) Form Utility (b) Place Utility
Q 22. Utility refers to changing the place of the (c) Time Utility (d) Personal Utility
resources, from place of lesser use to place of greater
use. Q 31. To complete production, all four types of utilities,
(a) Form Utility (b) Place Utility i.e. Form, Place, Time and Personal Utility, should be
(c) Time Utility (d) Personal Utility created. This statement is —{Omit this Question}
(a) True (b) False
Q 23. Utility is created by making goods and services (c) Partially True (d) None of the above
available at times when they are not normally available.
(a) Form Utility (b) Place Utility Q 32. Productive Resources required to produce goods
(c) Time Utility (d) Personal Utility and / or services are called —
(a) Resources of Production
Q 24. Utility involves making use of personal skills in (b) Concepts of Production
the form of services. (c) Factors of Production
3.2 | Page
(d) Ideas of Production
LAND
Q 33. Factors of Production are —
(a) Natural Resources Q 41. Land refers to —
(b) Man Made Resources (a) All free gifts of nature.
(c) Both (a) and (b) (b) All man—made resources
Q 34. Which of these is not a basic Factor of Production
in Economics? Q 42. Land refers to —
(a) Land (b) Enterprise (a) Soil and earth's surface
(c) Capital (d) Money (b) Fertility of soil
(c) Natural resources
Q 35. Which of the following is a factor(s) of (d) All of the above
production?
(a) Labour (b) Capital Q 43. Anything available above the earth's surface is
(c) Entrepreneurship (d) All of these called "Land". This statement is —
(a) True (b) False
Q 36. The demand for a Factor of Production is said to (c) Partially True (d) None of the above
be a Derived Demand because—
(a) It is a function of the profitability of an enterprise Q 44. As a Factor of Production, Land is —
(b) It depends on the supply of complementary factors (a) A free gift of nature.
(c) Its stems from the demand for the final product (b) Fixed in quantity
(d) It arises out of means being scarce in relation to (c) Variable in terms of fertility and uses
wants. (d) All of above are correct.
Q 37. The Incentive / Reward in respect of Land is called Q 45. As a Factor of Production, Land is —
(a) Rent (b) Wages (a) Permanent
(c) Interest (d) Profit (b) Original and indestructible
(c) Free gift of nature
Q 38. The Incentive / Reward in respect of Labour is (d) All of above are correct.
called
(a) Rent (b) Wages Q 46. As a Factor of Production, Land is —
(c) Interest (d) Profit (a) Fixed in quantity
(b) Variable in quantity
Q 39. The Incentive / Reward in respect of Capital is (c) Not quantifiable at all
called (d) Not useful for production.
(a) Rent (b) Wages
(c) Interest (d) Profit Q 47. As a Factor of Production, "Land" is a
means of Production.
Q 40.
The Incentive / Reward in respect of (a) Original (b) Produced
Entrepreneurial Ability is called — (c) Derived (d) Monetary
(a) Rent (b) Wages
(c) Interest (d) Profit Q 48. As a Factor of Production, the Supply of Land is
from the viewpoint of the entire economy.
(a) Perfectly elastic (b) More elastic
(c) Less elastic (d) Perfectly inelastic
3.3 | Page
Q 49. As a Factor of Production, the Supply of Land is Q 56. As a Factor of Production, Land is mobile across
perfectly inelastic from the viewpoint of — (a) Places (b) Uses
(a) The entire economy (c) Both (a) and (b) (d) Neither (a) nor (b)
(b) An Individual Firm
(c) Both (a) and (b) LABOUR
Q 57. refers to mental or physical exertion directed to
Q 50. As a Factor of Production, the Elasticity of Supply produce goods or services, and with a view to gain an
of Land from the viewpoint of the entire economy is — economic reward.
(a) Infinite (b) Zero (a) Land (b) Enterprise
(c) Positive (d) Negative (c) Capital (d) Labour
Q 51. As a Factor of Production, the Supply of Land is Q 58.

Activities done out of pleasure, love and
relatively elastic from the viewpoint of — affection, pastime, hobbies, etc. may be very useful in
(a) The entire economy increasing human well—being, and hence constitute
(b) An Individual Firm Labour. This statement is —
(c) Both (a) and (b) (a) True (b) False
(d) Neither (a) nor (b) (c) Partially True (d) None of the above
Q 52. As a Factor of Production, Land is permanent. Q 59. To have an economic significance, Labour must
This means that Land — be done with —
(a) Remains before and after cultivation (a) The motive of some economic reward
(b) Cannot be destroyed or lost (b) The motive of pleasure and satisfaction
(c) Cannot be used for production at all (c) Both (a) and (b)
(d) None of the above (d) Neither (a) nor (b)
Q 53. If Land is used for productive purposes, its Q 60. Which of these constitute "Labour"?
fertility is reduced. Such fertility — (a) Singing in the company of friends for the sake of
(a) Can be restored pleasure.
(b) Cannot be restored at all (b) Singing against payment of a fee.
(c) Is lost forever (c) Singing while walking on the road
(d) Both (b) and (c) (d) None of the above
Q 54. As a Factor of Production, Land lacks mobility. Q 61. Services of a Maid Servant constitutes Labour,
Lack of mobility means — while Services of a Housewife does not. This statement
(a) Land cannot be used for anything other production is
of Rice. (a) True (b) False
(b) Land cannot be shifted from one place to another (c) Partially True (d) None of the above
place
(c) Both (a) and (b) Q 62. As a Factor of Production, "Labour" is a means
(d) Neither (a) nor (b) of Production.
(a) Original (b) Produced
Q 55. As a Factor of Production, Land lacks mobility in (c) Derived (d) Monetary
the sense.
(a) Geographical (b) Utility Q 63. Which of these constitute a feature of "Labour",
(c) Both (a) and (b) (d) Neither (a) nor (b) as a Factor of Production?
3.4 | Page
(a) Human Efforts (a) Measured at all
(b) Perishable Nature (b) Recovered at all
(c) Weak bargaining power (c) Completely recovered
(d) All of the above (d) None of the above
Q 64. "Labour", as a Factor of Production involves — Q 71. Since there is no Reserve Price, Labour has —
(a) Economic Considerations only (a) Weak bargaining power
(b) Human and Psychological Considerations (b) Strong bargaining power
(c) Both (a) and (b) (c) No bargaining power
(d) Neither (a) nor (b) (d) Infinite bargaining power
Q 65. "Labour", as a Factor of Production involves — Q 72. The purpose of Labour Laws is primarily to —
(a) Free Gift of Nature (a) Increase bargaining power of Labour
(b) Human Efforts (b) Maintain Labour Welfare
(c) Both (a) and (b) (c) Guarantee work for each individual
(d) Neither (a) nor (b) (d) All of the above
Q 66. "Labour", as a Factor of Production involves Q 73. Labour is inseparable from the Labourer himself.
human efforts, with a view to gain — This statement is —
(a) Pleasure only (a) True (b) False
(b) Mental satisfaction (c) Partially True (d) None of the above
(c) An economic reward
(d) Use of time Q 74. Labour Power depends upon —
(a) Physical strength
Q 67. As a Factor of Production, "Labour" is — (b) Education and skills
(a) Perishable (c) Motivation to work
(b) Permanent (d) All of the above
(d) Neither (a) nor (b) Q 75. Generally, Supply of Labour and Wage Rates are
related.
Q 68. Which is not a characteristic of labour? (a) Directly (b) Inversely
(a) Labour is not separable from labourer (c) Equally (d) Not related at all.
(b) Labour is perishable
(c) Labour is not a mobile factor Q 76. Direct relationship between Wage Rates and
(d) Labour is an active factor Supply of Labour means that —
(a) Increase in Wage Rates will decrease the Supply of
Q 69.
As a Factor of Production, "Labour" is Labour
perishable. This means that — (b) Decrease in Wage Rates will increase the Supply of
(a) A day's labour lost cannot be completely recovered Labour
subsequently. (c) Increase in Wage Rates will increase the Supply of
(b) Every human being is mortal and will have to leave Labour
this world some day or the other. (d) Increase in Wage Rates will not affect the Supply of
(c) Both (a) and (b) Labour at all
Q 77. Generally, Supply of Labour and Wage Rates are
Q 70. As a Factor of Production, a day's "Labour" lost directly related. However, at very low wage rates, there
cannot be —
3.5 | Page
is a paradox of excess supply of Labour. This paradox is All Capital is Wealth, but all Wealth is not Capital.
attributed to — This statement is —
(a) Some more members of the family, who were not (a) True
working before, may start working. (b) False
(b) Workers may prefer to work overtime to increase (c) Partially True
their earnings. (d) None of the above
(d) Neither (a) nor (b) Q 84. If a Resource is lying idle, it will constitute
Q 78. (a) Wealth

Supply of Labour and Wage Rates are always (b) Capital
directly related. This statement is — (c) Both (a) and (b)
(a) True (b) False (d) Neither (a) nor (b)
Q 85. If a Resource is being used for generating
Q 79. Supply of Labour and Wage Rates may become further revenue, it will constitute —
inversely related at — (a) Wealth
(a) Very high wage rates (b) Capital
(b) Very low wage rates (c) Both (a) and (b)
Q 86. Which of these constitutes "Capital"?
Q 80. Which of the following statements is not true (a) Land
about Labour Economies? (b) Water
(a) Larger Scale of Production enables the division of (c) Air
labour (d) Plant and Machinery
(b) Division of Labour is not profitable at small scale of
Q 87.
production As a Factor of Production, "Capital" is a
(c) Division of Labour results in imporving worker's ________ concept.
skills (a) Stock
(d) Division of Labour is impossible in Firms with large (b) Flow
scale production (c) Both (a) and (b)
CAPITAL
Q 88. Income arising out of "Capital" is a concept.
Q 81. is that part of wealth of an individual or (a) Stock
community, which is used for further production of (b) Flow
wealth, or which yields an income. (c) Both (a) and (b)
(a) Land (b) Enterprise (d) Neither (a) nor (b)
(c) Capital (d) Labour
Q 89. As a Factor of Production, "Capital" is a
Q 82. As a Factor of Production, "Capital" can be used _________ means of Production.
for — (a) Original (b) Primary
(a) Further production of wealth (c) Produced (d) Monetary
(b) Yielding further income income
(c) Both (a) and (b) Q 90. Capital * Wealth. This statement is —
(d) Neither (a) nor (b) (a) True
(b) False
Q 83.
3.6 | Page
(c) Partially True (a) Replacement and renovation of existing machinery
(d) None of the above and equipment
(b) Creating additional productive capacity
Q 91. As a Factor of Production, "Capital" is — (c) Both (a) and (b)
(a) A free gift of nature (d) Neither (a) nor (b)
(b) Produced by man alone
(c) Produced by man working with nature Q 98. Capital Formation is required for —
(d) Not relevant at all. (a) Increasing the efficiency of production efforts
(b) Expansion of output of consumer goods in the
Q 92. As a Factor of Production, "Capital" is — future,
(a) Mobile (c) Ensuring growth of the economy
(b) Produced means of production (d) All the above
(c) Produced by man working with nature
(d) All of the above Q 99. For the purpose of Capital Formation —
(a) Current consumption is to be sacrificed to a certain
Q 93. As a Factor of Production, Capital is mobile across extent
— (b) Current income should be saved
(a) Places / Countries (c) Both (a) and (b)
(b) Uses / Purposes (d) Neither (a) nor (b)
(d) Neither (a) nor (b) Q 100. If the whole of the current capacity is used to
produce only Consumer Goods —
Q 94.
As a Factor of Production, "Capital" is — (a) Production of Consumer Goods in the future will be
(a) Perishable affected
(b) Permanent (b) Economy cannot grow in future
(c) Both (a) and (b) (c) Production Possibility Curve (PPC) cannot shift
(d) Neither (a) nor (b) outside
CAPITAL FORMATION
Q 101. Larger production of goods would lead to
Q 95. The process of increase in the stock of real capital higher production in future.
in a country is called — (a) Consumer Goods.
(a) Stock Increase (b) Capital Goods.
(b) Capital Formation (c) Agricultural Goods.
(c) Increase in GDP (d) Public Goods.
(d) Resource Allocation
Q 102. A 100% Consumption Economy —
Q 96. Capital Formation means — (a) Cannot have any Capital Formation
(a) A sustained increase in the stock of real capital in a (b) Will become static and cannot grow
country. (c) Both (a) and (b)
(b) Production of more capital goods, which are used (d) Neither (a) nor (b)
for further production of goods.
(c) Investment Q 103. Capital Formation is possible by —
(d) All of the above (a) Using whole of the current capacity to produce only
Consumer Goods
Q 97. Capital Formation is required for — (b) Reducing present consumption to a certain extent
3.7 | Page
Q 111. 1f there is an increase in income levels, the
Q 104. If current consumption is reduced for the propensity to save —
purpose of Capital Formation, that represents a (a) Reduces,
(a) Uneconomic activity (b) Increases
(b) Current sacrifice for future growth (c) Remains constant
(c) Decrease in demand (d) Becomes zero
(d) Decrease in resources
Q 112. Higher the level of income, Higher is the level of
Q 105. Capital Formation involves — Savings. This statement is —
(a) Creation of Savings (a) True (b) False
(b) Mobilisation of Savings (c) Partially True (d) None of the above
(c) Investment of Savings into Real Capital
Q 113.
(d) All of the above Higher the level of income, Higher is the level of
Savings. This statement is true in respect of
Q 106. For the purpose of Capital Formation, which of (a) Individual Households only
the following create "Savings" in an economy? (b) Overall Economy
(a) Individuals or Households (c) Both (a) and (b)
(b) Business Enterprises (d) Neither (a) nor (b)
(c) Government
(d) All of the above Q 114. A country has greater ability to save than a
country.
Q 107. For the purpose of Capital Formation, which of (a) Rich, Poor
the following create maximum "Savings" in an (b) Poor, Rich
economy? (c) Good, Bad
(a) Individuals or Households (d) Nothing can be said
(b) Business Enterprises
(c) Government Q 115. Willingness to Save depends upon —
(d) None of the above (a) An individual's concern about his future
(b) Social setup in which the individual lives.
Q 108. Level of Savings depends upon — (c) Both (a) and (b)
(a) Ability to Save (d) Neither (a) nor (b)
(b) Willingness to Save
(c) Both (a) and (b) Q 116. If Willingness to Save is less, the level of will be
(d) Neither (a) nor (b) higher.
(a) Government regulated Savings
Q 109. Ability to Save depends upon — (b) Compulsory Savings
(a) Average level of income (c) Forced Savings
(b) Distribution of national income. (d) All of the above
(d) Neither (a) nor (b) Q 117. save by way of Retained Earnings, i.e.
Undistributed Profits.
Q 110. If there is an increase in income levels, the (a) Individuals or Households
propensity to consume — (b) Business Enterprises
(a) Reduces (b) Increases (c) Government
(c) Remains constant (d) Becomes zero (d) All of the above
3.8 | Page
Q 118. Which of these is a source of savings for (a) Capitalist (b) Socialist
Government? (c) Government (d) Entrepreneur
(a) Tax and Fees Collections
(b) Profits of PSUs Q 125. The most important function of an
(c) Both (a) and (b) entrepreneur is to
(d) Neither (a) nor (b) (a) Innovate
(b) Bear the sense of responsibility
Q 119. Which of these play a role in mobilisation of (c) Finance
savings in an economy? (d) Earn Profit.
(a) Banks
(b) Financial Institutions Q 126. Entrepreneur is also called as —
(c) Capital Market (a) Organiser (b) Manager
(d) All of the above (c) Risk—Taker (d) All of the above
Q 120. Q 127. Entrepreneurship is a wider term than

Real Capital Formation requires —
(a) An entrepreneurial class which is prepared to bear organization and management of a business. This
the risk of business statement is —
(b) Economic and industrial policies in which (a) True (b) False
Investment is given initiative (c) Partially True (d) None of the above
(c) An inducement to invest, e.g. prospective rate of
profit Q 128. Entrepreneur —
(d) All of the above (a) Is the catalyst in the process of using the factors of
production.
Q 121. Inducement to Invest is influenced by — (b) Gives direction to the usage of other factors of
(a) Prospective Rate of Profit production
(b) Rate of Interest (c) Both (a) and (b)
Q 129. Entrepreneurship gets its reward (i.e. Profit),
Q 122. Prospective Rate of Profit is also called — only after all other factors of production have been
(a) Rate of Interest on Bank Deposits rewarded. This statement is —
(b) Marginal Efficiency of Capital (a) True (b) False
(c) Marginal Utility of Capital Employed (c) Partially True (d) None of the above
(d) Marginal Revenue
Q 130. The reward / incentive / remuneration for
Q 123. Scheme of Subsidies for setting up industries Entrepreneurship is a amount.
in backward regions leads to — (a) Fixed (b) Variable
(a) Balanced Regional Development (c) Semi—Variable (d) Irrelevant
(b) Socially—Beneficial Capital Formation
(c) Both (a) and (b) Q 131. The functions of an Entrepreneur include —
(d) Neither (a) nor (b) (a) Initiating a business enterprise and resource
coordination
ENTREPRENEUR (b) Risk—bearing or uncertainty—bearing
(c) Introducing Innovations on a continuous basis
Q 124. Is the person who combines the various factors (d) All of the above
of production in the right proportions, initiates the
process of production and bears the risk involved in it.
3.9 | Page
Q 139. To enable Employees enjoy a good standard of
Q 132. Innovation theory of entrepreneur is propounded living and maintain work—life balance, is a
by— (a) Social Objective
(a) Prof knight (b) Schumpeter (b) Human Objective
(c) Max weber (d) Peter Ducker (c) National Objective
(d) Economic Objective
Q 133. Which of the following constitute Innovation?
(a) Introduction of a new or improved product Q 140. Which of the following is a National Objective
(b) Utilisation of new or improved source of Raw of an enterprise
Material (a) To remove inequality of opportunities and provide
(c) Introduction of new or improved production fair opportunity to all to work and to progress
methods / machinery (b) To make the job contents interesting and
(d) All of the above challenging
(c) To avoid profiteering and anti—social practices
Q 134.
Which of the following constitute Innovation? (d) To maximize profits
(a) Opening—up new or improved markets
(b) Utilisation of new or improved source of Raw Q 141. To ensure that the Enterprise's output does not
Material cause any type of pollution — air, water or noise, is a
(c) Introduction of a new or improved product (a) Social Objective
(d) All of the above (b) Human Objective
(c) National Objective
Q 135. Organic Objectives of Enterprises — (d) Economic Objective
(a) Survival
(b) Growth and Expansion Part B- PRODUCTION FUNCTION
(d) Either (a) or (b) Q 142. is the functional relationship between physical
inputs (i.e. factors of production), and physical outputs
Q 136. Accounting Profits is also called — (i.e. quantity of goods / services produced).
(a) Book Profit (a) Input—Output Function
(b) Pure Profit (b) Demand—Supply Function
(c) Super Profit (c) Production Function
(d) Super Normal Profit (d) Cost Function
Q 137. Economic Profit is also called — Q 143. Production Function deals with —
(a) Pure Profits (a) Quantitative Values of Input and Output
(b) Super Normal Profits (b) Monetary Values of Products
(c) Abnormal Profits (c) Both (a) and (b)
(d) All of the above 180. (d) Neither (a) nor (b)
Q 138. The difference between Economist's Profit and Q 144. Shows the output produced with a given
Accountant's Profit is amount of inputs.
(a) Consideration of Direct Cost (a) Cost Function
(b) Consideration of depreciation (b) Production Function
(c) Consideration of Opportunity Cost (c) Demand Function
(d) There is no difference (d) Isoquants
3.10 | Page
Q 145. Q 152.
Production Function explains the relationship In a Cobb-Douglas production function, two
between — inputs are
(a) Maximum Output which can be produced from (a) Land and Labour
given units of different inputs (b) Capital and Labour
(b) Price and Cost (c) Capital and Entrepreneur
(c) Maximum Output which can be produced at various (d) Entrepreneur and land
points of time
(d) Various Stages of Production Q 153. Under Cobb-Douglas production
function
Q 146.
Production function is contribution of capital and labour respectively-
(a) purely technical relationship between input (a) 3/14th , 1/4th (b) 1/4th ,3/14th
&output (c) 1/2 th , 1/2 th (d) none of the above
(b) Purely economic relationship between input
Q 154.
&output Production Function specifies —
(c) Both (a) & (b) (a) Maximum amount of output that can be produced
(d) None of the these with given quantities of inputs
(b) Minimum quantities of various inputs that are
Q 147. In a Production Function, Input means — required to yield a given quantity of output.
(a) Goods and Services produced (c) Both (a) and (b)
(b) Factors of Production required (d) Neither (a) nor (b)
Q 155.
(d) Neither (a) nor (b) Which of the following is the best definition of
the "Production Function"?
Q 148. In a Production Function, Output means — (a) The relationship between market price and quantity
(a) Goods and Services produced supplied
(b) Factors of Production required (b) The relationship between the firm's total revenue
(c) Both (a) and (b) and the cost of production
(d) Neither (a) nor (b) (c) The relationship between the quantities of inputs
needed to produce a given level of output
Q 149. Production Function states the relationship (d) The relationship between the quantity of inputs and
between inputs and output, keeping technology the firm's marginal cost of production
(a) Zero (b) Increasing trend
(c) Decreasing trend (d) Constant Q 156. The Production Function is a relationship
between a given combination of inputs and—
Q 150. Production Function specifies the output that (a) Another combination that yields the same output
can be produced with given quantities of inputs, in the (b) The highest resulting output
existing state of technology. (c) The increase in output generated by one-unit
(a) Minimum (b) Maximum increase in one output
(c) Average (d) Zero (d) All levels of output that can be generated by those
inputs
Q 151. Production Function specifies the quantities of
various inputs that are required to yield a given quantity Q 157. In general, most of the Production Functions
of output. measure —
(a) Minimum (b) Maximum (a) Productivity of factors of production.
(c) Average (d) Zero (b) Relation between the factors of production.
(c) Economies of Scale.
3.11 | Page
(d) Relations between change in physical inputs and (a) True (b) False
physical output. (c) Partially True (d) None of the above
Q 158. Which of the following is/are an outcome of a Q 165. The difference between Fixed and Variable
technological change? Factors of Production is relevant in —
(a) A downward shift in the production function (a) Medium—run (b) Short —run
(b) Same output with fewer inputs or more output with (c) Long—run (d) All of the above
same inputs
(c) Invention of a product or production process Q 166. In the short—run, factors of production
(d) Both (b) and (c) above changes.
(a) Proportion between (b) Quantity of
Q 159. Which of the following statements regarding (c) Both (a) and (b) (d) Neither (a) nor (b)
Production Function is false?{Omit this Question}
(a) It just shows the relationship between output and Q 167. In the short—run, the proportion between
input factors of production —
(b) It does not provide any information on the least— (a) Remains constant (b) Changes
cost Capital Labour combination (c) Is zero (d) Is infinity
(c) In reveals the output that yields the maximum
profit Q 168. In the short—run, the proportion between
(d) Both (a) and (c) factors of production changes because —
(a) One of the Factor is kept constant
SHORT RUN vs LONG RUN (b) Every Factors is kept constant
(c) It is not the long—run
Q 160. The time period(s) covered in Economics Study is (d) There is no explanation for such behaviour
/ are —
(a) short—run (b) long—run Q 169. Law of is applicable in the short— run.
(c) Both (a) and (b) (d) Neither (a) nor (b) (a) Variable Proportions
(b) Returns to Scale
Q 161.
Is the period of time in which all but one (c) Both (a) and (b)
factor of production are variable. (d) Neither (a) nor (b)
(a) Short—run (b) Long—run
(c) Medium—run (d) None of the above Q 170. Law of Variable Proportions is applicable to —
(a) Medium—run (b) Short —run
Q 162. In the short—run, factor(s) of production is / (c) Long—run (d) All of the above
are variable.
(a) All (b) None Q 171. Which of the following activities cannot take
(c) One (d) All of the above place in the short—run?
(a) Changing the quantity of labour employed
Q 163. Variable Factors means those Factors of (b) Changing the input combination
Production — (c) Regular maintenance of the Plant to ensure
(a) Which can be only changed in the long run efficient production
(b) Which can be changed in the short run (d) Installation of an Additional Plant to meet future
(c) Which can never be changed requirements
Q 172. In describing a given production technology, the
Q 164. There is only one Fixed Factor of Production in short run is best described as lasting —
the short—run planning horizon. This statement is — (a) Up to six months from now
3.12 | Page
(b) Up to five years from now
(c) As long as all inputs are fixed
(d) As long as at least one input is fixed Q 180. _________ is the improvement in the
production techniques for existing production.
Q 173. ___ is the period of time in which all the factors (a) Process Innovation
of production are variable. (b) Production Innovation
(a) Short—run (b) Long—run (c) Plant Innovation
(c) Medium—run (d) None of the above (d) Production Function
Q 174. In the long—run, factor(s) of production is / Q 181. The introduction of new product with added
are variable. features in the market is known as —
(a) All (b) Many (a) Process Innovation (b) Product Innovation
(c) One (d) None (c) Plant Innovation (d) Production Function
Q 175. In the long—run, ___________ factors of Q 182. Innovation is of more importance as it helps
production changes. in increasing the standard of living in the long run
(a) Proportion between (b) Quantity of (a) Process
(c) Need for (d) None of the above (b) Product
(c) Plant
Q 176. In the long—run, the quantity of factors of (d) There is no relationship between innovation
production processes and standard of living
(a) Remains constant (b) Changes
(c) Is zero (d) Is infinity TOTAL, AVERAGE AND MARGINAL PRODUCT
Q 177. In the long—run, the quantity of factors of Q 183. ______ is the total output resulting from the
production changes because — efforts of all the factors of production, combined
(a) One of the Factor is kept constant together at any time.
(b) Every Factor is kept constant (a) Total Product (b) Average Product
(c) Every Factor is considered variable (c) Marginal Product (d) All of the above
(d) There is no explanation for such behaviour
Q 178. Law of ______________ is applicable in Q 184. is the Total Product per unit of the Variable
the long—run. Factor.
(a) Variable Proportions (a) Total Product (b) Average Product
(b) Returns to Scale (c) Marginal Product (d) All of the above
(d) Neither (a) nor (b) Q 185. ____ is the change in Total Product, for one
unit change in the quantity of Variable Factor.
Q 179. Which of the following statements regarding (a) Total Product (b) Average Product
short run and long run is true? (c) Marginal Product (d) All of the above
(a) Firms plan for the long run but operate in the short
run Q 186. _________ is the addition made to Total
(b) Firms plan in the short run but operate in the long Product, by an additional unit of input of the Variable
run Factor.
(c) Firms operate and plan as well in the long run (a) Total Product (b) Average Product
(d) Firms operate and plan as well in the short run (c) Marginal Product (d) All of the above
3.13 | Page
Q 187. Marginal Product is — Q 192. When 50 hours of Labour are spent, total
(a) The change in Total Product, for one unit change in output quantity is 2,000 units, When 55 hours of Labour
the quantity of Variable Factor. are spent, total output quantity is 2,250 units. Here,
(b) The addition made to Total Product, by an Marginal Product will be —
additional unit of input of the Variable Factor (a) 2,250 (b) 2,000
(c) Both (a) and (b) (c) 250 (d) 50
Q 193. Suppose the first four units of a variable input
Q 188. The Marginal Product of an input is generate corresponding total outputs of 150, 200, 350
(a) Extra product produced by one extra unit of input and 550. The marginal product of the third unit of input
while other inputs are held constant is:
(b) Extra product produced by reducing one unit of (a) 50 (b) 100
input while other inputs are held constant (c) 150 (d) 200
(c) Reduction in total product due to one extra unit of Q 194.
input while other inputs are held constant Use the following information to answer next 3
(d) Reduction in total product by reducing one unit of questions
input while other inputs are changing. Hours of Labour Total Output Marginal Product
0 — —
Q 189. The Marginal Product of a variable input is best
1 100 100
described as— 2 — 80
(a) Total product divided by the number of units of 3 240 —
variable input
(b) The additional output resulting from a one unit What is the Total Output when 2 hours of
increase in the variable input Labour are employed?
(c) The additional output resulting from a one unit (a) 80 (b) 100
increase in both the variable and fixed inputs (c) 180 (d) 200
(d) The ratio of the amount of the variable input that is
being used to the amount of the fixed input that is Q 195. What is the Marginal Product of the third hour
being used of Labour?
(a) 60 (b) 80
Q 190. If the inputs of all but one factor are held
(c) 100 (d) 240
constant, then will vary with the quantity used of the
Variable Factor. Q 196.
What is the Average Product of the first three
(a) Total Product (b) Average Product hours of Labour?
(c) Marginal Product (d) All of the above (a) 60 (b) 80
(c) 100 (d) 240
Q 191. If the inputs of all but one factor are held
constant, then Total Factor will — Let TP = Total Product, AP = Average Product and MP =
(a) Remain constant Marginal Product. Use the following table and
(b) Become zero answer the next 10 Questions.
(c) Vary with the quantity used of the Variable Factor. Quantity of TP (in AP (in MP (in
(d) Become infinity Variable units) units) units)
Factor
1 1,000 A 1000 B 1000
3.14 | Page
2 C 1600 D 800 600 If Total Product = 1,00,000 units when 20,000
3 E 2100 700 F 500 hours of Labour are used, then Average Product=
4 2,100 G 525 H0 (a) 1,00,000 (b) 20,000
5 I 2000 400 J -100 (c) 5 (d) 1,20,000
Find the value of "A" in the above Table. Read the Table below & answer the following 8
(a) 1,000 (b) 2,000 questions
(c) 3,000 (d) 0 Labour Marginal Total Average
Input Product Produc Produ
t ct
Find the value of "B" in the above Table. 0 0 0 0
(a) 1,000 (b) 2,000 1 25
(c) 3,000 (d) 0 2 90
3 120
Q 199.
197. Find the value of "C" in the above Table. 4 140
(a) 1,000 (b) 1,300 5 28
(c) 1,600 (d) 1,900 6 20
Q 200. Find the value of "D" in the above Table.

If Labour Input = 1, Total Output is—
(a) 1,000 (b) 800 (a) 25 (b) 30
(c) 600 (d) 400 (c) 50 (d) 75
Q 201. Find the value of "E" in the above Table. Q 209. If Labour Input = 2, Marginal Product is—
(a) 1,100 (b) 1,600 (a) 25 (b) 90
(c) 1,700 (d) 2,10 (c) 65 (d) 115
Q 202. Find the value of "F" in the above Table. Q 210. If Labour Input = 4, output per worker is:
(a) 500 (b) 600 (a) 20 (b) 35
(c) 700 (d) 800 (c) 45 (d) 90
Find the value of "G" in the above Table. Q 211. If Labour Input = 6, the marginal product of
(a) 500 (b) 525 labour is:
(c) 550 (d) 575 (a) 120 (b) — 20
(c) 15 (d) 10
Q 204. Find the value of "H" in the above Table.
(a) Nil (b) 1,000 Q 212. Output per worker is maximized at a Labour
(c) 2,000 (d) Cannot be calculated Input of:{Omit this Question}
(a) 2 (b) 4
Q 205. Find the value of "I" in the above Table. (c) 6 (d) 8
(a) Nil (b) 1,000
(c) 2,000 (d) Cannot be calculated Q 213. When Labour Input = 5, Marginal Product is—
(a) 20 (b) 120
Q 206. Find the value of "3" in the above Table. (c) 0 (d) -120
(a) Nil (b) — 100
(c) + 100 (d) Cannot be calculated Q 214. At what level of Labour Input are MP and AP
equal?{Omit this Question }
Q 207.
(a) 1 (b) 2
3.15 | Page
(c) 3 (d) 4 (d) First increases, reaches a maximum, and then
decreases
Q 215. As quantity of the Variable Factor increases,
Total Product (TP) Curve — Q 223. Average Product (AP) Curve —
(a) Always increases (a) Is parallel to X Axis
(b) Always decreases (b) Is parallel to Y Axis
(c) First increases, reaches a maximum, and then (c) First decreases, reaches a minimum, and then
decreases. increases
(d) First decreases, reaches a minimum, and then (d) First increases, reaches a maximum, and then
increases. decreases
If Total Product (TP) increases, Marginal Q 224. Marginal Product (MP) —

Product (MP) will be — (a) Will have positive values only
(a) Positive (b) Negative (b) Will have negative values only
(c) Zero (d) Infinity (c) Can be positive or zero or even negative.
(d) Can be positive or zero, but not negative.
Q 217. If Total Product (TP) increases at an
increasing rate, Marginal Product (MP) will be — Q 225. Average Product (AP) —
(a) Increasing (b) Decreasing (a) Will have positive values only
(c) Zero (d) Infinity (b) Will have negative values only
(c) Can be positive or zero or even negative.
Q 218. If Total Product (TP) increases at a decreasing (d) Can be positive or zero, but not negative.
rate, Marginal Product (MP) will be —
Q 226.
(a) Increasing (b) Decreasing What is the relationship between AP and MP?
(c) Zero (d) Infinity (a) AP and MP both rise first and thereafter fall
(b) MP Curves always lies half—way between AR Curve
Q 219. If Total Product (TP) is maximum, Marginal and Origin
Product (MP) will be — (c) AP and MP both can be zero or negative
(a) Positive (b) Negative (d) All of these
(c) Zero (d) Infinity
Q 227. If Average Product (AP) Curve is depicted on a
Q 220. What is the maximum point of TP? graph with Quantity on X axis —
(a) When AP becomes zero (a) AP will not go below the X axis.
(b) When MP becomes zero (b) AP may go below the X axis.
(c) At the intersecting point of AP & MP (c) AP cannot be depicted on the graph at all.
(d) None of these (d) None of the above
Q 221. If TP decreases, MP will be — Q 228. Which of the following is correct?

(a) Positive (b) Negative (a) If Marginal Product is positive and falling, Total
(c) Zero (d) Infinity Product will rise at a decreasing rate.
(b) Total Product divided by Quantity of Variable Factor
Q 222. Marginal Product (MP) Curve — equals Average Product.
(a) Is parallel to X Axis (c) Marginal Product and Average Product can be
(b) Is parallel to Y Axis calculated from Total Product.
(c) First decreases, reaches a minimum, and then (d) All of the above.
increases
Q 229.
The point where MP is maximum is called —
3.16 | Page
(a) Point of Increase
Q 237.
(b) Point of Indifference When is Average Product at its maximum?
(c) Point of Inflexion (a) When AP intersects MP
(d) Point of Shut—down (b) When AP intersects TP
(c) At the Point of Inflexion
Q 230. When AP rises as a result quantity of variable (d) All of the above
input —
(a) MP is more than AR Q 238. Marginal Product (MP) Curve cuts Average
(b) MP is less than AP Product (AP) Curve —
(c) MP = AP (a) From above
(d) There is no relationship between MP and AP (b) From below
(c) MP does not cut AP at all
Q 231. When Average Product (AP) rises as a result of (d) Nothing can be said
an increase in the quantity of variable input —
(a) MP < AP Q 239. Marginal Product (MP) rises steeply, and also
(b) MP = AP declines slightly earlier than Average Product (AP)
(c) MP > AP Curve. This statement is —
(d) There is no relationship between MP and AP (a) True (b) False
Q 232. When Average Product (AP) decreases as a
result of an increase in the quantity of variable input — Q 240. The Marginal, Average, and Total Product
(a) MP < AP Curves encountered by the Firm producing in the short
(b) MP = AP run exhibit all of the following relationships except —
(c) MP > AP (a) When Total Product is rising, Average and Marginal
(d) There is no relationship between MP and AP Product may be either rising or falling
(b) When Marginal Product is negative, Total Product
Q 233. If the Marginal Product of Labour is below the and Average Product are falling
Average Product of Labour, it must be true that (c) When Average Product is at a maximum, Marginal
(a) The Marginal Product of Labour is negative Product equals Average Product, and Total Product
(b) The Marginal Product of Labour is zero is rising
(c) The Average Product of Labour is falling (d) When Marginal Product is at a maximum, Average
(d) The Average Product of Labour is negative Product equals Marginal Product, and Total Product
is falling
Q 234.
When Average Product (AP) is at its maximum
(a) MP < AP (b) MP = AP Part C- LAW OF VARIABLE PROPORTIONS
(c) MP > AP (d) MP = 0
Q 241. The Law of analyses the production function
Q 235.
When Marginal Product (MP) = Average with one factor as variable, keeping quantities of other
Product (AP), it means that AP is — factors fixed.
(a) At its maximum (b) At its minimum (a) Returns to Scale (b) Multiple Proportions
(c) Zero (d) Infinity (c) Variable Proportions (d) Fixed Proportions
Q 242. The Law of Variable Proportions analyses the

Q 236. Marginal Product (MP) Curve cuts Average with one factor as variable, keeping quantities of other
Product (AP) Curve — factors fixed.
(a) MP = AP (b) AP is maximum (a) Revenue Function
(c) MP is falling (d) All of the above (b) Production Function
3.17 | Page
(c) Cost Function
(d) Demand and Supply Function Which of the following is not an assumption in
the Law of Variable Proportions?
Q 243 The Law of Variable Proportions operates in — (a) There are no perfect substitutes for the Fixed Factor
(a) Medium—run (b) Short —run (b) Factors of Production can be used in any proportion
(c) Long—run (d) All of the above (c) Only physical quantities of inputs and outputs are
considered
Q 244. In the , all factors of production cannot be (d) None of the above
increased or decreased simultaneously.
(a) Medium—run (b) Short —run Q 251. Which of the following is not an assumption in
(c) Long—run (d) All of the above the Law of Variable Proportions?
(a) There are no perfect substitutes for the Fixed Factor
Q 245. The Law of Variable Proportions is also called — (b) Only one factor input is considered variable, while
(a) Law of Proportionality all other factors are fixed.
(b) Law of Diminishing Returns (c) State of Technology is improved as more output is
(c) Law of Diminishing Marginal Physical Productivity produced
(d) All of the above (d) Only physical quantities of inputs and outputs are
considered
Q 246.
The Law of Variable Proportions deals with —
Q 252.
(a) Output Quantities (b) Monetary Values The Law of Variable Proportions analyses the
(c) Both (a) and (b) (d) Neither (a) nor (b) economic profitability of the Firm in monetary terms
also. This statement is —
(a) True (b) False
Q 247. Which of the following is an assumption in the (c) Partially True (d) None of the above
Law of Variable Proportions?
(a) The state of technology is constant and unchanged Q 253. In the production of wheat, all of the following
(b) Only physical quantities of inputs and outputs are are variable factors that are used by the farmer except
considered —
(c) Only one factor input is considered variable, while (a) The seed and fertilizer used when the crop is
all other factors are fixed planted
(d) All of the above (b) The field that has been cleared of trees and in which
the crop is planted
(c) The tractor used by the farmer in planting and
Q 248. Which of the following is an assumption in the cultivating not only wheat but also corn and barley
Law of Variable Proportions? (d) The number of hours that the farmer spends in
(a) The Fixed Factor of production is scarce cultivating the wheat fields
(b) There are no perfect substitutes for the Fixed Factor
(c) Factors of Production can be used in any proportion Q 254. If all factors are required to be used in fixed
(d) All of the above proportions, then the Law of Variable Proportions —
(a) Will apply
Q 249.
Assumption which are applicable under Law of (b) Will not apply at all
Variable Proportion are— (c) Both (a) and (b) are true to some extent
(a) State of technology is constant (d) Neither (a) nor (b) is true
(b) Quantities of some inputs is kept fixed
(c) Economic profitability in monetary terms is not Q 255. As per Law of Variable Proportions, as the
considered quantity of one input which is combined with other fixed
(d) All of these
3.18 | Page
inputs is increased, the of the Variable Input must (c) Diminishing Returns (d) Negative Returns
eventually decline.
(a) Total Productivity Q 261. In the stage of Increasing Returns, Total
(b) Average Productivity Product (TP) —
(c) Marginal Productivity (a) Remains constant (b) Increases
(d) All the above (c) Decreases (d) Becomes negative
Q 256. The Law of Variable Proportions come into Q 262.

In the stage of Increasing Returns, Marginal
being when— Product (MP)-
(a) There are only two variable factors. (a) Remains constant
(b) There is a fixed factor and a variable factor. (b) Increases
(c) All factors are variable. (c) Decreases
(d) Variable factors yield less. (d) First increases, reaches a maximum and then
decreases
Q 257. States that when Labour increases with
capital being the same, the Marginal Productivity of Q 263. What result we get in the first stage of Law of
Labour will increase at first but start decreasing later. Variable Proportions?
(a) Law of Equi—Marginal Returns (a) Total Product is increasing at an increasing rate
(b) Law of Diminishing Marginal Utility (b) Average Product increases only till Inflexion Point
(c) Law of Variable Proportions (c) (a) but not (b)
(d) Law of Constant Returns (d) Both (a) & (b)
Q 258. When a Factory is working at 70% capacity, Q 264.

Which of the following is true?{Omit this
increasing of variable inputs, leads to— Question}
(a) Increasing of output (a) MP does not decrease during the First Stage
(b) Decreasing of output according to the Law of (b) TP remains positive during the First Stage
Diminishing Returns (c) AP starts declining after the Point of Inflexion
(c) Increasing of output up to full capacity and later (d) All of these
decreasing of the Marginal Product according to
the Law of Diminishing Returns Q 265. A Firm is operating at an output level, where
(d) Decreasing of output up to full capacity and later its Total Product is increasing at an increasing rate. This
increasing of the output implies that the Firm's
(a) Marginal Cost must be falling at an increasing rate
Q 259. The order of stages in the Law of Variable (b) Marginal Product is increasing at a increasing rate
Proportions are — (c) Average Product is increasing
(a) Increasing Returns, Negative Marginal Returns, (d) Both (a) and (c)
Diminishing Returns
Q 266.
(b) Increasing Returns, Diminishing Returns, Why does the Law of Increasing Returns
Negative Marginal Returns operate?
(c) Negative Marginal Returns, Increasing Returns, (a) Full Use of Fixed Indivisible Factors
Diminishing Returns (b) Efficiency of Variable Factors
(d) Diminishing Returns, Negative Marginal Returns, (c) Need to reach the right combination
Increasing Returns (d) All of the above
Q 260. Which of the following is not a stage in Law of Q 267. Which of these is a reason for the operation of
Variable Proportions? Law of Increasing Returns?
(a) Increasing Returns (b) Constant Returns (a) Specialisation of functions
3.19 | Page
(b) Division of Labour (a) First increases, reaches a maximum and then
(c) Effective use of Fixed Factor of Production decreases
(d) All of the above (b) Decreases
(c) Increases
Q 268. The stage of Diminishing Returns applies from (d) Remains constant
to
Q 274.
(a) Origin to Point where AP is maximum In the stage of Diminishing Returns —
(b) Point where AP is maximum to Point when TP is (a) MP increases but AP decreases
maximum (b) MP decreases but AP increases
(c) Point when TP declines and and MP becomes (c) MP and AP show increasing trend
negative. (d) MP and AP show decreasing trend
(d) All the above
Q 275. In the stage of Diminishing Returns —
Q 269. The Law of Diminishing Returns —2 (a) MP and AP remain positive
(a) States that beyond some level of a variable input, (b) MP and AP become negative
the Average Product of that variable input begins to (c) MP is positive but AP becomes negative
increase steadily. (d) MP becomes negative but AP remains positive
(b) Assumes that there is technological improvement
over time. Q 276. Which of the following statements show the
(c) States that beyond some level of a variable input, Stage of Diminishing Returns under the Law of Variable
the Marginal Product of that Variable input begins Proportions?
to decrease steadily. (a) Marginal Product is negative
(d) Informs a Firm whether or not to use a factor input. (b) Marginal Product is falling and it is negative
(c) Marginal Product is falling but it is positive
Q 270.
In case of law of variable proportions, (d) None of the above
diminishing returns occur.
(a) When units of a variable input are added to a fixed Q 277. Which of the following is a reason for the
input and total product falls operation of the Law of Diminishing Returns?
(b) When units of a variable input are added to a fixed (a) Inefficiency of Fixed Indivisible Factors
input and marginal product falls (b) Inadequacy of Fixed Indivisible Factors
(c) When the size of the plant is increased in the long (c) Indifference of Fixed Indivisible Factors
run. (d) Immobility of Fixed Indivisible Factors
(d) When the quantity of the fixed input is increased
and returns to the variable input falls. Q 278. The "Law of Diminishing Returns" applies to—
(a) The short run, but not the long run
Q 271.
In the stage of Diminishing Returns, Total (b) The long run, but not the short run
Product (TP) — (c) Both the short run and the long run
(a) Remains constant (b) Increases (d) Neither the short run nor the long run
(c) Decreases (d) Becomes negative
Q 279. Law of Diminishing Returns is not relevant
Q 272. In the stage of Diminishing Returns, Average when—
Product (AP) — (a) All labourers are equally efficient
(a) Remains constant (b) Increases (b) The Time Period is short
(c) Decreases (d) Becomes negative (c) All factory inputs are increased by the same
proportion
Q 273. In the stage of Diminishing Returns, Marginal (d) Technology remains constant
Product (MP) —
3.20 | Page
In the stage of Negative Marginal Returns,
Q 280. In which stage of production are the Average Marginal Product (MP) —
Product and Marginal Product decreasing with the (a) Increases
Marginal Product above zero (positive)? (b) Remains constant
(a) In the stage of Constant Returns (c) Decreases but does not become negative
(b) In the stage of Decreasing Returns (d) Becomes negative
(c) In the stage of Increasing Returns
(d) Both (a) and (c) Q 288. The Law of Negative Marginal Returns
operates because the Variable Factor is in relation to
Q 281. During the stage of Decreasing Returns — the Fixed Factor of Production.
(a) AP is negative (b) MP is decreasing (a) Optimal (b) Adequate
(c) MP is negative (d) Both (a) and (b) (c) Excessive (d) Irrelevant
Q 282. Diminishing Marginal Returns implies — Q 289. In which of the following situations, the Law of
(a) Decreasing Average Variable Costs Variable Proportions will not apply?
(b) Decreasing Marginal Costs (a) Improvement in technology
(c) Increasing Marginal Costs (b) When all factors are proportionately varied
(d) Decreasing Average Fixed Costs (c) Where the factors must be used in fixed proportions
to yield the product
Q 283.
The Third Stage of Law of Variable Proportion (d) All of the above
is known as—
(a) Law of Negative Returns Q 290. In which of the following situations, the Law of
(b) Law of Decreasing Returns Variable Proportions will not apply?
(c) Law of Diminishing Returns (a) Scarcity of Fixed Factor of Production
(d) All of these (b) Availability of Perfect Substitutes for the Fixed
Factor
Q 284. The stage of Negative Marginal Returns (c) Change in proportions in which Factors are used
applies from (d) Same level of technology
_____________________to_________________
(a) Origin to Point where AP is maximum Q 291. A Rational Producer will operate in —
(b) Point where AP is maximum to Point when TP is (a) Stage I
maximum (b) Stage II
(c) Point when TP declines and and MP becomes (c) Stage III
negative. (d) All of the above
(d) All the above
Q 292. A Rational Producer will not operate in —
Q 285.
In the stage of Negative Marginal Returns, (a) Stages I and II (b) Stages II and III
Total Product (TP) — (c) Stages III and I (d) All of the above
(a) Remains constant (b) Increases
(c) Decreases (d) Remains at zero. Q 293. Stages I and III are called —
(a) Economic Absurdity (b) Economic Stability
Q 286. In the stage of Negative Marginal Returns, (c) Economic Equilibrium (d) All of the above
Average Product (AP) —
(a) Remains constant (b) Decreases
(c) Becomes negative (d) Increases
Q 294. Stages I and III are called —
Q 287. (a) Economic Achievement
3.21 | Page
(b) Economic Nonsense The Law of Returns to Scale deals with —
(c) Economic Optimality (a) Output Quantities (b) Monetary Values
(d) Economic Rationality (c) Both (a) and (b) (d) Neither (a) nor (b)
Q 295. Q 302.
A Rational Producer will not operate in Stage I Under the Law of Returns to Scale, is constant.
due to the reason that — (a) Output Quantities
(a) There is more scope for making the best use of the (b) Quantities of Variable Factors of Production
Fixed Factor (c) Quantities of Variable and Fixed Factors of
(b) Total Output still shows an increasing trend Production
(c) Optimal Combination of Fixed and Variable Factors (d) Proportion between different Factors of Production
is not yet achieved
(d) All of the above Q 303. Law of Returns to Scale indicates the
responsiveness of total product when all inputs
Q 296.
A Rational Producer will not operate in Stage III (a) Remain same
due to the reason that— (b) Are changed drastically
(a) The Fixed Factor has become over—used and (c) Are changed marginally
inefficient (d) Are changed proportionately
(b) There is a reduction in Total Output
(c) The MP of the Variable Factor is negative Q 304. Change in Scale means that all Factors of
(d) All of the above Production are increased or decreased —
(a) In different proportions
Q 297. A Rational Producer intends to work in— (b) In the same proportion
(a) Stage of Constant Returns (c) To infinity
(b) Stage of Increasing Returns (d) None of the above
(c) Stage of Diminishing Returns
(d) Stage of Negative Returns Q 305. When there is an increase in all factors of
production together in the same ratio, —(a) increases at
Q 298.
In which stage of production would a rational first, (b) becomes constant thereafter, and (c) starts
entrepreneur like to operate? decreasing beyond a certain level.
(a) Stage 1 where MP is maximum (a) Total Product
(b) Stage 2 where both MP and AP are decreasing, but (b) Average Product
both are positive (c) Marginal Product
(c) Stage 3 where MP is negative (d) All of the above
(d) Either Stage 2 or 3
Q 306. In the initial stages, when there is an increase
Part D -LAW OF RETURNS TO SCALE in scale, there is increase in output.
(a) Zero
Q 299. The Law of Returns to Scale operates in — (b) Proportionate
(a) Medium—run (b) Short —run (c) Less than proportionate
(c) Long—run (d) All of the above (d) More than proportionate
Q 300. In the, the quantities of all factors of Q 307. In the initial stages, there will be increasing
production can be increased or decreased returns to scale, due to —
simultaneously. (a) Indivisibility of Factors
(a) Medium—run (b) Short —run (b) Specialization in Factors
(c) Long—run (d) All of the above (c) Both (a) and (b)
Q 301.
3.22 | Page
4 60
Q 308. In the initial stages, there will be increasing
5 75
returns to scale, due to —
(a) Economies in operations The above data is an example of:
(b) Diseconomies in operations (a) Constant Returns to Scale.
(c) Both (a) and (b) (b) Decreasing Returns to Scale.
(d) Neither (a) nor (b) (c) Increasing Returns to Scale.
(d) Globalization.
Q 309.
In the very beginning of production, generally
the Increasing Returns to scale is found because— Q 315.
If one unit of labour and one unit of capital
(a) Input is increased give 200 units of output, two units of labour and two
(b) Plant and Machinery will be new Q 314.
units of capital give 400 units of output and 5 units of
(c) Production Problems are less labour and five units of capital give 1000 units of output
(d) Economies of Scale then this is a case of:
(a) Constant Returns to Scale.
Q 310. The above data is an example of:
(b) Increasing Returns to Scale.
(a) Decreasing returns to scale. (c) Decreasing Returns to Scale.
(b) Constant returns to scale. (d) All of these.
(c) Increasing returns to scale.
(d) Positive fixed costs. Q 316. After the stages of constant returns to scale,
the Firm will start experiencing —
Q 311. If as a result of 50% increase in all inputs, the
(a) Still Increasing Returns to Scale
output rises by 75%, this is a case of: (b) Constant Returns to Scale
(a) Increasing Returns to a Factor (c) Diminishing Returns to Scale
(b) Increasing Returns to Scale (d) None of the above
(c) Constant Returns to a Factor
(d) Constant Returns to Scale Q 317. If Decreasing Returns to Scale are present,
then if all inputs are increased by 10% then
Q 312. In which of the following cases does output
(a) Output will also decrease by 10%
double with the doubling of all inputs? (b) Output will increase by 10%
(a) Constant Returns to Scale (c) Output will increase by less than 10%
(b) Decreasing Returns to Scale (d) Output will increase by more than 10%
(c) Increasing Returns to Scale
(d) Increasing as well as decreasing returns to Scale Q 318. Which a view to increase his production Hari
Haran a manufacturer of shoes, increases all the factors
Q 313. If a change in scale inputs leads to a
of production in his unit by 100%. But at the end of year
proportional change in the output, it is a case of— he finds that instead of an increase of 100%, his
(a) Increasing Returns to Scale production has increased by only 80%. Which law of
(b) Constant Returns to Scale returns to scale is operating in this case
(c) Diminishing Returns to Scale (a) Increasing returns to scale
(d) Variable Returns to Scale (b) Decreasing returns to scale
You are given the following data: (c) Constant returns to scale
Factor Total Output (d) None of the above
0 0
1 15 Q 319. In electricity generation plants, when the plant
2 30 grows too large risks of plant failure with regard to
3 45
3.23 | Page
output increase disproportionately. Hence we are (d) External assistance
talking about which concept of returns to scale?
(a) Constant Returns to Scale Q 326. External Diseconomies may lead to
(b) Increasing Returns to Scale (a) Decrease in cost of technology
(c) Decreasing Returns to Scale (b) External Assistance
(d) Balanced Returns to Scale (c) Increase in the price of factors of production
Q 320. Linear Homogeneous Production function is
based on Q 327. _____ economies result from the use of
(a) Increasing Returns to Scale specialized equipment and modern techniques of
(b) Decreasing Returns to Scale production.
(c) Constant Returns to Scale (a) Marketing (b) Selling
(d) None. (c) Managerial (d) Production
Q 321. Beyond a certain extent, the Firm will start Q 328.

Which of the following is an important
experiencing decreasing returns to scale, due to ingredient of Selling Economies?
(a) Economies in operations (a) Advertising Economies
(b) Diseconomies in operations (b) Inventory Economies
(c) Both (a) and (b) (c) Transportation Economies
(d) Neither (a) nor (b) (a) as the Firm the Size of its (d) Storage Economies
Plant
Q 329. Economies are associated with the distribution
Q 322. Economies and Diseconomies in operations can of the product of a Firm.
be (a) Manufacturing (b) Inventory
(a) Internal . (c) Production (d) Selling
(b) External
(c) Both (a) and (b) Q 330. Difficulties of management, co—ordination
(d) Neither (a) nor (b) and control due to bigger Plant Size is an example of —
(a) Internal Economies of Scale
Q 323. Internal Economies and Diseconomies are (b) Internal Diseconomies of Scale
dependent on — (c) External Economies of Scale
(a) Output level of individual Firms (d) External Diseconomies of Scale
(b) Output level of the entire industry
(c) Both (a) and (b) Q 331. Availability of cheaper Raw Materials and
(d) Neither (a) nor (b) Capital Equipment in the long—run constitutes —
Q 324. External Economies and Diseconomies are (b) Internal Diseconomies of Scale
dependent on — (c) External Economies of Scale
(a) Output level of individual Firms (d) External Diseconomies of Scale
(b) Output level of the entire industry
(c) Both (a) and (b) Q 332. Increase in Prices of Factors of Production
(d) Neither (a) nor (b) due to expansion in industry creates —
Q 325. External economies can be achieved through— (b) Internal Diseconomies of Scale
(a) Foreign trade only (c) External Economies of Scale
(b) Extension of transport & transport credit* facility (d) External Diseconomies of Scale
(c) Superior managerial skills
Q 333.
3.24 | Page
Discovery of new technical knowledge and (b) Short Run Average Cost (SAC) Curve
improvements in technology leads to — (c) Both (a) and (b)
(a) Internal Economies of Scale (d) Neither (a) nor (b)
(b) Internal Diseconomies of Scale
(c) External Economies of Scale Q 340. Due to External Economies of Scale, the Long
(d) External Diseconomies of Scale Run Average Cost (LAC) Curve —
(a) Shifts inward
Q 334. Management Efficiency and Productivity due (b) Remains constant
to creation of different specialised functional (c) Shifts outward
departments is an example of — (d) Is not affected at all
(b) Internal Diseconomies of Scale Q 341. Due to External Diseconomies of Scale, the
(c) External Economies of Scale Long Run Average Cost (LAC) Curve —
(d) External Diseconomies of Scale (a) Shifts inward (b) Remains constant
(c) Shifts outward (d) Is not affected at all
Q 335. Growth of Ancillary Industries supplying
related goods and services is an example of — Q 342. If the LAC curve falls as output expands, this is
(a) Internal Economies of Scale due to —
(b) Internal Diseconomies of Scale (a) Law of Diminishing Returns
(c) External Economies of Scale (b) Economies of Scale
(d) External Diseconomies of Scale (c) Law of Variable Proportions
(a) External Diseconomies of Scale (d) Diseconomies of Scale
Q 336. A large Firm can offer better security to Q 343. Identify the correct statement
Bankers and obtain credit easily. This creates (a) Average Product is at its maximum when Marginal
________________ for such Firm. Product is equal to Average Product
(a) Internal Economies of Scale (b) Law of Increasing Returns to Scale relates to the
(b) Internal Diseconomies of Scale effect of changes in factor proportions
(c) External Economies of Scale (c) Economies of Scale arise only because of
(d) External Diseconomies of Scale invisibilities of factor proportions
(d) Internal Economies of scale can accrue only to the
Q 337. When a large Firm makes bulk purchase and exporting sector
obtains its Raw Materials at lower prices than a small
size Firm, the large Firm is said to have achieved —
(b) Internal Diseconomies of Scale
(c) External Economies of Scale
(d) External Diseconomies of Scale
Q 338. Internal Economies of Scale can arise in

__________ aspects.
(a) Technological (b) Managerial
(c) Financial (d) All of the above
Q 339. Internal and External Economies and

Diseconomies of Scale has its impact on —
(a) Long Run Average Cost (LAC) Curve
3.25 | Page
Q. Ans Q Ans Q Ans Q Ans Q. Ans Q Ans Q Ans
1 A 51 B 101 B 151 B 201 D 251 C 301 A
2 B 52 B 102 C 152 B 202 A 252 B 302 D
3 D 53 A 103 B 153 B 203 B 253 B 303 D
4 A 54 B 104 B 154 C 204 A 254 B 304 B
5 A 55 A 105 D 155 C 205 C 255 C 305 C
6 C 56 B 106 D 156 B 206 B 256 B 306 D
7 D 57 D 107 A 157 D 207 C 257 C 307 C
8 B 58 B 108 C 158 D 208 A 258 C 308 A
9 C 59 A 109 C 159 C 209 C 259 B 309 D
10 C 60 B 110 A 160 C 210 B 260 B 310 C
11 B 61 A 111 B 161 A 211 B 261 B 311 B
12 A 62 A 112 A 162 C 212 A 262 D 312 A
13 C 63 D 113 C 163 B 213 C 263 C 313 B
14 D 64 C 114 A 164 A 214 A 264 B 314 A
15 A 65 B 115 C 165 B 215 C 265 D 315 A
16 A 66 C 116 D 166 A 216 A 266 D 316 C
17 B 67 A 117 B 167 B 217 A 267 D 317 C
18 D 68 C 118 C 168 A 218 B 268 B 318 B
19 D 69 A 119 D 169 A 219 C 269 C 319 C
20 A 70 C 120 D 170 B 220 B 270 B 320 C
21 A 71 A 121 C 171 D 221 B 271 B 321 B
22 B 72 B 122 B 172 D 222 D 272 C 322 C
23 C 73 A 123 C 173 B 223 D 273 B 323 A
24 D 74 D 124 D 174 A 224 C 274 D 324 B
25 A 75 A 125 B 175 B 225 D 275 A 325 B
26 B 76 C 126 D 176 B 226 A 276 C 326 C
27 B 77 C 127 A 177 C 227 A 277 B 327 D
28 A 78 C 128 C 178 B 228 D 278 A 328 A
29 C 79 C 129 A 179 A 229 C 279 C 329 D
30 D 80 D 130 B 180 A 230 A 280 B 330 B
31 B 81 C 131 D 181 B 231 C 281 B 331 C
32 C 82 C 132 B 182 B 232 A 282 C 332 D
33 C 83 A 133 D 183 A 233 C 283 A 333 C
34 D 84 A 134 D 184 B 234 B 284 C 334 A
35 D 85 C 135 C 185 C 235 A 285 C 335 C
36 C 86 D 136 A 186 C 236 D 286 B 336 A
37 A 87 A 137 D 187 C 237 A 287 D 337 A
38 B 88 B 138 C 188 A 238 A 288 C 338 D
39 C 89 C 139 B 189 B 239 A 289 D 339 A
40 D 90 C 140 A 190 D 240 D 290 B 340 A
41 A 91 C 141 A 191 C 241 C 291 B 341 C
42 D 92 D 142 C 192 D 242 B 292 C 342 B
43 B 93 C 143 A 193 C 243 B 293 A 343 A
44 D 94 A 144 B 194 C 244 B 294 B
45 D 95 B 145 A 195 A 245 D 295 D
46 A 96 D 146 A 196 B 246 A 296 D
47 A 97 C 147 B 197 A 247 D 297 C
48 D 98 D 148 A 198 A 248 D 298 B
49 A 99 C 149 D 199 C 249 D 299 C
50 B 100 D 150 B 200 C 250 D 300 C
3.26 | Page
Chapter – 3B – Cost & Revenue (b) Independent Variable
concept (c) Either (a) or (b)
COST ANALYSIS AND COST FUNCTION
Q 9. In a Cost Function, the Scale of Operations is
Q 1. Cost Analysis is the study of behaviour of in relation a/an-
to one or more production criteria. (a) Dependent Variable (b) Independent Variable
(a) Prices and Revenue (b) Profits (c) Either (a) or (b) (d) Neither (a) nor (b)
(c) Costs (d) Output Quantity
Q 10. In a Cost Function, the Price of Factors of
Q 2. Cost Analysis is the study of behaviour of Cost, in Production is a/an-
relation to — (a) Dependent Variable (b) Independent Variable
(a) Selling Prices (c) Either (a) or (b) (d) Neither (a) nor (b)
(b) Profits
Q 11.
(c) Total Revenue Identify the Dependent Variable in a Cost
(d) One or more Production Criteria Function from the following.
(a) Quantity of Output
Q 3. For Cost Analysis purposes, the Production Criteria (b) Scale of Operations
may be — (c) Total Cost
(a) Quantity of output (d) Price of Factors of Production
(b) Scale of operations
(c) Prices of factors of production Q 12. Identify the Dependent Variable in a Cost
(d) All of the above Function from the following.
(a) Efficiency
Q 4. Cost Analysis is concerned with of production. (b) Level of Capacity utilisation
(a) Financial aspects (b) Physical aspects (c) Technology
(c) Either (a) or (b) (d) Both (a) and (b) (d) Cost per unit
Q 5. Cost Function refers to the mathematical Q 13. Identify the Independent Variable in a Cost
relationship between cost of a product and the various Function from the following.
determinants of Cost. This statement is (a) Time Period under study
(a) True (b) False (b) Cost per unit
(c) Partially True (d) None of the above (c) Total Cost
Q 6. A Cost Function deals with —
(a) Total Cost (b) Cost per unit Q 14. Cost Functions are Derived Functions. They are
(c) Either (a) or (b) (d) Neither (a) nor (b) derived from —
(a) Demand Function
Q 7. In a Cost Function, the Total Cost or Cost per unit is (b) Supply Function
a/an — (c) Isoquant Function
(a) Dependent Variable (d) Production Function
(b) Independent Variable
Q 15.
(c) Either (a) or (b) A Cost Function determines the behaviour of
(d) Neither (a) nor (b) Costs with change in —
(a) Output (b) Input
Q 8. In a Cost Function, the Output Quantity is a/an- (c) Technology (d) Wages
(a) Dependent Variable
3.27 | Page
Q 16. The Cost Function indicates the functional (c) In the Long Run, all the inputs are fixed
relationship between Total Cost and — (d) In the Long Run there are no restrictions on the
(a) Total Input (b) Fixed Cost resource allocation in the production process.
(c) Total Output (d) Variable Cost
Q 23. A Product can be produced using two input
Q 17. Which of the following is not a determinant of the combinations A and B. Combination A takes 2 units of
Firm's Cost Function? Labour and 8 units of Capital. Combination B takes 3 units
(a) Production Function of Labour and 5 units of Capital, what is the Marginal
(b) Price of Labour Rate of Technical Substitution of Labour for Capital?
(c) Rent paid for use of Building (a) 0 (b) 2
(d) Price of the Firm's Output (c) 3 (d) 5
Q 18. Functional Relationship between Output and the EXPLICIT AND IMPLICIT COSTS
Long Run Cost of Production is known as —
(a) Cost Function Q 24. Costs which involve payment made by the
(b) Long Run Cost Function Entrepreneur to providers of other factors of production
(c) Short Run Cost Function are called —
(d) Output Function (a) Explicit Cost (b) Implicit Cost
(c) Variable Cost (d) Fixed Cost
Q 19.
The Functional Relationship between Output and
Q 25.
the Short Run Cost of Production is known as — The Cost that a Firm incurs in hiring or purchasing
(a) Cost Function any Factor of Production is referred to as —
(b) Long Run Cost Function (a) Explicit Cost (b) Implicit Cost
(c) Short Run Cost Function (c) Variable Cost (d) Fixed Cost
(d) Output Function
Q 26. ___ can be defined as the Cost that involve
Q 20. Which of the following statements regarding the actual payment to other parties.
Long Run Cost Function is not true? (a) Implicit Costs (b) Explicit Costs
(a) The Firm adjusts Factors of Production to meet the (c) Hidden Costs (d) Opportunity Costs
market demand
Q 27.
(b) Firms identify a combination that gives maximum Which of the following is an example of an
output at the lowest Cost 'Explicit Cost"?
(c) Inputs are chosen for producing a desired level of (a) Wages a Proprietor could have made by working as
output an employee of a large Firm
(d) All the inputs in the long—run are fixed (b) Income that could have been earned in alternative
uses by the resources owned by the Firm
Q 21. Expansion of Scale of operation forms a part of (c) Payment of Wages by the Firm
Cost Function. (d) Normal Profit earned by a Firm
(a) Long run (b) Short run
(c) Fixed (d) Both (b) and (c) Q 28. Explicit Costs are also known as —
(a) Out—of—Pocket Costs
Q 22. Which of the following statements regarding Short (b) Outlay Costs
and Long Run Cost Functions is not true? (c) Accounting Costs
(a) A Variable Input varies according to the quantity of (d) All of the above
output to be produced
(b) In the Short Run, one or more of the inputs of the
production process is fixed
3.28 | Page
Q 29. Which of the following does not relate to Explicit Q 36. Implicit Costs are also known as —
Costs? (a) Notional Costs (b) Opportunity Costs
(a) Out—of—Pocket Costs (c) Imputed Costs (d) All of the above
(b) Outlay Costs
(c) Opportunity Costs Q 37. _______involve subjective estimation.
(d) Accounting Costs (a) Implicit Costs (b) Outlay Costs
(c) Out—of—Pocket Cost (d) Accounting Costs
Q 30. Which of the following Costs is included and
recorded in the books of accounts? Q 38. An entrepreneur who manages his Firm has to
(a) Imputed Costs (b) Opportunity Costs forego his salary, which he could have earned if he had
(c) Notional Costs (d) Explicit Costs worked elsewhere. The foregone Cost is known as —
(a) Implicit Costs (b) Explicit Costs
Q 31.
Explicit Costs are used for purposes. (c) Hidden Costs (d) Actual Costs
(a) Accounting and Reporting
(b) Cost Control Q 39. Which of the following Costs does not include the
(c) Decision Making contractual cash payments which the Firm makes to
(d) All of the above other Factor Owners for purchasing or hiring various
factors?
Q 32. Costs which do not involve any cash payment to (a) Private Costs (b) Variable Costs
outsiders are called — (c) Accounting Costs (d) Implicit Costs
(a) Explicit Cost (b) Implicit Cost
(c) Variable Cost (d) Fixed Cost Q 40. Implicit Costs are used for purposes.
(a) Accounting and Reporting
Q 33. are the value of foregone opportunities that (b) Cost Control
do not involve any physical cash payment. (c) Decision Making
(a) Implicit Costs (b) Explicit Costs (d) All of the above
(c) Hidden Costs (d) Actual Costs
Q 41. If own people (e.g. family members) are
Q 34. An Implicit Cost can be defined as the— employed in the Firm, without paying them any reward
(a) Payment to the non—owners of the Firm for the for their work, Labour Cost is an —
resources they supply (a) Implicit Cost (b) Explicit Cost
(b) Money payment which the self—employed resources (c) Hidden Cost (d) Undisclosed Cost
could have earned in their best alternative
employment Q 42. If Capital is borrowed and used in the business,
(c) Costs which the Firm incurs but does not disclose Interest on Capital is —
(d) Costs which do not change over a period of time (a) Implicit Cost (b) Explicit Cost
(c) Hidden Cost (d) Undisclosed Cost
Q 35. Which of the following is an example of an "Implicit
Cost"? Q 43. If Entrepreneur employs his own funds as Capital,
(a) Interest that could have been earned on retained then Interest is —
earnings used by the Firm to finance expansion (a) Implicit Cost (b) Explicit Cost
(b) Payment of Rent by the Firm for the building in which (c) Hidden Cost (d) Undisclosed Cost
it is housed
(c) Interest Payment made by the Firm for funds Q 44. When Entrepreneur himself manages the
borrowed from a Bank business, the reward for Entrepreneurial Ability (i.e.
(d) Payment of Wages by the Firm Profit) is an —
(a) Implicit Cost (b) Explicit Cost
3.29 | Page
(c) Hidden Cost (d) Undisclosed Cost (b) Wages or Salary of the Entrepreneur
(c) Interest on the Capital invested
Q 45. . Direct costs are (d) All of the above
(a) Traceable costs (b) Indirect costs
(c) Implicit costs (d) Explicit costs Q 53. __________ includes all payments paid to
Factors of Production and Opportunity Cost.
Q 46. Suppose the total cost of production of a (a) Implicit Costs
commodity X is 1,25,000 out of which implicit cost 35,000 (b) Explicit Costs
and normal profit is 25,000. What would be the explicit (c) Economic Costs
cost of commodity? (d) Accounting Costs
(a) 90,000 (b) 65,000
(c) 1,00,000 (d) 60,000 Q 54. Reward for Entrepreneurial Ability (i.e. Normal
Profit in the business) is included in —
ACCOUNTING COSTS AND ECONOMIC COSTS (a) Economic Cost
(b) Accounting Cost
Q 47. Accounting Cost equals — (c) Explicit Cost
(a) Explicit Cost (b) Implicit Cost (d) Undisclosed Cost
Q 55. Which of the following is true regarding
Q 48. Cost incurred in purchasing the Factor of Economic Cost and Accounting Cost?
Production is known as — (a) Economic Cost = Accounting Cost
(a) Accounting Cost (b) Economic Cost (b) Economic Cost > Accounting Cost
(c) Mar ginal Cost (d) Implicit (c) Economic Cost < Accounting Cost
Cost (d) None of the above
(e) Neither (a) nor (b)
Q 56. The difference between Economic Cost and
Q 49. Economic Cost includes— Accounting Cost is equal to —
(a) Accounting Cost + Non—Accounting Cost (a) Explicit Cost
(b) Fixed Cost + Variable Cost (b) Implicit Cost
(c) Explicit Cost + Implicit Cost (c) Both (a) and (b)
(d) Short Run Cost + Long Run Cost (d) Neither (a) nor (b)
Q 50. Economic Cost includes— Q 57. Which of the following is true regarding Economic
(a) Accounting Cost + Explicit Cost Cost and Accounting Cost?
(b) Accounting Cost + Implicit Cost (a) Economic Cost less Accounting Cost = Explicit Cost
(c) Fixed Cost + Variable Cost (b) Economic Cost less Accounting Cost = Implicit Cost
(d) Accounting Cost + Non—Accounting Cost (c) Accounting Cost less Economic Cost = Explicit Cost
(d) Accounting Cost less Economic Cost = Implicit Cost
Q 51. Economic Cost includes —
(a) Wages paid to Workers / Labourers Q 58. When Total Revenue is less than Accounting
(b) Rent for Land and Building used in business Costs, it means that the Firm —
(c) Normal Rate of Profit in the business (a) Has No—Profit—No—Loss
(d) All of the above (b) Earns Normal Profits
(c) Earns more than Normal Profits (i.e. Super—Normal
Q 52. Which of the following are considered as Profits)
Economic Cost? (d) Incurs Losses
(a) Normal Return on money Capital invested
3.30 | Page
Q 59. When Total Revenue is less than Accounting Costs, Q 65. Which of the following statements is false?
it means that the Firm incurs Losses — (a) Economic Costs include the Opportunity Costs of the
(a) In the accounting sense resources owned by the Firm
(b) In the economic sense (b) Accounting Costs include only Explicit Costs
(c) Both (a) and (b) (c) Economic Profit will always be less than Accounting
(d) Neither (a) nor (b) Profit if resources owned and used by the Firm have
any Opportunity Costs
Q 60. When Total Revenue equals Economic Costs, it (d) Accounting Profit is equal to Total Revenue less
means that the Firm — Implicit Costs
(a) Has No—Profit—No—Loss
(b) Earns Normal Profits OPPORTUNITY COSTS
(c) Earns more than Normal Profits (i.e. Super—Normal
Profits) Q 66. Opportunity Cost refers to —
(d) Incurs Losses in the accounting sense (a) Cost of opportunity foregone
(b) Comparison between the policy that was chosen and
Q 61. When Total Revenue exceeds Economic Costs it the policy that was rejected
means that the Firm — (c) Costs relating to sacrificed alternatives
(a) Has No—Profit—No—Loss (d) All of the above
(b) Earns Normal Profits
(c) Earns more than Normal Profits (i.e. Super—Normal Q 67. The Cost of one thing in terms of the alternative
Profits) given up is known as —
(d) Incurs Losses (a) Production Cost (b) Physical Cost
(c) Real Cost (d) Opportunity Cost
Q 62. When Total Revenue is less than Economic Costs, it
means that the Firm — Q 68. Opportunity Costs are a result of —
(a) Incurs Losses in the economic sense (a) Technology obsolescence
(b) Earns Normal Profits (b) Overproduction
(c) Earns more than Normal Profits (i.e. Super—Normal (c) Scarcity
Profits) (d) Abundance of resources
(d) Incurs Losses in the accounting sense
Q 69. Opportunity Costs arise only when resources are
Q 63. Economic Profits are — —
(a) Difference between Total Revenue, and Total Implicit (a) Scarce
and Explicit Costs (b) Restricted in availability
(b) Difference between Total Revenue and Total (c) Available only to a limited extent
Economic Costs (d) All of the above
(c) Zero in a perfectly competitive industry in the long—
run Q 70. If a resource can be put only to a particular use,
(d) All the above then, Opportunity Costs —
(a) Are applicable and quantifiable
Q 64. If there are Implicit Costs of Production — (b) Are applicable but not quantifiable
(a) Economic Profit will be equal to Accounting Profit. (c) Are not applicable at all
(b) Economic Profit will be less than Accounting Profit. (d) None of the above
(c) Economic Profits will be zero.
(d) Economic Profit will be more than Accounting Profit.
3.31 | Page
Q 71. Outlay Costs—
(a) Involve cash payment Q 79. Which of the following statement best describes
(b) Do not involve any cash payment Sunk Costs?
(c) Both (a) and (b) (a) Costs which are incurred in the past
(d) Neither (a) nor (b) (b) Cost incurred by the Firm as result of bankruptcy of
one of its Creditors
Q 72. Opportunity Cost is — (c) Cost incurred by the Firm as a result of the fire that
(a) Recorded in books of accounts broke into one of the Firm's Godown.
(b) Not recorded in books of accounts (d) Setting off the losses that the Firm incurred in the
(c) Sometimes (a) sometimes (b) previous years
Q 80. Which of the following is correct?
Q 73. Opportunity Costs are used for purposes (a) Firms that earn Accounting Profits are economically
(a) Accounting and Reporting profitable.
(b) Cost Control (b) Opportunity Cost plus Accounting Cost equals
(c) Decision Making Economic Cost.
(d) All of the above (c) When a Firm's Demand Curve slopes down, Marginal
Revenue will rise as output rises.
Q 74. Which of the following is not true with reference to (d) Firms increase profits by selling more output than
Opportunity Cost? their rivals.
(a) It is the value of the next best use for an economic
good Q 81. Suppose you find 100. If you choose to use 100 to
(b) It is the value of a sacrificed alternative go to a football match, your opportunity cost of going to
(c) It is useful in decision—making the game is
(d) It does not take into consideration, the cost of time (a) nothing, because you found the money.
(b) Only The value of your time spent at the game + The
Q 75. Cost is the Total Additional Cost that a Firm has to Expected Normal Interest / Return on 100.
incur, as a result of implementing a major managerial (c) 100 (because you could have used the 100
decision. to buy other things) plus the value of your time spent at
(a) Sunk (b) Incremental the game, plus the cost of the dinner you purchased
(c) Opportunity (d) Marginal at the game.
(d) 100 (because you could have used the 100
Q 76. Incremental Cost equals — to buy other things).
(a) Additional Variable Costs only
(b) Additional Fixed Costs only Q 82. _____are readily identified and are traceable to
(c) Both (a) and (b) a particular product, service, operation or plant.
(d) Neither (a) nor (b) (a) Direct Costs
(b) Indirect Costs
Q 77. Which of the following statement is true? (c) Both (a) and (b)
(a) Marginal Cost is a sub—set of Incremental Cost (d) Neither (a) nor (b)
(b) Incremental Cost is sub—set of Marginal Cost
(c) Marginal Cost is a sub—set of Sunk Cost Q 83. _________are not readily identified nor visibly
(d) Sunk Cost is a sub—set of Incremental Cost traceable to specific goods, services, operations, etc.
(a) Direct Costs (b) Indirect Costs
Q 78. Cost is not relevant for Decision—Making (c) Both (a) and (b) (d) Neither (a) nor (b)
(a) Economic (b) Opportunity
(c) Sunk (d) Incremental Cost
3.32 | Page
Q 84. Accounting Process recognizes —
(a) Direct Costs Q 91. Fixed Costs are —
(b) Indirect Costs (a) Period—related
(c) Both (a) and (b) (b) Product—related
Read the following paragraph and answer the following (d) Neither (a) nor (b)
four questions.
Q 92.
Nicole owns a small pottery factory. She can make 1,000 Fixed cost Costs are a function of —
pieces of pottery per year and sell them for 100 each. It (a) Output
costs Nicole 20,000 for the raw materials to produce the (b) Time
1,000 pieces of pottery. She has invested 100,000 in her (c) Both (a) and (b)
factory and equipment: 50,000 from her savings and (d) Neither (a) nor (b)
50,000 borrowed at 10 per cent. (Assume that she could
have loaned her money out at 10 per cent, too.) Nicole Q 93. Cost must be paid even if the Firm's level output
can work at a competing pottery factory for 40,000 per is zero.
year. (a) Variable (b) Direct
(c) Incremental (d) Fixed
Q 85. The accounting cost at Nicole's pottery factory is
(a) 25000 (b) 50000 Q 94. If a Firm produces zero output in the short period
(c) 80000 (d) 75000 —
(a) Its Total Cost will be zero
Q 86. The economic cost at Nicole's factory is: (b) Its Variable Cost will be positive
(a) 75000 (b) 70000 (c) Its Fixed Cost will be positive
(c) 80000 (d) 7 30000 (d) Its Average Cost will be zero -
Q 87. The accounting profit at Nicole's pottery factory is: Q 95. As output increases, Total Fixed Cost —
(a) 30000 (b) 50000 (a) Decreases (b) Increases
(c) 80000 (d) 75000 (c) Remains constant (d) Becomes zero
Q 88. The economic profit at Nicole's factory is: Q 96. Some portion of Fixed Costs need not be incurred
(a) fi 75000 (b) 35000 when operations are suspended. These are called —
(c) fi 80000 (d) 30000 (a) Avoidable Fixed Costs
(b) Committed Fixed Costs
FIXED AND VARIABLE COSTS (c) Variable Costs
(d) Semi—Variable Costs
Q 89. _____ are costs that do not vary with output,
upto a certain level of activity. Q 97. Some portion of Fixed Costs cannot be avoided
(a) Variable even when operations are suspended. These are called —
(b) Fixed (a) Discretionary Fixed Costs
(c) Both (a) and (b) (b) Committed Fixed Costs
(d) Neither (a) nor (b) (c) Variable Costs
(d) Semi—Variable Costs
Q 90. Fixed Cost can be defined as —
(a) Which does not change with output Q 98. Which of the following is not a Fixed Cost?
(b) Which changes with Sales (a) Payment of Interest on Borrowed Capital
(c) Which changes proportionately with output (b) Charges for Fuel and Electricity
3.33 | Page
(c) Depreciation Charges on Equipment and Buildings (c) Fixed Cost (d) Variable Cost
(d) Contractual Rent for Equipment of Building
Q 108. Total Variable Costs always vary proportionately
with output. This statement is —
Q 99. The following are some Costs incurred by a (a) True
Clothing Manufacturer. State which among them will be (b) False
considered as Fixed Cost. (c) Partially True
a) Cost of Cloth (d) Nothing can be said
b) Piece Wages paid to Workers
c) Depreciation on Machines owing to time Q 109.. Over certain ranges of production Variable Costs
d) Cost of Electricity for running machines vary less or more than proportionately depending on the
utilisation of fixed facilities and resources during the
Q 100. ____ are costs that change, based on the production process. This statement is —
level of output. (a) True
(a) Variable (b) Fixed (b) False
(c) Both (a) and (b) (d) Neither (a) nor (b) (c) Partially True
Q 101. Variable Costs are —
(a) Period—related (b) Product—related MARGINAL COSTS
Q 110. Marginal Cost changes due to change in Cost
Q 102. Variable Costs are a function of —* (a) Variable (b) Fixed
(a) Output (b) Time (c) Total (d) Average
Q 111. _______is the addition made to the total cost by
Q 103. _____Cost must be incurred only when the Firm's production of an additional unit of output.
produces output. (a) Fixed Cost (b) Variable Costs
(a) Variable (b) Fixed (c) Total Costs (d) Marginal Costs
Q 112. Marginal Cost can be defined as —
Q 104. Variable Costs are incurred only when production (a) Change in Average Variable Cost divided by Change
takes place. So, they are in the nature of — in Total Output
(a) Discretionary Costs (b) Committed Costs (b) Change in Average Fixed Cost divided by Change in
(c) Fixed Costs (d) Semi—Variable Costs Total Output
(c) Change in Total Fixed Cost divided by Change in Total
Q 105. All Variable Costs are avoidable or discretionary in Output
nature. This statement is — (d) Change in Total Cost due to Change in Total Output
(a) True (b) False by one additional unit.
(c) Partially True (d) Nothing can be said
Q 113. _____ Costs are important in short term decision
Q 106. As output increases, Total Variable Cost — making of the Firm, to determine the output at which
(a) Decreases (b) Increases profits can be maximized.
(c) Remains constant (d) Becomes zero (a) Fixed (b) Sunk
(c) Opportunity (d) Marginal
Q 107. Which Cost increases continuously with the
increase in production?
(a) Average Cost (b) Marginal Cost
3.34 | Page
Q 114. With which of the following is the concept of Q 123. Marginal Cost Curve of a Firm will show
Marginal Cost closely related? behaviour when compared to Marginal Product (MP)
(a) Variable Cost (b) Fixed Cost Curve.
(c) Opportunity Cost (d) Economic Cost (a) Same (b) Reverse
(c) Either (a) or (b) (d) Nothing can be said
Q 115. Marginal Cost is independent of Fixed Cost. This
statement is — Q 124. Marginal Costs are applicable in —
(a) True (b) False (a) Short—Run (b) Long—Run
(c) Partially True (d) Nothing can be said (c) Both (a) and (b) (d) Neither (a) nor (b)
Q 116. Marginal Cost is independent of Variable Cost. This Q 125. Additional cost incurred by a Firm as a result of a
6
statement is — business decision —
(a) True (b) False (a) Sunk Cost (b) Replacement Cost
(c) Partially True (d) Nothing can be said (c) Incremental Cost (d) Extra Cost
Q 117. Which of the following will affect Marginal Costs? Q 126. Which of the following statement is correct?
6 Variable Costs
(a) (b) Output Quantity (a) An increase in price will make Replacement Costs
(c) Both (a) and (b) (d) Neither (a) nor (b) higher than Historical Cost.
(b) A decrease in price will make Replacement Costs
Q 118. Which of the following will not affect Marginal higher than Historical Cost.
6
Costs? (c) An increase in price will make Replacement Costs
(a) Variable Costs (b) Output Quantity lower than Historical Cost.
(c) Fixed Costs (d) All of the above (d) None of the above
Q 119. TCn TCn_i = which cost function? Q 127. The cost incurred during the acquisition of an
6
(a) Marginal Cost (b) Average Cost asset
(c) Total Cost (d) None of the above (a) Sunk Cost (b) Replacement cost
(c) Historical cost (d) None of the above
Q 120.
Marginal Costs per unit =
(a) Change in Total Costs ÷ Change in Output Quantity Q 128. Cost of Production incurred by an Individual firm
(b) Change in Variable Costs ÷ Change in Output is —
Quantity (a) Private Cost (b) Social Cost
(c) Either (a) or (b) (c) Production Cost (d) None of the above
Q 129. Socia I Cost =
Q 121.
Which of the following describes the behaviour of (a) Explicit Cost + Implicit Cost
Marginal Cost Curve? (b) Private Cost + External Cost
(a) Declines first, reaches its minimum and then rises (c) Private Cost + Internal Cost
(b) Rises first, reaches a maximum and then declines (d) None of the above
(c) Remains constant throughout all output levels
(d) Nothing can be said Short run and long Run cost concept
Q 122. Marginal Cost Curve of a Firm will be — Q 130. Which of the following statements regarding
(a) L Shaped (b) 3 Shaped Output is false?
(c) U Shaped (d) Inverted U Shaped (a) Output is under the control of the Firm
3.35 | Page
(b) Magnitude of the Output determines the Total Cost (c) Either (a) or (b)
of Production (d) Neither (a) nor (b)
(c) Change in output level determines the rate of change
in the Total Cost of Production Q 138. TC Curve will —
(d) Output has no role to play in determining the Cost (a) Increase, i.e. slope upward from left to right
Function (b) Decrease, i.e. slope downward from left to right
Q 131. If Output increases in the short—run, Total Cost (d) Neither (a) nor (b)
will —
(a) Increase due to an increase in Fixed Costs only Q 139. TC Curve will commence from —
(b) Increase due to an increase in Variable Costs only (a) A certain point on the Quantity is (X Axis)
(c) Increase due to an increase in both Fixed and (b) A certain point on the Cost Axis (Y Axis)
Variable Costs (c) Origin
(d) Decrease if the Firm is in the region of Diminishing (d) Any of the above
Returns
Q 140. TVC Curve will be —
Q 132. If the Firm's output level is below its short run (a) Higher than the TC Curve
capacity, it is its Plant and Machinery. (b) Lower than the TC Curve
(a) Under utilizing (b) Fully utilizing (c) Parallel to X Axis
(c) Over utilizing (d) Exploiting (d) Parallel to Y Axis
Q 133. Which of the following statements is correct Q 141. If Variable Cost per unit (i.e. AVC) is constant at
concerning the relationships among the Firm's Costs? all levels of output, NC Curve will be —
(a) TC = TFC — TVC (b) TVC = TFC+ TC (a) Curve with positive slope
(c) TFC = TC –TVC (d) TC = TVC- TFC (b) Straight Line with positive slope
(c) Rectangular Hyperbola
Q 134. TFC Curve will be a — (d) None of these
(a) Curve
(b) Straight Line Q 142. The Vertical difference between TVC and TC is
(c) Rectangular Hyperbola equal to—
(d) None of these (a) MC (b) AVC
(c) TFC (d) None of these
Q 135. TFC Curve will be a straight line
(a) Parallel to X—Axis Q 143. "I am making a loss, but with the rent I have to
(b) Parallel to Y—Axis pay, I can't afford to shut down at this point of time." If
(c) Increasing from left to right this entrepreneur is attempting to maximize profits or
(d) Decreasing from left to right minimize losses, his behaviour in the short run is:
(a) rational, if the firm is covering its variable cost.
Q 136. TFC Curve will commence from — (b) rational, if the firm is covering its fixed costs.
(a) A certain point on the Quantity Axis (X Axis) (c) irrational, since plant closing is necessary to
(b) A certain point on the Cost Axis (Y Axis) eliminate losses.
(c) Origin (d) irrational, since fixed costs are eliminated if a firm
(d) Any of the above shuts down
Q 137. TVC Curve will be a —

(a) Curve with a positive slope
(b) Curve with a negative slope
3.36 | Page
AVERAGE COST
Q 151. Average Fixed Cost (AFC) of a Firm is related to
Q 144. Average Cost is the same as — its output.
(a) Average Fixed Cost (a) Directly (b) Inversely
(b) Average Total Cost (c) Proportionately (d) Not
(c) Average Variable Cost
(d) All of the above Q 152. Which of the following describes the behaviour
of Average Fixed Cost Curve?
Q 145. Which of the following is the Average Cost? (a) Declines first, reaches its minimum and then rises
(a) Average Fixed Cost + Average Variable Cost (b) Rises first, reaches a maximum and then declines
(b) Average Total Cost (c) Remains constant throughout all output levels
(c) Total Cost divided by the number of units (d) Declines throughout as output increases
Q 153. Which of the following is true with respect to
Q 146. If TVC = 1,000, TFC = 400, then calculate ATC at Average Fixed Cost?
5 units. (a) It is a bell shaped Curve
(a) 280 (b) 250 (b) As the quantity increases it approaches zero
(c) 150 (d) 300 (c) If quantity produced tends to zero, Average Fixed
Cost approaches infinity
AVERAGE FIXED COST (d) Both (b) and (c) above
Q 147. Average Fixed Cost (AFC) equals — Q 154. AFC Curve will be a —
(a) ATC — AVC (a) Curve with a positive slope
(b) TFC divided by Output Quantity (b) Curve with a negative slope
(c) Both (a) and (b) (c) Straight Line
(d) Neither (a) nor (b) (d) None of the above
Q 148. Which of the following describes the behaviour of Q 155. Which curve is downward sloping and does not
Average Fixed Cost? touch the X-axis?
(a) Remains constant throughout all output levels (a) AVC (b) MC
(b) Declines throughout as output increases (c) ATC (d) AFC
(c) Declines first, reaches its minimum and then rises
(d) Rises first, reaches a maximum and then declines Q 156. All of the following are U—Shaped Curves except
the—
Q 149. In the short run, when the output of a Firm (a) AVC Curve (b) AFC Curve
increases, its Average Fixed Cost\-- (c) AC Curve (d) MC Curve
(a) Increases
(b) Decreases Q 157. The AFC Curve passes through the Origin. This
(c) Remains constant statement is —
(d) First declines and then rises (a) True (b) False
(c) Partially True (d) Nothing can be said
Q 150. In the short run, when the output of a Firm
decreases, its Average Fixed Cost — Q 158. Which statement among below is correct in
(a) Increases reference to AFC?
(b) Decreases (a) Never becomes zero
(c) Remains constant (b) Curve never touch X-axis
(d) First declines and then rises (c) Curve never touch Y-axis
3.37 | Page
(d) All of the these (d) Law of Equi—Marginal Utility
Q 159. Q 166. Average Variable Cost Curve —

Average Cost of Producing 50 units of a
Commodity is 250 and fixed cost is 1000. What will be the (a) Slopes downwards at first and then upwards
average fixed cost of producing 100 units of the (b) Slopes upwards, remains constant and then falls
Commodity? (c) Slopes downwards always
(a) 10 (b) 30 (d) Remains a straight line parallel to X Axis
(c) 20 (d) 5
Q 167. Average Variable Cost Curve has a negative
Q 160. A Firm's average fixed Cost id 20 at 6 units of slope —
output. What will it be at 4 units of output? (a) Upto normal capacity output
(a) 60 (b) 30 (b) Beyond normal capacity output
(c) 40 (d) 20 (c) At all levels of output
AVERAGE VARIABLE COST
Q 168. Average Variable Cost Curve slopes upwards —
Q 161. Average Variable Cost (AVC) equals — (a) Upto normal capacity output
(a) ATC — AFC (b) Beyond normal capacity output
(b) TVC divided by Output Quantity (c) At all levels of output
(c) Both (a) and (b) (d) Nothing can be said
Q 169. A firm produces 10 units of commodity at an
average total cost of ₹ 200 and with a fixed cost of ₹ 500.
Q 162. AVC decreases as output increases — Find out component of average variable cost in total cost.
(a) Upto normal capacity output (a) ₹ 300 (b) ₹ 200
(b) Beyond normal capacity output (c) ₹ 150 (d) ₹ 100
(c) At all levels of output
(d) Nothing can be said AVERAGE COST OR AVERAGE TOTAL COST
Q 163. AVC decreases as output increases, upto normal Q 170. Average Cost (AC) equals —
capacity output, due to — (a) ATC + AFC
(a) Law of constant returns (b) Total Cost divided by Output Quantity
(b) Law of diminishing returns (c) Both (a) and (b)
(c) Law of increasing returns (d) Neither (a) nor (b)
(d) Law of negative returns
Q 171. Initially Average Cost declines sharply due to the
Q 164. AVC increases as output increases — reason that —
(a) Upto normal capacity output (a) AFC declines significantly as output increases
(b) Beyond normal capacity output (b) AVC declines significantly as output increases
(c) At all levels of output (c) AFC increases as output increases
(d) Nothing can be said (d) AVC increases as output increases
Q 165. AVC increases as output increases, beyond Q 172. Initially, even when there is an increase in
normal capacity output, due to — Average Variable Cost (AVC), Average Cost (AC) may still
(a) Law of Constant Returns decline due to the reason that —
(b) Law of Diminishing Returns (a) Fall in AFC is less than the rise in AVC
(c) Law of Increasing Returns (b) Fall in AFC is greater than the rise in AVC
3.38 | Page
(c) Fall in AFC is equal to the rise in AVC MARGINAL COST AND AVERAGE COST RELATIONSHIPS
Q 179. Maginal Cost Curve cuts the Average Cost Curve
Q 173. Beyond certain output level, when there is an —
increase in Average Variable Cost (AVC), Average Cost (a) At the left to its lowest point
(AC) also increases due to the reason that — (b) At its lowest point
(a) Fall in AFC is less than the sharp rise in AVC (c) At the right to its lowest point
(b) Fall in AFC is greater than the sharp rise in AVC (d) Any of the above
(c) Fall in AFC is equal to the rise in AVC
(d) None of the above Q 180. When, we know that the Firms must be
producing at the minimum point of the Average Cost
Q 174. Average Cost Curve — Curve and so there will be productive efficiency.
(a) Slopes downwards at first and then upwards (a) AC = AR (b) MC = AC
(b) Slopes upwards, remains constant and then falls (c) MC = MR (d) AR = MR
Slopes downwards always
(c) Remains a straight line parallel to X Axis Q 181. The relationship between the AC and MC is that
(a) MC will always be less than the AC
Q 175. The AC Curve and AVC Curve start increasing at (b) MC will be more than AC when MC is falling
the same output level only. This statement is (c) AC may be more than MC when MC is rising
(a) True (d) None of the above
(b) False
(c) Partially True Q 182. If a Firm's Average Variable Cost Curve is rising,
(d) Nothing can be said its Marginal Cost Curve must be —
(a) Constant
Q 176. The AC Curve passes through the Origin. This (b) Above the Total Cost Curve
statement is — (c) Above the Average Variable Cost Curve.
(a) True (d) All of the above.
(b) False
(c) Partially True Q 183. Which of the following is true of the relationship
(d) Nothing can be said between Marginal Cost and Average Cost Functions?
(a) If MC is greater than AC, then AC is falling
Q 177. Average Cost Curve is a — (b) AC Curve intersects the MC Curve at minimum MC
(a) U Shaped Curve (c) MC Curve intersects the AC Curve at minimum AC
(b) J Shaped Curve (d) If MC is less than AC, then AC is increasing
(c) L Shaped Curve
(d) Straight Line Q 184. Marginal Cost is —
(a) Always less than the Average Cost
Q 178. Average total cost to firm is ₹ 600 when it (b) Always more than the Average Cost
produces 10 units of output and ₹ 640 when the output is (c) Equal to the Average Cost at its minimum point
11 units. The MC of the 11th unit is (d) Never equal to Average Cost
(a) 40 (b) 540
(c) 840 (d) 1040 Q 185. When shape of Average Cost Curve is upward,
Marginal Cost —
(a) Must be decreasing
(b) Must be constant
(c) Must be rising
3.39 | Page
Q 186. The MC Curve cuts the AVC and ATC Curves Q 194.
A Firm producing 7 units of output has an
(a) At the falling part of each. Average Total Cost of ₹ 150 and has to pay ₹ 350 to its
(b) At different points. Fixed Factors of Production whether it produces or not.
(c) At their respective minimas. How much of the Average Total Cost is made up of
(d) At the rising part of each. Variable Costs?
(a) ₹ 200 (b) ₹ 50
Q 187. MC Curve cuts the AVC and ATC Curves — (c) ₹ 300 (d) ₹ 100
(a) From above
(b) From below
(c) Either (a) or (b) Use the following data to answer the following 11.
(d) Neither (a) nor (b) questions
Output (in units) Total Cost (TC) (in Z )
Q 188. When AC falls as a result of an increase in output
0 240
— 1 330
(a) MC = AC (b) MC < AC 2 410
(c) MC > AC (d) Nothing can be said 3 480
4 540
Q 189. MC Curve is lower than AC, when —
5 610
(a) AC decreases 6 690
(b) AC increases 7 840
(c) AC is at its minimum
(d) Nothing can be said Q 195. TFC at all levels of Output is —
(a) Nil (b) 240
Q 190. When AC increases as a result of an increase in
(c) 330 (d) 690
output
(a) MC = AC (b) MC < AC Q 196. AFC for 3 units of Output is —
(c) MC > AC (d) Nothing can be said (a) 240 (b) 120
(c) 80 (d) 60
COST COMPUTATIONS
Q 197. MC for 2nd unit of Output is —
Q 191. A Firm's Average Total Cost is ₹ 300 at 5 units of
(a) Nil (b) 90
output and 320 at 6 units of output. The Marginal Cost of (c) 80 (d) 70
producing the 6th unit is —
(a) ₹ 20 (b) ₹ 120 Q 198. MC for 3rd unit of Output is —
(c) ₹ 320 (d) ₹ 420 (a) Nil (b) 90
(c) 80 (d) 70
Q 192. A Firm has a Variable Cost of 1000 at 5 units
of output. If Fixed Costs are ₹ 400, what will be the Q 199. AC is minimum at units of Output.
Average Total Cost at 5 units of output? (a) 4 (b) 5
(a) ₹ 280 (b) ₹ 60 (c) 6 (d) 7
(c) ₹ 120 (d) 1,400
Q 200. MC Curve will cut AC Curve at units of Output
Q 193. What is the Average Total Cost in producing 20
(a) 4 (b) 5
units, if Fixed Cost is 5,000 and Variable Cost is ₹ 200? (c) 6 (d) 7
(a) ₹250 (b) ₹260
(c) ₹258 (d) ₹252
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(b) SAC with the lowest cost for a particular level of
Q 201. A company produces 10 units of output and incurs output
Z 30 per unit of variable cost and ₹5 per unit of fixed cost. (c) Both (a) and (b)
In this case total cost is: (d) Neither (a) nor (b)
(a) ₹ 300 (b) ₹ 35
(c) ₹ 305 (d) ₹ 350 Q 209. In the long—run, when there are infinite SAC
Curves, the LAC Curve will be —
LONG RUN COST BEHAVIOUR (a) Perpendicular to each SAC Curve
(b) Connecting the lowest points of each SAC Curve
Q 202. The period of time in which the Plant Capacity (c) Smooth Curve, so as to be tangent to each of the SAC
can be varied is known as — Curves
(a) Short Period (b) Market Period (d) All of the above
(c) Long Period (d) All of the above.
Q 210. LAC Curve is tangent to each of the infinite SAC
Q 203. Which is the other name given to the Long Run Curves. This statement is —
Average Cost Curve? (a) True
(a) Profit Curve (b) Planning Curve (b) False
(c) Demand Curve (d) Indifference Curve (c) Partially True
Q 204. Which one of the following is also known as Plant
Curve? Q 211. LAC Curve is the connection of all minimum
(a) Long—Run Average Cost Curve points of SAC Curves. This statement is —
(b) Short—Run Average Cost Curve (a) True
(c) Average Variable Cost Curve (b) False
(d) Average Total Cost Curve (c) Partially True
Q 205. LAC = Least Cost combination for an appropriate
output level. This statement is — Q 212. When LAC Curve is declining, it will be tangent to
(a) True (b) False the
(c) Partially True (d) Nothing can be said (a) Falling portions of the SAC Curves
(b) Rising portions of the SAC Curves
Q 206. In the long—run, the Firm will operate at the for (c) Both (a) and (b)
any output level, by choosing the appropriate Plant Size. (d) Neither (a) nor (b)
(a) Optimum cost
(b) Minimum cost Q 213. When LAC Curve is rising, it will be tangent to the
(c) Maximum cost —
(d) Nothing can be said (a) Falling portions of the SAC Curves
(b) Rising portions of the SAC Curves
Q 207. In the long—run, the Firm will decide on which (c) Both (a) and (b)
SAC Curve it should operate to produce a given (d) Neither (a) nor (b)
output, so that its —
(a) AC is minimum (b) AC is maxmum Q 214. Which of the following statements concerning
(c) MC is minimum (d) MC is maximum the Long—Run Average Cost Curve is false?
(a) It represents the least—cost input combination for
Q 208. In the long—run, the Firm will try to select — producing each level of output
(a) Lowest point of every SAC (b) It is derived from a series of Short—Run Average Cost
Curves
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(c) The Short—Run Cost Curve at the minimum point of (c) Change in Total Revenue (TR) resulting from the sale
the LAC Curve represents the least—cost Plant Size of an additional unit of the commodity.
for all levels of output (d) None of the above
(d) As output increases, the amount of capital employed
by the Firm increases along the Curve. Q 221. Marginal Revenue =
(a) Money which a Firm realises, by selling certain units
Q 215. If the LAC Curve falls as output expands, this falls is of a commodity.
due to — (b) Revenue earned per unit of output
(a) Economies of Scale (c) Change in Total Revenue (TR) resulting from the sale
(b) Law of Diminishing Returns of an additional unit of the commodity.
(c) Diseconomies of Scale (d) None of the above
Q 222. Marginal Revenue is equal to —
Q 216. If the LAC Curve rises as output expands, this falls (a) The change in price divided by the change in output
is due to — (b) The change in quantity divided by the change in price
(a) Economies of Scale (c) hThe change in P x Q due to a one unit change in
(b) Law of Diminishing Returns output
(c) Diseconomies of Scale (d) Price, but only if the Firm is a price searcher
Q 223. The firm will attain equilibrium at a point where
Q 217.
Long Run Average Cost Curves are broadly— MC curve cuts curve from below
(a) U — shaped (a) AR (b) MR
(b) Inverted U — shaped (c) AC (d) AVC
(c) V shaped
(d) L shaped Q 224. Price =
(a) Total Revenue (b) Average Revenue
Q 218. The LAC Curve — (c) Marginal Revenue (d) Zero Revenue
(a) Falls when the LMC Curve falls
(b) Rises when the LMC Curve rises Q 225. If a seller obtains Z 3,000 after selling 50 units
(c) Goes through the lowest point of the LMC Curve and Z 3,100 after selling 52 units then MR will be—
(d) Falls when LMC < LAC and rises when LMC > LAC (a) 59.62 (b) 50.00
(c) 60.00 (d) 59.80
Revenue Concept:
Q 226. When Price is ₹ 10, 5 units can be sold. When
Q 219. Total Revenue = price is reduced to ₹ 9, 6 units can be sold. Here, Marginal
(a) Money which a Firm realizes by selling certain units Revenue will be —
of a commodity. (a) ₹ 10 (b) ₹ 9
(b) Revenue earned per unit of output (c) ₹ 1 (d) ₹ 4
(c) Change in Total Revenue (TR) resulting from the sale
of an additional unit of the commodity. Q 227. When Price is ₹ 5, 40 units can be sold. When
(d) None of the above price is reduced to ₹ 4, 60 units can be sold. Here,
Marginal Revenue will be —
Q 220. Average Revenue = (a) ₹ 120 (b) ₹40
(a) Money which a Firm realizes by selling certain units (c) ₹60 (d) ₹ 2
of a commodity.
(b) Revenue earned per unit of output
3.42 | Page
(c) Slopes upward from left to right
Q 228. If a Seller gets ₹ 10,000 by selling 100 units and ₹ (d) Slopes downward from left to right
14,000 by selling 120 units, his Marginal Revenue is
(a) ₹ 4,000 (b) ₹ 450 Q 236. Generally, as quantity sold increases, Marginal
(c) ₹ 200 (d) ₹100 Revenue (MR) and Average Revenue (AR) Curve —
(a) MR and AR increase
(b) MR and AR decrease
Q 229. When Price = ₹ 20, quantity demanded is 15 (c) MR increases but AR decreases
units, and when Price =ͅ ₹ 18, quantity demanded is 16 (d) MR decreases but MR increases
units. What is the Marginal Revenue resulting from
an increase in output from 15 units to 16 units? Q 237. Let, Marginal Revenue = MR and Average
(a) ₹ 18 negative (b) ₹ 18 positive Revenue = AR. Generally, as quantity sold increases —
(c) ₹ 12 negative (d) ₹ 12 positive (a) MR falls quickly than AR
(b) MR falls slowly than AR
Q 230. As quantity increases, Total Revenue (TR) Curve (c) MR and AR fall at the same rate
— (d) MR and AR do not change
(a) Always increases
(b) Always decreases Q 238. Let, Marginal Revenue = MR and Average
(c) First increases, reaches a maximum, and then Revenue = AR. Generally, as quantity sold increases —
decreases. (a) AR falls quickly than MR
(d) First decreases, reaches a minimum, and then (b) AR falls slowly than MR
increases. (c) AR and MR fall at the same rate
(d) AR and MR do not change
Q 231. If Total Revenue (TR) increases, Marginal
Revenue (MR) will be — Q 239. Marginal Revenue (MR) —
(a) Positive (b) Negative (a) Will have positive values only
(c) Zero (d) Infinity (b) Will have negative values only
(c) Can be positive or zero, but not negative.
Q 232. If Total Revenue (TR) decreases, Marginal (d) Can be positive or zero or even negative.
Revenue (MR) will be —
(a) Positive (b) Negative Q 240. If Marginal Revenue (MR) Curve is depicted on a
(c) Zero (d) Infinity graph with Quantity on X axis —
(a) MR will not go below the X axis.
Q 233. If Total Revenue (TR) is maximum, Marginal (b) MR may go below the X axis.
Revenue (MR) will be — (c) MR cannot be depicted on the graph at all.
(a) Positive (b) Negative (d) None of the above
Q 241. Average Revenue (AR) —
Q 234. Generally, Marginal Revenue (MR) Curve — (a) Will have positive values only
(a) Is parallel to X Axis (b) Will have negative values only
(b) Is parallel to Y Axis (c) Can be positive or zero, but not negative.
(c) Slopes upward from left to right (d) Can be positive or zero or even negative.
(d) Slopes downward from left to right
Q 242. What is the relationship between AR and MR?
Q 235. Generally, Average Revenue (AR) Curve — (a) AR and MR both are negatively sloped
(a) Is parallel to X Axis (b) MR Curves always lies half—way between AR Curve
(b) Is parallel to Y Axis and Origin
3.43 | Page
(c) AR and MR both can be zero or negative
(d) All of these Q 251. If Average Revenue (AR) = Z 30, Demand (e) = 1,
then MR will be —
Q 243. Average Revenue (AR) Curve denotes— (a) Positive (b) Negative
(a) Demand (b) Supply (c) Zero (d) Infinity
Q 252. If Average Revenue (AR) = 300, Price
Q 244. If Average Revenue (AR) Curve is depicted on a Elasticity of Demand (e) = 2.5, then MR will be
graph with Quantity on X axis — (a) 180 (b) 120
(a) AR will not go below the X axis. (c) 300 (d) Nil
(b) AR may go below the X axis.
(c) AR cannot be depicted on the graph at all. PROFIT MAXIMISATION
Q 253. Which is the first order condition for the profit of
Q 245. Which of the following is correct? a Firm to be maximum?
(a) If Marginal Revenue is positive and falling, Total (a) AC = MR (b) MC = MR
Revenue will rise at a decreasing rate. (c) MR = AR (d) AC = AR
(b) Total Revenue is equal to price times the quantity
sold. Q 254. In the short run, as the prices are fixed, Firms can
(c) Marginal Revenue and Average Revenue can be maximize their profit when they operate at
calculated from Total Revenue. (a) MC = MR (b) MC > MR
(d) All of the above. (c) MC < MR (d) MC = AC
Q 246. If Marginal Revenue = MR, Price Elasticity Q 255. If Marginal Cost = MC, and Marginal Revenue =
Demand = è', and e < 1, then MR will be — MR, then, for achieving equilibrium output, the
(a) Positive (b) Negative conditions are —
(c) Zero (d) Infinity (a) MC = MR
(b) MC Curve should cut MR Curve from below.
Q 247. If Marginal Revenue = MR, Price Elasticity of (c) Both (a) and (b)
Demand = 'e', and e > 1, then MR will be — (d) Neither (a) nor (b)
(a) Positive (b) Negative (a) MR Curve.
Q 256. If Marginal Cost = MC, and Marginal Revenue =
Q 248. If Marginal Revenue = MR, Price Elasticity of MR, and MC < MR, the Firm should —
Demand = è', and e = 1, then MR will be — (a) Increase its output.
(a) Positive (b) Negative (b) Reduce its output
(c) Zero (d) Infinity (c) Operate at the present level itself.
(d) Should shut down.
Q 249. If Marginal Revenue = MR, Price Elasticity of
Demand = è', and MR = 0, e will be Q 257. What should Firm do when Marginal Revenue is
(a) e > 1 (b) e < 1 greater than Marginal Cost?
(c) e = 1 (d) e = zero (a) Firm should expand output
(b) Efforts should be made to make then equal
Q 250. If Average Revenue (AR) = ₹ 30, Price Elasticity of (c) Prices of the products should be lowered down
Demand (e) = 1.5, then MR will be (d) All of the above
(a) ₹ 10 (b) ₹ 20
(c) ₹ 30 (d) ₹ Nil
3.44 | Page
Q 258. If Marginal Cost = MC, and Marginal Revenue = Q 265. When a Market is in equilibrium —
MR, and MC > MR, the Firm should — (a) No shortages exist.
(a) Increase its output (b) Quantity demanded equals quantity supplied.
(b) Reduce its output (c) A price is established that clears the market.
(c) Operate at the present level itself (d) All of the above are correct.
(d) Should shut down
Q 266. Profits of the Firm will be more at —
Q 259. If Marginal Cost = MC, and Marginal Revenue =
(a) MR = MC
MR, then, for achieving equilibrium output — (b) AR > AC
(a) MC Curve should have positive slope (c) Both of the above
(b) MC Curve should have negative slope (d) None of these
(c) MC Curve should be parallel to X Axis
(d) MC Curve should be parallel to Y Axis Q 267. Let Average Cost = AC, and Average Revenue =
AR. If AR > AC, it means that the Firm —
Q 260. Let Marginal Cost = MC, and Marginal Revenue (a) Is earning Super—Normal Profits
MR. If MC Curve cuts MR from above, it means — (b) Is earning Normal Profits
(a) MC Curve is parallel to X Axis (c) Is making Losses
(b) MC Curve is parallel to Y Axis (d) Has to shut—down
(c) MC Curve has a negative slope
(d) MC Curve has a positive slope Q 268. Let Average Cost = AC, and Average Revenue =
AR. If AR = AC, it means that the Firm —
Q 261. Let Marginal Cost = MC, and Marginal Revenue = (a) Is earning Super—Normal Profits
MR. If MC Curve cuts MR from above, it means — (b) Is earning Normal Profits
(a) Firm is at equilibrium output level. (c) Is making Losses
(b) Firm is below equilibrium output level. (d) Has to shut—down
(c) Firm is above equilibrium output level.
(d) Firm does not operate at all. Q 269. Let Average Cost = AC, and Average Revenue =
AR. If AR < AC, it means that the Firm —
Q 262. Let Marginal Cost = MC, and Marginal Revenue (a) Is earning Super—Normal Profits
MR. If MC Curve cuts MR from below, it means — (b) Is earning Normal Profits
(a) Firm is at equilibrium output level. (c) Is making Losses in the economic sense
(b) Firm is below equilibrium output level. (d) Has to shut—down.
(c) Firm is above equilibrium output level.
(d) Firm does not operate at all. Q 270. Which of the following statements is incorrect?
(a) If Marginal Revenue exceeds Marginal Cost, the Firm
Q 263. If any unit of production adds more to revenue should increase output.
than to cost it will result into — (b) If Marginal Cost exceeds Marginal Revenue the Firm
(a) Increase in Profit (b) Decrease in Profit should decrease output.
(c) No change (d) Loss (c) Economic Profits are maximized when Total Costs
are equal to Total Revenue.
Q 264. If any unit of production adds more to cost than
(d) Profits are maximized when Marginal Revenue
to revenue it will result into — equals Marginal Cost.
(a) Increase in Profit (b) Decrease in Profit
(c) No change (d) Loss Q 271. Suppose that a Sole Proprietorship Firm is
earning Total Revenues of ₹ 120,000 and is incurring
Explicit Costs of ₹ 90,000. If the Owner could work for
3.45 | Page
another Company for ₹ 50,000 a year, we would conclude
that Q 277. If AR < AVC and the Firm continues production,
(a) The Firm is incurring an Economic Loss then
(b) Implicit Costs are ₹ 90,000 (a) Losses will be reduced (b) Profits will be reduced
(c) The total Economic Costs are ₹ 100,000 (c) Losses will increase (d) Profits will increase
(d) The Individual is earning an Economic Profit of
₹25,000 Q 278. If AR < AVC and the Firm stops production, then
—
Q 272. Suppose that a Sole Proprietorship is earning (a) There is no profit no loss
Total Revenue of ₹ 1,50,000 and is incurring Explicit Costs (b) There is a Loss equivalent to Fixed Costs
of ₹75,000. If the Owner could work for another Company (c) There is a Profit
for ₹30,000 a year, it can be concluded that (d) None of the above
(a) The Firm is incurring an Economic Loss
(b) Implicit Costs are ₹ 25,000 Q 279. In the short run, if the Firm cannot cover its Total
(c) Total Economic Costs are ₹1,00,000 Variable Cost —
(d) The individual is earning an economic profit of ₹ (a) It continues its operations
45,000 (b) It shuts down its operations temporarily
(c) It shuts down its operations forever
Q 273. Suppose the Total Cost of Production of (d) It makes more investments to make the operations
Commodity X is ₹ 1,25,000. Out of this Cost, Implicit Cost viable
is ₹ 35,000 and Normal Profit is ₹25,000. What will be the
Explicit Cost of Commodity X? Q 280. A Firm encounters its "Shut—Down Point"
(a) ₹ 90,000 (b) ₹ 65,000 when—
(c) ₹60,000 (d) ₹ 1,00,000 (a) Average Total Cost equals price at the profit—
maximizing level of output.
Q 274. If the Total Product Cost for manufacturing of a (b) Average Variable Cost equals Price at the profit—
commodity is ₹1,50,000. Out of this, Implicit Cost is ₹ maximizing level of output.
55,000 and Normal Profit is₹ 25,000, what will be Explicit (c) Average Fixed Cost equals price at the profit-
Cost? maximizing level of output.
(a) ₹95,000 (b) ₹ 1,25,000 (d) Marginal Cost equals Price at the profit-maximizing
(c) ₹ 80,000 (d) ₹70,000 level of output.
SHUT DOWN POINT Q 281. "I am making a loss, but with the rent I have to
pay, I can't afford to shut down at this point of time." If
Q 275. Let Average Variable Cost = AVC, and Average this Entrepreneur is attempting to maximize profits or
Revenue = AR. If AR < AVC, it means that the Firm minimize losses, his behaviour in the short-run is
(a) Is earning Super—Normal Profits (a) Rational, if the Firm is covering its Variable Cost.
(b) Is earning Normal Profits (b) Rational, if the Firm is covering its Fixed Costs.
(c) Is making Losses but need not shut—down (c) Irrational, since Plant Closure is necessary to
(d) Has to shut—down eliminate losses.
(d) Irrational, since Fixed Costs are eliminated if a Firm
Q 276. Which of these is a condition for shut—down of shuts down.
a Firm?
(a) AR > AVC (b) AR > AC Q 282. At Shut-Down Point -
(c) AR < AC (d) AR < AVC (a) Price is equal to AVC
(b) Total Revenue is equal to TVC
(c) Total Loss of the Firm is equal to TFC
3.46 | Page
Q 287. When Production is 10 units, AVC will be -
Q 283. In the long-run, if the Firm is unable to cover the (a) ₹ 50.00 (b) ₹ 47.00
Average Total Cost then it - (c) ₹ 46.67 (d) ₹ 49.00
(a) Decreases the Selling Price
(b) Increases the Labour to increase production Q 288. When Production is 10 units, AC will be -
(c) Decreases the Labour to decrease prediction (a) ₹ 50.00 (b) ₹ 97.00
(d) Moves out of the business (c) ₹ 77.00 (d) ₹ 110.00
Q 284. Q 289. When Production is 20 units, AVC will be -

In the long-run, any Firm will eventually leave the
industry if - (a) ₹50.00 (b) ₹ 47.00
(a) Price does not at least cover Average Total Cost (c) ₹ 46.67 (d) ₹ 49.00
(b) Price does not equal Marginal Cost
(c) Economies of Scale are being reaped Q 290. When Production is 40 units, AC will be -
(d) Price is greater than Long Run Average Cost (a) ₹85.00 (b) ₹82.50
(c) ₹ 92.50 (d) ₹95.00
Q 285. In the long-run, Firms will exit the market if the
price of the good offered for sale is less than - Q 291. When Production is 50 units, AVC will be -
(a) Marginal Revenue (b) Marginal Cost (a) ₹ 100.00 (b) ₹ 110.00
(c) Average Total Cost (d) Average Revenue (c) ₹ 119.00 (d) ₹ 125.00
Q 286. In the long run, there is enough time for the Firm Q 292. AC is minimum when output is -
to cover its Losses and earn Normal Profits. This is (a) 10 units (b) 20 units
because in the long run, all inputs are - (c) 30 units (d) 40 units
(a) Identical (b) Homogenous
(c) Variable (d) Fixed Q 293. MC Curve will cut AC Curve when output is -
COMPREHENSIVE PROBLEMS
A Competitive Firm sells as much as of its product as it Q 294.

To maximize Profit, the Firm should produce -
chooses at a Market Price of 2100 per unit. Its Fixed
Costs are 2300 and its Variable Costs for different
levels of production are shown in the following table.
Use the following table and answer the next 14
Use Table to answer the following 4 questions.
questions
Bozzo's burgers is a small restaurant and a price taker.
Quantity TVC TFC TC AVC AFC AC MC The table below provides the data of Bozzo's output
0 0
and costs in Rupees.
5 250
Qty TC FC AVC AC MC
10 470
0 100 - - -
15 700
10 210
20 980
20 300
25 1350
30 400
30 1850
40 540
35 2520
50 790
40 3400
60 1060
45 4530
50 5950
3.47 | Page
Q 295. If burgers sell for Rs14 each, what is Bozzo's profit Q 300. When production equals 5 units, the firm's Total
maximizing level of output : Revenue is:
(a) 10 burgers (b) 40 burgers (a) ₹ 100 (b) ₹ 270
(c) 50 burgers (d) 60 burgers (c) ₹ 324 (d) ₹ 500
Q 296. What is the total variable cost when 50 burgers Q 301.

When production equals 6 units, the firm's
are produced? marginal revenue is:
(a) ₹ 690 (b) ₹960 (a) ₹ 384 (b) ₹ 94
(c) ₹110 (d) ͅ₹440 (c) ₹ 64 (d) ₹ 2.
Q 297. Q 302. When production equals 7 units, the firm's profit is:
What is average fixed cost when 20 burgers are
produced? (a) +6₹ 0 (b) ₹ 41.57
(a) ₹ 5 (b) ₹3.33 (c) ₹ 291 (d) ₹ 336
(c) ₹ 10 (d) ₹ 2.5
Q 303. To maximize its profit, the firm should produce:
Q 298. Between 10 to 20 burgers, what is the marginal (a) 0 units. (b) 3 units.
cost (per burger)? (c) 5 units. (d) 7 units.
(a) ₹ 11 (b) ₹ 13
(c) ₹ 14 (d) ₹ 9 Production optimization
Use Table to answer the following 5 questions. Q 304. The term "Iso" means —
The following table provides cost and price information (a) Single (b) Unequal
for an individual firm. The first two columns represent the (c) Equal (d) Similar
demand curve that the firm faces. The firm has a fixed
amount of capital equipment, but can change the level of Q 305. Isoquant represents
other inputs. such as labour and materials. Calculate the (a) Constant quantity of input
missing values in the table, and use the table to answer (b) Variable quantity of input
the below questions. (Make sure you answer each (c) Variable quantity of output
question using the production level specified.) (d) Constant quantity of output
Q P TC TVC MC TR MR
Q 306.
0 130 45 represents all those combinations of inputs which
1 124 88 are capable of producing the same level of output.
2 118 125 (a) Isoquant (b) Isocost
3 112 159
(c) Isoprice (d) None of the above
4 106 193
5 100 230 Q 307. Isoquants are also called —
6 94 273
7 88 325 (a) Equal—Product Curves
8 82 389 (b) Production Indifference Curves
9 76 465 (c) Isoproduct Curves
(d) All the above
Q 299.
When production equals 4 units, the firm's:
Q 308. Isoquants
(a) Fixed cost is 100 and its variable cost is 93.
(b) Fixed cost is 193 and its variable cost is 0. (a) Are concave to the origin
(c) Fixed cost is 0 and its variable cost is 193, (b) Touched both the axis
(d) Fixed cost is 45 and its variable cost is 148. (c) Are non—intersecting
(d) Are positively sloped
3.48 | Page
(d) highest—cost combination of inputs and minimum
Q 309. Isocost Lines are also called — level of output that can be produced
(a) Equal cost Lines
(b) Budget Line - Q 313. A line joining tangency points of Isoquants and
(c) Budget constraint Line Isocosts is called
(d) All the above (a) Expansion Path (b) Contraction Path
(c) Constant Path (d) None of the above
Q 310. shows the various alternative combinations of
two Factor Inputs, which a Firm can buy with given Q 314. For Having economics losses, the condition is
amount of money. ________ at the point when MC = MR (MC cutting from
(a) Isocost Lines (b) Isoproduct Lines below)
(c) Isoprice Lines (d) Isoquant lines (a) AR > AC (b) AR = AC
(c) AR < AC (d) None of the above
Q 311. Which of the following statements is true?

(a) All points on a Budget Line would cost the Firm the
same amount. Q 315. The Average Profit is the difference between :--
(b) Whatever the combination of Factor Inputs the Firm --
chooses, the Total Cost to the Firm remains the (a) AC and TC (b) AC and VC
same. (c) AC and AR (d) AC and TR
(c) A change in the relative Input Price will cause a
change in the slope of the Isocost Line.
(d) All the above
Q 312. The point of tangency between any Isoquant and

an Isocost Line gives the
(a) highest—cost combination of inputs and maximum
level of output that can be produced
(b) lowest—cost combination of inputs and minimum
(c) lowest—cost combination of inputs and maximum
3.49 | Page
Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n
1 C 51 D 101 B 151 B 201 D 251 C 301 C
2 D 52 D 102 A 152 D 202 C 252 B 302 C
3 D 53 C 103 A 153 D 203 B 253 B 303 D
4 A 54 A 104 A 154 B 204 B 254 A 304 C
5 A 55 B 105 A 155 D 205 A 255 C 305 D
6 C 56 B 106 B 156 B 206 B 256 A 306 A
7 A 57 B 107 D 157 B 207 A 257 A 307 D
8 B 58 D 108 B 158 D 208 B 258 A 308 C
9 B 59 C 109 A 159 A 209 C 259 A 309 D
10 B 60 B 110 AC 160 B 210 A 260 C 310 A
11 C 61 C 111 D 161 C 211 B 261 B 311 D
12 D 62 A 112 D 162 A 212 A 262 B 312 C
13 A 63 D 113 D 163 C 213 B 263 A 313 A
14 D 64 B 114 A 164 B 214 B 264 A 314 C
15 A 65 D 115 A 165 B 215 A 265 D 315 C
16 C 66 D 116 B 166 A 216 C 266 C
17 D 67 D 117 C 167 A 217 A 267 A
18 B 68 C 118 C 168 B 218 D 268 B
19 C 69 D 119 A 169 C 219 A 269 C
20 D 70 C 120 C 170 C 220 B 270 C
21 A 71 A 121 A 171 A 221 C 271 A
22 C 72 B 122 C 172 B 222 C 272 D
23 C 73 C 123 B 173 A 223 B 273 B
24 A 74 D 124 C 174 A 224 B 274 D
25 A 75 B 125 C 175 B 225 B 275 D
26 B 76 C 126 A 176 B 226 D 276 D
27 C 77 A 127 B 177 A 227 B 277 C
28 D 78 C 128 A 178 D 228 C 278 B
29 C 79 A 129 B 179 B 229 C 279 B
30 D 80 B 130 D 180 B 230 C 280 B
31 D 81 B 131 B 181 C 231 A 281 A
32 B 82 A 132 A 182 C 232 B 282 D
33 A 83 B 133 C 183 C 233 C 283 D
34 B 84 C 134 B 184 C 224 D 284 A
35 A 85 A 135 A 185 C 235 D 285 C
36 D 86 B 136 B 186 C 236 B 286 C
37 A 87 D 137 A 187 B 237 A 287 B
38 A 88 B 138 A 188 B 238 B 288 C
39 D 89 B 139 B 189 A 239 D 289 D
40 C 90 A 140 B 190 C 240 B 290 C
41 A 91 A 141 B 191 D 241 C 291 C
42 B 92 B 142 C 192 A 242 D 292 B
43 A 93 D 143 A 193 B 243 A 293 B
44 A 94 C 144 B 194 D 244 A 294 B
45 A 95 C 145 D 195 B 245 D 295 C
46 B 96 A 146 A 196 C 246 B 296 A
47 A 97 B 147 C 197 C 247 A 297 A
48 A 98 B 148 B 198 D 248 C 298 D
49 C 99 C 149 B 199 D 249 C 299 D
50 B 100 A 150 A 200 C 250 A 300 D
3.52 | Page
Chapter 3- Production + Cost + Revenue (d) Decreasing average fixed costs
Concepts Q.9. If the marginal product of labour is below the

average product of labour, it must be true that:
(a) Marginal product of labour is negative
Q.1. ________ shows the overall output generated at a
(b) Marginal product of labour is zero
given level of input:
(c) Average product of labour is falling
(a) Cost function
(d) Average product of labour is negative
(b) Production function 0
(c) ISO cost
Q.10. Law of variable proportion is valid when:
(d) Marginal rate of technical substitution
(a) Only one input is fixed and all other inputs are kept
variable
Q.2. If LAC curve falls as output expands, this is due to
(b) All factors are kept constant
_______.
(c) All inputs are varied in the same proportion
(a) Law of diminishing returns
(d) None of these
(b) Economics of scale
(c) Law of variable proportion
Q.11. Change in total revenue due to incremental
(d) Dis-economics of scale
change in quantity supplied is called:
(a) Marginal Revenue (b) Marginal Change
Q.3. Isoquants are equal to:
(c) Average Revenue (d) Average Change
(a) Product Lines (b) Total utility lines
(c) Cost lines (d) Revenue lines
Q.12. Increase in all input leading to less than
proportional increase in output is called ______,
Q.4. The marginal product curve is above the average
(a) Increasing returns to scale
product curve when the average product is:
(b) Decreasing returns to scale
(a) Increasing (b) Decreasing
(c) Constant returns to scale
(c) Constant (d) None
(d) Both increasing and decreasing returns to scale
Q.5. Increasing returns to scale can be explained in

Q.13. Consider the following combinations of inputs and
terms of:
outputs:
(a) External and internal economies
This production technology satisfies
(b) External and internal diseconomies
Labour Capital Output
(c) External economics and internal diseconomies
(d) All of these 5 10 1
6 12 2
Q.6. [6] An isoquant is ______ to an isocost line at the 7 14 3
equilibrium point: 8 16 4
(a) Convex (b) Concave 9 18 5
(c) Tangent (d)Perpendicular 10 20 6
Q.7. At the point of inflexion, the marginal product is: (a) Increasing returns to scale
(a) Increasing (b) Decreasing (b) Diminishing returns to scale
(c) Maximum (d) Negative (c) Constant returns to scale
(d) Increasing returns initially, following by decreasing
Q.8. Diminishing marginal returns implies: returns to scale.
(a) Decreasing average variable costs
(b) Decreasing marginal costs
(c) Increasing marginal costs Q.14. During 𝐼𝐼 𝑛𝑑 stage of law of diminishing returns:
3.53 | Page
(a) P and TP is maximum (d) Any economic activity at a point of time
(b) MP and AP are decreasing
(c) AP is negative Q.23. Labour force wants more
(d) TP is negative (a) facility (b) leisure
(c) benefit (d) all of the above
Q.15. Who has given the concept of Innovative
Entrepreneurship? Q.24. Production activity in the short-run is analysed by:
(a) Robbins (b) Adam Smith (a) Returns to scale (b) Economies of scale
(c) Schumpeter (d) Sweezy (c) Law of variable proportion (d) None of these
Q.16. AT 10 units Total Cost 一 ₹200 Q.2 5. Increasing returns to scale occurs due to:
20 units Total Cost 一 ₹600 (a) Economies of scale (b) Specialization
Marginal Cost = ? (c) Indivisibility of factors (d) All of these
(a) 50 (b) 40
(c) 30 (d) 400 Q.26. Law of diminishing returns is applicable in
(a) Only manufacturing industries
Q.17. Average Fixed Cost = ₹20 (b) Only agriculture
Quantity Produced = ₹10 units (c) Neither in agriculture nor in industries
What will be the Average Fixed Cost of 20 ͭ ͪ unit? (d) In all economic activities after a limit mark
(a) ₹10 (b) ₹20
(c) ₹5 (d) None Q.27. Law of increasing returns is applicable because of
(a) Indivisibility of factors (b) Specialization
Q.18. What is Production in Economics: (c) Economies of scale (d) Both (a) and (b)
(a) Creation / Addition of Utility
(b) Production of food grains Q.28. When output decreases by 20% due to an
(c) Creation of services increase in inputs by 20%, this stage is called the law of
(d) Manufacturing of goods (a) increasing returns to scale
(b)decreasing returns to scale
Q.19. External Economies of Scale are obtained by: (c) constant returns to scale
(a) A firm (b) A group of firm (d)none of the above
(c) Small Production (d) Society
Q.29. In the first stage of the law of variable
Q.20. If a firm’s output is zero, then: proportions, the total product increases at the
(a) AFC will be positive (b) AVC will be zero (a) decreasing rate (b) increasing rate
(c) Both of (a) and (b) (d) None of (a) and (c) constant rate (d) both a and b
Q.21. Functions of the entrepreneur are: Q.30. What will be the total product when two
(a) Risk bearing labourers are hired according to the table given below?
(b) Initiating a business enterprise and resource co- No. of
MP Total product
ordinating labourers
(c) Introducing new innovations 0 -- --
1 350 350
2 230 ?
Q.22. Law of diminishing returns is applicable in: (a) 680 (b) 580
(a) Manufacturing industry (c) 350 (d) 230
(b) Agriculture
(c) Neither (a) nor (b)
3.54 | Page
Q.38. Production activity in the short period is analysed
Q.31. Which function shows the relationship between with the help of:
input and output? (a) Law of variable proportion
(a) Consumption fun ction (b) Laws of returns to scale
(b) Investment function (c) Both (a) & (b)
(c) Production function (d) None of the above.
(d) Cost function
Q.39. Which of the following is the reason for the
Q.32. External economies are enjoyed: working of the law of increasing returns?
(a) By large producers only (a) Fuller utilisation of fixed factors
(b) As the firm expands (b) indivisibility of the factors
(c) Both (a) and (b) (c) Greater specialization of labour
(d) None of above (d) All of the above.
Q.33. The Law of Diminishing Returns is applicable in Q.40. External economies can be achieved through:
_______. (a) Foreign trade only
(a) only in manufacturing industries (b) Superior managerial skill
(b) only in agriculture (c) Extension of transport and credit facilities
(c) neither in agriculture nor in industries (d) External assistance.
(d) all economic activities after a point
Q.41. External economies arise due to:
Q.34. The concept of Returns to Scale is related to: (a) Growth of ancillary industries
(a) Very short period (b) Short period (b) High cost of technologies
(c) Long period (d) None of above (c) Increase in the price of factors of production
(b) None of the above.
Q.35. The function of an entrepreneur is:
(a) Initiating an enterprise and resource coordination Q.42. Innovation theory of entrepreneurship is
(b) Risk bearing propounded by:
(c) Introducing innovations (a) Knight (b) Schumpeter
(d) All of the above (c) Max Weber (d) Peter Drucker
Q.36. Which of the following is not a characteristic of Q.43. Production function is:
land? (a) Purely a technical relationship between input &
(a) It is a free gift of nature output
(b) It is a mobile factor of production (b) Purely an economic relationship between input &
(c) It is limited in quantity output
(d) Its productive power is indestructible. (c) Both the technical & economical relationship
between input & output
Q.37. A production function is defined as the (d) None of the above.
relationship between
(a) The quantity of physical inputs and physical output Q.44. The concept of returns to scale is related with:
of a firm (a) Very short period (b) Short period
(b) Stock of inputs and stock of output (c) Long period (d) None of the above
(c) Prices of inputs and output
(d) Price and supply of a firm. Q.45. In Cobb-Douglas production function, two inputs
are:
(a) Land and Labour
3.55 | Page
(b) Labour and Capital mark (b) Creation of utility in matter
(c) Capital and Entrepreneur (c) Creation of infrastructural facilities
(d) Entrepreneur and land (d) None of the above.
Q.46. Which one of the following is not a characteristic Q.52. Long period production function is related to:
of land? (a) Law of variable proportions
(a) A free gift of nature (b) Laws of returns to scale
(b) Its supply is fixed (c) Law of diminishing returns
(c) An active factor of production (d) None of the above.
(d) It has different uses.
Q.53. The conclusion drawn from Cobb-Douglas
Q.47. An Entrepreneur undertakes which one of the production function is that labour contributed about
following functions? _____ and capital about ______ of the increase in the
(a) Initiating a business and resource co-ordination manufacturing production.
(b) Risk or uncertainty bearing 3𝑡ℎ 1𝑡ℎ 11
(a) 4
, 4 (b) 2,2
(c) Innovations
1𝑡ℎ 3𝑡ℎ
(d) All of the above. (c) 4
, 4 (d) None of the above.
Q.48. With a view to increase his production, Hariharan Q.54. ISO quants are also known as:
a manufacturer of shoes, increases all the factors of (a) Production possibility curves
production in his unit by 100%. But at the end of the (b) Indifference curves
year, he finds that instead of an increase of 100%, his (c) Production indifference curves
production has increased by only 80%. Which law of (d) None of the above.
returns to scale is operating in this case?
(a) Increasing returns to scale Q.55. Human capital refers to:
(b) Decreasing returns to scale (a) Savings by individuals
(c) Constant returns to scale (b) Mobilisation of savings
(d) None of the above. (c) Human skills and abilities
(d) Productive investment.
Q.49. Linear homogeneous production function is based
on: Q.56. The Law of Variable Proportions is associated
(a) Increasing returns to scale with:
(b) Decreasing returns to scale (a) Short period
(c) Constant returns to scale (b) Long period
(d) None of the above (c) Both short and long periods
(d) Neither short nor long period.
Q.50. Which of the following statement is true in
relation to an ISO-Quant Curve? Q.57. Which one of the following statements is not
(a) It represents those combinations of two factors of correct?
production that will give the same level of output (a) Land has indestructible powers
(b) It represents those combinations of all the factors (b) Labour is mobile
that will give the same level of output (c) Capital is nature’s gift mark
(c) It slopes upward to the right (d) Land is a passive factor.
(d) It can touch either axis.
Q.58. Which of the following is not a characteristic of
Q.51. Production is defined as: labour?
(a) Creation of matter (a) It is perishable
3.56 | Page
(b) It has weak bargaining power (d) None of the above.
(c) Labour and Labour power cannot be separated
(d) Labour is not mobile Q.66. The conclusion drown from Cobb Douglas
production function is that labour contributed about
Q.59. Which among the following is not a characteristic ______ and capital about _______ of the increase in the
of Land? manufacturing production.
(a) It is an active factor 3𝑡ℎ 1𝑡ℎ 1𝑡ℎ 1𝑡ℎ
(a) 4
, 4 (b) 2
, 2
(b) It has variety of uses
1𝑡ℎ 3𝑡ℎ
(c) Its production powers are indestructible (c) 4
, 4 (d) None of the above.
(d) Its supply is limited
Q.67. At the point of inflexion, the marginal product is:
Q.60. When average product rises as a result of an (a) Increasing (b) Decreasing
increase in the quantity of variable factor, marginal (c) Maximum (d) Negative
product is:
(a) Equal to average product Q.68. Isoquante’s are equal to:
(b) More than average product (a) Product lines (b) Total utility lines
(c) Less than average product (c) Cost lines (d) Revenue lines
(d) Becomes negative
Q.69. Increasing returns to scale can be explained in
Q.61. Suppose the first four units of a variable input terms of:
generate corresponding total output of 150, 200, 350, (a) External and internal economics
550. What will be the marginal product of the third unit (b) External and internal diseconomies
of input? (c) External economies and internal diseconomies (d) All
(a) 50 (b) 100 of these.
(c) 150 (d) 200
Q.70. According to Cobb-Douglas production function,
Q.62. The famous Cobb-Douglas production function is will get returns to scale?
based on studies of ______ industries in the United (a) Constant (b) Diminishing
States of America. (c) Increasing (d )Any of the above
(a) manufacturing (b) construction
(c) consumer (d) aviation. Q.71. Which of the following statement about factors of
production is not true?
Q.63. In Economics, entire process of is nothing but (a) Land is a passive factor
creation of utilities in the form of goods and services. (b) Land is a free gift of nature
(a) Consumption (b) Production (c) Land is immobile
(c) Exchange (d) Distribution. (d) Land is perishable
Q.64. Cobb Douglas function is given by Q = 𝐾𝐿𝑎 𝐶 𝑏 Q.72. Which of the following is considered as production
(a) If α + β > 1, increasing returns in economics?
(b) If α + β > 1, increasing returns to scale (a) Helping a blind person in crossing the road
(c) If α + β < 1, diminishing returns (b) Group dance performance in a collage annual
(d) If «+ B = 1, decreasing returns to scale. function
(c) Holding a child who is falling from a wall
Q.65. Production is defined as: (d) Performing an art in a theatre
(a) Creation of matter
(b) Creation of utility in matter
(c) Creation of infrastructural facilities
3.57 | Page
Q.73. Marginal, average and total product of a firm in Q.79. Opportunity cost is:
the short run will not comprise with (a) Direct cost
(a) When marginal product is at a maximum, average (b) Total cost
product is equal to marginal product, and total (c) Accounting cost
product is rising (d) Cost of foregone opportunity
(b) When average product is maximum, average product
is equal to marginal product, and total product is Q.80. As output increases, average fixed cost:
rising (a) Remains constant (b) Starts falling
(c) When marginal product is negative,total product and (c) Start rising (d) None
average product are falling
(d) When total product is increasing, average product Q.81. Average fixed cost can be obtained through :
and marginal product may be either rising or falling 𝑇𝐹𝐶 𝐸𝐶
(a) 𝐴𝐹𝐶 = 𝑇𝑆
(b) 𝐴𝐹𝐶 = 𝑇𝑈
𝑇𝐶 𝑇𝐹𝐶
(c) 𝐴𝐹𝐶 = 𝑃𝐶
(d) 𝐴𝐹𝐶 = 𝑇𝑈
Q.74. Supply of land is ______ in case of economy?
(a) Elastic (b) Inelastic
(c) Perfectly elastic (d) Perfectly inelastic Q.82. AFC curve is :
(a) Convex & downward sloping
(b) Concave & downward sloping
Q.75. MP is the slope of ______. (c) Convex & upward sloping
(a) TP (b) AP (d) Concave & upward rising
(c) Both (d) None
Q.83. A firm's average fixed cost is ₹20 at 6 units of
For Questions [77] - [79] used the data table given output what will it be at 4 units of output?
below : (a) ₹60 (b) ₹30
No of Total Marginal (c) ₹40 (d) ₹20
workers output output
0 0 0 Q.84. U-shaped average cost curve is based on:
1 10 - (a) Law of increasing cost
2 - 8
(b) Law of decreasing cost
3 24 -
(c) Law of constant returns to scale
(d) Law of variable proportions
Q.85. When shape of average cost curve is upward,

marginal cost :
(a) Must be decreasing (b) Must be constant
Q.76. What will be total output for 2 workers? (c) Must be rising (d) Any of these
(a) 6 (b) 18
(c) 12 (d) 17 Q.86. If total cost at 10 units is ₹600 and ₹640 for 11th
unit. The marginal cost of 11th units :
Q.77. What will be marginal output for 3 workers? (a) ₹20 (b) ₹30
(a) 6 (b) 12 (c) ₹40 (d) ₹50
(c) 7 (d) 8
Q.87. Economic cost excludes which of the following :
Q.78. Average Product for three labour: (a) Accounting cost + explicit cost
(a) 12 (b) 11 (b) Accounting cost + implicit cost
(c) 8 (d) None (c) Explicit cost + implicit cost
(d) Accounting cost + opportunity cost
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(c) ₹90 (d) ₹80
Q.88. Which of the following cost curves is never ‘U’
shaped? Q.95. Returns to scale will said to be in operation when
(a) Average total cost curve quantity of :
(b) Marginal cost curve (a) All inputs are changed
(c) Total cost curve (b) All inputs are changed in already established
(d) Total Fixed cost curve proportion
(c) All inputs are not changed
Q.89. Suppose, the total cost of production of (d) One input is changed while quantity of all other
commodity X is ₹1,25,000. Out this cost implicit cost is inputs remain the same
₹35,000 and normal profit is ₹25,000. What will be the
explicit cost of commodity X? Q.96. Which of the following curves never touch any axis
(a) 90,000 (b) 65,000 but is downward?
(c) 60,000 (d) 1,00,000 (a) Marginal cost curve
(b) Total cost curve
Q.90. What is the total cost of production of 20 units, if (c) Average fixed cost curve
fixed cost is ₹5,000 and variable cost is ₹2 ? (d) Average variable cost curve
(a) 5,400 (b) 5,040
(c) 4,960 (d) 5,020 Q.97. Which of the following is known as Envelope
curve?
Q.91. External economies accrue due to _______ (a) MC curve (b) AFC curve
(a) Increasing returns to scale (c) LAC curve (d) TFC curve
(b) Increasing returns to factor
(c) Law of variable proportion Q.98. A firm producing 7 units of output has an average
(d) Low cost total cost of ¥ 150 and has to pay ¥ 350 to its fixed
factors of production. How much of the average total
Q.92. At which point does the marginal cost curve cost is made up of variable cost?
intersect the average variable cost curve and short run (a) ₹200 (b) ₹50
average total cost curve? (c) ₹300 (d) ₹100
(a) At equilibrium points
(b) At their lowest points Q.99. Firm’s average fixed cost is ₹20 at 6 units of
(c) At their optimum points output. What will it be at units of output?
(d) They don’t intersect at all (a) ₹60 (b) ₹30
(c) ₹40 (d) ₹20
Q.93. Implicit cost may be defined as the:
(a) Costs which do not change over a period of time Q.100.
(b) Costs which the firm incurs but doesn’t disclose Output (Units) Total Cost
(c) Payment to the non-owners of the firm for the 0 30
resources 1 40
(d) Money payment which the self employed resources 2 50
could have earned in their best alternative 3 60
employment
Find Average Fixed Cost of 3 units
Q.94. A firm's average fixed cost is ¥ 40 at 12 units. (a) 10 (b) 30
What will be the average fixed cost at 8 units: (c) 65 (d) 60
a) ₹60 (b) ₹70
Q.101. Long run does not have:
3.59 | Page
(a) Average Cost (b) Total Cost (c) 17 (d) 30
(c) Fixed Cost (d) Variable Cost
Q.109. The total cost of production of 10 units is ₹200.
When production is increased to 20 units its total cost
becomes ₹600. What will be its marginal cost.
Q.102. Which of the following curve is not U shaped? (a) 400 (b) 40
(a) AFC (b) AVC (c) 4 (d) 30
(c) MC (d) TC.
Q.110.
Q.103. From the following details, find out the average Unit 0 1 2 3 4
variable cost of 10 units: Total Cost 20 30 40 50 60
Output 0 10 20
Total Cost ₹200 ₹400 ₹800 What will be the AFC at 4 units of output.
(a) 2 (b) 3
(a) ₹40 (b) ₹20 mark (c) 4 (d)5
(c) ₹200 (d) ₹400
Q.111. Payment made to outsiders for their goods and
Q.104. The total cost incurred for 10 units is ¥ 400 and services are called:
20 units is ¥ 800. Find the marginal cost. (a) Opportunity cost (b)Real cost
(a) ₹400 (b) ₹40 (c) Explicit cost (d) Implicit cost
(c) ₹200 (d) ₹20
Q.112.Direct Cost is also known as:
Q.105.Which one of the following is correct? (a) Indirect Cost (b) Traceable Cost
(a) AFC = AVC + ATC (c) Opportunity Cost (d) Accounting Cost.
(b) ATC = AFC - AVC
(c) AVC = AFC + ATC Q.113. Firms AFC is ₹200 at 10 units of output what will
(d) AFC = ATC - AVC. be it at 20 units of output?
(a) 500 (b) 100
Q.106. Calculate AFC of 3 units from the following data: (c) 150 (d) 200
Unit 0 1 2 3
Total Cost 30 40 50 60 Q.114. Long run price is also called by the name of
______.
(a) 30 (b) 15 (a) market price (b) normal price
(c) 10 (d) 5 (c) administered price (d) wholesale price
Q.107. Find AFC of 3 units : Q.115. What will be the AFC of 2 units according to the
Unit 0 1 2 3 table given below:
Total Cost 15 25 35 45 Output 0 1 2
Total Cost 580 689 850
(a) 5 (b) 10
(c) 15 (d) 25 (a) 105 (b) 135
(c) 235 (d) 290
Q.108. What will be the TVC if we produce 2 units?
Unit 0 1 2 Q.116. Fixed cost is known as ______ cost
Total Cost 20 37 50 (a) Prime (b) Supplementary
(c) Overhead (d) Direct
(a) 15 (b) 05
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Q.117. Average Revenue Curve is also known as (c) 25 (d) 20
_______.
(a) Profit curve (b) Demand curve
(c) Supply curve (d) Average cost curve
Q.118. Supply curve remaining unchanged, an increase Q.125. Given

in demand will lead to Output 0 4 8
(a) A fall in price (b) Rise in price Total Cost 20 24 48
(c) No change in price (d) An increase in supply
What will be the AFC of 4 units of Output
Q.119. Find out AFC of 3 unit: (a) 2 (b) 3
Unit 0 1 2 3 (c) 4 (d) 5
Total Cost 300 1000 2000 3000
Q.126. Suppose the total cost of production of
(a) 100 (b) 200 commodity 'X' is ₹1,25,000 Out of other cost implicit is
(c) 300 (d) 400 ₹35,000 and normal profit is ₹25,000 what will be the
explicit cost of commodity 'X'?
Q.120. (a) 60,000 (b) 65,000
Unit 0 1 2 (c) 90,000 (d) 80,000
Total Cost 580 1200 1500
Q.127. What will be the total fixed cost for the
Calculate AFC at 2nd unit of output production of three units as per the details given below:
(a) 235 (b) 290 Units 0 1 2 3
(c) 310 (d) 920. Total 62 94 155 367
Cost 0 0 5 0
Q.121. In the long run all factors are

(a) Fixed (a)620 (b) 640
(b) Variable (c) 1115 (d) 2650
(c) All factors remain unchanged
(d) None. Q.128. Cost in terms of pain, discomfort, disability
involved in supplying the various factors of production
Q.122. What is the total cost of production of 20 units, if by their owners are termed as ______.
(a) Aocial cost (b) Explicit cost
fixed cost is T 5,000 and variable cost is x2/﹣﹖
(c) Real cost (d) Implicit cost
a) 5,400 (b) 5,040
(c) 4,960 (d) 5,020 Q.129. Which of the following is known as the Envelope
Curve?
Q.123. Which of the following is known as Envelop (a) Average variable cost curve
Curve? (b) Average total cost curve
(a) Average variable cost curve (c) Long run average cost curve
(b) Average total cost curve (d) Short run average cost curve.
(c) Long run average cost curve
(d) Short run average cost curve Q.130. The cost of resources owned and employed by
the entrepreneur himself in his business is termed as
Q.124. The average fixed cost for producing an output of cost.
6 units of a product by a firm is ¥ 30. The same cost for (a) Explicit (b) Implicit
producing an output of 4 units will be ₹_______. (c) Fixed (d) Variable.
(a) 50 (b) 45
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Q.138. Suppose the total cost production of a
Q.131. A firm will close down in the short period if its commodity 'x' is ₹1,25,000 out of which Implicit cost is
average revenue is less than its: ₹35,000 and normal profit is ₹25,000. What would be
(a) Average cost (b) Average variable cost the explicit cost of commodity x?
(c) Marginal cost (d) Average fixed cost (a) ₹90,000 (b) ₹65,000
(c) ₹1,00,000 (d) ₹60,000
Q.132. A firm's total cost is T 200 at 5 units of output Q.139. In which of the following cases opportunity cost
and T 220 at 6 units of output. The marginal cost of concept applies?
producing 6th unit of output will be (a) Resources have alternative uses
(a) 20 (b) 120 (b) Resources have limited uses
(c) 220 (d) 320. (c) Resources have no use
Q.133. Consider the following data
Units of 0 1 2 3 4 Q.140. Direct costs are also known as ______.
output (a) Traceable costs (b) Indirect costs
Total Cost 25 45 60 85 105 (c) Opportunity costs (d) Real costs.
The Average Variable Cost (AVC) for an output of 4 units Q.141. Which statement among below is correct in
will be :- reference in Average Fixed Cost
(a) ₹20 (b) ₹30 (a) Never becomes zero
(c) ₹25 (d) ₹26 (b) Curve never touches x-axis
(c) Curve never touches y-axis
Q.134. The change in total cost due to one unit change (d) All of the above.
in the output is called cost.
(a) Marginal (b) Average Q.142. Marginal cost changes due to change in _____
(c) Average variable (d) Average fixed cost.
(a) Total (b) Fixed
Q.135. When AC curve is rising, the MC curve must be (c) Average (d) Variable
______ to it.
(a) Equal (b) Above Q.143. A firm produces 10 units of a commodity at an
(c) Below (d) Parallel. average total cost of 200 and with a fixed cost of ¥ 500.
Find out the component of average variable cost in the
Q.136. The Average fixed cost for producing an output total cost :
of 6 units of a product by a firm is ₹30. The same cost (a) ₹300 (b) ₹200
for producing an output of 4 units will be ₹_______. (c) ₹150 (d) ₹100
(a) 50 (b) 45
(c) 25 (d) 20 Q.144. Average total cost to a firm is ₹600 when it
produces 10 units of output and ₹640 when the output
Q.137. Which of the following cost curve will slope is 11 units. The MC of the 11th unit is :
downward and does not touch the x-axis? (a) ₹340 (b) ₹540
(a) Average cost curve (c) ₹840 (d) ₹1,040
(b) Marginal cost curve
(c) Average variable cost curve Q.145. Average cost of producing 50 units of any
(d) Average fixed cost curve. commodity is T 250 and fixed cost is 1,000. What will be
the average fixed cost of producing 100 units of the
commodity?
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(a) ₹10 (b) ₹30 (a) Decreasing average variable costs
(c) ₹20 (d) ₹05 (b) Decreasing marginal costs
(c) Increasing marginal costs
Q.146. Company produces 10 units of output and incurs (d) Decreasing fixed costs.
T 30 per unit as variable cost and 5 per unit of fixed cost.
What will be its total cost of producing 10 units?
(a) ₹300 (b) 35 Q.153.When the output of a firm increase in the short
(c) ₹305 (d) ₹350 run, its average fixed cost
(a) Increases
Q.147. On the basis of the following data what will be (b) Decreases
the marginal cost of the 6th unit of output? (c) Remains constant
Output 0 1 2 3 4 5 6 (d) First declines and then rises.
Total 24 33 41 48 54 61 69
Cost (₹) 0 0 0 0 0 0 0 Q.154.Which of the following cost curves is never ‘U’
shaped?
(a) ₹133 (b) ₹75
(a) Average cost curve
(c) ₹80 (d) ₹450
(b) Marginal cost curve
(c) Average variable cost curve
Q.148.The positively sloped (rising) part of the long run
(d) Average fixed cost curve.
average cost curve indicates working of the _______.
(a) Diseconomies of scale
Q.155.Fixed cost curve normally:
(b) Increasing returns to scale
a) Starts from the origin (b) Is U shaped
(c) constant returns to scale
(c) Is vertical line (d) Is horizontal line.
(d) Economies of scale
Q.156.Rational producer will produce in the stage in

Q.149.Average fixed cost curve is always:
which marginal product is positive and :
(a) Declining when output increases
(a) MP > AP (b) MP = AP
(b) U-Shaped, if there are increasing returns to scale
(c) MP < AP (d) MP is zero.
(c) U-Shaped, if there are decreasing returns to scale
(d) Intersected by marginal cost at its minimum point
Q.157.The vertical difference between TVC and TC
curves is equal to:
Q.150.Planning curve is related to which of the
(a) MC (b) AVC
following?
(c) TFC (d) None of the above
(a) Short run average cost curve
(b) Long run average cost curve
Q.158.What happens to marginal cost when average
(c) Average variable cost
cost increases?
(d) Average total cost.
(a) Marginal cost is below average cost
(b) Marginal cost is above average cost
Q.151.Using the following data find out the marginal
(c) Marginal cost is equal to average variable cost
cost (MC) of the sixth unit of output:
(d) Marginal cost is equal to average cost.
Output 0 1 2 3 4 5 6 7
Total cost 4 7 9 11 13 14 16 18
8 3 4 4 0 8 8 9 Q.159.If the market price of good is more than the
opportunity cost of producing it, then:
(a) The market price of the product will increase in the
(a) 24 (b) 16
long run
(c) 20 (d) 21
(b) Producers will increase supply in the long run
Q.152.Diminishing marginal returns implies

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(c) Resources will flow away from production of the Q.167.In the short run, when the output of a firm
good, causing supply to decline with the passage of increases, its average fixed cost
time (a) Remains constant
(d) The situation will remain unchanged as long as (b) Decreases
supply and demand remain in balance. (c) Increases
(d) First decreases and then rises
Q.160.A firm has variable cost of ₹1,000 at 5 units of
output. If fixed costs are 400, what will be the average Q.168.What will be average variable cost of producing
total cost at 5 units of output? 5 units of blankets as per details given in the following
(a) 380 (b) 600 table?
(c) 280 (d) 400 Blankets 1 2 3 4 5
Total Cost 2,575 3,800 4,500 5,300 6,000
Q.161.The average total cost of producing 50 units is ¥
250 and total fixed cost is 1,000. What is the average (a) ₹500 (b) ₹750
fixed cost of producing 100 units? (c) ₹900 (d) ₹1,000
(a) 5 (b) 30
(c) 20 (d) 10 Q.169.Which of the following is/are example(s) of an
economic cost?
Q.162.When average fixed cost is ₹20 at 6 units of (a) Wage paid to labourers
output, what will it be at units of output? (b) Raw materials purchase cost
(a) ₹60 (b) ₹30 (c) Interest paid on short term loan
(c) ₹40 (d) ₹20 (d) All of the above.
Q.163.Modern industrial units face cost curve due to Q.170.Opportunity Cost is:
change in their technology of production. (a) Marginal cost (b) Variable cost
(a) U shaped (b) L shaped (c) Total fixed cost (d) None of these.
(c) Dish shaped (d) J shaped
Q.171.The “law of diminishing returns” applies to
Q.164.The costs which remain fixed over certain range (a) The short run, but not the long run
of output but suddenly jump to a new higher level when (b)The long run, but not the short run
production goes beyond a given limit are called: (c) Both the short run and the long run
(a) Variable cost (b) Semi- variable cost (d) Neither the short run nor the long run
(c) Stair- step variable cost (d) Jumping cost
Q.172.Linear homogenous production function is based
Q.165.A firm producing 9 units of output has an on
average total cost of ₹200 and has to pay ₹630 to its (a) Increasing returns to scale
fixed cost of production. How much of the average total (b) Decreasing returns to scale
cost is made up of variable cost? (c) Constant returns to scale
(a) ₹150 (b) ₹130 (d) None of the above.
(c) ₹70 (d) ₹300
Q.173.Which of the following curve is not U shaped?
Q.166.The cost of one thing in terms of alternative (a) AFC (b) MC
given up is known as: (c) AVC (d) TC
(a) Opportunity Cost (b) Real Cost
(c) Production Cost (d) Physical Cost. Q.174.Unit TC 580 1200 1500 Calculated AFC at 2™ unit
of output:
(a) 235 (b) 290
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(c) 310 (d) 920 Q.183.Price of a commodity is best expressed as
(a) Exchange value (b) Cost of goods sold
Q.175.Which of the following curves never touch any (c) Production cost (d) Nominal value
axis but is downward
(a) Marginal cost curve Q.184.Accounting cost is of Economic cost
(b) Total cost curve (a) Equal to (b) Less than
(c) Average fixed cost curve (c) More than (d) Not Included
(d) Average variable cost curve
Q.185.When AC Curve is at minimum then MC Curve is
Q.176.External economies accrue due to _______. (a) Minimum then AC Curve
(a) Increasing returns to scale (b) Equals to AC Curve
(b) Increasing returns to factor (c) Above AC Curve
(c) Law of variable proportions (d) Less then AC Curve
(d) LOW cost
Q.186.Which of the following equation represents profit
Q.177.A firms average fixed cost is ₹20 at 6 units of maximisation condition?
output what will be at 3 units of output? (a) MC = MR (b) MC > MR
(a) ₹60 (d) ₹30 (c) MC < MR (d) None.
(c) ₹40 (d) ₹20
Q.187.MC curve of a firm in a perfectly competitive
Q.178.Which of the following is correct? industry depicts?
(a) AFC =AVC + ATC (b) ATC = AFC - AVC (a) Demand curve (b) Supply curve
(c) AVC =AFC + ATC (d) AFC = ATC - AVC (c) Average cost curve (d) Total cost curve
Q.179.The vertical difference between TVC and TC Q.188.Issues requiring decision making in the context of
curves is equal to: business are:
(a) MC (b) AVC (a) How much should be the optimum output at what
(c) TFC (d) None of the above. price should the firm sell?
(b) How will the product be placed in the market?
Q.180.The cost of one thing in terms of alternative given (c) How to combat the risks and uncertainties involved?
up: (d) All of the above.
(a) Real cost (b) Production cost
(c) Opportunity cost (d) Physical cost Q.189.Law of production does not include?
(a) Returns to scale
Q.181.The cost which remains fixed over certain range (b) Law of variable proportion
of output but suddenly jumps to a new higher level (c) Law of diminishing returns to a factor
when production goes beyond a given limit are called: (d) Least cost combination factors
(a) Variable cost (b) Semi-variable cost
(c) Stair-step variable cost (d) Jumping cost Q.190.A firm producing 15 units of output has average
cost of ¥ 250 and % 125 as per unit cost for fixed factors
Q.182.The slope of Average Fixed cost curve is? of production. Then average variable cost will be
(a) Falls from left to right (a) 80 (b) 50
(b) Rises from left to right (c) 125 (d) None of the above
(c) Parallel to x-axis
(d) Parallel to y-axis Q.191.Which of the following statement is incorrect?
(a) AC is sloping downwards, MC is below AC
(b) AC is sloping downwards, MC must fall
3.65 | Page
(c) AC is sloping upwards, MC is above AC
(d) MC cuts AC from its lowest point. Q. Ans Q Ans Q Ans Q Ans
1 B 52 B 103 B 154 D
2 B 53 A 104 B 155 D
Q.192.Diminishing marginal returns implies. 3 A 54 C 105 D 156 C
(a) Decreasing average fixed cost 4 A 55 C 106 C 157 C
5 A 56 A 107 A 158 B
(b) Decreasing average variable cost
6 C 57 C 108 D 159 B
(c) Decreasing marginal cost 7 C 58 D 109 B 160 C
(d) Increasing marginal cost 8 C 59 A 110 D 161 D
9 C 60 B 111 C 162 C
10 A 61 C 112 B 163 B
Q.193.Opportunity Cost is ______. 11 A 62 A 113 B 164 C
12 B 63 B 114 B 165 B
(a) Recorded in the book of accounts
13 C 64 B 115 D 166 A
(b) Sacrificed alternative 14 B 65 B 116 C 167 B
(c) Both (a) and 15 C 66 A 117 B 168 C
16 B 67 C 118 B 169 D
(d) None of the above 17 A 68 A 119 A 170 D
18 A 69 A 120 B 171 A
Q.194.Which of the following is true? 19 B 70 A 121 B 172 C
20 C 71 D 122 B 173 A
(a) TC=TFC+TVC (b) TC +TVC + TFC 21 D 72 D 123 C 174 B
(c) 2TC - TVC = TFC (d) None 22 D 73 A 124 B 175 C
23 B 74 D 125 D 176 A
24 C 75 A 126 B 177 C
Q.195.Total Economic Cost = Explicit Cost + Implicit Cost 25 D 76 B 127 A 178 D
+ ________. 26 D 77 A 128 A 179 C
27 D 78 C 129 C 180 C
(a) Normal Profit (b) Super Normal Profit 28 D 79 D 130 B 181 C
(c) Loss (d) None 29 B 80 B 131 B 182 A
30 B 81 D 132 A 183 A
31 C 82 A 133 A 184 B
Q.196.Economic cost of production differs from 32 B 83 B 134 A 185 B
accounting cost of production 33 D 84 D 135 B 186 A
34 C 85 C 136 B 187 B
(a) Partially (b) True 35 D 86 C 137 D 188 D
(c) False (d) None 36 B 87 A 138 B 189 D
37 A 88 D 139 A 190 C
38 A 89 B 140 A 191 B
Q.197.Which curve is never U- shaped 39 D 90 B 141 D 192 D
(a) AFC (b) AVC 40 C 91 A 142 D 193 B
41 A 92 B 143 C 194 A
(c) AC (d) None
42 B 93 D 144 D 195 A
43 A 94 A 145 A 196 B
44 C 95 B 146 D 197 A
45 B 96 C 147 C
46 C 97 C 148 A
47 D 98 D 149 A
48 B 99 C 150 B
49 C 100 A 151 C
50 A 101 C 152 C
51 B 102 A 153 B
3.66 | Page
Chapter – 4 Market & Its Type Q 7. Free Entry / Exit is a characteristic feature of —
(a) Perfect Competition
MARKETS BASICS (b) Monopoly
(c) Monopolistic Competition
Q 1. Which of the following statements best describe (d) (a) and (c)
a "Market"?
(a) Place where Shares and Securities are bought and Q 8. Free Entry / Exit is a not a characteristic
sold. feature of —
(b) Place where Fruits and Vegetables are bought and (a) Perfect Competition
sold. (b) Monopoly
(c) Place where Buyers and Sellers meet and bargain (c) Monopolistic Competition
over a commodity for a price. (d) All the above.
(d) Place where transactions takes place.
Q 9. Free Entry / Exit is possible in —
Q 2. Which of these is not a feature of Market? (a) short—run (b) long—run
a) Buyers and Sellers. (c) Both (a) and (b) (d) Neither (a) nor (b)
b) Commodity, Product or Service.
c) Bargaining for a Price Q 10. Short run price is also known as:
d) Government Regulation and Control (a) Market price
(b) Showroom price
Q 3. Which of these is a feature of Market? (c) Maximum retail price
a) Perishable Nature of the commodity (d) None of these
b) Government Regulation and Control
c) One Price for a Product or Service at a given time Q 11. The market for Foodgrains, Cereals, Vegetables,
d) Scarcity of Resources etc. closely resembles —
Q 4. Which of the following is an element of Market (b) Monopoly
Structure? (c) Monopolistic Competition
(a) Buyers & Sellers (d) Oligopoly.
(b) A product or service
(c) Bargaining for a Price Q 12. Railways is an example of —
(d) All of the above (a) Perfect Competition
(b) Monopoly
Q 5.. The Market for ultimate consumers is known as (c) Monopolistic Competition
(a) Whole Sale Market (d) Oligopoly.
(b) Retail Market
(c) Unregulated Market Q 13. Air Travel Service Industry is an example of —
(d) Regulated Market (a) Perfect Competition
(b) Monopoly
Q 6. Which of the following types of competition is just (c) Monopolistic Competition
a theoretical economic concept, not a realistic case (d) Oligopoly.
where actual competition and trade take place?
(a) Monopoly Q 14. Bottled Cold Drinks Industry is an example of —
(b) Oligopoly (a) Perfect Competition
(c) Perfect Competition (b) Monopoly
(d) Monopolistic Competition (c) Monopolistic Competition
4.1 | P a g e
(d) Oligopoly.
Q 22. What is the other name given for Average
Q 15. Agricultural Goods markets depict Revenue Curve?
characteristics close to — (a) Profit Curve (b) Demand Curve
(a) Perfect Competition (c) Average Cost Curve (d) Indifference Curve
(b) Oligopoly
(c) Monopoly Q 23. Which of the following is not a characteristic
(d) Monopolistic Competition feature common to both Monopolistic Competition and
Perfect Competition?
Q 16. Which of the following is an Oligopoly? (a) Many Buyers and Sellers
(a) Mobile Industry (b) Cold Drink (b) Identical Products
(c) Automobile (d) All of these (c) Easy entry and exit of Firms
(d) Firms take other Firms' prices as given
Q 17. Toothpaste Manufacturing Industry is an
example of Q 24. The relationship Firm = Industry is applicable for
(a) Perfect Competition —
(b) Monopoly (a) Perfect Competition
(c) Monopolistic Competition (b) Monopoly
(d) Oligopoly. (c) Monopolistic Competition
(d) Oligopoly.
Q 18. Automobile (Cars) Manufacturing Industry is an
example of — Q 25. In which of the following market structures is
(a) Perfect Competition the demand curve of the market is represented by the
(b) Monopoly demand curve of the Firm?
(c) Monopolistic Competition (a) Monopolistic competition
(d) Oligopoly. (b) Perfect Competition
(c) Monopoly
Q 19. Toilet Soaps Industry is an example of — (d) Oligopoly
(b) Monopoly Q 26. The AR Curve and Industry Demand Curve are
(c) Monopolistic Competition same in the case of —
(d) Oligopoly. (a) Monopoly
(b) Oligopoly
Q 20. Mobile Phone Service Providers is an example of (c) Perfect Competition
(a) Perfect Competition (d) None of the above
(b) Monopoly
(c) Monopolistic Competition Q 27. Why is the Demand Curve of the Market in
(d) Oligopoly. Monopoly is represented by the Demand Curve of the
Firm?
Q 21. The conditions of Firm Equilibrium, i.e. MC = (a) Because there are many Firm in the market
MR, and MC cuts MR from below, is applicable for — (b) Because there is only one Firm in the market
(a) Perfect Competition (c) Because there is only one buyer in the market
(b) Monopoly (d) Because there are many buyers in the market
(d) All of the above. Q 28. The relationship Industry = Large Number of
Firms, is applicable for —
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(b) Monopolistic Competition
(c) Monopoly
(d) Both (a) and (b) Q 35. Under which of the following forms of market
structure does a Firm has no control over the price of its
Q 29. The relationship Industry = a Few Firms, is product
applicable for — (a) Monopoly
(a) Perfect Competition (b) Monopolistic competition
(b) Monopoly (c) Oligopoly
(c) Monopolistic Competition (d) Perfect Competition
(d) Oligopoly.
Q 36. A market structure in which many Firms sell
Q 30. Which among the following market structures products that are similar but not identical is known as —
has the highest product differentiation? (a) Monopolistic Competition A
(a) Pure or Perfect Competition (b) Monopoly
(b) Monopolistic Competition (c) Perfect Competition
(c) Oligopoly (d) Oligopoly
(d) Monopoly
Q 37. Which of the following types of market structure
Q 31. Which among the following market structures is the exact opposite of Perfect Competition?
has the highest price elasticity? (a) Monopolistic competition
(a) Pure or Perfect Competition (b) Monopoly
(b) Monopolistic Competition (c) Oligopoly
(c) Oligopoly (d) Duopoly
(d) Monopoly
Q 38. Which of the following statements about Price
Q 32. Which of the following market forms will never and Marginal Cost (MC) in competitive and monopolized
suffer losses in the short run? markets is true?
(a) Perfect Competition (a) In Competitive Markets, Price = MC; in monopolized
(b) Oligopoly Markets, Price > MC.
(c) Monopoly (b) In Competitive Markets, Price = MC; in Monopolized
(d) None of these Markets, Price = MC.
(c) In Competitive Markets, Price > MC; in Monopolized
Q 33. Under which of the following market structures markets, Price > MC.
is the price lower and output larger? (d) In Competitive Markets, Price > MC; in Monopolized
(a) Perfect Competition markets, Price = MC.
(b) Monopolistic Competition
(c) Monopoly Q 39. In which of the following types of market
(d) Oligopoly structures can a Firm earn abnormal profits in the long
run?
Q 34. In which form of the market structure is the (a) Perfect Competition
degree of control over the price of its product by a Firm (b) Monopolistic competition
very large (c) Monopoly
(a) Monopoly (d) None of the above
(b) Imperfect Competition
(c) Oligopoly
(d) Perfect Competition
4.3 | P a g e
Q 40. In which of the following types of market Q 46. A market characterized by a Single Buyer of a
structure, do Firms produce homogeneous products? product or service.
(a) Monopoly (a) Monopsony (b) Bilateral Monopoly
(b) Differentiated Oligopoly (c) Duopoly (d) Oligopoly
(c) Perfect Competition
(d) Monopolistic Competition Q 47. A market characterized by a small number of
large buyers.
Q 41. Which of the following statements is incorrect? (a) Monoposony (b) Bilateral Monopoly
(a) Even Monopolist can earn losses (c) Duopoly (d) Oligopsony
(b) Firms in a perfectly competitive market are Price
Takers. Q 48. A market structure in which there is only a
(c) It is always beneficial for a Firm in a Perfectly Single Buyer and a Single Seller
Competitive Market to discriminate prices. (a) Monoposony (b) Bilateral Monopoly
(d) Kinked demand curve is related to an Oligopolistic (c) Duopoly (d) Oligopsony
Market.
Q 49. Duopoly is a market situation in which —
Q 42. Which of the following statements is not true (a) there are only two Firms in the market
with respect to the long run? (b) there is a Single Buyer of a product or service
(a) A Firm in a monopolistically competitive industry (c) there is only a Single Buyer and a Single Seller
earns only normal profits in the long run (d) none of the above
(b) A Monopolist does not make losses
(c) A Perfectly Competitive Firm earns only normal Q 50. A person who charges different prices in
profits in the long run different sub—markets is —
(d) Monopolistically Competitive Firms will be (a) Discriminating Monopolists
producing at minimum average cost (b) Simple Monopolists
(c) Selective Monopolists
Q 43. P = MR = MC = AC = is the condition of — (d) None of the above
(a) Long run equilibrium for a Firm under Perfect
Competition PERFECT COMPETITION
(b) Long run disequilibrium for a Firm
(c) Long run equilibrium for a Firm under Monopoly Q 51. In India which of the following best describes a
(d) Long run equilibrium for a Firm under Monopolistic perfectly competitive market?
competition (a) Sugarcane Cultivation / Agriculture
(b) Indian Railways
Q 44. Which of the following features is not seen in (c) Toilet Soap Industry
Imperfect Competition? (d) Electricity Distribution
(a) Few Sellers
(b) Product Differentiation Q 52. Under Pure Competition, there are Sellers.
(c) Price wars (a) Many (b) Only one
(d) All goods are Homogenous (c) A Few (d) No
Q 45. Market situation in which there are only two Q 53. Which of the following is not an essential
Firms in the market condition of Pure Competition?
(a) Monoposony (b) Bilateral Monopoly (a) Large number of Buyers and Sellers
(c) Duopoly (d) Oligopoly (b) Homogeneous Product
(c) Freedom of entry
4.4 | P a g e
(d) Absence of Transport Cost
Q 61. How are prices determined under Perfect
Q 54. Which of the following is not true about perfect Competition?
competition? (a) At the equilibrium price of Firm
(a) Purchase and sale of homogeneous goods (b) At the equilibrium prices of Industry
(b) Mobility of factors of production (c) At the point where MR = MC
(c) Free entry and exit (d) All of these
(d) Presence of advertisement
Q 62. Under Perfect Competition, each Firm's control
Q 55. Under Perfect Competition, the product is — over price is —
(a) Differentiated (a) Nil
(b) Homogeneous (b) Full and Absolute
(c) Influenced by Brand Name (c) Subject to Competing Firms' Strategies
(d) Always Intangible (d) None of the above.
Q 56. Under Perfect Competition, each Firm is a Q 63. Under Perfect Competition, Price Elasticity of
(a) Price Maker Demand is
(b) Price Taker (a) Nil (b) Less Elastic
(c) Price Maker for its own product. (c) More Elastic (d) Infinity
(d) All of the above.
Q 64. Under Perfect Competition, the Firm's Demand
Q 57. Price under perfect competition is determined Curve is
by — (a) Horizontal Line, parallel to X Axis
(a) Fir (b) Industry (b) Vertical Line, parallel to Y Axis
(c) Government (d) Society (c) Negatively Sloped
(d) Kinked.
Q 58. In a perfect competition, who set the prices:
(a) Buyers Q 65. In India, the Milk Market resembles a perfectly
(b) Sellers competitive industry. If the industry is an increasing cost
(c) Both buyers and sellers industry, the long run supply curve of the industry
(d) Government (a) Slopes upward to the right
(b) Slopes downward to the right
Q 59. In a Perfect Competitive Market — (c) Would be a vertical straight line
(a) Firm is the Price—Giver and Industry is the Price (d) Would be horizontal straight line
Taker
(b) Firm is the Price Taker and industry is the Price— Q 66. Under Perfect Competition, a Firm can earn
Giver in the long—run.
(c) Both are Price Takers (a) Normal Profits only
(d) none of the above (b) Super Normal Profits
(c) Losses
Q 60. The distinction between a single firm & an (d) All of the above.
Industry vanishes in which of the following market
condition Q 67. Under Perfect Competition, in the long—run, a
(a) Monopoly Firm
(b) Perfect competition (a) will not have excess capacity.
(c) Monopolistic competition (b) may have excess capacity
(d) Imperfect competition (c) has no capacity at all
4.5 | P a g e
(d) will leave the industry. (c) In the short run, the Firm takes Market Price as
given
Q 68. Under Perfect Competition, in the long—run, a (d) Considering the Market Price, Firm adjusts the level
Firm of output to maximize profits
(a) will always be a Optimal Firm.
(b) will never be an Optimal Firm. Q 74. Which of these is not a feature of Perfect
(c) may or may not be an Optimal Firm. Competition?
(d) will leave the industry. (a) Restriction in Entry of new Firms
(b) Perfect Knowledge
Q 69. Which of these is not a feature of Perfect (c) Efficient Transportation Facilities
Competition? (d) Uniform Market Price
(a) Large Number of Buyers & Sellers
(b) Homogeneous Products Q 75. Which of the following is not a condition of
(c) Free Entry / Exit Perfect Competition?
(d) Preference of Consumers towards one Supplier (a) Large Number of Firms
(b) Perfect Mobility of Factors
Q 70. Which of the following is a feature of Perfect (c) Informative advertising to ensure that consumers
Competition? have good information
(a) Firms are free to produce any number of units of (d) Freedom of entry and exit into and out of the
different commodities market
(b) Firms are free to enter and exit from the industry
(c) Firms are free to produce any type of a commodity Q 76. Which of the following is not a characteristic of
(d) None of the above a Perfectly Competitive Market?
(a) Large number of Firms in the industry
Q 71. One of the essential conditions Perfect (b) Outputs of the Firms are perfect substitutes for one
Competition is — another
(a) Product Differentiation (c) Firms face downward—sloping Demand Curves
(b) Multiplicity of prices for identical product at any (d) Resources are very mobile
one time
(c) Many Sellers and few Buyers Q 77. Which of the following is not a characteristic
(d) Only one price for identical goods at any one time of a Perfectly Competitive Market?
(a) Large number of Buyers and Sellers
Q 72. Which of the following is true about Perfect (b) Homogeneous Product
Competition? (c) Free entry and exit of Firms
(a) Firms can enter freely in the market but it is difficult (d) Presence of high transportation costs
to exit from the market
(b) Firms face difficulty in entering the market, but Q 78. Which of the following is not a characteristic
Firms can freely exit from the market feature of Perfect Competition?
(c) Entry and exit in the market is highly restricted (a) All the sellers sell at the same price
(d) Firms are free to enter and exit the market (b) All the products are homogenous
(c) Customers have no bargaining power
Q 73. Which of the following statements regarding (d) Customers have no purchasing power
Perfect Competition is false?
(a) Supply and Demand forces determine the price of a Q 79. Which of the following statements regarding
commodity Perfect Competition is false?
(b) All Buyers in the Market are always in position to (a) The Marginal Revenue Curve is a straight line
influence the market
4.6 | P a g e
(b) In the short run, Fixed Costs remain constant and (d) Marginal Revenue = Price
cannot be changed
(c) The Firm becomes a Price—Taker and tries to Q 86. Price—Taking Firms, i.e., Firms that operate in
achieve equilibrium a perfectly competitive market, are said to be "small"
(d) Marginal Revenue is more than the price relative to the market. Which of the following best
describes this smallness?
Q 80. Under Perfect Competition, all output can be (a) The individual Firm must have fewer than 10
sold — employees
(a) at different prices (b) The individual Firm faces a downward—sloping
(b) at the same price only demand curve
(c) at zero price (c) The individual Firm has assets of less than 20 la kh
(d) only when Buyers are willing to buy. (d) The individual Firm is unable to affect market price
through its output decisions
Q 81. Under Perfect Competition, Demand (D) =
(a) Average Revenue (AR) Q 87. For the price—taking Firm —
(b) Marginal Revenue (MR) (a) Marginal Revenue is less than Price
(c) Price (P) (b) Marginal Revenue is equal to Price
(d) All of the above (c) Marginal Revenue is greater than Price
(d) The relationship between Marginal Revenue and
Q 82. Under Perfect Competition price of the Product Price is indeterminate
(a) can be controlled by individual Firm
(b) cannot be controlled by individual Firm Q 88. The Firm in a Perfectly Competitive Market is a
(c) can be controlled within certain limit by individual Price Taker. This designation as a Price Taker is based on
Firm the assumption that —
(d) none of the above (a) The Firm has some, but not complete, control over
its product price
Q 83. In Perfect Competition, since the Firm is a (b) There are so many buyers and sellers in the market
price—taker, the Curve is a Straight Line. that any individual Firm cannot affect the market
(a) Marginal Cost (c) Each Firm produces a homogeneous product
(b) Total Cost (d) There is easy entry into or exit from the market
(c) Total Revenue place
(d) Marginal Revenue
Q 89. A Perfectly Competitive Firm Producer has
Q 84. Price Taker Firms — control over —
(a) Advertise to increase the demand for their products. (a) Price
(b) Do not advertise because most advertising is (b) Production as well as price
harmful for the society. (c) Control over production, price and consumers
(c) Do not advertise because they can sell as much as (d) None of the above
they want at the current price.
(d) Who advertise will get more profits than those who Q 90. Under Perfect Competition, Demand (D) = AR =
do not. MR = Price. This statement is —
(a) True (b) False
Q 85. Which of the following is not a characteristic (c) Partially True (d) None of the above
of a "Price Taker"?
(a) TR = P xQ Q 91. Under Perfect Competition, Total Revenue is
(b) AR = Price equal to Marginal Revenue times the quantity sold. This
(c) Negatively — sloped Demand Curve statement is —
4.7 | P a g e
(a) True (b) False (b) MC cuts MR from below
(c) Partially True (d) None of the above (c) MC is rising when it cuts MR
Q 92. If a Competitive Firm doubles its output, its
Total Revenue — Q 99. Under Perfect Competition, a Firm can earn in
(a) doubles the short—run.
(b) more than doubles (a) Normal Profits only (b) Super Normal Profits
(c) less than doubles (c) Losses (d) All of the above.
(d) cannot be determined because the price of the good
may rise or fall Q 100. Under Perfect Competition, in the short—run,
the condition AR = MR = MC = AC, means that the Firm
Q 93. A Competitive Firm maximizes profit at the is earning —
output level where — (a) Normal Profits only
(a) Price equals Marginal Cost. (b) Super Normal Profits
(b) Slope of the Firm's profit function is equal to zero. (c) Losses
(c) Marginal Revenue equals Marginal Cost. (d) All of the above.
Q 101. Under Perfect Competition, in the short—run, if
Q 94. In Perfect Competition, when MC=MR, Profit is AR > AC at the point when MC = MR, it means that the
(a) Maximum (b) Average Firm —
(c) Zero (d) Not Possible (a) Normal Profits only
(b) Super Normal Profits
Q 95. In Perfect Competition, a Firm maximizing its (c) Losses
profits will set its output at that level where — (d) All of the above.
(a) Average Variable Cost = Price
(b) Marginal Cost = Price Q 102. Under Perfect Competition, in the short—run,
(c) Fixed Cost = Price if AR < AC at the point when MC = MR, it means that the
(d) Average Fixed Cost = Price Firm —
(a) Normal Profits only
Q 96. Which of the following market situations (b) Super Normal Profits
explains Marginal Cost equal to Price for attaining (c) Losses
equilibrium? (d) All of the above.
(a) Perfect Competition.
(b) Monopoly Q 103. In the short run, if a Perfectly Competitive Firm
(c) Oligopoly. finds itself operating at a loss, it will —
(d) Monopolistic Competition. (a) reduce the size of its plant to lower fixed costs.
(b) raise the price of its product.
Q 97. In a Perfectly Competitive Market, if MC = (c) shut down.
Marginal Cost, MR = Marginal Revenue, AR = Average (d) continue to operate as long as it covers its variable
Cost and P = Price, the first order condition for profit cost.
maximization will be —
(a) MC< MR<AR< P (b) MC= MR=AR=P Q 104. Under Perfect Competition, in the short—run,
(c) MC> MR>AR> P (d) MC=MR>AR=P the condition for shut—down is —
(a) AR < AC (b) AR > AC
Q 98. Under the Perfect Competition a Firm will be in (c) AR > AVC (d) AR < AVC
Equilibrium when —
(a) MC = MR
4.8 | P a g e
(c) Total
Q 105. Which of the following is true with reference (d) Average
to shut down point in a Perfect Competition?
(a) The profits of the Firm equals its total costs Q 111. Under Perfect Competition, the burden of a
(b) At that output level the price covers the average specific tax would be borne by —
fixed costs of the Firm (a) Seller
(c) At that output level the price covers the average (b) Buyer
variable costs of the Firm (c) Seller and buyer equally
(d) At that output level the price covers the average (d) Cannot say
total costs of the Firm
Q 112. Under Perfect Competition, in the long—run,
Q 106. If the price falls below the Minimum Average the LAC Curve will be to the AR Curve.
Variable Cost, a Firm operating under Perfect (a) tangent (b) perpendicular
Competition should, in the short run, (c) parallel (d) coinciding
(a) Produce an output where MR = MC
(b) Reduce its output so as to increase the price and Q 113. Under Perfect Competition, in the long—run,
profits the ______ will be tangent to the AR Curve.
(c) Stop production (output) until price increases (a) LAC Curve (b) LMC Curve
(d) Continue to produce in the short run, but not in long (c) Demand (d) Supply
run
Q 107. In Perfect Competition, a Firm increases profit the industry is said to be in equilibrium, if —
when exceeds (a) All the Firms are earning normal profits only.
(a) Total Cost, Total Revenue (b) There is no further entry or exit of Firms to / from
(b) Marginal Cost, Marginal Revenue the market.
(c) Total Revenue, Total Fixed Cost (c) Both (a) and (b)
(d) Average Revenue, Average Cost (d) Neither (a) nor (b)
Q 108. In a perfectly competitive markets, if MR is Q 115. Under Perfect Competition, in the long—run, if
greater than MC then a firm should— SMC = SAC = LAC = LMC = LMR = LAR = Price, then the
(a) Increase its production industry is said to be —
(b) Decrease its production (a) Growing
(c) Increase in sales (b) in troubled times
(d) Decrease in sales (c) in Equilibrium
(d) inefficient
Q 109. In Perfect Competition, a Firm's Profit
diminishes when ________exceeds Q 116. In the long—run, Industry Equilibrium is
(a) Marginal Revenue, Marginal Cost achieved if SMC = SAC = LAC = LMC = LMR = LAR = Price.
(b) Marginal Cost, Marginal Revenue This condition is applicable for —
(c) Marginal Revenue, Average Cost (a) Perfect Competition
(d) Average Revenue, Average Cost (b) Monopoly
Q 110. In a perfectly competitive market, in the long (d) Oligopoly.
run, competitive prices equal the minimum possible
cost. Q 117. Under Perfect Competition, the condition for
(a) Marginal Industry Equilibrium, i.e. SMC = SAC = LAC = LMC = LMR
(b) Variable = LAR = Price, is applicable for —
4.9 | P a g e
(a) short—run (b) long—run
(c) Both (a) and (b) (d) Neither (a) nor (b) Q 125. Excess Capacity is not found under —
(a) Monopoly
Q 118. When the Perfectly Competitive Firm and (b) Monopolistic Competition
industry are in long run equilibrium then — (c) Perfect Competition.
(a) P=MR=SAC=LAC. (d) Oligopoly.
(b) D=MR=SMC=LMC.
(c) P=MR=Lowest point on the LAC curve. Q 126. Under Perfect Competition, the Firm's AR and
(d) All of the above. MR Curve will be the same as —
(a) Supply Curve
Q 119. In the long run, the Pure Competition Firm can (b) Demand Curve
have (c) Production Possibility Curve
(a) Super Normal Profit (b) Normal Profits (d) Indifference Curve
(c) Losses (d) All of these
Q 127. Under Perfect Competition, the Firm's Demand
Q 120. In Long run which of the following is true for a Curve will be the same as —
perfect competition (a) Marginal Revenue (MR) Curve
(a) Industry is operating at minimum point of AC curve (b) Average Revenue (AR) Curve
(b) MC is greater than MR (c) Both (a) and (b)
(c) AFC is less than AVC (d) Neither (a) nor (b)
(d) Price is less than AC
Q 128. Under Perfect Competition, the Firm's MC
Q 121. In Perfect Competition, in the long run — Curve will be the same as —
(a) There are large Profits for the Firm (a) Supply Curve
(b) There are large Losses for the Firm (b) Demand Curve
(c) There is no super—normal profit and no loss for the (c) Production Possibility Curve
Firm (d) Indifference Curve
(d) There are negligible profits for the Firm
Q 129. Normally, in the short run, the supply curve of
Q 122. What are the conditions for long—run a perfectly competitive Firm slopes
equilibrium of the Competitive Firm? (a) Downward from left to right
(a) LMC = LAC = P (b) SMC = SAC = LMC (b) Upward from right to left
(c) P = MR (d) All of these (c) Upward from left to right
(d) Downward from right to left
Output is produced at — Q 130. A Purely Competitive Firm's Supply Schedule in
(a) minimum feasible cost the short run is determined by —
(b) maximum cost (a) Its Average Revenue
(c) optimal cost (b) Its Marginal Revenue
(d) zero cost (c) Its Marginal Utility for money curve
(d) Its Marginal Cost curve
resources will be — Q 131. In Perfect Competition, in the long run, if a
(a) fully used (b) partially used new Firm enters the industry, the Supply Curve shifts to
(c) not used at all (d) wasted the right resulting in —
(a) Fall in Price (b) Rise in Price
(c) Reduction in Supply (d) No change in Price
4.10 | P a g e
A Competitive Firm sells its product at Market Price of Z
51 per unit. The Fixed Cost is 300 and Variable Cost Q 138. Monopolist can control only
for different level of production are shown in the (a) Price (b) Demand
following table. Answer the following questions (c) Utility (d) Both (a) & (b)
Q 139.
Fixed Total Which of the following is false regarding
C C
Variable Monopoly?{Omit this Question}
Quantity o o AVC ATC MC
Cost (a) Firm is a price taker
s s
t t (b) Unique product
0 (c) Single Seller
10 470 (d) None of the above
20 980
30 1850 Q 140. Under which of the followings forms of market
40 3400 structure does a firm has very considerable control over
the price of its product?
Q 132. When production is 30 units, the Average (a) Monopoly
Variable Cost is — (b) Perfect competition
(a) 70.6 (b) 60.6 (c) Monopolistic competition
(c) 61.6 (d) 71.6 (d) Oligopoly
Q 133. To maximize profit, the Firm should produce Q 141. Which of the following best describes
— Monopoly?
(a) 30 units (b) 10 units (a) An indisputable market leader in an industry
(c) 20 units (d) 40 units (b) Only a single buyer in the market
(c) A single seller with large control over the price in
Q 134. If the Market Price drops from ₹ 51 to ₹ 47, the industry
the Firm should — (d) Only a single seller with complete control over the
(a) Close down (b) Produce 10 units industry
(c) Produce 30 units (d) Produce 20 units
Q 142. In India, Monopoly exists in the following
Monopoly industry —
(a) Courier Services
Q 135. Under Monopoly, the product is — (b) Internet Services providing industry
(a) Differentiated (b) Homogeneous (c) Rail Transportation
(c) Necessity Goods (d) Always Intangible (d) Toilet Soaps Industry
Q 136. In Monopoly, entry of new Firms — Q 143. A Market in which a Single Seller is required
(a) is restricted at all times for efficient production is called —
(b) is possible only in short—run (a) Regulated Industry
(c) is possible only in long—run (b) Natural Monopoly
(d) both (b) and (c) (c) Legal Monopoly
(d) Contestable Market
Q 137. Under Monopoly, each Firm is a
(a) Price Maker Q 144. If the Electricity Market is a Natural Monopoly,
(b) Price Taker it is preferred to have a single producer rather than
(c) Price Maker for its own product. several small producers because —
4.11 | P a g e
(a) Marginal Cost is maximized (c) AR Curve lies below the MR Curve.
(b) Marginal Revenue is maximized (d) AR Curve is parallel to the MR Curve.
(c) Average Total Cost is minimized
(d) Profits are maximized Q 152. Under Monopoly, a Firm can earn in the long-
run.
Q 145. By Imperfect Monopoly, we mean — (a) Normal Profits only
(a) It is possible to substitute the Monopolized product (b) Super Normal Profits
with another monopolized product (c) Either (a) or (b)
(b) Entry of new Firms is possible to produce the same (d) Losses
product
(c) The amount of output produced is very small Q 153. In long-run a monopolist always earn profits
(d) None of the above (a) Normal (b) Abnormal
(c) Zero profit (d) Loss
Q 146. Under Monopoly, each Firm's control over
price is — Q 154. In the short run, the Monopolist —
a) Nil (a) Earns Normal Profits
b) Full and Absolute (b) Earns Super Normal Profits
c) Subject to Competing Firms' Strategies (c) Incurs losses
d) None of the above. (d) Any of these
Q 147. In case of a profit maximizing Monopolist, Q 155. Abnormal profits exists in the long run only
what point determines the Selling Price? under
(a) Point where marginal cost equals average revenue (a) Monopoly
(b) Point where average cost equals marginal revenue (b) Perfect competition
(c) Point where average cost equals average revenue (c) Monopolistic competition
(d) Point where marginal cost equals marginal revenue (d) Oligopoly
Q 148. Under Monopoly, Price Elasticity of Demand is Q 156. Under Monopoly, in the long—run, a Firm —
(a) Nil (b) Less Elastic (a) will not have excess capacity.
(c) More Elastic (d) Infinity (b) may have excess capacity
(c) has no capacity at all
Q 149. Under Monopoly, the Firm's Demand Curve is (d) will leave the industry.
(a) Horizontal Line, parallel to X Axis
(b) Vertical Line, parallel to Y Axis Q 157. Under Monopoly, in the long—run, a Firm —
(c) Negatively Sloped (a) will always be a Optimal Firm.
(d) Kinked. (b) will never be an Optimal Firm.
(c) may or may not be an Optimal Firm.
Q 150. A Monopolist who faces a negatively sloped (d) will leave the industry.
demand curve operates in the region where the
elasticity of demand is — Q 158. Monopolies are allocatively inefficient because
(a) Less than one (b) Equal to one (a) they restrict the output to keep the price higher
(c) Greater than one (d) Between zero and one than under Perfect Competition.
(b) they charge a price higher than the Marginal Cost.
Q 151. In Monopoly, the relationship between (c) both (a) and (b) are correct.
Average and Marginal Revenue Curves is as follows: (d) both (a) and (b) are incorrect.
(a) AR Curve lies above the MR Curve.
(b) AR Curve coincides with the MR Curve.
4.12 | P a g e
(c) Economics of scale does not influence the price
Q 159. The degree of Monopoly Power is measured in (d) At the existing market rate
terms of difference between —
(a) Marginal Cost and Price Q 167. In Monopoly Market, the product has —
(b) Average Cost and Average Revenue (a) Perfect Substitutes
(c) Marginal Cost and Average Cost (b) No Close Substitutes
(d) Marginal Revenue and Average Cost (c) the same feature as Giffen Goods
Q 160. Which of these is not a feature of Monopoly? .
(a) Many Sellers (b) Many Buyers Q 168. Under Monopoly, in the short—run, the Firm
(c) No substitutes (d) Firm = Industry can never make Losses. This statement is —
(a) True (b) False
Q 161. Which of these is not a feature of Monopoly? (c) Partially True (d) None of the above
(a) Single Seller (b) Firm = Industry
(c) No substitutes (d) Elasticity of Demand = 0 Q 169. Under monopoly which of the following are
correct—
Q 162. Which of these does not apply to Monopoly? (a) AR&MR both are downward sloping
(a) Single Seller (b) MR lies half way between AR & Y axis
(b) Firm = Industry (c) MR can be zero or negative
(c) Free Entry and Exit of Firms (d) all of the above
(d) No substitutes
Q 170. Equilibrium Price of a Monopolist is -
Q 163.
Which of the following is not the (a) Less than Marginal Cost
characteristic of Monopoly? (b) Equal to Marginal Cost
(a) Many Buyers (c) Equal to Marginal Revenue
(b) Heterogeneous Products (d) More than Marginal Cost
(c) Free Entry of new Firms
(d) Both b & c Q 171. A Monopolist is able to maximize his profits
when —
Q 164. Which of the following features is not (a) His output is maximum
associated with a Monopoly market structure? (b) He charges a high price
(a) There is only one seller in the market (c) His average cost is minimum
(b) There are no close substitutes for the product (d) His Marginal Cost is equal to Marginal Revenue
(c) There are barriers to entry
(d) There are no close complements for the product Q 172. If Marginal Revenue exceeds Marginal Cost, a
Monopolist should —
Q 165. All of the following are characteristics of a (a) increase output.
Monopoly except — (b) decrease output.
(a) There is a single Firm (c) keep output the same because profits are
(b) The Firm is a Price Taker maximized when Marginal Revenue exceeds
(c) The existence of some advertising Marginal Cost.
(d) The Firm produces a unique product (d) raise the price.
Q 166. Economics of Scale allows the Monopolist to Q 173. Under Monopoly, in the short—run, if AR > AC
set a _______ price than any new entrant. at the point when MC = MR, it means that the Firm —
(a) Higher (a) Normal Profits only
(b) Lower (b) Super Normal Profits
4.13 | P a g e
(c) Losses
(d) All of the above. Q 180. Price Discrimination in a Monopoly is described
as —
Q 174. Under Monopoly, in the short—run, if AR < AC (a) Same product selling at different prices since the
at the point when MC = MR, it means that the Firm — costs of production are different
(a) Normal Profits only (b) Same product selling at different prices though the
(b) Super Normal Profits costs of production are same
(c) Losses (c) Different products having same price though costs
(d) All of the above. of production are same
(d) Different products having different prices since
Q 175. Under Monopoly, in the short—run, the Firm costs of production are different
will never shut—down. This statement is —
(a) True (b) False Q 181. Objectives of price discrimination in
(c) Partially True (d) None of the above international market is—
(a) To capture foreign markets
Q 176. Under Monopoly, in the short—run, the (b) To dispose of surplus stock
condition for shut—down is — (c) To earn maximum profit
(a) AR < AC (b) AR > AC (d) All of the these
(c) AR > AVC (d) AR < AVC
Q 182. Price discrimination will not be profitable if
Q 177. If a Monopolist is operating at a production elasticity of demand is_____ in different markets.
level where Marginal Cost is 10 and Marginal Revenue is (a) Uniform (b) Different
25, what action you would suggest to him? (c) Less (d) Zero
(a) To reduce the price to 20
(b) To increase the costs by ' 4 Q 183. Discriminating Monopoly implies that the
(c) To increase output till Marginal Revenue would Monopolist charges different prices for his commodity
equal Marginal Cost —
(d) To stop production (a) From different groups of consumers
(b) For different uses
Q 178. When different prices are charged by the (c) At different places
Producer, from different customers, it is called (d) Any of the above
(a) Demand Supply Equilibrium
(b) Price Discrimination Q 184. Which of these is not a pre—requisite for Price
(c) Optimum Price Search Discrimination?
(d) Profiteering (a) Seller's Control over the supply of his product
(b) Market Segmentation
Q 179. A Monopolist who is selling in two markets in (c) Differing Elasticity in various market segments
which demand is not identical will be unable to (d) Different versions of the same product
maximize his profits unless he —
(a) Sells below Costs of Production in both markets. Q 185. The price discrimination under monopoly will
(b) Practices Price Discrimination. be possible under which of the following conditions?
(c) Equates the volume of sales in both markets. (a) The seller has no control over the supply of his
(d) Equates Marginal Costs with Marginal Revenue in product
one market only. (b) The market has the same conditions all over
(c) The price elasticity of demand is different in
different markets
(d) The price elasticity of demand is uniform
4.14 | P a g e
(e) —
Q 186. Which of these is a pre—requisite for Price (a) e = 1 (b) e < 1
Discrimination? (c) e > 1 (d) e = 0
(a) Divisibility of Market into segments
(b) No scope of re—sale between segments Q 192. Under Price Discrimination, the Producer Firm
(c) Differing Elasticity in various market segments may charge lower prices from a market, if Price
(d) All of the above Elasticity (e)
(a) e = 1 (b) e < 1
Q 187. Which of the following is a condition which (c) e > 1 (d) e = 0
makes Price Discrimination possible?
(a) The market must be divided into sub markets with Q 193. For price discrimination to be successful, the
different price elasticities elasticity of demand for the commodity in the two
(b) There has to be an effective separation of the markets, should be:{Omit this question}
submarkets (a) Same
(c) Size of the submarkets should be very large (b) different
(d) Both a and b above (c) Constant
(d) Zero
Q 188. Barriers to entry like_________allows the
Monopolist to charge a price much below then the price Q 194. Price Discrimination is not possible if the market
of new entrant, thereby driving the new entrant out of is an indivisible whole of Buyers. This statement is —
business. (a) True
(a) Economics of Scale (b) False
(b) Product Differentiation (c) Partially True
(c) Price Discrimination (d) None of the above
(d) High Quality Product
Q 195. For practicing Price Discrimination, the Seller
Q 189. Why is first degree price discrimination termed should be able to divide his market into two or more
as the extreme form of price discrimination — sub—markets. The statement is —
(a) All the Firms in the industry undertake price (a) True
discrimination (b) False
(b) Firms in the industry discriminate in price for almost (c) Partially True
all the products they are producing (d) None of the above
(c) Firms earn the least profit in this type of
discrimination; they are just able to cover the cost Q 196. Price Discrimination is possible —
(d) In this type of discrimination Firms charge the (a) Only under Monopoly situation
consumers the maximum price (b) Under any market form
(c) Only under Oligopoly
Q 190. Which of the following statements in not true (d) Only under Perfect Competition
about a discriminating Monopolist?
(a) He operates in more than one market Q 197. Discriminating Monopoly is possible if two
(b) He makes more profit because he discriminates markets have
(c) He maximizes his profits in each market (a) Rising Cost Curves
(d) He charges different prices in each market (b) Rising and declining Cost Curves
(c) Different Elasticities of Demand
Q 191. Under Price Discrimination, the Producer Firm (d) Equal Elasticities of Demand
can charge higher prices from a market, if Price
Elasticity
4.15 | P a g e
Q 198. Which of the following is false with reference to Q 204. Under Monopolistic Competition, each Firm's
first—degree price discrimination? control over price is —
(a) The Monopolist will be able to extract entire (a) Nil
Consumer's Surplus (b) Full and Absolute
(b) The price of each unit will be different (c) Reasonable
(c) By following first degree price discrimination, the (d) None of the above.
Monopolist will earn higher profits than he would
have earned by adopting a single price Q 205. Under Monopolistic Competition, Price
(d) The price of the first unit will be less than that of Elasticity of Demand is —
the subsequent units (a) Nil (b) Less Elastic
(c) More Elastic (d) Infinity
Monopolistic Competition Q 206. Under Monopolistic Competition, the Firm's

Demand Curve is —
Q 199. Under Monopolistic Competition, there are (a) Horizontal Line, parallel to X Axis
_______Sellers. (b) Vertical Line, parallel to Y Axis
(a) Many (b) Only one (c) Negatively Sloped
(c) A Few (d) No (d) Kinked.
Q 200. Under Monopolistic Competition, the product is Q 207. Under Monopolistic Competition, a Firm can
(a) Differentiated earn _______ in the long—run.
(b) Homogeneous (a) Normal Profits only (b) Super Normal Profits
(c) Necessity Goods (c) Losses (d) All of the above.
(d) Always Intangible
Q 208. Which of the following markets has the
Q 201. A market structure in which many firms sell concept of group equilibrium in long—run?
product that are similar, but not identical. (a) Monopoly
(a) Monopolistic Competition (b) Perfect competition
(b) Monopoly (c) Monopolistic competition
(c) Perfect Competition (d) Oligopoly
(d) Oligopoly
Q 209. 'Excess Capacity' is the essential characteristic
Q 202. Selling outlay is an essential part of which of of the Firm in the market form of —
the following market situation (a) Monopoly
(a) Monopolistic Competition (b) Perfect Competition
(b) Perfect Competition (c) Monopolistic Competition
(c) Monopoly (d) Oligopoly
(d) Pure Competition
Q 210.
N on-price competition in popular sense called —
Q 203. Under Monopolistic Competition, each Firm is (a) Monopoly market
a_________ (b) Oligopoly market
(a) Price Maker (c) Monopolistic competition
(b) Price Taker (d) Perfect competition
(c) Price Maker for its own product.
4.16 | P a g e
(d) Pure Competition.
Q 211. Which of these does not apply to Monopolistic
Competition? Q 218. A Firm under Monopolistic Competition
(a) Large Number of Buyers advertises —
(b) Large Number of Sellers (a) to compete successfully with the rival Firms
(c) Product Differentiation (b) to lower cost of production
(d) Price Competition (c) to increase sales and profit
(d) because it cannot raise price
Q 212. Which of these does not apply to Monopolistic
Competition? Q 219. Through more advertising, a monopolistically
(a) Product Differentiation competitive Firm has successfully created more demand
(b) Free entry /exit for its product. It would have resulted in shifting of —
(c) Large Number of Buyers (a) AC Curve upward
(d) Single Seller (b) MR Curve to the left
(c) AC Curve upward and MR curve to the left
Q 213. Which of the following is not a feature of (d) AC Curve upward and MR curve to the right
Monopolistic Competition?
(a) Large Number of Sellers Q 220. Under Monopolistic Competition, Price
(b) Product differentiation Discrimination is not possible at all. This statement is —
(c) Non—Price competition (a) True (b) False
(d) None of these (c) Partially True (d) None of the above
Q 214. Which of the following is not a characteristic Q 221. Which of these does not apply to Monopolistic
feature of Monopolistic Competition? Competition?
(a) Many Buyers and Sellers (a) Aggressive Advertising and Publicity
(b) Identical Products (b) Product improvement and Development
(c) Easy entry and exit of Firms (c) Price Competition
(d) Firms take other Firms' prices as given (d) Efficient after—sales service
Q 215. Which of these applies to Monopolistic Q 222. Under Monopolistic Competition, in the short—
Competition? run, the Firm can never make Losses. This statement is
(a) Price Competition —
(b) Restrictions in entry /exit (a) True (b) False
(c) Large Number of Sellers (c) Partially True (d) None of the above
(d) Homogeneous Product
Q 223. Under Monopolistic Competition, the Firm can
Q 216. Under Monopolistic Competition, each Seller earn _________in the short—run.
tries to develop Brand Loyalty for his product. This (a) Normal Profits only
statement is — (b) Super Normal Profits
(a) True (b) False (c) Losses
(c) Partially True (d) None of the above (d) All of the above.
Q 217. The sale of branded articles is common in a Q 224. In short run, a Firm in Monopolistic Competition
situation of —
(a) Excess Capacity. (a) always earns profits
(b) Monopolistic Competition. (b) incurs losses
(c) Monopoly. (c) earns normal profit only
4.17 | P a g e
(d) may earn normal profit, super normal profit or incur (c) In the rising segment of the LAC Curve.
losses (d) when price is equal to Marginal Cost.
Q 225. In long—run, all Firms in Monopolistic Q 232. Under Monopolistic Competition, in the long—
Competition — run, resources —
(a) earn super normal profits (a) will be fully used
(b) earn normal profits (b) may be partially used
(c) incur losses (c) may not be used at all
(d) may earn super normal profit, normal profit or in (d) will not be required at all
incur losses
Q 233. Monopolistic Competition differs from Perfect
Q 226. In the short run equilibrium of a Firm in Competition primarily because —
Monopolistic Competition, which Curve is U shaped? (a) In Monopolistic Competition, Firms can differentiate
(a) AR (b) AC their products
(c) MR (d) MC (b) In Perfect Competition, Firms can differentiate their
products
Q 227. Under Monopolistic Competition, in the short— (c) In Monopolistic Competition, entry into the industry
run, the condition AR = MR = MC = AC, means that the is blocked
Firm is earning — (d) In Monopolistic Competition, there are relatively
(a) Normal Profits only (b) Super Normal Profits few barriers to entry
(c) Losses (d) All of the above.
Q 234. The long—run equilibrium outcomes in
Q 228. In Monopolistic Competition, the long—run Monopolistic competition and Perfect Competition are
equilibrium price will be equal to — similar, because in both market structures —
(a) Marginal Revenue (a) The efficient output level will be produced in the
(b) Average Cost long run
(c) Marginal Cost (b) Firms will be producing at minimum average cost
(d) Both (a) and (c) (c) Firms will only earn a normal profit
(d) Firms realize all economies of scale
Q 229. Under Monopolistic Competition, in the long—
run, if MC = MR and LAC = LAR, then the industry is said Oligopoly
to be — Q 235. Under Oligopoly, there are Sellers.
(a) Growing (b) in troubled times (a) Many (b) Only one
(c) in Equilibrium (d) inefficient (c) A Few (d) No
Q 230. In the long—run, Industry Equilibrium is Q 236. ________is a situation is which a firm bases its
achieved in Monopolistic Competition only at the lowest market policy on part of the expected behavior of a few
point of LAC Curve. This statement is close rivals-
(a) True (a) monopoly (b) oligopoly
(b) False (c) perfect competition (d) monopolish
(c) Partially True
(d) None of the above Q 237. Which one of the following is the best example
of agreement between Oligopolists?
Q 231. In Monopolistic Competition, a Firm is in long (a) GATT (b) OPEC
run equilibrium —{Omit this Question} (c) WTO (d) UNIDO
(a) at the minimum point of the LAC Curve.
(b) in the declining segment of the LAC Curve.
4.18 | P a g e
Q 238. If Firms in the Toothpaste Industry have the
following market shares, which market structure would Q 243. Which of the following most closely
best describe the industry? approximates the definition of an Oligopoly?
Firm Market Share% (a) Tobacco Industry
White Shine Ltd 29.8 (b) Vehicle manufacturers in India
White Teeth Ltd 18.7 (c) Rice Producers
More White Teeth Ltd 14.3 (d) Readymade Garments units in a city
Sure Health Ltd 11.6
Bright Teeth Ltd 9.4 Q 244. Pure Oligopoly is one where —
Dental Care Ltd 8.8 (a) There are many sellers producing homogeneous
Brighter than White Ltd 7.4 product
Total 100.0 (b) There are many sellers producing differentiated
product
(a) Perfect Competition (c) There are few sellers producing homogeneous
(b) Monopolistic Competition product
(c) Oligopoly (d) There are few sellers producing differentiated
(d) Monopoly product
Q 239. One characteristic not typical of Oligopolistic Q 245. Oligopolistic Industries are characterized by
Industry is (a) A few dominant Firms and substantial barriers to
(a) Horizontal Demand Curve entry
(b) Too much importance to Non—Price Competition (b) A few large Firms and no entry barriers
(c) Price Stickiness (c) A large number of small Firms and no entry barriers
(d) A small number of Firms in the industry (d) One dominant Firm and low entry barriers
Q 240. Under Oligopoly, each Firm's control over Q 246. In which of the following, a Kinked Demand
price is — Curve can be seen in a Firm?
(a) Nil (a) Monopolistic competition
(b) Full and Absolute (b) Monopoly
(c) Subject to Competing Firms' Strategies (c) Duopoly
(d) None of the above. (d) Oligopoly
Q 241. Under Oligopoly, the Firm's Demand Curve is Q 247. Which of these does not apply to Oligopoly?
— (a) A Few Sellers
(a) Horizontal Line, parallel to X Axis (b) Inter—dependence between Sellers
(b) Vertical Line, parallel to Y Axis (c) Only one Buyer
(c) Negatively Sloped (d) Group Behaviour between Sellers
(d) Kinked.
Q 248. One characteristic not typical of Oligopolistic
Q 242. Oligopoly is the market from in which there industry is
are (a) Too much importance to Non—Price Competition
(a) Many Sellers and many Buyers (b) Price Leadership
(b) One Seller and many Buyers (c) Horizontal Demand Curve
(c) Few Sellers and many Buyers (d) A small number of Firms in the industry
Q 249. Which of these applies to Oligopoly?
(a) A Few Sellers
4.19 | P a g e
(b) Group Behaviour between Sellers
(c) Non—Price Competition Q 256. As per Kinked Demand Curve Theory of
(d) All the above Oligopoly, the Kink is formed at —
(a) Prevailing Price
Q 250. Duopoly is a specific form where are — (b) Higher than Prevailing Price
(a) No Sellers at all (c) Lower than Prevailing Price
(b) Only one Seller (d) Origin
(c) Two Sellers
(d) Large Number of Sellers Q 257. As per Kinked Demand Curve Theory of
Oligopoly, the demand above the Kink is —
Q 251. The American Economist Sweezy developed (a) more elastic
the — (b) less elastic
(a) Production Possibility Curve concept (c) unit elastic
(b) Diminishing Marginal Utility Theory (d) zero elastic
(c) Kinked Demand Curve Theory
(d) Price Discrimination Theory Q 258. As per Kinked Demand Curve Theory of
Oligopoly, the demand below the Kink is —
Q 252. When an Oligopolistic Firm changes its price, (a) more elastic
its rival Firms — (b) less elastic
(a) will retaliate or react and change their prices (c) unit elastic
(b) will not react at all (d) zero elastic
(c) will exit the market
(d) will appeal to the Government Q 259. The upper part of kinked demand curve is — Q 26
(a) Elastic
Q 253. A Price War in an Oligopoly refers to — (b) Inelastic
(a) Successive and continued price cuts by the Firms to (c) Perfectly Elastic
increase sales and revenues (d) Unitary Elastic
(b) Free gift offers by all Firms on a competitive basis
(c) Flooding the market with its goods by one Firm Q 260. What does the Kinked Demand Curve explain?
leading to price reduction by others (a) Price Differentiation
(d) Increase in the price by one Firm and other Firms (b) Other than Price Competition
following in a reverse way by decreasing their prices (c) Rivalry reactions in an Oligopoly
Q 254.A Firm under ________ cannot have sure and
definite Demand Curve. Q 261. A Firm having a Kinked Demand Curve
(a) Perfect Competition indicates that
(b) Monopoly (a) If the Firm increases the price, competitive Firms
(c) Monopolistic Competition reduce the price
(d) Oligopoly. (b) If the Firm increases the price, competitive Firms
also increase the price
Q 255. Under Oligopoly, if one Firm reduces its prices, (c) If the Firm reduces the price, competitive Firms do
the other Firms will generally — not reduce the price
(a) reduce their prices (d) If the Firm increases the price, competitive Firm do
(b) increase their prices not increase the price
(c) not react at all
(d) exit the market.
4.20 | P a g e
Q 262. The Kinked Demand Hypothesis is designed to Q 268. If the Demand Curve confronting an individual
explain in the context of Oligopoly — Firm is perfectly elastic then
(a) Price and Output Determination (a) The Firm is a Price Taker
(b) Price Rigidity (b) The Firm cannot influence the Price
(c) Price Leadership (c) The Firm's Marginal Revenue Curve coincides with
(d) Collusion among Rivals Average Revenue Curve
Q 263. The Kinked Demand Curve model assumes
that price elasticity of demand — Q 269. Kinked demand curve of the Oligopoly
(a) Is higher for a price increase than for a price indicates
decrease I. If one firm decreases price other firms also
(b) Is lower for a price increase than for a price increase decreases the price
(c) Is perfectly elastic for a price increase perfectly II. If one firm increases price other firms also increases
inelastic for a price decrease the price
(d) Is perfectly inelastic for a price increase and III. If one firm decreases the price other firms does not
perfectly elastic for a price increase decrease the price.
IV. If one firm increases the price other firms does not
Q 264. The demand curve of an oligopolist is increase the price.
(a) Determinate (b) Indeterminate (a) Only I
(c) Circular (d) Vertical (b) II and IV
(c) I and IV
Q 264. Kinky demand curve model explains the (d) II and III
market situation known as
(a) Pure Oligopoly
(b) Collusive oligopoly
(c) Differentiated Oligopoly
(d) Price rigidity
Q 266. The Kinked Demand Curve model of Oligopoly

assumes that —
(a) Response to a price increase is less than the
response to a price decrease
(b) Response to a price increase is more than the
response to a price decrease
(c) Elasticity of demand is constant regardless of
whether price increases or decreases
(d) Elasticity of demand is perfectly elastic if price
increases and perfectly inelastic if price decreases.
Q 267. In Oligopoly, why it difficult to determine the

equilibrium price and output?
(a) All the Firms take their independent decisions
(b) Firms are interdependent making it difficult to
specify the particular reaction of the rivals
(c) Very few Firms exist in the market
(d) A large number of Firms exist in the market
4.21 | P a g e
Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n
1 C 52 A 103 D 154 D 205 C 256 A
2 D 53 D 104 D 155 A 206 C 257 A
3 C 54 D 105 C 156 B 207 A 258 B
4 D 55 B 106 C 157 C 208 C 259 A
5 B 56 B 107 D 158 C 209 C 260 C
6 C 57 B 108 A 159 A 210 C 261 D
7 D 58 C 109 B 160 A 211 D 262 B
8 B 59 B 110 D 161 D 212 D 263 B
9 C 60 B 111 D 162 C 213 D 264 B
10 A 61 B 112 A 163 C 214 B 265 D
11 A 62 A 113 A 164 D 215 C 266 A
12 B 63 D 114 C 165 B 216 A 267 B
13 D 64 A 115 C 166 B 217 B 268 D
14 D 65 A 116 A 167 B 218 C 269 C
15 A 66 A 117 B 168 B 219 C
16 D 67 A 118 D 169 D 220 B
17 C 68 A 119 B 170 D 221 C
18 D 69 D 120 A 171 D 222 B
19 C 70 B 121 C 172 A 223 D
20 D 71 D 122 D 173 B 224 D
21 D 72 D 123 A 174 C 225 B
22 B 73 B 124 A 175 B 226 B
23 B 74 A 125 C 176 D 227 A
24 B 75 C 126 B 177 C 228 B
25 C 76 C 127 C 178 B 229 C
26 A 77 D 128 A 179 B 230 B
27 B 78 D 129 C 180 B 231 B
28 D 79 D 130 D 181 D 232 B
29 D 80 B 131 A 182 A 233 A
30 D 81 D 132 C 183 D 234 C
31 A 82 B 133 C 184 D 235 C
32 D 83 D 134 B 185 C 236 B
33 A 84 C 135 A 186 D 237 B
34 A 85 C 136 A 187 D 238 C
35 D 86 D 137 A 188 A 239 A
36 A 87 B 138 A 189 D 240 C
37 B 88 B 139 A 190 C 241 D
38 A 89 D 140 A 191 B 242 C
39 C 90 A 141 D 192 C 243 B
40 C 91 A 142 C 193 B 244 C
41 C 92 A 143 B 194 A 245 A
42 D 93 D 144 C 195 A 246 D
43 A 94 A 145 A 196 A 247 C
44 D 95 B 146 B 197 C 248 D
45 C 96 A 147 D 198 D 249 D
46 A 97 B 148 B 199 A 250 C
47 D 98 D 149 C 200 A 251 C
48 B 99 D 150 A 201 A 252 A
49 A 100 A 151 A 202 A 253 A
50 A 101 B 152 B 203 D 254 D
51 A 102 C 153 B 204 C 255 A
4.22 | P a g e
Q.8. Market which have two firms are known as
Chapter 4- Market & Its Forms (a) Oligopoly (b) Duopoly
(c) Monopsony (d) Oligopsony
Q.1. Which of the following is not an essential condition
of pure competition? Q.9. Monopolist can determine :
(a) Large number of buyers and sellers (a) Price (b) Output
(b) Homogeneous product (c) Either price or output (d) None
(c) Freedom of entry
(d) Absence of transport cost Q.10. MR of n th unit is given by :
(a) 𝑇𝑅𝑛 /𝑇𝑅𝑛−1 ， (b) 𝑇𝑅𝑛 +𝑇𝑅𝑛−1
Q.2. Under which of the following forms of market (c) 𝑇𝑅𝑛 -𝑇𝑅𝑛−1 (d) All of these
structure does a firm has no control over the price of its
product : Q.11. The market structure in which the number of
(a) Monopoly sellers is small and there is inter dependence in decision
(b) Oligopoly making by the firms is known as :
(c) Monopolistic competition (a) Perfect competition (b)Oligopoly
(d) Perfect competition (c)Monopoly (d) Monopolistic competition
Q.12. In perfect competition, since the firm is a price
1
Q.3. Given the relation MR = 𝑀𝑅 = 𝑃 (1 − 𝑒) if e > taker, the _______ curve is a straight line:
1then: (a) Marginal cost (b) Total cost
(a) MR>0 (b) MR <0 (c) Total revenue (d) Marginal revenue
(c) MR=0 (d) None
𝑒 −1
Q.13. Given the relation MR = 𝑃 ( 𝑒
), if e < 1, then:
Q.4. Profits of the firm will be more at : (a) MR<0 (b) MR > 0
(a) MR=MC (c) MR = 0 (d) None of these.
(b) Additional revenue from extra unit equals its
additional cost Q.14. For a discriminating monopolist the condition for
(c) Both of above equilibrium is:
(d) None (a) MR >MC (b) MR, = MR,
(c) MR, = MR, = MC (d) All of the above.
Q.5. What should firm do when Marginal revenue is
greater than marginal cost? Q.15. Average revenue curve is also known as:
(a) Firm should expand output (a) Profit curve (b) Demand curve
(b) Effect should be made to make them equal (c) Supply curve (d) Average cost curve.
(c) Prices should be covered down
(d) All of these Q.16. Given, AR = 5 and Elasticity of demand = 2 Find
MR.
Q.6. Under monopoly price discrimination depends upon (a) + 2.5 (b)-2.5
(a) Elasticity of demand for commodity (c) +1.5 (d) +2.0
(b) Elasticity of supply for commodity
(c) Size of market Q.17. If a seller obtains ₹3,000 after selling 50 units and
(d) All of above ₹3,100 after selling 52 units, then marginal revenue will
be
Q.7. Firms in a monopolistic market are price _______. (a) ₹59.62 (b) ₹50.00
(a) Takers (b) Givers (c) ₹60.00 (d) ₹59.80
(c) Makers (d) Acceptors
4.23 | Page
Q.18. A firm will close down in the short period, if its AR (b) A firm will be making maximum profits by expanding
is less than : output to the level where marginal revenue is equal
(a) AC (b) AVC to marginal cost.
(c) MC (d) None of the above (c) Both (a) and (b)
(d) None of these
Q.19. Which one of the following expressions is correct
for Marginal Revenue? Q.27. Market consists of
1−𝑒 (a) Buyer and Seller
(a) MR = 𝐴𝑅 ( 𝑒 ) (b) MR =𝑇𝑅𝑛 - 𝑇𝑅𝑛+1
𝛥𝑇𝑅 𝑇𝑅 (b) One price for one product at a given time
(c) MR = 𝛥𝑄 (d) MR = 𝑄 (c)Both (a) and
(d) None
Q.20. The market for ultimate consumer is known as:
(a) Wholesale market (b) Regulated market Q.28. Demand for a product is unitary elastic then
(c) Unregulated market (d) Retail market (a) MR=0 (b) MR > 0
(c) MR < 0 (d) None of the above
Q.21. For a firm to become profitable it should expand
output whenever: Q.29. Which of the following is true, when the firm is at
(a) Marginal revenue is equal to marginal cost equilibrium?
(b) Marginal revenue is less than marginal cost (a) MC < MR
(c) Marginal revenue is greater than marginal cost (b) MC curve cuts the MR curve from below
(d) Average revenue is greater than average cost. (c) Both (a) and (b)
Q.22. On the basis of nature of transactions, a market
may be classified into: Q.30. When TR is at its peak then MR is equal to -
(a) Spot market and future market (a) Zero (b) Positive
(b) Regulated market and unregulated market (c) Negative (d) None of the above
(c) Wholesale market and retail market
(d) Local market and national market. Q.31. When price is ₹20, Quantity demanded is 10 units
and price is decreased by 5% then quantity demand
Q.23. In very short period market: increased by 10% then Marginal revenue is _______.
(a) Supply changes but demand remains same (a) ₹10 (b) ₹11
(b) Supply changes but price remains same (c) ₹9 (d) ₹20
(c) Supply remains fixed
(d) Supply and demand both changes Q.32. Which of the following represents the supply curve
in a perfect competitive market?
Q.24. firm will close down in the short period, if its AR is (a) MC curve (b) AC curve
less than: (c) AR curve (d) R curve
(a) AC (b) AVC
(c) MC (d) None of the above. Q.33. When TR is man, then MR is
(a) Zero (b) One
Q.25. Which of the following is correct? (c) Both (a) & (b) (d) None
(a) MR = AR (e -1)/e (b) MR = AR (e +1)/e
(c)MR = AR (1- e)/e (d) None of the above Q.34. _________ is also called a free market as there
are no stipulations on the transactions
Q.26. According to Behavioural Principles. (a) Unregulated (b) Regulated
(a) A firm should not produce at all if its total variable (c) Retail (d) Spot
costs are not met.
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Q.35. In this market, transactions involve contracts with Q.44. An increase in supply with demand remaining the
a promise to pay and deliver goods at some future date same, brings about.
(a) Spot market (b) Future market (a) An increase in equilibrium quantity and decrease in
(c) Unregulated market (d) Retail market equilibrium price.
(b) An increase in equilibrium price and decrease in
Q.36. A firm reaches its shut down point equilibrium quantity
(a) When price is less than AVC in long run. (c) Decrease in both equilibrium price and quantity.
(b) When price is less than AVC in short run. (d) None of these.
(c) When price is more than AC in long run.
(d) When price is more than AC in short run. Q.45. When the price of a commodity is ₹20, the
quantity demanded is 9 units and when its price is ₹19,
Q.37. Demand of good increases from 15 units to 16 the Quantity demanded is 10 units. Based on this
units if price decreases from T 40 to ¥ 38. What will be information what will be the marginal revenue resulting
MR of 16" units. from an increase in output from 9 units to 10 units?
(a) 8 (b) 16 a) ₹20 (b) ₹19
(c) 38 (d) 15 (c) ₹10 (d) ₹01
Q.38. For maximum profit, the condition is : Q.46. If the price of a commodity is fixed, then with
(a) AR = AC (b) MR = MC every increase in its sold quantity the total revenue will
(c) MR = AR (d) MC = AR ______ and the marginal revenue will _______
(a) Increase, also increase
Q.39. Equilibrium price may be determined through: (b) Increase, remain unchanged
(a) Only demand (b) Only supply (c) Increase, decline
(c) Both demand & supply (d) None (d) Remain fixed, increase.
Q.40. If price is forced to stay below equilibrium price Q.47. If supply decreases and demand remains constant,
then consequently it can be said that: then equilibrium price will be?
(a) Excess supply exists. (b)Excess demand exists (a) Increases (b) Decreases
(c) Either (a) or (b) (d)Neither (a) nor (b) (c) No change (d) Become Negative
Q.41. An increase in supply with unchanged demand Q.48. According to pigou, first degree price
leads to : discrimination charges price to;
(a) Rise in price and fall in quantity (a) Individual capacity (b) Quantities sold
(b) Fall in both price and quantity (c) Location (d) None of the above
(c) Rise in both price and quantity
(d) Fall in price and rise in quantity Q.49. What is the shape of monopolist Average Revenue
Curve?
Q.42. In the long run: (a) Falls from left to right (b) Is parallel to X — axis
(a) Only demand can change (c) Is parallel to Y — axis (d) Rise from left to right
(b) Only supply can change
(c) Both demand and supply can change Q.50. What is the shape of perfectly competitive
(d) None of these Average Revenue Curve?
(a) Parallel to X axis (b) Parallel to Y axis
Q.43. Condition for producer equilibrium is : (c) Fall from left to right (d) Rise from left to right
(a) TR=TVC (b) MC = MR
(c) TC=TAC (d) None of these Q.51. Monopsony means
(a) Where there are large firms
4.25 | Page
(b) There is a single buyer (c) Highly inelastic (d) Zero
(c) Small number of large buyers
(d) Single seller and single buyer Q.59. When AR = ₹10 and AC = ₹8 the firm makes
________.
Q.52. When increase in demand is equal to increase in (a) Normal profit (b) Net profit
supply and equilibrium price remains constant, then (c) Gross profit (d) Supernormal profit
what about equilibrium quantity?
(a) Increases (b) Decreases Q.60. What are the conditions for the long run
(c) Remains Constant (d) None of the above equilibrium of the competitive firm?
(a) LMC=LAC=P (b) SMC = SAC = LMC
Q.53. An increase in supply with demand remaining the (c) P =MR (d) All of these
same, brings about
(a) An increase in equilibrium quantity and decrease in Q.61. Kinked demand curve hypothesis is given by:
equilibrium price. (a) Alfred marshal (b) A.C Pigou
(b) An increase in equilibrium price and decrease in (c) Sweezy (d) Hicks & Allen
equilibrium quantity.
(c) Decrease in both equilibrium price and quantity. Q.62. Supernormal profits occur, when :
(d) None of these (a) Total revenue is equal to total cost
(b) Total revenue is equal to variable cost
Q.54. A competitive firm in the short run incur losses. (c) Average revenue is more than average cost
The firm continues production, if: (d) Average revenue is equal to average cost
(a) P > AVC (b) P = AVC
(c) P < AVC (d) P >= AVC Q.63. If under perfect competition, the price line lies
below the average cost curve, the firm would : Incur
Q.55. Under _______ market condition, firms make losses
normal profits in the long run: (a) Make only Normal profits
(a) Perfect competition (b) Monopoly (b) Incur losses
(c) Oligopoly (d) None (c) Make abnormal profit
(d) Profit cannot be determined
Q.56. A monopolist is able to maximize his profits when :
(a) His output is maximum Q.64. The MR curve cuts the horizontal line between Y
(b) He charges a high price axis and demand curve into:
(c) His average cost is minimum (a) Two unequal parts
(d) His marginal cost is equal to marginal revenue (b) Two equal parts
(c) May be equal or unequal parts
Q.57. Under which of the following market structure AR (d) None of these
of the firm will be equal to MR?
(a) Monopoly Q.65. Kinked demand curve is observed in _______.
(b) Monopolistic Competition (a) Duopoly market (b) Monopoly market
(c) Oligopoly Perfect (c) Competitive market (d) Oligopoly market.
(d) Competition
Q.66. Competitive firms in the long run earn:
Q.58. Under Monopolistic competition the cross (a) Super normal profit (b) Normal profit
elasticity of demand for the product of a single firm (c) Losses (d) None
would be:
(a) Infinite (b) Highly elastic
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Q.67. For a monopolist, the necessary condition for Q.76. MR Curve = AR = Demand Curve is a feature of
equilibrium is: = which kind of Market?
(a) P = MC (b) P= MR = AR (a) Perfect Competition (b) Monopoly
(c) MR = MC (d) None (c) Monopolistic (d) Oligopoly
Q.68. A firm will shut down in the short run if : Q.77. In the long-run monopolist can:
(a) It is suffering a loss (a) Incur losses
(b) Fixed costs exceeds revenue (b) Must earn super normal profits
(c) Variable costs exceed revenues (c) Wants to shut-down
(d) Total costs exceed revenues (d) Earns only normal profits.
Q.69. _______ is the price at which demand for a Q.78. The demand curve of the firm and industry will be
commodity is equal to its supply : same in which form of market :
(a) Normal Price (b) Equilibrium Price (a) Monopolistic Competition
(c) Short run Price (d) Secular Price (b) Perfect Competition
(c) Monopoly
Q.70. OPEC is an example of : (d) Oligopoly.
(a) Monopolistic competition
(b) Monopoly Q.79. Oligopoly having identical products is:
(c) Oligopoly (a) Pure oligopoly (b) Imperfect oligopoly
(d) Duopoly (c) Price leadership (d) Collusion.
Q.71. _______ is an ideal Market. Q.80. The demand curve of oligopoly is :

(a) Monopoly (b) Monopolistic (a) Horizontal (b) Vertical
(c) Perfect Competition (d) Oligopoly (c) Kinked (d) Rising left to right
Q.72. Under which Market Situation demand curve is Q.81. Demand curve is equal to M. R. curve in which
linear and parallel to X axis : market?
(a) Perfect Competition (b) Monopoly (a) Oligopoly
(c) Monopolistic Competition (d) Oligopoly (b) Monopoly
Q.73. Which market have characteristic of product (d) Perfect Competition
differentiation?
(a) Perfect Competition (b) Monopoly Q.82. Kinked demand hypothesis is designed to explain
(c) Monopolistic Competition (d) Oligopoly _______ in context of oligopoly.
(a) Price and output determination
Q.74. Which of these are characteristics of Perfect (b) Price rigidity
Competition? (c) Collusion between firm
(a) Many Sellers & Buyers (d) All of the above
(b) Homogeneous Product
(c) Free Entry and Exit Q.83. Price discrimination can take place only in
(d) All of the above ________.
Q.75. The demand curve of oligopoly is : (b) Oligopoly
(a) Horizontal (b) Vertical (c) Perfect competition
(c) Kinked (d) Rising left to right (d) Monopoly
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Q.84. In oligopoly, the kink on the demand curve is more (d) Competitive firm always seeks to discriminate prices.
due to _______.
(a) Discontinuity in MR. Q.91. Under which of the following market structure AR
(b) Discontinuity in AR. of the firm will be equal to MR?
(c) Fulfilment of the assumption that a price cut is (a) Monopoly (b) Monopolistic Competition
followed by others and a price increase by a firm is (c) Oligopoly (d) Perfect Competition
not followed by others.
(d) Price war amongst the firms. Q.92. Tooth paste industry is an example of ______.
(a) Monopoly (b) Monopolistic Competition
Q.85. Price Discrimination is possible only when (c) Oligopoly (d) Perfect Competition
(a) Seller is alone
(b) Goods are homogeneous Q.93. OPEC is an example of :
(c) Market is controlled by the government (a) Monopolistic competition (b) Monopoly
(d) None of the above (c) Oligopoly (d) Duopoly
Q.86. Which of the following is not the feature of an Q.94. Monopolistic Competitive firms ______.
imperfect competition? (a) Are small in size
(a) Product differentiation (b) Few sellers (b) Have small share in total market
(c) Homogeneous products (d) Price wars (c) Are very large in size
(d) both (a) and (b)
Q.87. Price taker firms ______.
(a) Do not advertise their product because it misleads Q.95. The price discrimination under monopoly will be
the customers. possible under which of the following conditions?
(b) Advertise their products to boost the level of (a) The seller has no control over the supply of his
demand. product
(c) Do not advertise but give gifts along with the sold (b) The market has the same condition all over
items to attract customers (c) The price elasticity of demand is different in different
(d) Do not advertise because they can sell as much as markets 1 mark
they wish at the prevailing price (d) The price elasticity of demand is uniform.
Q.88. Price rigidity is a situation found in which of the Q.96. Oligopoly having identical products is known as
following market forms? (a) Pure oligopoly (b) Collusive oligopoly
(a) Perfect competition (c) Independent oligopoly (d) None of these
(b) Monopoly
(c) Monopolistic competition Q.97. Which of these is the best example of oligopoly?
(d) Oligopoly. (a) OPEC (b) SAARC
(c) WTO (d) GATT
Q.89. When elasticity of demand is Equal to one in
monopoly, marginal Revenue will be ______. Q.98. Monopolist can fix him price of goods whose
(a) Equal to one (b) Greater than one elasticity is
(c) Less than one (d) Zero (a) Less than 1 (b) More than 1
(c) Elastic (d) Inelastic
Q.90. Which one of the following statement is Incorrect?
(a) Competitive firms are price takers and not price Q.99. Kinked demand curve is observed in
makers. (a) Duopoly market (b) Monopoly market
(b) Price discrimination is possible in monopoly only. (c) Competitive market (d) Oligopoly market.
(c) Duopoly may lead to monopoly.
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Q.100. Perfectly competitive firm faces: Q.106. In monopolistic competition excess capacity in
(a) Perfectly elastic demand curve the firm
(b) Perfectly inelastic demand curve (a) Always exists (b) Sometimes exists
(c) Zero (c) Never exists (d) None of the above
(d) Negative
Q.107. Selling costs have to be incurred in case of:
Q.101. In perfect Competition when the firm is a price (a) Perfect Competition
taker, which curve among the following will be a (b) Monopolistic Competition
straight line? (c) Monopoly
(a) Marginal Cost (b) Average Cost (d) None of these.
(c) Total Cost (d) Marginal Revenue
Q.108. In market, the price and output equilibrium is
Q.102. "Price Discrimination" can be best exercised by determined on the basis of:
the Seller in _______. (a) Total revenue and total cost
(a) Oligopoly (b) Total cost and marginal cost
(b) Monopoly (c) Marginal revenue and marginal cost
(c) Monopolistic competition (d) Only marginal cost.
(d) perfect competition
Q.109. A perfect market is characterised by :
Q.103. In Oligopoly the kink in the demand curve is more (a) Existence of large number of buyers and sellers
due to ________ (b) Homogenous products
(a) Discontinuity in MR (c) Perfect knowledge of the market
(b) Discontinuity in AR (d) All of the above.
(c) Fulfilment of the assumption that a price fall is
followed by the other and a price increase by a firm Q.110. Which of the following IS not a feature of
is not followed by the other oligopoly market?
(d) Price war among the firms (a) Interdependence of the firms In decision making
(b) Price rigidity
Q.104. A firm encounters "shut down" point when (c) Group behaviour
________. (d) Existence of large number of firms.
(a) Marginal cost equals the price of the profit
maximising level of output Q.111. A monopolist can fix:
(b) Average fixed cost equals the price at the profit (a) Both price and output
maximising level of output (b) Either price or output
(c) Average variable cost equals the price at the profit (c) Neither price nor output
maximising level of output (d) None of the above.
(d) Average total cost equals the price at the profit
maximising level of output Q.112. In a perfectly competitive market, the demand
curve of a firm is:
Q.105. Under which market Condition firms make only (a) Elastic (b) Perfectly elastic
normal profits in the long run? (c) Inelastic (d) Perfectly inelastic
(a) Oligopoly
(d) Monopoly Q.113. In a competitive market, if price exceeds Average
(c) Monopolistic competition Variable Cost (AVC) but remains less than Average Cost
(d) Duopoly (AC) at the equilibrium, the firm is:
(a) Making a profit
(b) Planning to quit
4.29 | Page
(c) Experiencing loss but should continue production (c) Zero profit (d) Loss
(d) Experiencing loss but should discontinue production.
Q.122. Under which of the following forms of market
Q.114. Price under perfect competition is determined by structure does a firm has a very considerable control
the over the price of its product?
(a) Firm (b) Industry (a) Monopoly (b) Monopolistic Competition
(c) Government (d) Society. (c) Oligopoly (d) Perfect Competition
Q.115. Under monopoly, which of the following is Q.123. One of the essential conditions of Perfect
correct: Competition is :
(a) AR and MR both are downward sloping (a) Product differentiation
(b) MR lies halfway between AR and Y axis (b) Many sellers and few buyers
(c) MR can be zero or even negative (c) Only one price for identical goods at any one time
(d) All of the above. (d) Multiplicity of prices for identical product at any one
time
Q.116. Non price competition is very popular in:
(a) Monopoly market Q.124. The demand curve of an oligopolist is :
(b) Monopolistic competition (a) Determinate (b) Indeterminate
(c) Oligopolistic market (c) Circular (d) Vertical
(d) Perfect competition.
Q.125. Abnormal profits exist in the long run only under
Q.117. In the 'kinked demand' curve model, the upper _____
portion of the demand curve is: (a) Perfect competition
(a) Elastic (b) Inelastic (b) Monopoly
(c) Perfectly Elastic (d) Unitary Elastic. (c) Monopolistic competition
(d) Oligopoly
Q.118. Equilibrium price for an industry in perfect
competition is fixed through. Q.126. The distinction between a single firm and an
(a) Input and Output Industry vanishes in which of the following market
(b) Market demand and market Supply conditions?
(c) Market demand and firms supply (a) Perfect Competition (b) Imperfect Competition
(d) None of the above. (c) Pure Competition (d) Monopoly
Q.119. In a perfectly competitive market, if MR is Q.127. Selling outlay is an essential part of which of the
greater than MC, then a firm should following market situations?
(a) Increase its production (a) Perfect Competition
(b) Decrease its production (b) Monopoly
(c) Decrease its sales (c) Monopolistic Competition
(d) Increase its sales (d) Pure Competition.
Q.120. Kinked demand curve is related to which market Q.128. The Kinked demand curve model explains the
structure market situation
(a) Oligopoly (b) Monopoly (a) Pure Oligopoly (b) Differentiated Oligopoly
(c) Monopsony (d) Monopolistic competition. (c) Collusive Oligopoly (d) Price Rigidity
Q.121. In the long run a monopolist always earns

(a) Normal profit (b) Abnormal profit
4.30 | Page
Q.129. For price discrimination to be successful, the Q.134. In the long run, which of the following statement
elasticity of demand for the commodity in the two is true for a firm in a perfectly competitive industry?
markets should be : (a) It operates at its minimum average cost
(a) Same (b) Different (b) The price is more than the average fixed cost
(c) Constant (d) Zero (c) The marginal cost is greatest than marginal revenue
(d) The fixed cost is lower than the total variable cost
Q.130. The firm in a perfectly competitive market is a
price taker. This designation as a price taker is based on Q.135. The firm will attain equilibrium at a point where
the assumption that: MC curve cuts _______ from below.
a. The firm has some but not complete control over its (a) AR curve (b) MR curve
product price (c) AC curve (d) AVC curve.
b. There are so many buyers and sellers in the market
that any one buyer or seller cannot affect the Q.136. In a monopoly market, a producer has control
market only over:
c. Each firm produces a homogeneous product (a) Price of the commodity
d. There is easy entry into or exit from the market (b) Demand of the commodity
place. (c) Both (a) and (b)
(d) Utility of the product.
Q.131. A market structure in which many firms sell
products that are similar and identical is known as Q.137. One of the following is not correct about perfect
________. competition:
(a) Monopolistic competition (a) Purchase and Sale of homogeneous goods
(b) Monopoly (b) Existence of marketing costs
(c) Perfect competition (c) Absence of transportation costs
(d) Oligopoly (d) Perfect mobility of factors of production.
Q.132. A firm having kinked demand curve indicates Q.138. Kinked demand curve under oligopoly is designed
that: to show:
(i) If the firm reduces the price, competitive firms also (a) Price and output determination
reduce the price (b) Price rigidity
(ii) If the firm' Increases the price, competitive firms also (c) Price leadership
Increases the price (d) Collusion among rivals.
(iii) If the firm reduces the price, competitive firms do
not reduce the price Q.139. “I am making a loss, but with the rent I have to
(iv) If the firm increases the price, competitive firms do pay, I can’t afford to shut down at this point of time." If
not increase the price this entrepreneur is attempting to maximize profits or
(a) Only (i) above minimize losses.
(b) Both (i) and (iv) above (a) Rational, if the firm is covering its variable cost
(c) Both (ii) and (iv) above (b) Rational, if the firm is covering its fixed cost
(d) Both (ii) and (iii) above (c) Irrational, since plant closing is necessary to
eliminate losses
Q.133. Price discrimination will not be profitable, if the (d) Irrational, since fixed costs are eliminated if a firm
elasticity of demand is ________ in different markets shut down.
(a) Uniform (b) Different
(c) Less (d) Zero Q.140. Kinked demand curve is the demand curve of
(b) Monopoly
4.31 | Page
(c) Monopolistic Competition Q.147. The price elasticity of demand for a product is
(d) None of the above. infinite under:
(a) Perfect competition
Q.141. Price discrimination M” be profitable only if the (b) Monopolistic competition
elasticity of demand in different markets is (c) Monopoly
(a) Uniform (b) Different (d) Oligopoly.
(c) Less (d) Zero
Q.148. Comparing a Monopoly and Competitive firm the
Q.142. Under which of the following form of market Monopolist will:
structure does a firm have no control over the price of (a) Produce less and sell at a lower price
its production? (b) Produce more and sell at a lower price
(a) Monopoly (b) Monopolistic Competition (c) Produce less and sell at a higher price
(c) Oligopoly (d) Perfect Competition. (d) Produce zero and sell at a lower price.
Q.143. _________ is that situation in which a firm bases Q.149. The reason for the kinked demand curve is that:
its market policy, in part on the expected behaviour of a (a) The oligopolist believe that competitors will follow
few close rivals. output increases but not output reductions.
(a) Oligopoly (b) Monopolistic Competition (b) The oligopolist believe that competitors will follow
(c) Monopoly (d) Perfect Competition. price increases but not output reductions.
(c) The oligopolist believe that competitors will follow
Solve the question No. 91, 92 and 93 on the base of price cuts but not price rises.
following figure: (d) The oligopolist believe that competitors will follow
price increases but not output increases.
Q.150. A discriminating monopolist will charge a higher

price in the market in which the demand for its product
is .
(a) Highly elastic (b) Relatively elastic
(c) Relatively inelastic (d) Perfectly elastic.
Q.151. If a firm under monopoly wants to sell more, its

Q.144. In the above figure, curve E is the firm’s average revenue curve will be a line.
(a) Marginal Cost Curve (b) Average Cost Curve (a) Horizontal (b) Vertical
(c) Demand Curve (d) Marginal revenue (c) Downward sloping (d) Upward sloping
Curve.
Q.152. Who sets the price of the product under perfect
Q.145. Above figure represents a competition?
(a) Monopolist (a) Government (b) Consumers
(b) Perfectly competition industry (c) Sellers (d) Both buyers and sellers
(c) Perfectly competitive firm
(d) None of the above. Q.153. Which is the first order condition for the firm to
maximise the profit.
Q.146. In above figure, firms marginal revenue curve is (a) AC = MR (b) AC = AR
curve (c) MC = MR (d) MR = AR
(a) E (b) A
(c) F (d) B Q.154. Which market has the concept of 'group'
equilibrium in the long run?
4.32 | Page
(a) Oligopoly (b) A monopolist may restrict the output and raise the
(b) Monopoly price.
(c) Monopolistic competition (c) Commodities offered for sale under a perfect
(d) Perfect competition. competition will be heterogeneous.
(d) Product differentiation is peculiar to monopolistic
Q.155. Which of the following is incorrect? competition.
(a) Even monopolistic can earn losses.
(b) Firms in perfect competitive market is price taker. Q.162. Under perfect competition firm is described as:
(c) It is always beneficial for a firm in a perfectly (a) Price taker and not price maker
competitive market to discriminative prices. (b) Price maker and not price taker
(d) Kinked demand curve is related to an oligopolistic (c) Neither price maker nor price taker
market. (d) None of the above.
Q.156. Average revenue curve is also known as: Q.163. Under which of the following forms of market
(a) Profit Curve (b) Demand Curve structure does a firm have no control over the price of
(c) Average Cost Curve (d) Indifference Curve its product?
(a) Monopoly
Q.157. Which is not characteristic of monopoly? (b) Monopolistic Competition
(a) The firm is price taker (c) Oligopoly
(b) There is a single firm (d) Perfect Competition.
(c) The firm produces a unique product
(d) The existence of some advertising. Q.164. Condition for equilibrium of firm:
(a) MR = MC
Q.158. Price discrimination is profitable only when: (b) AR = AC
(a) Different markets are kept separate (c) MC curve cuts MR curve from below
(b) Distance between the consumer and the market is (d) Both (a) and (c)
more
(c) Elasticity of demand in different markets is different Q.165. What is/ are feature (s) of oligopoly
(d) The consumers are segregated on the basis of their (a) Kinked Demand curve
purpose of use of the commodity. (b) Cartel
(c) Downward sloping demand curve
Q.159. When the industry is dominated by one large (d) Both (a) and (b) are correct
firm which is considered as the leader of the group, the
market is described as: Q.166. Monopoly is undesirable due to:
(a) Open oligopoly (b) Perfect oligopoly (a) It has prices higher than competitive firms
(c) Partial oligopoly (d) Organised oligopoly. (b) It produces less output than competitive firms
(c) It discriminates on prices
Q.160. Which amongst the following is not an objective (d) All of the above.
of price discrimination?
(a) To hold the extra stocks Q.167. In long run equilibrium undue perfect
(b) To earn maximum profits competition is/are satisfied by which condition
(c) To enjoy economies of scale (a) MC = MR (b) AC = AR
(d) To secure equity through pricing. (c) CMC = LAC = P (d) All of the above.
Q.161. Which of the following statement is not correct? Q.168. In the long run monopolist
(a) Under monopoly there is no difference between a (a) Incur losses
firm and industry. (b) Must earn super normal profits
4.33 | Page
(c) Wants to shut down (a) Oligopoly
(d) Earns only normal profits. (b) Monopolistic
(c) Discriminating Monopoly
Q.169. The demand curve of the firm and industry will (d) Perfect competition
be same in which form of market:
(a) Monopolistic competition Q.177. Which market is having a single seller and single
(b) Perfect competition Buyer?
(c) Monopoly (a) Duopoly (b) Monopsony
(d) Oligopoly (c) Bilateral Monopoly (d) None of the above
Q.170. Which of these is the best example of oligopoly? Q.178. In Long run perfect competitive market incurs
(a) OPEC (b) SAARC (a) Normal profit (b) Supernormal profit
(c) WTO (d) GATT (c) Losses (d) Constant Returns
Q.171. In a perfectly competitive market, if MR is Q.179. Which one of the following is not the feature of
greater than MC, then a firm should: Oligopoly?
(a) Increase its production (a) Interdependency
(b) Decrease its production (b) Selling cost
(c) Decrease its sales (c) Free Entry
(d) Increase its sales (d) None of the above/ group behaviour
Q.172. Equilibrium price for an industry in prefect Q.180. Price leadership is the characteristic of
competition is fixed through (a) Oligopoly
(a) Input and output (b) Monopoly
(b) Market demand and market supply (c) Perfect competition
(c) Market demand and firms supply (d) Discriminating Monopoly
Q.181. MR Curve in perfect competition is
Q.173. A competitive firm in the short rum insure losses. (a) Parallel to X axis (b) Parallel to Y axis
The firm continues production, if: (c) Fall from left to right (d) Rise from left to right
(a) P > AVC (b) P = AVC
(c) P < AVC (d) P > AVG Q.182. Which of the following is not the characteristic of
MR?
Q.174. Market form in which there is only one buyer and (a) When TR is maximum, then MR is zero
one seller is: (b) MR cannot be negative
(a) Oligopoly (b) Duopoly (c) MR slopes downward from left to right
(c) Bilateral Monopoly (d) Monopsony (d) MR Curve is below AR Curve
Q.175. The structure of the Toothpaste Industry in India Q.183. Which out of these are not features of perfect
is best described as: competition?
(a) Perfectly competitive (a) Homogeneous
(b) Monopolistic (b) Large number of buyer and sellers
(c) Monopolistically competitive (c) Free entry and exit
(d) Oligopolistic (d) Selling cost.
Q.176. Product differentiation is the main features of Q.184. Which of the following statement is correct?
which market? (a) Price rigidity is an important feature of monopoly
4.34 | Page
(b) Selling cost is possible under perfect competition
(c) An industry consists of many firms Q.192. Live and let live is characteristics of which of the
(d) Under perfect competition factor of production do following market?
not move freely as these are legal restriction (a) Perfect Competition
(b) Monopoly Competition
Q.185. Which is the characteristic feature of monopoly? (c) Imperfect Competition
(a) Homogeneous goods (d) Oligopoly Competition
(b) Strong barriers to entry
(c) Perfect competition Q.193. In which of the following market there are only
(d) Perfectly elastic demand curve two sellers?
(a) Duopoly Competition
Q.186. A discriminating monopolist to reach equilibrium (b) Perfect Competition
position, his decision on total output depends upon (c) Monopoly Competition
(a) How much total output should be produce ? (d) Perfect Competition and Duopoly
(b) How the total output should be distributed between
the two sub market ? Q.194. The degree of elasticity in perfect competition
(c) Both (a) and (b) market.
(d) None (a) Perfectly elastic (b) Inelastic
(c) Perfectly inelastic (d) Elastic
Q.187. Price discrimination is possible only in ______.
(a) Monopoly (b) Perfect Competition Q.195. A perfect competitive firm earns super normal
(c) Oligopoly (d) Monopolistic Competition profits when
(a) ATC < MC (b) ATC > MC
Q.188. Kinked demand curve is (c) MR < AR (d) MR > AR
(a) Highly elastic at above the prevailing price
(b) Inelastic at below the prevailing price Q.196. A firm is said to earn normal profit when
(c) Both (a) and (b) (a) AC = AR (b) MC = MR
(d) None of the above (c) AR = NH (d) MC > MR
Q.189. Demand curve is horizontal in the case of Q.197. Two firms are selling cold drinks and competing
________. with some identical characteristics, This is an example of
(a) Monopoly (a) Duopoly (b) Monopoly
(b) Perfect Competition (c) Oligopoly (d) Monopolistic
(c) Imperfect Competition
(d) Monopolistic Competition Q.198. Group Behaviour is a characteristics of _______.
(a) Oligopoly (b) Monopoly
Q.190. What is the characteristic of monopolistic (c) Perfect Competition (d) Monopolistic Competition
competition?
(a) Price elasticity is low for the product concerned (b) Q.199. Myth in Real world
Large number of sellers (a) Oligopoly (b) Duopoly
(c) No degree of control over price (c) Perfect Competition (d) Monopoly
(d) One buyer
Q.200. ________ oligopoly refers to that situation
Q.191. If a perfectly competitive firm earns super where the firms sell their products through a centralized
normal profits then ________ body
(a) AR > MR (b) AR < MR (a) Syndicate oligopoly (b) Organized oligopoly
(c) AR = MR (d) None of the above (c) Collusive oligopoly (d) Partial oligopoly
4.35 | Page
Q.201. The similarity between monopolistic and perfect
competition is _______.
(a) In short run both earn super normal profit
(b) In long term both earn normal profit
(c) In short run their prices remain constant
(d) None
Q.202. Which Market has a downward demand curve?

(b) Monopoly
(c) Perfect competition
(d) Both (a) and (b)
4.36 | Page
QUESTION ANS QUESTION ANS QUESTION ANS QUESTION ANS
1 D 52 A 103 C 154 C
2 D 53 A 104 C 155 C
3 A 54 D 105 C 156 B
4 C 55 A 106 A 157 A
5 A 56 D 107 B 158 C
6 A 57 D 108 C 159 C
7 C 58 B 109 D 160 A
8 B 59 D 110 D 161 C
9 C 60 D 111 A 162 A
10 C 61 C 112 B 163 D
11 B 62 C 113 C 164 D
12 D 63 B 114 B 165 D
13 A 64 B 115 D 166 D
14 C 65 D 116 B 167 D
15 B 66 B 117 A 168 B
16 A 67 C 118 B 169 C
17 B 68 C 119 A 170 A
18 B 69 B 120 A 171 A
19 C 70 C 121 B 172 B
20 D 71 C 122 A 173 A
21 C 72 A 123 C 174 C
22 A 73 C 124 B 175 B
23 C 74 D 125 B 176 B
24 B 75 C 126 D 177 C
25 A 76 A 127 C 178 A
26 C 77 B 128 D 179 C
27 C 78 C 129 B 180 A
28 A 79 A 130 B 181 A
29 B 80 C 131 C 182 B
30 A 81 D 132 B 183 D
31 C 82 B 133 A 184 C
32 A 83 D 134 A 185 B
33 A 84 C 135 B 186 C
34 A 85 A 136 A 187 A
35 B 86 C 137 B 188 C
36 B 87 D 138 B 189 B
37 A 88 D 139 A 190 B
38 B 89 D 140 D 191 C
39 C 90 D 141 B 192 D
40 A 91 D 142 D 193 A
41 D 92 B 143 A 194 A
42 C 93 C 144 C 195 A
43 B 94 D 145 A 196 A
44 A 95 C 146 C 197 A
45 C 96 A 147 A 198 A
46 B 97 A 148 C 199 C
47 A 98 A 149 C 200 A
48 A 99 D 150 C 201 B
49 A 100 A 151 C 202 D
50 A 101 D 152 D
51 B 102 B 153 C
4.37 | Page
Chapter – 5 Business Cycle
Q 9. The lowest point in the business cycle is referred
Q 1. The term business cycle refers to to as the
(a) the ups and downs in production of commodities (a) Expansion. (b) Boom.
(b) the fluctuating levels of economic activity over a (c) Peak. (d) Trough.
period of time
(c) decline in economic activities over prolonged period Q 10. Even with lower rate of interest, demand for
of time credit declines in
(d) increasing unemployment rate and diminishing rate (a) Expansion Phase (b) Peak
of savings (c) Contraction Phase (d) Depression
Q 2. When does an economic expansion occur in the Q 11. Which of the following statements is true?
business cycle? (a) An Economy grows endlessly
(a) At the peak of the business cycle (b) An Economy Contracts endlessly
(b) At the trough of the business cycle (c) It is easy to predict turning points of Business Cycle
(c) Between the peak and trough (d) None of the above
(d) Between the trough and peak
Q 12. Which of the following statement is not correct?
Q 3. Increasing Prosperity and High standards of living (a) Business Cycles are periodical
are the characteristics of (b) Business Cycles are regular
(a) Peak (b) Contraction (c) Business Cycles vary in intensity
(c) Expansion (d) Trough (d) Business Cycles vary in length
Q 4. The end of expansion is termed as — Q 13. A leading indicator is

(a) Peak (b) Contraction (a) a variable that tends to move along with the level
(c) Trough (d) None of the above of economic activity
(b) a variable that tends to move in advance of
Q 5. The beginning of recession is aggregate economic activity
(a) Peak (b) Trough (c) a variable that tends to move consequent on the
(c) Contraction (d) Expansion level of aggregate economic activity
Q 6.
A significant decline in general economic activity
extending over a period of time is Q 14. A variable that tends to move later than
(a) business cycle (b) contraction phase aggregate economic activity is called
(c) Trough (d) recovery (a) a leading variable (b) a coincident variable.
(c) a lagging variable. (d) a cyclical variable.
Q 7. Severe form of recession is
(a) Contraction (b) Depression Q 15. Changes in housing interest rate is a
(c) Expansion (d) Peak (a) a leading indicator (b) a coincident indicator
(c) a lagging indicator (d) a cyclical indicator
Q 8. The trough of a business cycle occurs when
_______hits its lowest point. Q 16. Unemployment is a
(a) inflation in the economy (a) a leading indicator (b) a coincident indicator
(b) the money supply (c) a lagging indicator (d) a cyclical indicator
(c) aggregate economic activity
(d) the unemployment rate
5. 1 | Page
Q 17. GDP is a Q 23. The four phases of the business cycle are\
(a) a leading indicator (b) a coincident indicator (a) Peak, recession, trough, and boom
(c) a lagging indicator (d) a cyclical indicator (b) Peak, depression, trough, and boom
(c) Peak, recession, trough, and recovery
(d) Peak, depression, bust, and boom
Industries that are extremely sensitive to the
business cycle are the Q 24. Leading economic indicators
(a) Durable goods and service sectors. (a) are used to forecast probable shifts in economic
(b) Non-durable goods and service sectors. policies
(c) Capital goods and non-durable goods sectors. (b) are generally used to forecast economic
(d) Capital goods and durable goods sectors. fluctuations
(c) are indicators of stock prices existing in an economy
(d) are indicators of probable recession and depression
Q 19. A decrease in government spending would cause
(a) the aggregate demand curve to shift to the right.
(b) the aggregate demand curve to shift to the left. Q 25. When aggregate economic activity is declining,
(c) a movement down and to the right along the the economy is said to be in
aggregate demand curve. (a) Contraction. (b) an expansion.
(d) a movement up and to the left along the aggregate (c) a trough. (d) a turning point.
demand curve.
Q 26. Peaks and troughs of the business cycle are
Q 20. Which of the following does not occur during an known collectively as
expansion? (a) Volatility.
(a) Consumer purchases of all types of goods tend to (b) Turning points.
increase. (c) Equilibrium points.
(b) Employment increases as demand for labour rises. (d) Real business cycle events.
(c) Business profits and business confidence tend to
increase Q 27. The most probable outcome of an increase in
(d) None of the above. the money supply is
(a) interest rates to rise, investment spending to rise,
Q 21.
Which of the following best describes a typical and aggregate demand to rise
business cycle? (b) interest rates to rise, investment spending to fall,
(a) Economic expansions are followed by economic and aggregate demand to fall
contractions. (c) interest rates to fall, investment spending to rise,
(b) Inflation is followed by rising income and and aggregate demand to rise
unemployment. (d) interest rates to fall, investment spending to fall,
(c) Economic expansions are followed by economic and aggregate demand to fall
growth and development.
(d) Stagflation is followed by inflationary economic Q 28. Which of the following is not a characteristic of
growth. business cycles
Q 22. During recession, the unemployment __________ (a) Business cycles have serious consequences on the
rate __________________ and output well-being of the society.
(a) Rises; falls (b) Rises; rises (b) Business cycles occur periodically, although they do
(c) Falls; rises (d) Falls; falls not exhibit the same regularity.
5. 2 | Page
(c) Business cycles have uniform characteristics and
causes.
(d) Business cycles are contagious and unpredictable.
Q 29. Economic recession shares all of these

characteristics except.
(a) Fall in the levels of investment, employment
(b) Incomes of wage and interest earners gradually
decline resulting in decreased demand for goods
and services
(c) Investor confidence is adversely affected and new Sr. No Ans Sr. No Ans
investments may not be forthcoming 1 B 19 D
(d) Increase in the price of inputs due to increased 2 D 20 D
demand for inputs 3 C 21 A
4 A 22 A
Q 30. The different phases of a business cycle 5 A 23 C
(a) Do not have the same length and severity 6 B 24 B
(b) expansion phase always last more than ten years 7 B 25 A
8 C 26 B
(c) last many years and are difficult to get over in short
9 D 27 C
periods
10 C 28 C
11 D 29 D
Q 31. 12 B 30 A
Which of the following is not an example of
13 B 31 D
coincident indicator?
14 C 32 D
(a) Industrial production 15 A 33 A
(b) inflation 16 C
(c) Retail sales 17 B
(d) New orders for plant and equipment 18 D
Q 32. According to _________ trade cycle occurs due to

onset of innovations.
a) Hawtrey (b) Adam Smith
(c) J M Keynes (d) Schum peter
Q 33. According to Keynes, Fluctuations activity are

due to fluctuations in.
a) aggregate effective demand
b) Price
c) Supply of resources
d) None of the above
5. 3 | Page
How many phases are there in business cycle?
Chapter 5- Business Cycle (a) Four (b) Five
(c) One (d) Many
Rampant unemployment is found in:
(a) Boom (b) Recovery The world economy suffered the longest, deepest
(c) Contraction (d) Depression and most widespread depression of the 20"1 century
during?
According to which economist trade cycle is a (a) 1934 (b) 1928
purely monetary for phenomenon (c) 1930 (d) 1932
(a) Schumpter (b) Pigou
(c) Hawtrey (d) Marshall Business cycle is contagious and _______ in
character?
Greatest depression suffered by economy in which (a) Local (b) Regional
year. (c) National (d) International
(a) 1924 (b) 1930
(c) 2008 (d) 2009 Which External Factor affects the business cycle?
(a) Population growth
Last stage of recession is called: (b) Variation in government spending
(a) Depression (b) Recovery (c) Money supply
(c) Slowdown (d) All of these. (d) Macro economic policies
In the long run, a reduction in labour supply would Which internal factor affects the Business cycle?
cause output to _____ and the aggregate price level (a) Fluctuations in investment
to____. (b) Natural factors
(a) fall, rise (b) fall, fall (c) Technology shocks
(c) rise, tall (d) rise, rise. (d) Population growth
Which of the following macro-economic variables Whose statement out of these is false?
would you include in an index of leading economic (a) Hawtrey “Trade cycle is purely Monetary
indicators? phenomena”
(a) Employment (b) Inflation (b) Keynes “Fluctuations in aggregate Demand"
(c) Real interest rates (d) Residential investment (c) Pigou “Fluctuations in investment”
(d) Schumpeter-“Innovations”
Industries that are extremely sensitive to the
business cycle are the When once peak is reached, increase in demand is
(a) Durable goods and service sectors halted, then _______ phase begins?
(b) Non-durable goods and service sectors (a) Trough (b) Contraction
(c) Capital goods and non-durable goods sectors (c) Expansion (d) Trend
(d) Capital goods and durable goods sectors
Fashion Retailer is business of?
An economic variable that moves in the opposite (a) Cyclical business (b) Sun rise business
direction as aggregate economic activity down in (c) Sluggish business (d) None of these
expansions, up in contractions is called.
(a) Pro cyclical (b) Counter cyclical Features of business cycles include?
(c) A cyclical (d) A leading variable (a) Discuss periodically
(b) Have four different phases
5.4 | P a g e
(c) Originate in free Market Economy (c) Both (a) and (b) (d) None of the above
Which is not the characteristic feature of
Which of the following is true about leading expansion phase in business cycle ?
indicators? (a) Increase in national output
(a) Measurable economic factors (b) Unemployment
(b) Changes after real output (c) Rise in price and costs
(c) Both (a) and (b) (d) Boost in business confidence
(d) None
“Modern business activities are based on the
The internal causes of business cycle is anticipations of business community and are affected by
(a) Fluctuation in effective demand waves of optimism or pessimism, according to _______.
(b) Technology shocks (a) Pigou (b) Keynes
(c) Both (a) and (b) (c) Hawtrey (d) Schumpeter
(d) None
Find the odd man out: Which of these is not a
Economics activities will be declining in the phase coincident factor?
of _______. (a) Retail sale
(a) Expansion (b) Depression (b) Industrial production
(c) Contraction (d) Peak (c) Inflation
(d) New orders for plant & machine
Business Cycle occurs
(a) Periodically (b) In different phases Excess capacity in capital industries leads to
(c) Both (a) and (b) (d) None of the above (a) Peak (b) Trough
(c) Expansion (d) Recovery
According to some economists, __________ are
the prime causes of business cycles. Here, growth moves in reverse direction
(a) Fluctuations in effective demand (a) Peak (b) Expansion
(b) Fluctuations in investments (c) Contraction (d) Recovery
(c) Macroeconomic policies
(d) All of the above Frictional unemployment exists in
(a) Peak (b) Contraction
Which is not related to great depression of 1930? (c) Expansion (d) Recovery
(a) It started in USA
(b) John Maynard Keynes regarded lower aggregate In which stage maximum production occurs.
expenditure as the cause (a) Peak (b) Expansion
(c) Excess Money Supply (c) Boom or Expansion (d) Tough or boom
(d) Both (a) and (b)
Unemployment is caused due to structural
Which of the following is not the phase of changes is known as?
business cycles? (a) Ethnic unemployment
(a) Prosperity (b) Upswing (b) Involuntary unemployment
(c) Reconstruction (d) Depression (c) Structural
(d) None
Boom and depression in business cycle are
(a) Turning points (b) Equilibrium points
5.5 | P a g e
At trough production is? (c) Psychological factors
(a) High (b) Low (d) All of these
(c) Negative (d) None
External factors for depression does not include:
Stage at which actual demand is stagnated? (a) Population growth
(a) Peak (b) Boom or Peak (b) Technology shocks
(c) Contraction (d) Tough (c) Macro economic policies
(d) Post war reconstruction
A change of reaction producer cancels their order
in which, stage? _______ is the measurable economic factorthat
(a) Peak (b) Contraction changes before economy starts to follow a particular
(c) Trough (d) None pattern or trend:
(a) Leading indicator
Which of the following is true? (b) Lagging indicator
(a) Depression is secure form trough (c) Concurrent indication
(b) Depreciation causes fall in interest rate. (d) Coincident indicators
(d) None The Rhythmic fluctuations in aggregate economic
activity over a period of time are called:
China’s recent slovedow caused (a) Business cycles (b) Trade cycles
(a) Cycle of decline and panic across the world. (c) Both (a) and (b) (d) None of these
(b) Countries across the globe were able to insulate
themselves from the crisis. According to __________, modern business
(c) Stock Markets in the emerging economics largely activities are based on the anticipation of business
remained unaffected communities and are affected by waves of optimism and
(d) Old technology fuelled the economic decline. pessimism:
(a) Pigou (b) Hawtrey
What of the following are not external causes? (c) Keynes (d) Schumpeter
(a) Past war reconstruction
(b) Population growth According to __________ trade cycles occurs as a
(c) Technology factors result of innovation which takes place in the system
(d) Fluctuation in effective demand from time to time:
(a) Pigou (b) Hawtrey
The four phases of the business cycles are: (c) Keynes (d) Schumpeter
(a) Peak, recession, trough and depression
(b) Peak, recession, trough and boom Variables that change after real output changes
(c) Peak, depression, trough and boom are:
(d) Peak, depression, burst and boom (a) Leading indicators (b) Lagging indicators
(c) Coincident indicators (d) None of these
Great Depression occurred during:
(a) 1930 (b) 1947 Severe form of recession is called:
(c) 1857 (d) 2000 (a) Boom (b) Depression
(c) Trough (d) Recovery
Internal causes of depression include:
(a) Fluctuation in investments
(b) Money supply
5.6 | P a g e
Industries which are extremely sensitive to (a) Industrial production
business cycles includes: (b) Residential investment
(a) Non-durable goods (c) Money supply
(b) Service Sector (d) Inventory investment
(c) Capital goods and durable goods
(d) None of these When aggregate economic activity is declining, is
the phase of:
Peaks and troughs of the business cycles are (a) Expansion (b) Contraction
known collectively as: (c) Recovery (d) Trough
(a) Turning points (b) Indicators
(c) Equilibrium points (d) Contraction Sr. No Ans Sr. no Ans Sr. No Ans
1 D 28 D 55 B
2 C 29 B 56 B
During recession output:
3 B 30 A 57 D
(a) Falls (b) Rises 4 A 31 C 58 A
(c) Expands (d) None of these. 5 A 32 A 59 B
6 D 33 C
7 D 34 B
Business cycles generally originate in: 8 B 35 A
(a) Free market economies 9 A 36 B
(b) Imperfect economies 10 C 37 C
11 D 38 A
(c) Developed nations
12 A 39 D
(d) Low growth economies 13 A 40 B
14 C 41 A
At the time of Great Depression of 1930, GDP fell 15 B 42 D
16 A 43 C
around:
17 D 44 A
(a) 14% (b) 15% 18 A 45 C
(c) 20% (d) 25% 19 A 46 A
20 C 47 D
21 C 48 B
The highest point of business cycle is known as: 22 B 49 B
(a) Trough (b) Peak 23 C 50 C
(c) Trend (d) Boom 24 C 51 A
25 A 52 A
26 B 53 A
During the slowdown of economy, 27 A 54 B
(a) GDP is increasing at fast rate
(b) GDP is increasing at slow rate
(c) GDP is decreasing at fast rate
(d) All of these
The economic boom is characterised as period

when:
(a) Rising employment
(b) High demand of imported goods
(c) Increase in investments
(d) All of these
Which macro-economic variables are excluded

from leading economic indicators:
5.7 | P a g e
CHAPTER – 6 National Income
CHAPTER 6 (b) The total value of all final goods and

services produced within a country's
DETERMINATION OF borders in a specific period.
NATIONAL INCOME (c) The total value of all goods and services
UNIT – 1 NATIONAL INCOME produced within a country's borders
minus depreciation in a specific period.
1. Which of the following is NOT a
component of Gross Domestic Product (d) The total value of all goods and services
(GDP)? produced by a country's residents, both
domestically and abroad, in a specific
(a) Consumption period.
(b) Investment
(c) Government Spending component of Gross Domestic Product
(d) Imports (GDP)?
(a) Government Spending
2. Which of the following is the correct (b) Consumption
formula for calculating Gross Domestic
Product (GDP)? (c) Investment
(a) GDP = Consumption + Investment + (d) Imports

Government Spending
6. What does GNP stand for in national
(b) GDP = Consumption + Investment +
income accounting?
Government Spending + Exports -
Imports (a) Gross National Product
(c) GDP = Consumption + Investment + Net (b) Gross Net Profit
Exports (c) Government National Payment
(d) GDP = Consumption + Investment + (d) General National Practice
Government Spending + Exports
7. Which of the following represents the
formula for calculating GDP (Gross
3. Which of the following is a measure of a Domestic Product)?
country's Gross National Product (GNP)?
(a) GDP = Consumption + Government
(a) The total value of all goods and services Spending + Investment + Exports -
produced within a country's borders in a Imports
specific period.
(b) GDP = Consumption + Government
(b) The total value of all goods and services Spending - Investment + Exports +
produced by a country's residents, both Imports
domestically and abroad, in a specific
period. (c) GDP = Consumption + Government
Spending + Investment - Exports -
(c) The total value of all goods and services Imports
sold by a country to other countries in a
specific period. (d) GDP = Consumption - Government
Spending + Investment + Exports -
(d) The total value of all goods and services Imports
produced by a country's domestic
companies in a specific period. 8. In national income accounting, what does
the term "disposable income" refer to?
(a) The total income earned by a nation's
4. In national income accounting, “Net residents.
Domestic Product (NDP)" is defined as: (b) The income that individuals have after
paying taxes.
(a) The total value of all goods and services
(c) The total income earned by a nation's
produced within a country's borders in a
residents minus government spending.
specific period.
(d) The income earned from foreign sources.
CA Aditya Sharma Page No – 6. 1

(b) Evaluating the overall health of the
9. Which of the following is NOT included in
financial sector
the calculation of Gross Domestic Product
(GDP)? (c) Measuring the economic growth and
development of a country
(a) Government spending
(d) Determining the inflation rate
(b) Consumer spending
(c) Imports
(d) Exports 15. The Gross Domestic Product (GDP) per
capita is used to.
10. Which of the following is used to
(a) Measure the overall size of the economy
measure the total income earned by a
country's residents, regardless of their (b) Determine the average income of a
location? country's citizens
(a) Gross National Product (GNP) (c) Calculate the total value of exports and
imports
(b) Gross Domestic Product (GDP)
(d) Analyze the distribution of wealth in a
(c) Net National Product (NNP)
nation
(d) Net Domestic Product (NDP)
11. In National Income Accounting,

depreciation of capital refers to:
usefulness of National Income estimates?
(a) The decrease in the value of a nation's
(a) Facilitating economic planning and
currency
formulation of policies
(b) The decrease in the value of physical
(b) Assessing the contribution of different
assets over time
sectors to the economy
(c) The decrease in the government's budget
(c) Aiding in international trade negotiations
deficit
(d) Estimating the unemployment rate
(d) The decrease in consumer spending on
durable goods
12. Which of the following is an example of a 17. National Income estimates help in
transfer payment in National Income identifying:
Accounting?
(a) The fiscal deficit of a country
(a) Salary of a government employee
(b) The sources of economic growth
(b) Social Security benefits
(c) The exchange rates of foreign currencies
(c) Income earned from selling goods
(d) The demographic profile of the population
(d) Corporate taxes paid to the government

18. The difference between Gross National
component of Aggregate Expenditure in
Product (GNP) and Gross Domestic Product
National Income Accounting?
(GDP) is mainly due to.
(a) Consumption (C)
(a) Imports and exports
(b) Investment (I)
(b) Government spending
(c) Government Spending (G)
(c) Foreign aid received
(d) Net Exports (NX)
(d) Remittances from citizens working
abroad
14. National Income estimates are essential

for:
(a) Calculating government debt

19. Which of the following is a usefulness of 23. National Income estimates are essential
National Income estimates in economic for:
planning?
(a) Calculating individual income taxes
(a) Estimating the number of people in (b) Assessing the overall health of an
poverty economy
(b) Determining the cost of living for citizens (c) Measuring inflation and unemployment
(c) Assessing the impact of monetary policy rates
(d) Determining exchange rates between
(d) Identifying the distribution of wealth in
currencies
society
24. National Income estimates are essential

20. Which of the following is NOT a because they help in:
significance of National Income estimates? (a) Calculating the total population of a
(a) Comparing the economic performance of country
different countries (b) Measuring the total value of goods and
(b)Guiding businesses in profit services produced in a country
maximization strategies (c) Determining the exchange rate of the
(c) Formulating fiscal policies and taxation country's currency
rates (d) Evaluating the literacy rate of the country
(d) Predicting short-term fluctuations in the
stock market
25. The significance of National Income
estimates lies in:
21. The concept of "per capita income" (a) Assessing the distribution of income
derived from National Income estimates is among different income groups
used to:
(b) Determining the number of unemployed
(a) Determine the total output of an economy individuals in the country
(b) Measure the average income of (c) Estimating the total national debt of the
individuals in the country country
(c) Assess the level of government debt (d) Analyzing the birth and death rates in the
(d) Calculate the value of imports and country
exports

22. National Income estimates help in usefulness of National Income estimates?
identifying: (a) Assessing the standard of living in a
(a) The number of foreign tourists visiting country
the country (b) Formulating economic policies
(b) The contribution of different sectors to (c) Calculating the inflation rate
the economy
(d) Comparing the economic performance of
(c) The literacy rate and educational different countries
attainment of citizens
(d) The availability of natural resources
within the country 27. National Income estimates help in
international comparisons of countries'
economies because they:
(a) Provide information about the military
strength of the countries

(b) Show the total exports and imports of the
31. Net National Product (NNP) is calculated
countries
by:
(c) Indicate the level of technological
(a) Deducting depreciation from Gross
advancement in the countries
Domestic Product (GDP).
(d) Offer a common measure to compare
(b) Adding depreciation to Gross National
economic performance
Product (GNP).
(c) Deducting indirect taxes from Gross
Domestic Product (GDP).
28. Which of the following statements is true
regarding the usefulness of National Income (d) Adding indirect taxes to Gross National
estimates? Product (GNP).
(a) It helps in predicting the stock market
32. National Disposable Income (NDI) is
trends.
defined as:
(b) It assists in identifying the environmental
(a) The total income earned by a country's
challenges faced by a country.
residents, including net income from
(c) It is only relevant for developed countries, abroad.
not for developing countries.
(b) The total income earned by a country's
(d) It aids in assessing the contribution of residents, excluding net income from abroad
different sectors to the economy. and indirect taxes.
(c) The total income earned by a country's
residents, including indirect taxes.
29. Gross Domestic Product (GDP)
(d) The total income earned by a country's
measures:
residents, excluding depreciation.
(a) The total value of goods and services
produced within a country's borders, 33. Personal Income (PI) is calculated as:
including net income from abroad.
(a) National Disposable Income (NDI) minus
(b) The total value of goods and services corporate profits and social insurance
produced by a country's residents, contributions.
regardless of their location.
(b) National Income (NI) minus indirect
(c) The total value of goods and services taxes.
produced within a country's borders,
(c) Gross Domestic Product (GDP) minus
excluding net income from abroad.
depreciation.
(d) The total value of goods and services
(d) Gross National Product (GNP) minus net
consumed within a country's borders.
income from abroad.
34. Gross Domestic Product (GDP) is defined

30. Gross National Product (GNP) is defined as the total:
as:
(a) Income earned by a country's residents,
(a) The total value of goods and services regardless of their location
(b) Value of goods and services produced
excluding depreciation.
within a country's borders
(b) The total value of goods and services
(c) Income earned by foreign residents within
produced by a country's residents,
the country
regardless of their location.
(d) Value of goods and services produced by
(c) The total value of goods and services
a country's residents abroad
including indirect taxes.
35. Gross National Product (GNP) is
(d) The total value of goods and services calculated as the total:
produced by a country's residents, excluding
(a) Value of goods and services produced
net income from abroad.
within a country's borders

(b) Income earned by a country's residents,
40. Which concept of National Income
regardless of their location
deducts depreciation (capital consumption)
(c) Income earned by foreign residents within from Gross Domestic Product (GDP)?
the country
(a) Net Domestic Product (NDP)
(d) Value of goods and services produced by
(b) Net National Product (NNP)
a country's residents abroad
(c) Gross National Product (GNP)
(d) Gross Domestic Product (GDP) at factor
36. Net National Product (NNP) is derived by cost
deducting:
41. Which concept of National Income takes
(a) Depreciation from GDP
into account the net income earned from
(b) Depreciation from GNP foreign investments and deducts net income
earned by foreigners within the country?
(c) Net indirect taxes from GDP
(a) Gross Domestic Product (GDP) at factor
(d) Net indirect taxes from GNP
cost
(b) Net Domestic Product (NDP)
37. National Disposable Income (NDI) is (c) Gross National Product (GNP)
calculated by:
(d) Net National Product (NNP)
(a) Adding depreciation to NNP
(b) Adding net indirect taxes to NNP
(c) Deducting direct taxes from NNP
includes only the value added at each stage
(d) Deducting net indirect taxes from NNP of production and avoids double-counting?
(a) Gross Domestic Product (GDP) at market
price
38. Personal Income (PI) is derived from
National Income (NI) by:
(c) Gross Domestic Product (GDP) at factor
(a) Adding transfer payments and deducting
cost
undistributed corporate profits
(b) Adding corporate profits and deducting (d) Gross Value Added (GVA)
net interest and rent
(c) Deducting direct taxes and adding
transfer payments
measures the total market value of all final
(d) Deducting retained earnings and adding goods and services produced within a
social security contributions country's borders, excluding the value of
indirect taxes and including subsidies?
(a) Net Domestic Product (NDP) at factor cost
(b) Gross Domestic Product (GDP) at factor
includes only the market value of final goods
and services produced within a country's cost
borders during a specific time period? (c) Gross Domestic Product (GDP) at market
price
(a) Gross National Product (GNP)
(b) Net Domestic Product (NDP) (d) Net National Product (NNP)
(c) Gross Domestic Product (GDP) at market 44. The following table shows the production
price and prices of two goods, X and Y, in a
(d) Net National Product (NNP) hypothetical economy for the year 2023:
Goods Quantity Produced Price per Unit

(b) Prices have decreased by 20% compared
X 100 units ₹ 10
to the base year.
Y 150 units ₹ 15 (c) Prices have remained the same as the
base year.
Calculate the nominal GDP of the economy
(d) Prices have doubled compared to the base
for the year 2023.
year.
(a)₹2,500
(b) ₹ 3,000
(c)₹3,500 49. If the GDP deflator for a particular year
is 90.0, what does it indicate about the price
(d) ₹ 4,000 level compared to the base year?
45. In a country, the nominal GDP for the (a) Prices have increased by 10% compared
year 2022 is ₹ 800 billion, and the GDP to the base year.
deflator for 2022 is 120.0. What is the real (b) Prices have decreased by 10% compared
GDP for 2022? to the base year.
(a)₹480billion (c) Prices have remained the same as the
(b) ₹ 666.67 billion base year.
(c)₹666.00 billion (d) Prices have decreased by 90% compared

to the base year.
(d) ₹ 960 billion
50. In a country, the Gross National Product

46. The nominal GDP of a country in the (GNP) for the year 2021 is calculated as
base year was ₹ 500 billion, and the real GDP follows:
in the same year was ₹ 450 billion. Calculate
the GDP deflator for the base year. - Gross Domestic Product (GDP) = ₹ 900
billion
(a)90.0
- Net factor income from abroad (NFIA) = - ₹
(b) 100.0 50 billion (negative value indicates net
(c)110.0 outflow of income to foreign countries)
(d) 125.0 Calculate the GNP for the year 2021.

(a) ₹ 850 billion
(b) ₹ 950 billion
47. In the current year, the nominal GDP of
the country is ₹ 600 billion, and the real GDP (c) ₹ 950 billion (adjusted for net factor
is ₹ 540 billion. Calculate the GDP deflator income from abroad)
for the current year using the base year's (d) ₹ 850 billion (adjusted for net factor
GDP deflator (which is 100.0). income from abroad)
(a) 90.0
(b) 100.0
(c) 110.0 (GNP) for the year 2022 is ₹ 1,200 billion,
(d) 125.0 and Net factor income from abroad (NFIA) is
₹ 40 billion (positive value indicates net
inflow of income from foreign countries).
Calculate the Gross Domestic Product (GDP)
48. If the GDP deflator for a particular year for the year 2022.
is 120.0, what does it indicate about the
price level compared to the base year? (a) ₹ 1,160 billion
(a) Prices have increased by 20% compared (b) ₹ 1,240 billion

to the base year. (c) ₹ 1,160 billion (adjusted for net factor
income from abroad)

(d) ₹ 1,240 billion (adjusted for net factor Calculate the Net National Product at
income from abroad) Market Prices (NNPMP) for the year 2022.
(a) ₹ 1,300 billion
(b) ₹ 1,700 billion
(GNP) for the year 2023 is ₹ 2,500 billion, (c) ₹ 1,300 billion (adjusted for depreciation)
and Net factor income from abroad (NFIA) is
(d) ₹ 1,700 billion (adjusted for depreciation)
₹ 80 billion (positive value indicates net
inflow of income from foreign countries). The
GDP for the year 2023 is:
(a) ₹ 2,580 billion (GNP) at Market Prices for the year 2023 is ₹
(b) ₹ 2,420 billion 2,000 billion. During the same year,
depreciation (Capital Consumption
(c) ₹ 2,420 billion (adjusted for net factor
Allowance) amounts to ₹ 250 billion. The Net
income from abroad)
National Product at Market Prices (NNPMP)
(d) ₹ 2,580 billion (adjusted for net factor for the year 2023 is-
income from abroad)
53. In a country, the Gross National Product (c) ₹ 2,250 billion (adjusted for depreciation)
(GNP) for the year 2022 is calculated as
follows:
Gross Domestic Product (GDP) = ₹ 900
billion 57. In a country, the Gross Domestic
Net factor income from abroad = ₹ 50 billion Product at Market Prices (GDPMP) for the
year 2021 is ₹ 900 billion, and indirect taxes
What is the Gross National Product (GNP) for
(subsidies) on products are ₹ 50 billion.
the year 2022?
Calculate the Gross Domestic Product at
(a) ₹ 850 billion Factor Cost (GDPFC) for the year 2021.
(b) ₹ 950 billion (a) ₹ 850 billion
(c) ₹ 950 billion (b) ₹ 950 billion
(d) ₹ 950 billion (c) ₹ 950 billion (adjusted for indirect taxes)
(d) ₹ 850 billion (adjusted for subsidies)

(GNP) at Market Prices for the year 2021 is ₹
58. In a country, the Gross Domestic
800 billion. During the same year,
Product at Market Prices (GDPMP) for the
year 2022 is ₹ 1,200 billion, and indirect
Allowance) amounts to ₹ 100 billion.
taxes (subsidies) on products are ₹ 100
Calculate the Net National Product at
billion. Calculate the Gross Domestic
Market Prices (NNPMP) for the year 2021.
Product at Factor Cost (GDPFC) for the year
(a)₹900billion 2022.
(b) ₹ 700 billion (a) ₹ 1,100 billion
(c)₹800billion (b) ₹ 1,300 billion
(d) ₹ 600 billion (c) ₹ 1,100 billion (adjusted for indirect
taxes)
(d) ₹ 1,300 billion (adjusted for subsidies)
(GNP) at Market Prices for the year 2022 is ₹
1,500 billion. During the same year,
Product at Market Prices (GDPMP) for the
Allowance) amounts to ₹ 200 billion.

year 2023 is ₹ 2,500 billion, and indirect (subsidies) on products are ₹ 50 billion.
taxes (subsidies) on products are Rs.200 Calculate the Net National Product at Factor
billion. Calculate the Gross Domestic Cost (NNPFC) or National Income for the year
Product at Factor Cost (GDPFC) for the year 2021.
2023.
(a) ₹ 850 billion
(a) y 2,300 billion
(b) ₹ 950 billion
(c) ₹ 950 billion (adjusted for net indirect
(c) ₹ 2,300 billion (adjusted for indirect
taxes)
taxes)
(d) ₹ 850 billion (adjusted for subsidies)
(d) ₹ 2,700 billion (adjusted for subsidies)

Product at Factor Cost (GDPFC) for the year 64. In a country, the Gross National Product
2021 is y 800 billion, and depreciation at Factor Cost (GNPFC) for the year 2022 is
(consumption of fixed capital) is y 100 ₹ 1,200 billion, and net indirect taxes
billion. Calculate the Net Domestic Product (subsidies) on products are ₹ 100 billion.
at Factor Cost (NDPFC) for the year 2021. Calculate the Net National Product at Factor
Cost (NNPFC) or National Income for the year
(a) y 700 billion
2022.
(b) y 900 billion
(c) y 700 billion (adjusted for depreciation)
(d) y 900 billion (adjusted for depreciation)
(c) ₹ 1,100 billion (adjusted for net indirect
taxes)
61. In a country, the Gross Domestic (d) ₹ 1,300 billion (adjusted for subsidies)
Product at Factor Cost (GDPFC) for the year
2022 is y 1,200 billion, and depreciation
(consumption of fixed capital) is y 150 65. In a country, the Gross National Product
billion. Calculate the Net Domestic Product at Factor Cost (GNPFC) for the year 2023 is
at Factor Cost (NDPFC) for the year 2022. ₹ 2,500 billion, and net indirect taxes
(a) ₹ 1,050 billion (subsidies) on products are ₹ 200 billion.
Calculate the Net National Product at Factor
Cost (NNPFC) or National Income for the year
(c) ₹ 1,050 billion (adjusted for depreciation) 2023.
(d) ₹ 1,350 billion (adjusted for depreciation) (a) ₹ 2,300 billion
(c) ₹ 2,300 billion (adjusted for net indirect
Product at Factor Cost (GDPFC) for the year taxes)
2023 is y 2,500 billion, and depreciation (d) ₹ 2,700 billion (adjusted for subsidies)
(consumption of fixed capital) is y 200
billion. Calculate the Net Domestic Product
at Factor Cost (NDPFC) for the year 2023.
(a) ₹ 2,300 billion at Factor Cost (GNPFC) for the year 2021 is
(b) ₹ 2,700 billion ₹ 800 billion, and the total population is 200
million. Calculate the Per Capita Income for
(c) ₹ 2,300 billion (adjusted for depreciation)
the year 2021.
(a)₹4,000
(b) ₹ 4,500
63. In a country, the Gross National Product (c)₹3,500
at Factor Cost (GNPFC) for the year 2021 is
(d) ₹ 4,200
₹ 900 billion, and net indirect taxes

fixed capital) is ₹ 200 billion, net indirect
billion, and net current transfers from
₹ 1,200 billion, and the total population is
abroad are ₹ 40 billion. Calculate the
250 million. Calculate the Per Capita Income
Personal Income for the year 2023.
for the year 2022
(a)₹2,240billion
(a) ₹ 4,800
(b) ₹ 4,000
(c)₹2,380billion
(c) ₹ 4,500
(d) ₹ 2,540 billion
(d) ₹ 5,000

at Factor Cost (GNPFC) for the year 2023 is 72. In a country, the Gross National Product
₹ 2,500 billion, and the total population is at Factor Cost (GNPFC) for the year 2021 is
300 million. Calculate the Per Capita Income ₹ 900 billion. The indirect taxes (net of
for the year 2023 subsidies) on products are ₹ 50 billion, and
the consumption of fixed capital
(a) ₹ 8,000
(depreciation) is ₹ 100 billion. Calculate the
(b) ₹ 6,000 Personal Income for the year 2021, given
(c) ₹ 7,500 that there are no other income transfer ₹
(d) ₹ 5,000 (a) ₹ 750 billion

(b) ₹ 800 billion
at Factor Cost (GNPFC) for the year 2021 is (c) ₹ 850 billion
₹ 900 billion, depreciation (consumption of (d) ₹ 900 billion
₹ 1,200 billion. The indirect taxes (net of
(a) ₹ 730 billion subsidies) on products are ₹ 80 billion, and
(b) ₹ 830 billion
(c) ₹ 850 billion Personal Income for the year 2022, given
(d) ₹ 900 billion that there are no other income transfer
(a) ₹ 960 billion
(b) ₹ 970 billion
at Factor Cost (GNPFC) for the year 2022 is (c) ₹ 980 billion
₹ 1,200 billion, depreciation (consumption of (d) ₹ 990 billion
7 2,500 billion. The indirect taxes (net of
(a) ₹ 1,000 billion subsidies) on products are ₹ 150 billion, and
(c) ₹ 1,020 billion Personal Income for the year 2023, given
(d) ₹ 1,130 billion that there are no other income transfer
71 . In a country, the Gross National Product (b) ₹ 2,150 billion
at Factor Cost (GNPFC) for the year 2023 is (c) ₹ 2,150 billion
₹ 2,500 billion, depreciation (consumption of (d) ₹ 2,150 billion

75. In a country, the Personal Income (PI) for 79. In a country, the Personal Income (PI) for
the year 2021 is ₹ 800 billion. The direct the year 2022 is ₹ 1,200 billion. Personal
taxes are 7 100 billion, and the social taxes for the year 2022 are ₹ 180 billion.
security contributions are ₹ 50 billion. Calculate the Disposable Personal Income
Calculate the Disposable Personal Income (Dl) for the year 2022.
(Dl) for the year 2021, given that there are
no other income transfe₹
(a)₹650billion
(c) ₹ 1,020 billion (adjusted for personal
(b) ₹ 750 billion
taxes)
(c)₹700billion
(d) ₹ 600 billion
80. In a country, the Personal Income (PI) for
the year 2023 is ₹ 2,500 billion. Personal
76. In a country, the Personal Income (PI) for taxes for the year 2023 are ₹ 300 billion.
the year 2022 is ₹ 1,200 billion. The direct Calculate the Disposable Personal Income
taxes are ₹ 150 billion, and the social (Dl) for the year 2023.
security contributions are ₹ 100 billion.
Calculate the Disposable Personal Income
(Dl) for the year 2022, given that there are (b) ₹ 2,800 billion
no other income transfer ₹ (c) ₹ 2,200 billion (adjusted for personal
(a)₹950billion taxes)
(b) ₹ 1,050 billion (d) ₹ 2,800 billion (adjusted for personal
(c)₹1,000billion taxes)
(d) ₹ 900 billion
the year 2021 is ₹ 900 billion. Current
transfers from the government and rest of
77. In a country, the Personal Income (PI)
the world to individuals for the year 2021 are
for the year 2023 is ₹ 2,500 billion. The
₹ 50 billion. Social contributions by
direct taxes are ₹ 200 billion, and the social
individuals for the year 2021 are ₹ 100
security contributions are ₹ 150 billion.
billion. Calculate the Private Income for the
Calculate the Disposable Personal Income
year 2021.
(Dl) for the year 2023, given that there are
no other income transfer ₹ (a) ₹ 750 billion
(a)₹2,200billion (b) ₹ 800 billion
(b) ₹ 2,300 billion (c) ₹ 850 billion
(c)₹2,350billion (d) ₹ 950 billion
the year 2022 is ₹ 1,200 billion. Current
transfers from the government and rest of
78. In a country, the Personal Income (PI) for the world to individuals for the year 2022 are
the year 2021 is ₹ 900 billion. Personal taxes ₹ 80 billion. Social contributions by
for the year 2021 are ₹ 150 billion. Calculate individuals for the year 2022 are ₹ 150
the Disposable Personal Income (Dl) for the billion. Calculate the Private Income for the
year 2021. year 2022.
(a) ₹ 750 billion (a) ₹ 970 billion
(b) ₹ 900 billion (b) ₹ 970 billion
(c) ₹ 750 billion (adjusted for personal taxes) (c) ₹ 970 billion
(d) ₹ 1,050 billion (d) ₹ 970 billion

(c) ₹ 2,200 billion (adjusted for transfer
payments)
the year 2023 is ₹ 2,500 billion. Current
transfers from the government and rest of (d) ₹ 2,350 billion
the world to individuals for the year 2023 are
₹ 200 billion. Social contributions by
individuals for the year 2023 are ₹ 200
87. Which of the following organizations is
billion. Calculate the Private Income for the responsible for estimating the National
year 2023. Income of India?
(a)₹2,300billion
(a) Reserve Bank of India (RBI)
(b) Central Statistical Office (CSO)
(c)₹2,500billion (c)Ministry of Finance
(d) World Bank

88. Which of the following methods is used
the year 2021 is ₹ 900 billion. Transfer
to estimate the National Income of India?
payments for the year 2021 are ₹ 100 billion,
and corporate taxes are ₹ 50 billion. (a) Expenditure approach
Calculate the Private Income for the year (b) Consumer Price Index method
2021.
(c) Profit and Loss method
(a) ₹ 750 billion
(d) Balance of Payments approach
(b) ₹ 750 billion (adjusted for transfer
payments)
(c) ₹ 850 billion 89. Which of the following is NOT considered
(d) ₹ 950 billion a part of the National Income of India?
(a) Wages of factory workers
(b) Dividends received by shareholders from
85. In a country, the Personal Income (PI) for a domestic company
the year 2022 is ₹ 1,200 billion. Transfer
payments for the year 2022 are ₹ 150 billion, (c) Profits earned by a foreign company from
and corporate taxes are ₹ 80 billion. its operations in India
Calculate the Private Income for the year (d) Government grants given to a state for
2022. infrastructure development
(a) ₹ 970 billion
90. Which base year is currently used for
(c) ₹ 970 billion (adjusted for transfer calculating the real Gross Domestic Product
payments) (GDP) in India?
(d) ₹ 1,080 billion (a) 2010-2011
(b) 2004-2005
(c) 2015-2016
the year 2023 is ₹ 2,500 billion. Transfer (d) 2008-2009
payments for the year 2023 are ₹ 200 billion,
and corporate taxes are ₹ 150 billion.
Calculate the Private Income for the year 91. Which component of National Income in
2023. India is known as the "single largest
(a) ₹ 2,200 billion component" contributing to the economy's
output?
(a) Agriculture

(b) Manufacturing (d) Foreign Trade
(c) Services
(d) Construction 97. In India, which organization is
responsible for the estimation of National
92. Which organization is responsible for
Income?
estimating and publishing National Income
data in India? (a) Ministry of Finance
(a) Reserve Bank of India (RBI) (b) Reserve Bank of India (RBI)
(b) Ministry of Finance (c) Central Statistical Office (CSO)
(c) Central Statistical Office (CSO) (d) Planning Commission of India
(d) Indian Statistical Institute (ISI)
98. Which factor-based method is used for

calculating Gross Domestic Product (GDP) in
93. Which method is used to estimate
India?
National Income in India?
(a) Production Approach
(a)Expenditure approach
(b) Expenditure Approach
(b) Production approach
(c) Income Approach
(c) income approach
(d) Value Added Approach
94. The base year for computing the Gross

Domestic Product (GDP) in India is generally 99. Which fiscal year, is considered for the
revised after every: computation of India's National Income
statistics?
(a) 5 years
(a) January 1st to December 31st
(b) 8 years
(b) April 1st to March 31st
(c) 10 years
(c) July 1st to June 30th
(d) 15 years
(d) October 1st to September 30th
95. Which factor cost adjustment is

necessary to arrive at Gross Domestic 100. In India, which sector contributes the
Product (GDP) at factor cost from GDP at most to the Gross Domestic Product (GDP)?
market prices in India? (a) Agriculture and Allied Activities
(a) Deducting indirect taxes and adding (b) Manufacturing
subsidies
(c) Services
(b) Adding indirect taxes and deducting
subsidies (d) Mining and Quarrying
(c) Adding net exports
(d) Deducting net exports 101. In the context of National Income
accounting, what does GVA stand for?
(a) Gross Value Adjustment
96. Which of the following sectors is NOT
included in the sectoral classification used (b) Gross Value Added
for estimating National Income in India? (c) Gross Variable Assessment
(a) Agriculture and allied activities (d) General Value Adjustment
(b) Manufacturing
(c) Services

₹ 1,200 billion. The value of exports is ₹ 100
102. In a simple economy, the total value of
billion, and the value of government
goods and services produced (Gross
spending on goods and services is ₹ 150
Domestic Product - GDP) is ₹ 500 billion. The
billion. Calculate the total value of income
total income earned by households (wages,
generated in the economy.
rent, and profits) is ₹ 400 billion. Calculate
the total value of savings and taxes in this (a) ₹ 1,200 billion
economy.
(a) ₹ 100 billion
(c) ₹ 950 billion
(b) ₹ 200 billion
(c) ₹ 300 billion
(d) ₹ 400 billion
107. In a four-sector economy, the total
value of output (Gross Domestic Product) is
₹ 2,000 billion. The value of imports is ₹ 300
103. In a closed economy, the total value of
billion, and the value of government
goods and services produced (Gross
spending on goods and services is ₹ 400
Domestic Product - GDP) is ₹ 800 billion. The
billion. Calculate the total value of income
total value of consumption expenditure is ₹
generated in the economy.
600 billion. Calculate the total value of
savings in this closed economy. (a) ₹ 1,300 billion
(a) ₹ 100 billion (b) ₹ 1,600 billion
(b) ₹ 200 billion (c) ₹ 2,000 billion
(c) ₹ 300 billion (d) ₹ 2,700 billion
(d) ₹ 400 billion
104. In an open economy, the total value of 108. Consider a three-stage production
goods and services produced (Gross process. The value of raw materials
Domestic Product - GDP) is ₹ 1,500 billion. purchased by a firm is ₹ 500, the cost of
The total value of consumption expenditure intermediate goods is ₹ 300, and the firm
is ₹ 1,000 billion, and exports are ₹ 300 adds a value of ₹ 200 to produce the final
billion. Calculate the total value of savings in goods. Calculate the value added by the firm.
this open economy.
(a) ₹ 200
(a) ₹ 300 billion
(b) MOO
(b) ₹ 500 billion
(c) ₹ 500
(c) ₹ 800 billion
(d) ₹ 1,000
109. Consider a four-stage production

105. In a two-sector economy, the total value process. The value of raw materials
of output (Gross Domestic Product) is ₹ 800 purchased by a firm is ₹ 800, the cost of
billion. Calculate the total value of income intermediate goods at each stage is ₹ 100, ₹
generated in the economy. 150, and ₹ 200, respectively. The firm adds
a value of ₹ 300 at the final stage to produce
(a) ₹ 800 billion
the final goods. Calculate the value added by
(b) ₹ 600 billion the firm.
(c) ₹ 400 billion (a) MOO
(d) ₹ 1,200 billion (b) ₹ 150
(c) ₹ 300
106. In a three-sector economy, the total (d) ₹ 450

value of output (Gross Domestic Product) is

income (₹ 150 billion), corporate profits (₹
110. Consider a two-stage production
200 billion), and taxes on production and
process. The value of raw materials
imports (₹ 50 billion). Calculate the Gross
purchased by a firm is ₹ 400, and the firm
Domestic Product (GDP) using the Income
adds a value of ₹ 600 to produce the final
Method.
goods. Calculate the value added by the firm.
(a) ₹ 500 billion
(a) ₹ 400
(b) ₹ 700 billion
(b) ₹ 400
(c) ₹ 800 billion
(c) ₹ 1,000
(d) ₹ 850 billion
(d) ₹ 200
115. In an economy, the following income

111. In a three-stage production process,
components are given: employee
the value of raw materials purchased by a
compensation (₹ 400 billion), rents (₹ 70
company is ₹ 500 million. The company adds
billion), interest (₹ 120 billion), proprietor's
value worth ₹ 300 million during the
production process. Calculate the total value
of the final product.
imports (₹ 60 billion). Calculate the Gross
(a) ₹ 100 million Domestic Product (GDP) using the Income
Method.
(b) ₹ 200 million
(a) ₹ 800 billion
(c) ₹ 300 million
(b) ₹ 900 billion
(d) ₹ 800 million
(c) ₹ 1,000 billion
112. In a four-stage production process, the
116. In an economy, the following income
value of intermediate goods purchased by a
company is ₹ 800 billion. The company adds
compensation (₹ 500 billion), rents (₹ 90
value worth ₹ 400 billion during the
of the final product.
(a) ₹ 200 billion imports (₹ 80 billion). Calculate the Gross
(b) ₹ 400 billion Domestic Product (GDP) using the Income
Method.
(c) ₹ 800 billion
(a) ₹ 950 billion
113. In a five-stage production process, the (c) ₹ 1,200 billion
value of raw materials purchased by a
company is ₹ 1,000 million. The company
adds value worth ₹ 500 million during the
of the final product. 117. In a country, the total compensation of
employees (wages, salaries, and benefits) for
(a) ₹ 500 million
the year 2021 is ₹ 500 billion. The gross
(b) ₹ 1,000 million operating surplus (profit) earned by
businesses for the year 2021 is ₹ 300 billion.
(c) ₹ 1,500 million
Calculate the Gross National Income (GNI)
(d) ₹ 2,000 million for the year 2021.
(a) ₹ 200 billion
(b) ₹ 500 billion
114. In an economy, the following income (c) ₹ 800 billion
compensation (₹ 300 billion), rents (₹ 50 (d) ₹ 300 billion

118. In a country, the total compensation of
employees (wages, salaries, and benefits) for (d) ₹ 1,500 billion
operating surplus (profit) earned by 122. In a country, the total private
businesses for the year 2022 is ₹ 400 billion. consumption expenditure for the year 2023
Calculate the Gross National Income (GNI) is ₹ 1,200 billion. The total investment
for the year 2022. expenditure for the year 2023 is ₹ 300
billion. The government's total expenditure
on goods and services for the year 2023 is ₹
(b) ₹ 400 billion 400 billion. Calculate the Gross Domestic
(c) ₹ 600 billion Product (GDP) for the year 2023.
(d) ₹ 1,200 billion (a) ₹ 1,500 billion

(c) ₹ 1,900 billion (adjusted for imports)
119. In a country, the total compensation of
(d) ₹ 1,500 billion (adjusted for exports)
employees (wages, salaries, and benefits) for
operating surplus (profit) earned by
businesses for the year 2023 is ₹ 500 billion. 123. In a country, the total private
Calculate the Gross National Income (GNI) consumption expenditure for the year 2021
for the year 2023. is ₹ 800 billion. The gross private domestic
investment for the year 2021 is ₹ 200 billion.
The government expenditure on goods and
(b) ₹ 1,500 billion services for the year 2021 is ₹ 300 billion,
(c) ₹ 800 billion and the net exports (exports minus imports)
for the year 2021 are -₹ 100 billion.
(d) ₹ 300 billion Calculate the Gross Domestic Product (GDP)
for the year 2021.
120. In a country, the total private
consumption expenditure for the year 2021 (b) ₹ 1,000 billion
is ₹ 800 billion. The total investment (c) ₹ 1,200 billion
expenditure for the year 2021 is ₹ 200
(d) ₹ 900 billion
billion. The government's total expenditure
300 billion. Calculate the Gross Domestic
Product (GDP) for the year 2021. 124. In a country, the total private
consumption expenditure for the year 2022
(a) ₹ 500 billion
is ₹ 1,200 billion. The gross private domestic
(b) ₹ 1,000 billion investment for the year 2022 is ₹ 300 billion.
(c) ₹ 1,300 billion The government expenditure on goods and
services for the year 2022 is ₹ 400 billion,
(d) ₹ 900 billion and the net exports (exports minus imports)
for the year 2022 are -₹ 150 billion.
121. In a country, the total private for the year 2022.
consumption expenditure for the year 2022 (a) ₹ 1,350 billion
is ₹ 900 billion. The total investment
expenditure for the year 2022 is ₹ 250 (b) ₹ 1,350 billion
billion. The government's total expenditure (c) ₹ 1,550 billion
350 billion. Calculate the Gross Domestic
Product (GDP) for the year 2022.
125. In a country, the total private
(b) ₹ 1,100 billion consumption expenditure for the year 2023

is ₹ 1,500 billion. The gross private domestic
investment for the year 2023 is ₹ 400 billion.
The government expenditure on goods and 130. Which statistical yearbook published
services for the year 2023 is ₹ 500 billion, by the CSO includes the data and analysis
and the net exports (exports minus imports) on the System of Regional Accounts in
for the year 2023 are -₹ 200 billion. India?
(a) Economic Survey of India
for the year 2023.
(b) Indian Financial Yearbook
(c) India in Figures
(d) National Accounts Statistics
131. What is the primary purpose of the
126. The System of Regional Accounts in
System of Regional Accounts in India?
India provides economic data at which level
of geographical aggregation? (a) To estimate the national income of the
country
(a) District level
(b) To measure the economic growth of
(b) State level
different states
(c) National level
(c) To calculate the GDP of individual cities
(d) International level
(d) To track the inflation rate at the regional
level
127. Which government agency is
responsible for preparing the System of 132. Which organization is responsible for
Regional Accounts in India? preparing the System of Regional Accounts
(a) Ministry of Finance in India?
(b) Reserve Bank of India (RBI) (a) Reserve Bank of India (RBI)
(c) Central Statistical Office (CSO) (b) Ministry of Finance
(d) National Institution for Transforming (c) Central Statistical Office (CSO)
India (NITI Aayog) (d) National Sample Survey Office (NSSO)
128. The System of Regional Accounts in
India provides data on which of the following
aspects at the state level? 133. Which of the following indicators is
NOT covered in the System of Regional
(a) Population and demographic trends
Accounts in India?
(b) Agricultural production and land use (a) Gross State Domestic Product (GSDP)
(c) Industrial output and manufacturing
(b) Per Capita Income of states
activities
(c) Industrial Production Index of states
(d) National Unemployment Rate
129. Which of the following is NOT a primary
purpose of the System of Regional Accounts 134. Which method is used for estimating
in India? the Gross State Domestic Product (GSDP) in
India?
(a) Facilitating inter-state economic
comparisons (a) Production Approach
(b) Informing state-level economic planning (b) Income Approach
and policy formulation (c) Expenditure Approach
(c) Identifying regional disparities and (d) Value Added Approach
inequalities
(d) Regulating regional fiscal policies

135. The System of Regional Accounts in 139. Which of the following situations can
India provides data at which level of lead to a discrepancy between GDP growth
geographical aggregation? and citizens' well-being?
(a) District level (a) When inflation is high, and GDP growth
is low
(b) City level
(b) When income inequality increases during
(c) State level
a period of economic expansion
(d) Village level
(c) When a country's exports decrease, and
GDP growth slows down
136. Gross Domestic Product (GDP)
measures: (d) When government spending increases to
(a) The total value of goods and services fund public services and welfare programs
produced within a country's border ?
140. Which of the following is a limitation of
consumed by households.
using GDP as a measure of welfare?
(c) The total value of goods and services
(a) GDP does not account for the value of
exported by a country.
goods and services produced in the informal
(d) The total value of goods and services sector.
imported by a country.
(b) GDP does not consider government
spending on defense and - security.
137. Which of the following statements is (c) GDP does not take into account changes
true regarding the relationship between GDP in the trade balance.
and welfare? (d) GDP does not capture the impact of
(a) Higher GDP always leads to higher technological advancements on productivity.
welfare for all citizens.
(b) Higher GDP guarantees improved living
141. Gross Domestic Product (GDP) is a
standards for all citizens.
measure of:
(c) GDP is a comprehensive measure of
(a) The total population of a country
societal well-being.
(d) GDP per capita is a useful but incomplete
produced in a country
indicator of welfare. Answer:
(c) The total government spending in a
(d) GDP per capita is a useful but incomplete
country
indicator of welfare.
(d) The total imports and exports of a
country
138. Which of the following factors is NOT
considered in the calculation of GDP?
142. Which of the following statements is
(a) Government spending on infrastructure
true regarding GDP and welfare?
projects
(a) A higher GDP always indicates higher
(b) Investment in new factories and
welfare for the population.
equipment
(b) GDP is unrelated to the well-being and
(c) Income earned by citizens working
welfare of the population.
abroad
(c) GDP is a good indicator of economic
(d) Transfer payments, such as social welfare
growth but does not fully capture the overall
benefits
welfare of the population.
(d) GDP is a measure of income distribution
among the population

(a) Inclusion of government transfer
143. Which of the following is an example of
payments
a limitation of using GDP as a measure of
welfare? (b) Exclusion of household consumption
(a) GDP includes the value of illegal (c) Exclusion of exports of goods and services
activities, such as drug trafficking.
(d) Inclusion of imports of goods and services
(b) GDP accounts for environmental
degradation and pollution.
(c) GDP reflects the level of education and 148. Which aspect is not adequately
healthcare in a country. captured by GDP, making it an incomplete
measure of economic performance?
(d) GDP considers the distribution of income
among different income groups. (a) Economic growth rate
(b) Inflation rate
(c) Income distribution
144. Which term refers to the total GDP
adjusted for inflation or changes in price (d) Unemployment rate
levels?
(a) Real GDP
149. Which challenge arises due to the
(b) Nominal GDP
difficulty of accurately measuring the
(c) Per capita GDP informal or underground economy?
(d) Gross National Product (GNP) (a) Seasonal adjustments
(b) Double-counting of intermediate goods
(c) Price fluctuations
145. Which of the following factors is NOT
considered in GDP calculations? (d) Shadow economy estimation
projects
(b) Private investment in businesses and
limitation of using GDP as a measure of well-
factories
being?
(c) Household savings and personal
(a) GDP ignores the value of leisure time and
investments
non-market activities.
(d) Value of intermediate goods used in the
(b) GDP does not account for environmental
production process
degradation and resource depletion.
(c) GDP considers the level of investment in
human capital and education.
using Gross Domestic Product (GDP) as a (d) GDP focuses solely on economic activities
measure of economic welfare? and production.
(a) GDP does not account for changes in the
population size. using National Income as a measure of
(b) GDP includes the value of all final goods economic welfare?
and services.
(a) It does not account for income inequality.
(c) GDP considers income distribution (b) It includes the value of illegal activities in
among different income groups.
the economy.
(d) GDP measures the total value of goods
(c) It is difficult to calculate accurately.
and services produced.
(d) It is not relevant for developed countries.
147. Which factor can lead to an

overestimation of a country's GDP?

(a) Calculate the total profits of private
companies
existence of the informal or underground
economy? (b) Measure the economic performance of a
country
(a) Difficulty in measuring the overall
economic output accurately (c) Determine the total savings of the
government
(b) The inclusion of illegal activities in the
GDP calculation (d) Assess the inflation rate in the economy
(c) Inflationary pressure on the economy
157. Gross Domestic Product (GDP) is
(d) Increased government expenditure defined as:
(a) The total value of all goods and services
produced within a country's borders in a
153. Which of the following is a limitation of specific time period
using GDP as an indicator of well-being in
(b) The total value of all imports and exports
terms of environmental sustainability?
of a country
(a) GDP includes the value of illegal
(c) The total value of all goods and services
activities.
produced by a country's citizens, regardless
(b) GDP does not consider income of their location
distribution.
(d) The total value of all goods and services
(c) GDP growth may be accompanied by produced by a country's companies,
environmental degradation. regardless of their ownership
(d) GDP does not account for changes in
price levels.
158. Which of the following is NOT included
in GDP calculations?
154. Which limitation of National Income (a) Investment spending by businesses
computation arises due to the exclusion of
(b) Government spending on infrastructure
non-market activities and household
production? (c) Social security payments to retirees
(a) Overestimation of economic output (d) Consumer spending on durable goods
(b) Difficulty in calculating GDP at factor
cost
159. The income approach to calculating
(c) Underestimation of economic output and
GDP:
welfare
(a) Adds up all the wages, salaries, and
(d) Overestimation of economic growth rate
profits earned in an economy
(b) Only considers the total spending on final
goods and services
constant changes in the structure of the (c) Focuses on the net exports of a country
economy and the introduction of new goods
(d) Includes only the value of intermediate
and services?
goods and services
(a) Difficulty in calculating inflation rate
(b) Changes in government policies
160. Real GDP differs from Nominal GDP in
(c) Difficulty in measuring real GDP
that:
(d) Difficulty in estimating the savings rate
(a) Real GDP accounts for inflation, while
Nominal GDP does not
(b) Real GDP includes government spending,
156. National income accounting is a
while Nominal GDP does not
method used to:

(c) Real GDP is measured in current market (b) Determine the economic growth rate of
prices, while Nominal GDP is adjusted for the country
inflation
(c) Calculate the total value of imports and
(d) Real GDP considers only the value of exports
goods, while Nominal GDP includes services
(d) Evaluate the effectiveness of foreign aid
as well
programs
161. National Income is calculated as:

166. Why is it important to calculate Gross
(a) GDP minus depreciation Domestic Product (GDP)?
(b) GDP plus net exports (a) To understand the unemployment rate in
the country
(c) GDP minus indirect taxes and subsidies
(b) To analyze the overall debt of the
(d) GDP minus government spending
government
(c) To determine the total value of all goods
162. The expenditure approach to and services produced in the economy
calculating GDP: (d) To evaluate the efficiency of the banking
sector
(a) Adds up all the wages, salaries, and
profits earned in an economy
(b) Focuses on the total spending on final
167. National income estimates help in
goods and services
comparing the economic performance of
(c) Includes only the value of intermediate different countries by:
goods and services
(a) Converting all currencies to a common
(d) Considers the net exports of a country unit of measurement
163 . Which of the following is a component (b) Focusing solely on the GDP growth rate
of Gross Domestic Product (GDP)? (c) Ignoring the impact of inflation on the
economy
(a) Money supply in the economy
(d) Excluding the service sector from the
(b) Unemployment rate
calculations
(c) Government budget deficit
(d) Investment spending by businesses
168. The per capita income, derived from
164. National income estimates are essential national income estimates, is useful for:
for:
(a) Understanding the total population of a
(a) Calculating the profits of individual country
companies
(b) Analyzing the average income of
(b) Assessing the distribution of wealth in a individuals in the country
country.
(c) Measuring the total number of employed
(c) Determining the exchange rates between people
currencies
(d) Evaluating the performance of the
(d) Monitoring the stock market performance agricultural sector
169 . One of the limitations of using national

165. The primary use of national income income estimates is that they:
estimates is to: (a) Cannot account for the underground
(a) Measure the overall happiness and well- economy
being of citizens (b) Overstate the value of intermediate goods

(c) Ignore the impact of international trade
174 . Net National Product (NNP) is
on the economy
calculated by:
(d) Focus excessively on government
(a) Adding depreciation to GDP
spending
(b) Subtracting depreciation from GDP
170. National income estimates help
(c) Adding depreciation to GNP
policymakers in making informed decisions
about: (d) Subtracting depreciation from GNP
(a) The promotion of consumer spending
(b) The allocation of resources and budget 175. National Income (NI) is calculated by:
planning
(a) Adding indirect taxes to NNP
(c) The reduction of inflation rates
(b) Subtracting indirect taxes from NNP
(d) The regulation of the stock market
(c) Adding net foreign factor income to NNP
(d) Subtracting net foreign factor income
171. In times of economic downturn, from NNP
national income estimates can be used to:
176 . Personal Income (PI) is the total income
(a) Encourage more foreign investments received by:
(b) Identify the sectors that require (a) Individuals before paying personal taxes
government bailouts
(b) Individuals after paying personal taxes
(c) Increase taxes on businesses and
individuals (c) Households before paying personal taxes
(d) Decrease government spending on (d) Households after paying personal taxes
infrastructure
177. Disposable Income (Dl) is calculated by:

172. Gross Domestic Product (GDP) is the (a) Adding personal taxes to personal income
total value of:
(b) Subtracting personal taxes from personal
(a) All goods and services produced within a income
country's borders in a specific time period
(c) Adding corporate taxes to personal
(b) All goods and services produced by a income
country's citizens, regardless of their
location (d) Subtracting corporate taxes from
personal income
(c) All goods and services produced by a
country's companies, regardless of their
ownership
(d) All final goods and services produced broadest measure of a country's national
within a country's borders in a specific time income?
period
(a) GDP
(b) GNP
173. Gross National Product (GNP) differs (c) NNP
from GDP in that GNP:
(d) PI
(a) Includes only the value of final goods and
services
(b) Excludes the value of exports 179. Gross National Income (GNI) is defined
(c) Accounts for depreciation of capital goods as:
(d) Includes the value of goods and services
produced by a country's citizens abroad

(a) The total value of all goods and services (d) Indirect taxes and net factor income from
produced by a country's companies, abroad to GDP at market prices
regardless of their ownership
(b) The total value of all goods and services
produced by a country's citizens, regardless 184. National Income in India is also known
of their location as:
(c) The total value of all final goods and (a) Gross National Product (GNP)
services produced within a country's borders
in a specific time period
(d) The total value of all goods and services
produced within a country's borders, (d) Gross Domestic Product (GDP)
excluding foreign factors of production
185. The Central Statistical Office (CSO) in

180 . In India, the organization responsible India operates under the purview of the:
for estimating national income is: (a) Ministry of Finance
(a) Reserve Bank of India (RBI) (b) Ministry of Statistics and Programme
(b) Ministry of Finance Implementation
(c) Central Statistical Office (CSO) (c) Reserve Bank of India (RBI)
(d) Planning Commission (d) Planning Commission
186. In the context of India's national

income estimation, GVA stands for:
181. Which of the following methods is
primarily used to estimate national income (a) Gross Value Added
in India? (b) Gross Variable Analysis
(a) Production approach (c) Government Value Assessment
(b) Expenditure approach (d) Government Variable Account
(c) Income approach
187. Which of the following sectors is NOT
(d) All of the above covered in the estimation of national income
in India?
182. The base year for estimating Gross
Domestic Product (GDP) using constant (a) Agriculture and Allied Activities
prices in India is typically updated every: (b) Manufacturing
(a) 5 years (c) Financial Services
(b) 7 years (d) Household Consumption
(c) 10 years
(d) 12 years
188. The System of Regional Accounts (SRA)
in India aims to:
183. In India, Gross Domestic Product (GDP) (a) Calculate the national income of India
at market prices is calculated by adding: (b) Measure the economic performance of
(a) Indirect taxes and depreciation to GDP at different states and regions within India
factor cost (c) Assess the exchange rates between
(b) Indirect taxes and net-factor income from different Indian states
abroad to GDP at factor cost (d) Determine the total imports and exports
(c) Indirect taxes and subsidies to GDP at of each Indian state
factor cost

189. The Ministry responsible for the

compilation of the System of Regional
194. The System of Regional Accounts helps
Accounts in India is:
in identifying the:
(a) Ministry of Finance
(a) Number of state-owned enterprises in
(b) Ministry of Commerce and Industry each region
(c) Ministry of Home Affairs (b) Level of unemployment in the country
(d) Ministry of Statistics and Programme (c) Disparities in economic growth and
Implementation development among states
(d) Composition of the national budget
190. The base year used for estimating the

System of Regional Accounts in India is
195. One of the limitations of national
generally revised every:
income computation is that it:
(a) 3 years
(a) Ignores the contribution of the services
(b) 5 years sector to the economy
(c) 7 years (b) Overestimates the value of intermediate
(d) 10 years goods and services
(c) Excludes the impact of inflation on the
economy
191. The regional accounts data in India (d) Does not consider non-market activities
provides insights into: and the informal economy
(a) The inflation rate in each state
(b) The fiscal deficit of the central
196. The challenge of accurately measuring
government
national income arises due to:
(c) The economic activities and their
contribution to each state's GDP (a) Difficulties in collecting data on
government spending
(d) The foreign direct investments received
by different Indian states (b) Limited availability of data on
international trade
192. Which of the following is NOT a (c) The constantly changing structure of the
component of the System of Regional1 economy
Accounts in India?
(d) The exclusion of the financial sector from
(a) Gross State Domestic Product (GSDP) the calculations
(b) Per Capita Income of states
(c) Sectoral distribution of states' population
(d) International trade data of each state challenge in computing national income?
193 . The primary source of data used for (a) Difficulty in accounting for depreciation
compiling the System of Regional Accounts of assets
in India is: (b) Estimating the value of household
(a) Annual reports of different state production and unpaid work
governments (c) Dealing with fluctuations in exchange
(b) Survey data collected by private agencies rates
(c) Data from the Reserve Bank of India (RBI) (d) Accounting for income generated from
illegal activities
(d) Data from various government
departments and surveys conducted by the 198. National income computation may not
Central Statistical Office (CSO) accurately reflect the economic well-being of:

(a) The government sector
CHAPTER 6 DETERMINATION OF
(b) The manufacturing sector NATIONAL INCOME
(c) The agricultural sector Unit:2 The Keynesian Theory of
Determination of National Income
(d) Different income groups within the
population
202. What is the central proposition of
Keynesian theory regarding the
determination of national income?
199. One of the limitations of using Gross
(a) National income is determined by
Domestic Product (GDP) as a measure of
aggregate supply.
welfare is that it:
(b) National income is determined by
(a) Does not account for income distribution
aggregate demand.
within the country
(c) National income is determined by both
(b) Ignores the value of net exports in the
aggregate supply and aggregate demand.
economy
(d) National income is determined by the
(c) Overestimates the contribution of
government's fiscal policy.
government spending to the economy
(d) Excludes the value of investment
spending by businesses
203. During a recession, Keynesian
economists recommend which of the
following policies to stimulate economic
200. The concept of national income fails to growth and increase national income?
consider the economic value of:
(a) Decreasing government spending and
(a) Social security payments to retirees raising taxes.
(b) Imports of goods and services (b) Decreasing the money supply to control
(c) Gross fixed capital formation inflation.
(d) National debt and government borrowing (c) Increasing government spending and
lowering taxes.
201. Which of the following does NOT pose a (d) Reducing exports to protect domestic
challenge in calculating Gross National industries.
Product (GNP)?
(a) Accounting for the income earned by
foreign residents in the country 204. In the Keynesian model, what is the role
(b) Estimating the value of exports of goods of private investment in determining
and services national income?
(c) Dealing with changes in the national (a) Private investment has no impact on
currency's exchange rate national income.
(d) Measuring the value of capital goods used (b) Private investment solely determines
in the production process national income.
(c) Private investment is a component of
aggregate demand affecting national income.
(d) Private investment only affects the
inflation rate, not national income.
205. According to the Keynesian theory,

what can lead to a situation of
"underemployment equilibrium" in an
economy?

(a) When aggregate demand exceeds (c) Tax cuts are the most effective tool for
aggregate supply. economic growth
(b) When aggregate supply exceeds aggregate (d) Private investment is the primary driver
demand. of economic prosperity
(c) When there is full employment in the
210. According to Keynes, what can lead to
economy.
a situation of "effective demand deficiency"
(d) When aggregate demand is insufficient to in the economy?
create full employment.
(a) Excessive government spending
(b) High levels of consumer saving
206. Which of the following represents the (c) Low interest rates set by the central bank
primary tool for the government to influence
(d) High levels of inflation
aggregate demand and stabilize the
economy, according to Keynesian
economics?
211. Keynesian theory suggests that during
(a) Monetary policy. an economic downturn, the government
(b) Fiscal policy. should implement:
(c) Supply-side policies. (a) Austerity measures to reduce public debt
(d) Exchange rate policy. (b) Supply-side policies to boost production
(c) Contractionary monetary policies to
control inflation
207. Who is the main proponent of the
(d) Expansionary fiscal policies to increase
Keynesian theory of determination of
spending
National Income?
(a) Adam Smith
(b) John Maynard Keynes 212. Keynes argued that during periods of
economic recession or depression, the
(c) Milton Friedman
government should:
(d) Friedrich Hayek
(a) Increase taxes to reduce budget deficits
(b) Reduce government spending to control
inflation
208. According to Keynesian theory, what
determines the level of employment and (c) Decrease interest rates to encourage
output in an economy? private investment
(a) Consumer preferences and saving habits (d) Increase government spending to
stimulate aggregate demand
(b) Government spending and taxation
policies
(c) The interaction of aggregate demand and
213. The concept of "Multiplier Effect" in the
aggregate supply
Keynesian theory suggests that:
(d) The natural rate of unemployment
(a) Changes in government spending have a
larger impact on National Income than
changes in taxes.
209. The central idea of the Keynesian
(b) A change in investment leads to a
theory is that:
proportionate change in National Income.
(a) Government intervention is necessary to
(c) Increases in exports result in higher
stabilize the economy
economic growth and employment.
(b) The market forces alone can ensure full
(d) Changes in consumption have a direct
employment and economic stability
and immediate impact on investment.

(b) Households
214. According to Keynes, in situations of
insufficient aggregate demand, the economy (c) Business firms
may experience:
(d) Foreign sector
(a) Demand-pull inflation
(b) Cost-push inflation
220. In the circular flow model, households
(c) Deflation and unemployment
are the:
(d) Stagflation
(a) Sellers of goods and services and buyers
of factors of production
(b) Buyers of goods and services and sellers
215. In a simple two-sector model of the
circular flow, the two sectors are:
(c) Buyers of goods and services and buyers
(a) Government and households
(b) Business firms and households
(d) Sellers of goods and services and sellers
(c) Government and business firms of factors of production
(d) Foreign sector and households
221. Which of the following best represents

the flow of goods and services in the circular
216. In the circular flow model, which sector
flow model?
is the ultimate consumer of goods and
services? (a) Money flows from households to
businesses for goods and services.
(a) Business firms
(b) Goods and services flow from households
(b) Households
to businesses in exchange for money.
(c) Government
(c) Money flows from businesses to
(d) Foreign sector households for factors of production.
(d) Factors of production flow from
businesses to households in exchange for
217. In the circular flow model, which sector money.
supplies factors of production to business
firms?
(a) Government 222. Savings in the circular flow model refer
to:
(b) Households
(a) The money that businesses save from
(c) Business firms
their profits
(d) Foreign sector (b) The money that households save from
their income
218. Which of the following flows represents (c) The money that businesses invest in new
the payment made by business firms to projects
households for providing factors of (d) The money that households spend on
production? goods and services
(a) Factor payments
(b) Transfer payments
223. In the circular flow model, the total
(c) Investment spending value of goods and services produced in the
(d) Consumption expenditure economy is measured by:
(a) Gross Domestic Product (GDP)
219. In the circular flow model, which sector (b) Gross National Product (GNP)
provides funds to business firms for (c) Net Domestic Product (NDP)
investment purposes?
(a) Government

229. The total value of all final goods and

services produced within a country's borders
during a specific time period is known as:
receive income in the form of:
(a) Profits
(b) Gross National Product (GNP)
(b) Taxes
(c) Wages, rent, and interest
(d) National Income
(d) Government transfers
225. Which component of the circular flow

represents the total spending by households 230. Which of the following is NOT a factor
on goods and services? of production in economics?
(a) Savings (a) Land
(b) Investment (b) Labor
(c) Government spending (c) Capital
(d) Consumption expenditure (d) Money
226. In the two-sector circular flow model, 231. The price at which the quantity
savings by households are equal to: demanded of a good or service equals the
quantity supplied is known as:
(a) Consumption expenditure
(a) Equilibrium price
(b) Taxes paid to the government
(b) Market price
(c) Investment by firms
(c) Maximum price
(d) Government spending
(d) Minimum price
232. The study of how individuals and firms

227. The circular flow model assumes that
make decisions and interact in markets is
all income earned by households is either
known as:
spent on consumption or saved, and there is
no: (a) Macroeconomics
(a) Government intervention (b) Microeconomics
(b) Investment by firms (c) Economic planning
(c) Financial sector (d) Econometrics
(d) Foreign trade
233. Which of the following is a basic
concept in economics that refers to the
limited nature of resources?
228. In economics, the study of how
(a) Opportunity cost
individuals and societies allocate limited
(b) Scarcity
resources to satisfy their unlimited wants is
(c) Inflation
known as:
(d) Gross Domestic Product (GDP)
(a) Microeconomics
(b) Macroeconomics
234. Opportunity cost is defined as:
(c) Economic planning
(a) The cost of producing one additional unit
(d) Economics
of a good or service
(b) The total cost of all inputs used in the
production process

(c) The highest-valued alternative given up (d) Consumer surplus
when a choice is made
(d) The difference between total revenue and
total cost 240. Which type of unemployment occurs
when there is a temporary mismatch
235. Which function of money refers to between job seekers and available job
money serving as a medium of exchange in vacancies?
transactions?
(a) Cyclical unemployment
(a) Store of value
(b) Frictional unemployment
(b) Unit of account
(c) Structural unemployment
(c) Medium of exchange
(d) Seasonal unemployment
(d) Standard of deferred payment
241. The interest rate at which a central

236. The Consumer Price Index (CPI) is a bank lends money to commercial banks is
measure of: known as:
(a) The overall level of prices in an economy (a) Prime rate
(b) The total output produced in an economy (b) Discount rate
(c) The unemployment rate in an economy (c) Federal funds rate
(d) The government's budget deficit (d) LIBOR rate
237. The total market value of all final goods 242. In an economy, the Aggregate Demand
and services produced within a country's (AD) function is represented as AD = 1,000 -
borders during a specific time period is 100P, where P is the price level. Calculate
known as: the Aggregate Demand when the price level
is 5.
(a) 1,500 (b) 500
(b) Gross National Product (GNP)
(c) 1,000 (d) 2,000
(c) Net Domestic Product (NDP)
243. In an economy, the Aggregate Demand
(AD) function is represented as AD = 2,500 -
238. The total value of all goods and services 150P, where P is the price level. Calculate
produced within a country's borders during the Aggregate Demand when the price level
a specific time period is known as: is ₹ 10.
(a) Gross National Product (GNP) (a) 1,500
(b) Gross Domestic Product (GDP) (b) 2,500
(c) Net Domestic Product (NDP) (c) 2,000
(d) Net National Product (NNP) (d) 3,000
239. The measure of the responsiveness of 244 . In an economy, the Aggregate Demand
quantity demanded of a good to a change in (AD) function is represented as AD = 3,000 -
its price is known as: 200P, where P is the price level. Calculate
(a) Elasticity of demand the Aggregate Demand when the price level
is ₹ 15.
(b) Elasticity of supply
(a) 2,500
(c) Marginal utility
(b) 3,000

(c) 1,500
249. In an economy, the consumption
(d) 2,000 function is represented as C = 800 + 0.6Y,
where Y is the disposable income. Calculate
the level of consumption when the
245. In an economy, the aggregate demand disposable income (Y) is ₹ 3 000
(AD) function is represented as AD = 2,000 - (a) ₹ 1,000
100P, where P is the price level. Calculate
(b) ₹ 1,800
the equilibrium level of aggregate demand
when the price level (P) is ₹ 15. (c) ₹ 2,200
(a) ₹ 1,000 (d) ₹ 1,400
(b) ₹ 2,500
(c) ₹ 1,500
(d) ₹ 500 function is represented as C = 800 + 0.6Y,
246. In an economy, the consumption disposable income (Y) is ₹ 2,500.
function is represented as C = 500 + 0.8Y, (a) ₹ 1,500
(b) ₹ 2,000
disposable income (Y) is ₹ 2,000. (c) ₹ 2,200
(a) ₹ 1,800 (d) ₹ 2,800
(b) ₹ 1,900
(c) ₹ 2,500
(d) ₹ 2,200 function is represented as C = 1,000 + 0.8Y,
where C is the consumption and Y is the
disposable income. Calculate the level of
consumption when the disposable income
(Y) is ₹ 5,000.
function is represented as C = 500 + 0.8Y,
where C is consumption and Y is disposable (a) ₹ 1,800
income. Calculate the level of consumption
(b) ₹ 3,800
when disposable income (Y) is ₹ 1.000
(c) ₹ 4,000
(a) ₹ 1,200
(d) ₹ 5,000
(b) ₹ 1,300
(c) ₹ 1,400
(d) ₹ 1,500 252. In an economy, the consumption
function is represented as C = 1,000 + 0.6Y,
where C is the consumption and Y is the
function is represented as C = 1,000 + 0.8Y, saving when the disposable income (Y) is ₹
4,000.
the level of consumption when the (a) ₹ 2,400
disposable income (Y) is ₹ 2,000
(b) ₹ 1,600
(a) ₹ 800
(c) ₹ 2,000
(b) ₹ 1,200
(d) ₹ 1,000
(c) ₹ 2,400
(d) ₹ 2,800
function is represented as C = 800 + 0.6Y,
where C is the consumption, Y is the

disposable income, and S is the saving. (b) ₹ 3,000
Calculate the level of saving when the
(c) ₹ 2,100
disposable income (Y) is ₹ 2,000.
(d) ₹ 2,500
(a) ₹ 1,200
(b) ₹ 800 258. In the two-sector model of National
Income determination, the two main sectors
(c) ₹ 400
are:
(d) ₹ 1,600
(a) Government and households
(b) Government and foreign trade
254. In an economy, the consumption (c) Households and firms (businesses)
function is represented as C = 1,000 + 0.6Y,
(d) Firms (businesses) and foreign trade
where C is the consumption, and Y is the
saving when the disposable income (Y) is ₹
4,000. 259. In the two-sector model, the total
output produced by firms is either
(a) ₹ 600
consumed by households or:
(b) ₹ 1,600
(a) Saved by households
(c) ₹ 2,400
(b) Invested by firms
(d) ₹ 2,600
(c) Exported to foreign countries
(d) Imported from foreign countries
255. In an economy, the short-run aggregate
supply (SRAS) curve is represented as SRAS
= 1,500 + 0.5P, where P is the price level. 260. In the two-sector model, the total
Calculate the level of aggregate supply when income earned by households is either spent
the price level (P) is ₹ 10. on consumption or:
(a) 1,550 (a) Invested by firms
(b) 2,000 (b) Taxed by the government
(c) 2,500 (c) Exported to foreign countries
(d) 1,000 (d) Imported from foreign countries
261. In the two-sector model, the

equilibrium level of National Income occurs
256. In an economy, the short-run aggregate
when:
supply (SRAS) curve is represented as SRAS
= 2,000 + 100P, where P is the price level. (a) Total consumption equals total
Calculate the level of aggregate supply when investment
the price level (P) is ₹ 10 (b) Total savings equals total investment
(a) 2,100 (c) Total consumption equals total savings
(b) 3,000 (d) Total income equals total expenditure
(c) 2,500
(d) 2,200
262. If total consumption in the two-sector
model is greater than total income, the
economy will experience:
257. In an economy, the aggregate supply
(AS) function is represented as AS = 2,000 + (a) An increase in inventories
100P, where P is the price level. Calculate (b) An increase in investment
the level of aggregate supply when the price
level (P) is ₹ 10. (c) An increase in National Income
(a) ₹ 2,000 (d) A decrease in National Income

(c) Savings equal investment
263. In the two-sector model, the income
earned by households is allocated between: (d) Consumption equals GDP
(a) Taxes and Savings
269. If, in the two-sector model, aggregate
(b) Consumption and Savings savings are greater than aggregate
investment, the economy is in:
(c) Consumption and Investment
(d) Taxes and Investment (a) Recession
(b) Equilibrium
(c) Inflation
(d) Unemployment
equilibrium condition is achieved when:
(a) Consumption equals savings
(b) Consumption exceeds savings 270. The formula for calculating national
(c) Savings exceed consumption income (Y) in the two-sector model is:
(d) Consumption and savings are both zero (a) Y = C - S

(b) Y = C + S
(c) Y = C + I
265. If in the two-sector model, consumption
(d) Y = C -1
exceeds income, it would result in:
(a) Equilibrium
(b) A budget surplus 271. In an economy, the aggregate demand
(A(d) function is represented as AD = 2,000 -
(c) A budget deficit
10OP, and the short-run aggregate supply
(d) An increase in investment (SRAS) function is represented as SRAS =
1,000 + 150P. Calculate the equilibrium
266. In the two-sector model, investment is price level (P) and output level when the
assumed to be: economy is at equilibrium.
(a) Autonomous (a) P = ₹ 6, Y = 1,400
(b) Derived (b) P = ₹ 8, Y = 1,200
(c) Dependent on consumption (c) P = ₹ 10, Y = 1,000
(d) Dependent on government spending (d) P = ₹12, Y = 800
267. In the two-sector model, the total 272. In an economy, the aggregate demand
income earned by households is divided into (AD) and short-run aggregate supply (SRAS)
two components: consumption expenditure functions are given by AD = 2,000 - 100P
(C) and: and SRAS = 1.000 + 150P, where P is the
(a) Gross Domestic Product (GDP) price level. Calculate the equilibrium price
level and output level.
(b) Investment (I)
(a) Equilibrium price level: ₹ 8; Output level:
(c) Net exports (NX) 1,400 units
(d) Savings (S) (b) Equilibrium price level: ₹ 10; Output
level: 1,500 units
(c) Equilibrium price level: ₹ 12; Output
268. The equilibrium condition in the two- level: 1,600 units
sector model occurs when:
(d) Equilibrium price level: ₹ 6; Output level:
(a) Savings are greater than investment 1,200 units
(b) Consumption equals investment

(a) Smaller increase in national income
273. In an economy, the aggregate demand
(A(d) function is represented as AD = 2,000 - (b) Equal decrease in national income
10OP, and the short-run aggregate supply
(c) Larger increase in national income
(SRAS) function is represented as SRAS =
500 + 100P. Calculate the equilibrium price (d) No change in national income
level and output level in the economy.
278. The investment multiplier assumes
(a) Equilibrium price level = ₹ 8; Equilibrium
that:
output level = 1,200 units
(a) The economy is at full employment
(b) Equilibrium price level = ₹ 10;
Equilibrium output level = 1,000 units (b) Consumer spending is constant
(c) Equilibrium price level = ₹ 12; (c) Government spending is constant
Equilibrium output level = 800 units (d) There are no leakages in the economy
(d) Equilibrium price level = ₹ 14;
Equilibrium output level = 600 units
279. The investment multiplier measures
the:
274. The investment multiplier measures (a) Increase in government spending due to
the relationship between: an increase in investment
(a) Consumer spending and investment (b) Increase in investment due to an increase
(b) Government spending and investment in government spending
(c) Investment and changes in national (c) Total change in national income resulting
income from a change in investment
(d) Changes in national income and (d) Total change in investment resulting from
consumer spending a change in national income
275. The formula to calculate the investment 280. The value of the investment multiplier
multiplier is: is calculated as:
(a) Investment Multiplier = 1 / Marginal (a) 1 / Marginal Propensity to
Propensity to Consume (MPC) Consume (MPC)
(b) Investment Multiplier = 1 / Marginal (b) Marginal Propensity to Consume
Propensity to Save (MPS)
(MPC) /1
(c) Investment Multiplier = 1 + Marginal
Propensity to Consume (MPC) (c) 1 / Marginal Propensity to Save (MPS)
(d) Investment Multiplier = 1 + Marginal (d) Marginal Propensity to Save (MPS) /1
Propensity to Save (MPS)
281. If the Marginal Propensity to Consume

276. If the Marginal Propensity to Save (MPC) is 0.8, the value of the investment
(MPS) is 0.2, what is the value of the multiplier will be:
investment multiplier? (a) 2
(a) 1.2 (b) 3
(b) 5 (c) 4
(c) 0.2 (d) 5
(d) 0.8
277. The investment multiplier indicates 282. The investment multiplier can be used
that an increase in investment of a certain to calculate the total change in income when
amount will lead to a/an: there is an autonomous increase in

investment. Autonomous investment refers
287. The investment multiplier is based on
to investment that:
the idea that an initial change in investment:
(a) Depends on changes in income
(a) Directly affects consumption spending by
(b) Does not depend on changes in income households.
(c) Is made by the government sector (b) Indirectly affects consumption and
investment spending through changes in
(d) Is made by the foreign sector
interest rates.
(c) Indirectly affects consumption spending
by households.
283. If the investment multiplier is 3, an
initial increase in investment of ₹ 100 million (d) Directly affects government spending
will lead to a total increase in national
income of: 288. If the investment multiplier is 4, a ₹ 100
million increase in investment will lead to a
(a) ₹ 200 million
total increase in national income of:
(b) ₹ 300 million
(a) ₹ 200 million
(c) ₹ 400 million
(b) ₹ 400 million
(d) ₹ 500 million
(c) ₹ 600 million
284. The investment multiplier measures (d) ₹ 800 million
the:
(a) Change in investment due to changes in
interest rates. 289. In the three-sector model, the three
main sectors of the economy are:
(b) Change in investment due to changes in
government spending. (a) Government, households, and foreign
trade
(c) Change in national income due to
changes in investment. (b) Government, households, and financial
institutions
(d) Change in consumption due to changes
in income. (c) Households, firms (businesses), and
foreign trade
(d) Households, firms (businesses), and
285. The formula for calculating the financial institutions
investment multiplier is:
(a) Investment Multiplier - 1 / Marginal
Propensity to Consume (MPC) 290. In the three-sector model, the
equilibrium condition occurs when:
(b) Investment Multiplier = 1 / Marginal
Propensity to Save (MPS) (a) Total consumption equals total savings
(c) Investment Multiplier = 1 / Marginal (b) Total income equals total consumption
Propensity to Import (MPI)
(c) Total income equals total expenditure
(d) Investment Multiplier = 1 / Marginal
(d) Total savings equals total investment
Propensity to Invest (MPI)
291. The formula for calculating the

286. If the marginal propensity to consume
equilibrium level of income (Y) in the three-
(MPC) is 0.8, the value of the investment
sector model is:
multiplier would be:
(a) Y = C + I + G
(a) 0.8
(b) Y = C + S + T
(b) 5
(c) Y = C + I + NX
(c) 0.2
(d) Y = C + I - NX
(d) 2

(b) Equilibrium
292. If in the three-sector model, total
consumption is ₹ 800 million, total (c) Inflation
investment is ₹ 200 million, government
(d) A trade surplus
expenditure is ₹ 300 million, and net exports
are ₹ 50 million, the equilibrium level of
income (Y) would be:
297. The formula for calculating the
(a) ₹ 1,050 million equilibrium level of income (Y) in a three-
(b) ₹ 1,250 million sector model is:
(c) ₹ 750 million (a) Y = C - I + X - M
(d) ₹ 1,350 million (b) Y = C + I + G
(c) Y = C + S + T
(d) Y = C + I + X
293. If in the three-sector model, total
consumption is ₹ 500 million, total
investment is ₹ 300 million, government
expenditure is ₹ 200 million, and net exports 298. The concept of the marginal propensity
are -₹ 50 million (trade deficit), the to import (MPM) in a three-sector model
equilibrium level of income (Y) would be: refers to:
(a) ₹ 1,050 million (a) The change in government spending due
to changes in income.
(b) ₹ 950 million
(b) The change in consumption due to
(c) ₹ 750 million
changes in income.
(d) ₹ 1,150 million (c) The change in imports due to changes in
income.
(d) The change in investment due to changes
294. In a three-sector model, the three main
in interest rates.
sectors of the economy are:
(a) Households, firms, and government
(b) Households, firms, and foreign trade 299. The formula for calculating national
income (Y) in the three-sector model is:
(c) Households, firms, and banks
(a) Y = C + S
(d) Households, firms, and financial
institutions (b) Y = C + I
(c) Y = C + T
(d) Y = C + T + I
295. in a three-sector model, the equilibrium
condition occurs when:
(a) Aggregate savings equal aggregate
300. In the three-sector model, the total
investment income earned by households is divided into
(b) Aggregate consumption equals aggregate three components: consumption
income expenditure (C), savings (S), and:
(c) Total exports equal total imports (a) Taxes (T)
(d) Total government spending equals total (b) Investment (I)
tax revenue (c) Exports (X)
(d) Government expenditure (G)
296. If, in the three-sector model, aggregate
consumption is greater than aggregate
income, the economy is in: 301. The equilibrium condition in the three-
(a) Recession

(a) Total consumption equals total income government expenditure affect the
equilibrium level of income (Y) in the
(b) Total savings equal total investment
economy, assuming a simple Keynesian
(c) Total consumption plus total taxes equal model?
total income
(a) The equilibrium level of income (Y) will
(d) Total exports equal total imports increase by ₹ 200 billion.
302. If, in the three-sector model, aggregate (b) The equilibrium level of income (Y) will
consumption and taxes are greater than decrease by ₹ 200 billion.
aggregate income, it indicates that: (c) The equilibrium level of income (Y) will not
change.
(a) The economy is in equilibrium
(d) The equilibrium level of income (Y) will
(b) The economy is in recession
change, but the direction of change cannot
(c) The economy is facing a surplus be determined without more information.
(d) The economy is facing a deficit
303. In an economy, the government 306. In an economy, the government

purchases of goods and services (G) are ₹ purchases (G) are ₹ 500 billion, taxes (T) are
500 billion, taxes (T) are ₹ 300 billion, ₹ 300 billion, transfer payments (TR) are ₹
transfer payments (TR) are ₹ 100 billion, 100 billion, and the disposable income (YD)
and the disposable income (YD) is ₹ 1,500 is ₹ 1,800 billion. Calculate the level of
billion. Calculate the level of government government savings or dissavings (Sg).
savings or dissavings.
(a) Government savings (Sg) = ₹ 100 billion
(a) Government savings of ₹ 200 billion
(b) Government savings (Sg) = -₹ 100 billion
(b) Government dissavings of ₹ 100 billion
(c) Government savings (Sg) = ₹ 300 billion
(c) Government dissavings of ₹ 200 billion
(d) Government savings (Sg) = ₹ 300 billion
(d) Government savings of ₹ 100 billion
307. In the four-sector model, the total

304. In an economy, the government income earned by households is divided into
increases its spending on infrastructure four components: consumption expenditure
projects and welfare programs. As a result, (C), savings (S), taxes (T), and:
the government expenditure (G) increases by
(a) Exports (X)
₹ 100 billion. How will this increase in
government expenditure affect the (b) Imports (M)
equilibrium level of income in the economy,
(c) Investment(l)
assuming the marginal propensity to
consume (MPC) is 0.8? (d) Government expenditure (G)
(a) The equilibrium level of income will
308. The equilibrium condition in the four-
increase by ₹ 100 billion.
(b) The equilibrium level of income will
(a) Total consumption equals total income
decrease by ₹ 100 billion.
(b) Total savings equal total investment
(c) The equilibrium level of income will
increase by ₹ 500 billion. (c) Total consumption plus total taxes equal
total income
(d) The equilibrium level of income will
decrease by ₹ 500 billion. (d) Total exports equal total imports
305. In an economy, the government 309. If, in the four-sector model, aggregate
increases its spending on infrastructure consumption and taxes are greater than
projects and welfare programs. As a result, aggregate income, it indicates that:
the government expenditure (G) increases by (a) The economy is in equilibrium
₹ 200 billion. How will this increase in

(b) The economy is in recession (b) Total consumption plus total investment
equal total income
(c) The economy is facing a surplus
(c) Total savings plus total investment equal
(d) The economy is facing a deficit
total income
(d) Total exports equal total imports
310. In the four-sector model, the net
exports (NX) component represents:
315. If, in the four-sector model, aggregate
(a) Total consumption by households
consumption, taxes, and imports are greater
(b) Total government expenditure than aggregate income, it indicates that:
(c) Total investment by firms (a) The economy is in equilibrium
(d) The difference between exports (X) and (b) The economy is in recession
imports (M)
(c) The economy is facing a surplus
311. The formula for calculating national (d) The economy is facing a deficit
income (Y) in the four-sector model is:
(a) Y = C + S
316. The formula for calculating national
(b) Y = C + T
income (Y) in the four-sector model is:
(c) Y = C + T + I
(a) Y = C + S
(d) Y = C + T + I + NX
(b) Y = C + I
(c) Y = C + T + X
312. In the four-sector model, the four main (d) Y = C + T + I + X- M
sectors of the economy are:
(a)Households, firms (businesses),
government, and foreign trade 317. According to the Keynesian theory,
during an economic recession, the
(b)Households, firms (businesses),
government should:
government, and financial institutions
(a) Decrease government spending to reduce
(c)Households, firms (businesses),
budget deficits.
government, and banks
(b) Increase taxes to control inflation.
(d)Households, firms (businesses),
government, and central bank (c) Increase government spending to
stimulate aggregate demand.
(d) Decrease interest rates to encourage
313. In the four-sector model, the total private investment.
income earned by households is divided into
four components: consumption expenditure
((c), savings (S), taxes (T), and:
318. The Keynesian theory emphasizes that
(a) Imports (M) in times of economic downturns, the primary
cause of unemployment is:
(b) Exports (X)
(a) Technological advancements leading to
(c) Government expenditure (G)
job losses.
(d) Investments (I)
(b) Structural changes in the economy.
(c) Insufficient aggregate demand.
314. The equilibrium condition in the four- (d) Excessive government intervention.
(a) Total consumption plus total taxes equal
total income 319. The concept of the "Multiplier Effect" in
the Keynesian theory suggests that:

(a) Government spending has a larger impact
on national income than changes in taxes.
during times of economic recession, the
(b) A change in investment leads to a government should:
proportionate change in national income.
(a) Decrease taxes to boost consumer
(c) Increases in exports result in higher spending.
economic growth and employment.
(b) Decrease government spending to reduce
(d) Changes in consumption have a direct budget deficits.
and immediate impact on investment.
(c) Increase taxes to reduce inflation.
(d) Increase government spending to
stimulate aggregate demand
during periods of high inflation, the
324. The Keynesian theory suggests that
government should focus on:
changes in aggregate demand can lead to
(a) Increasing government spending to boost fluctuations in:
aggregate demand.
(a) The exchange rate.
(b) Reducing taxes to encourage
(b) Interest rates.
consumption.
(c) Unemployment and inflation.
(c) Decreasing money supply and raising
interest rates to control spending. (d) Stock market prices
(d) Encouraging private investment through
325. The primary focus of the Keynesian
tax incentives.
theory is on:
(a) Long-term economic growth.
321. The Keynesian theory highlights that (b) Achieving price stability.
during economic downturns, there may be a (c) Short-run economic fluctuations and
role for the government to engage in: stabilizing the economy.
(a) Active fiscal and monetary policies to (d) Increasing international trade.
stabilize the economy.
(b) Laissez-faire and minimal government
intervention. 326. The Keynesian theory influenced the
(c) Decreasing public expenditure to reduce development of economic policies during:
budget deficits. (a) The Great Depression in the 1930s.
(d) Reducing public debt to promote (b) The Industrial Revolution in the 18th
economic growth. century.
(c) The Renaissance period in Europe.
322. The conclusion of the Keynesian theory (d) The post-World War II era.
of determination of national income is that:
327. The Keynesian theory of determination
(a) The government should play a minimal of national income was proposed by:
role in the economy.
(a) Adam Smith
(b) Government intervention is necessary to
stabilize the economy and achieve full (b) John Maynard Keynes
employment. (c) Milton Friedman
(c) The economy will always be in a state of (d) Friedrich Hayek
equilibrium without any government
intervention.
(d) Monetary policy is the most effective tool 328. According to the Keynesian theory, the
to control inflation and unemployment. level of national income is primarily
determined by:

(a) Aggregate demand in the economy (c) Inflationary pressures in the economy
(b) Aggregate supply in the economy (d) Excessive government debt and deficits
(c) The government s fiscal policy
(d) The central bank's monetary policy
333. In the Keynesian theory, if aggregate
demand is insufficient to achieve full
employment, the result will be:
329. The central idea of the Keynesian
(a) Inflation
theory is that:
(b) Deflation
(a) Supply creates its own demand in the
economy (c) Recession or unemployment
(b) Savings and investment are equal in the (d) Economic growth and stability
long run
(c) The economy can experience prolonged
periods of unemployment 334. The Keynesian theory gained
prominence during which historical period?
(d) Government intervention is unnecessary
in a free-market economy (a) The Great Depression of the 1930s
(b) The Industrial Revolution of the 18th
century
330. Keynes argued that during economic
(c) The Renaissance era in Europe
downturns, the government should:
(d) The dot-com bubble of the late 1990s
(a) Reduce taxes and increase government
spending
(b) Increase taxes and reduce government 335. In a simple two-sector model of the
spending economy, the two main sectors are:
(c) Allow market forces to correct the (a) Household and government
imbalances in the economy
(b) Household and business
(d) Privatize state-owned enterprises to
stimulate economic growth (c) Business and government
(d) Household and financial
331. The concept of "effective demand" in the 336. The circular flow model illustrates the
Keynesian theory refers to: flow of:
(a) The total demand for goods and services (a) Goods and services and money between
in the economy households and firms
(b) The demand for goods and services by the (b) Goods and services and money between
government sector households and the government
(c) The demand for exports and imports in (c) Goods and services and money between
the economy businesses and the government
(d) The demand for consumer goods only, (d) Goods and services and money between
excluding investment firms and financial institutions
332. Keynesian policies are designed to 337. In the circular flow model, households
address: are the:
(a) Short-run fluctuations in the business (a) Buyers of goods and services and sellers
cycle of factors of production
(b) Long-run structural issues in the (b) Buyers of goods and services and buyers
economy of factors of production

(c) Sellers of goods and services and sellers (d) Government spending that increases the
of factors of production flow of income
(d) Sellers of goods and services and buyers
342. Injection in the circular flow model
refers to:
(a) Money flowing into the economy due to
exports
flow of money in the circular flow model? (b) Money flowing out of the economy due to
imports
(a) Money flows from households to
businesses as payment for goods and (c) Government spending and investments
services that increase the flow of income
(b) Money flows from businesses to (d) Savings and taxes that reduce the flow of
households as payment for factors of income
production
(c) Money flows from businesses to the
government as taxes 343. Economics is the study of:
(d) Money flows from households to the (a) How to maximize individual profits
government as taxes
(b) How to achieve economic equality among
individuals
(c) How societies allocate scarce resources to
satisfy unlimited wants
receive income through:
(d) How to control inflation and
(a) Profits earned from business activities
unemployment in the economy
(b) Government subsidies and transfers
(c) Wages, salaries, and rent for providing
factors of production 344. The basic economic problem arises
because:
(d) Interest earned from financial
investments (a) Governments are inefficient in resource
allocation
(b) Human wants are unlimited, but
340. The circular flow model assumes that: resources are limited
(a) There is no saving or investment in the (c) There is a surplus of goods and services
economy in the market
(b) The government does not play a role in (d) Consumers' preferences change
the economy frequently
(c) There are no leakages or injections in the
flow of income
345. The concept of opportunity cost refers
(d) The economy is closed, with no foreign
to:
trade
(a) The monetary cost of an economic
decision
341. Leakage in the circular flow model (b) The highest-valued alternative that must
refers to: be given up when a choice is made
(a) Money flowing out of the economy due to (c) The additional cost incurred when
imports producing one more unit of a good
(b) Money flowing into the economy due to (d) The total cost of production of a firm
exports
(c) Savings and taxes that reduce the flow of
income

(a) The maximum quantity of goods and
346. In economics, the term "demand" refers
services that a country can produce using all
to:
available resources efficiently
(a) The quantity of a good or service that
(b) The minimum level of production a
producers are willing to supply
country must achieve to meet its basic needs
(b) The quantity of a good or service that
(c) The total output of a country's economy
consumers are willing and able to buy at a
in a given time period
given price
(d) The income distribution among different
(c) The price at which producers are willing
income groups in an economy
to sell a good or service
(d) The price at which consumers are willing 351. In the two-sector model of national
and able to buy a good or service income determination, the two main sectors
are:
(a) Household and government
347. The law of supply states that:
(b) Household and business
(a) As the price of a good or service increases,
(c) Business and government
the quantity demanded will increase
(d) Government and foreign trade
(b) As the price of a good or service increases,
the quantity supplied will decrease
(c) As the price of a good or service
352. The two-sector model simplifies the
decreases, the quantity demanded will
economy by considering the interactions
decrease
between:
(d) As the price of a good or service
(a) Households and businesses only
decreases, the quantity supplied will
increase (b) Households and the government only
(c) Businesses and the government only
(d) Households and the foreign sector only
348. Which of the following is a function of
money in an economy?
(a) To regulate imports and exports 353. In the two-sector model, households
(b) To control inflation and deflation are the main:
(c) To serve as a medium of exchange, unit (a) Producers of goods and services
of account, and store of value
(b) Consumers of goods and services
(d) To determine the distribution of income
(c) Suppliers of factors of production
and wealth
(d) Investors in the economy
349. In a market economy, the allocation of

resources is primarily determined by: 354. The two-sector model assumes that all
the income earned by households is either:
(a) The government through central planning
(a) Spent on consumption or saved
(b) Consumer preferences and market forces
of supply and demand (b) Spent on consumption or invested
(c) Labor unions and collective bargaining (c) Spent on imports or exports
(d) International trade agreements and (d) Spent on consumption or taxes
treaties
355. Investment in the two-sector model
refers to:
350. The production possibilities frontier (a) The purchase of financial assets by
(PPF) represents: households

(b) The purchase of physical capital goods by (a) Change in investment divided by the
businesses change in national income
(c) The government's spending on (b) Change in national income divided by the
infrastructure projects change in investment
(d) The government's spending on social (c) Change in consumption divided by the
welfare programs change in investment
(d) Change in government spending divided
by the change in investment
356. Savings in the two-sector model is
equal to:
(a) Investment 361. A higher investment multiplier implies
that:
(b) Consumption
(a) Changes in investment have a larger
(c) Income earned by households
impact on the overall economy
(d) Government spending
(b) Changes in investment have a smaller
impact on the overall economy
(c) The economy is in a recessionary phase
357. The two-sector model assumes that
there is no: (d) The economy is in an inflationary phase
(a) Government intervention in the economy
(b) Unemployment or inflation
362. The investment multiplier process
(c) Saving or investment in the economy works through:
(d) International trade or foreign sector (a) Changes in consumer spending due to
interaction changes in investment
(b) Changes in government spending due to
changes in investment
(c) Changes in aggregate demand due to
equilibrium condition is achieved when:
changes in investment
(a) Savings are equal to consumption
(d) Changes in aggregate supply due to
(b) Investment is equal to consumption changes in investment
(c) Investment is equal to savings
(d) Savings are equal to government
spending 363. The value of the investment multiplier
is influenced by the:
(a) Level of government regulation in the
359. The investment multiplier is a concept economy
used in economics to measure: (b) Level of unemployment in the economy
(a) The impact of changes in investment on (c) Marginal propensity to consume (MPC)
the overall economy and the marginal propensity to save (MPS)
(b) The efficiency of the financial sector in (d) Exchange rate of the national currency
generating profits
(c) The effectiveness of government spending
on economic growth 364. In an economy with a high investment
(d) The correlation between inflation and multiplier, a decrease in investment can lead
unemployment to:
(a) A significant decrease in national income
and output
360. The investment multiplier is calculated (b) An increase in consumer spending to
as the: compensate for the decrease in investment

(c) An increase in government spending to (c) Investments in physical capital by
compensate for the decrease in investment businesses
(d) No significant impact on the overall (d) Savings and financial investments
economy
365. The investment multiplier is a key

370. Equilibrium income in the three-sector
concept in understanding the impact of:
model is achieved when:
(a) Fiscal policy on economic growth
(a) Aggregate demand is greater than
(b) Monetary policy on interest rates aggregate supply
(c) Foreign trade on exchange rates (b) Aggregate demand is less than aggregate
supply
(d) Supply-side policies on unemployment
(c) Aggregate demand is equal to aggregate
supply
366. The investment multiplier is a (d) Aggregate demand is equal to
theoretical concept that assumes: consumption
(a) Investment has a fixed impact on the
371. The equilibrium condition in the three-
economy
sector model is represented as:
(b) The economy is in a constant state of
(a) Aggregate demand (AD) = Exports (X) +
equilibrium
Government spending (G)
(c) There are no leakages in the circular flow
(b) Aggregate demand (AD) = Consumption
of income
(C) + Government spending (G) + Savings
(d) All other factors in the economy remain
constant (S)
(c) Aggregate demand (AD) = Consumption
367. In a three-sector model of national
(C) + Investment (I) + Government
income determination, the three main
spending (G)
sectors are:
(d) Aggregate demand (AD) = Consumption
(a) Household, government, and foreign
trade
spending (G) - Imports (M)
(b) Household, business, and government
(c) Business, government, and foreign trade
372. In the three-sector model, leakage
(d) Household, financial, and foreign trade
refers to:
(a) Money flowing into the economy due
368. The three-sector model expands the to exports
two-sector model by incorporating the role
(b) Money flowing out of the economy due
of:
to imports
(a) Government and imports only
(c) Taxes and savings that reduce the flow
(b) Government and exports only
of income
(c) Government and both imports and
exports (d) Government spending that increases the
(d) Foreign trade and exports only flow of income
369. In the three-sector model, government 373. The injection in the three-sector model
spending includes: refers to:
(a) Imports and exports of goods and services (a) Money flowing out of the economy due to
imports
(b) Taxes and transfers to households

(b) Money flowing into the economy due to (a) Aggregate demand is greater than
exports
aggregate supply
(c) Government spending and investments
(b) Aggregate demand is less than aggregate
that increase the flow of income
supply
(d) Savings and taxes that reduce the flow of
income (c) Aggregate demand is equal to aggregate
supply
374. In the three-sector model, if aggregate
demand exceeds aggregate supply, it leads (d) Aggregate demand is equal to
to: consumption
(a) A surplus in the economy
379. The equilibrium condition in the four-
(b) An increase in government borrowing sector model is represented as:
(c) Inflationary pressures in the economy (a) Aggregate demand (AD) = Consumption
(d) A decrease in national income (C) + Government spending (G) + Savings
(S)
375. In a four-sector model of national (b) Aggregate demand (AD) = Consumption
income determination, the four main sectors (C) + Investment (I) + Government
are: spending (G) + Net exports (NX)
(a) Household, government, business, and (c) Aggregate demand (AD) = Consumption
foreign trade (C) + Investment (I) + Government
(b) Household, government, business, and spending (G) - Net exports (NX)
financial (d) Aggregate demand (AD) = Consumption
(c) Household, government, business, and
exports spending (G) - Taxes (T)
(d) Business, government, foreign trade, and

financial
380. In the four-sector model, the net
exports (NX) are negative when:
376. The four-sector model expands the (a) Imports exceed exports
three-sector model by incorporating the role (b) Exports exceed imports
of:
(c) Government spending exceeds taxes
(a) Government and imports only
(d) Savings exceed investments
(b) Government and exports only
(c) Foreign trade and exports only 381. The leakage in the four-sector model
refers to:
(d) Financial sector and imports only
(a) Money flowing into the economy due to
exports
377. In the four-sector model, net exports (b) Money flowing out of the economy due to
(NX) represent the difference between: imports
(a) Government spending (G) and taxes (T) (c) Taxes, savings, and imports that reduce
the flow of income
(b) Exports (X) and imports (M)
(d) Government spending and investments
(c) Savings (S) and investments (I) that increase the flow of income
(d) Consumption (C) and investment (I)
382. The injection in the four-sector model

378. Equilibrium income in the four-sector refers to:
model is achieved when:

(a) Money flowing out of the economy due to (c) Increase interest rates to encourage
imports savings
(b) Money flowing into the economy due to (d) Decrease interest rates to promote
exports borrowing and investment
(c) Government spending, exports, and
investments that increase the flow of income
387. In the Keynesian model, full
(d) Taxes, savings, and imports that reduce
employment equilibrium can only be
the flow of income
achieved with:
(a) An increase in government regulations
and control
383. The Keynesian theory emphasizes the
role of ________ in influencing national (b) The proper functioning of the financial
income. sector
(a) Aggregate supply (c) The active role of the government in
managing aggregate demand
(b) Government policies
(d) A balanced budget and reduced
(c) Foreign trade
government intervention
(d) Business investments

388. The Keynesian theory gained popularity
during periods of economic downturns, the
during the:
government should use ________ to
stimulate economic growth. (a) Great Depression of the 1930s
(a) Monetary policy (b) Industrial Revolution of the 18th century
(b) Supply-side policies (c) Renaissance era in Europe
(c) Fiscal policy (d) Dot-com bubble of the late 1990s
(d) Trade policies
389. Keynes argued that in the long run:

385. The concept of "effective demand" in the (a) Government intervention is unnecessary
Keynesian theory highlights the importance in the economy
of:
(b) Supply creates its own demand
(c) The economy will automatically reach full
projects
employment
(b) The total demand for goods and services
(d) The impact of government policies on
in the economy
aggregate demand diminishes
(c) The level of savings and investments in
the economy
(d) The role of foreign trade in influencing 390. The Keynesian theory's focus on
national income aggregate demand and government
intervention has had a significant influence
on the development of modern:
386. The Keynesian theory suggests that if (a) Classical economics
there is insufficient aggregate demand in the
(b) Monetarist economics
economy, the government should:
(c) Neoclassical economics
(a) Reduce government spending and lower
taxes (d) Macroeconomics
(b) Increase government spending and lower
taxes

purchase of intermediate goods.
391. The concept of ‘resident unit’ involved
in the definition of GDP denotes II. ‘Value added’ represents the
contribution of labour and capital to
a) A business enterprise which belongs to
the production process.
a citizen of India with production units
solely situated in India (a) Statements I and II are incorrect
b) The unit having predominant economic (b) Statements I and II are correct
interest in the economic territory of the
(c) Statement I is correct and II is
country for one year or more irrespective incorrect
of the nationality or legal status
(d) Statement II is correct and I is
c) A citizen household which had been incorrect
living in India during the accounting
year and one whose economic interests 395 .Non-economic activities are
are solely in India a) those activities whose value is excluded
from national income calculation as it
d) Households and bus iness enterprises
will involve double counting
composed of citizens of India alone
living in India during the accounting b) those which produce goods and services,
year but since these are not exchanged in a
market transaction they do not
command any market value
392. Read the following statements and c) those which do not involve
answer the following question. production of goods and services as
they are meant to provide hobbies
Intermediate consumption consists of the and leisure time activities
value of the goods and services consumed
as inputs by a process of production. d) those which result in production for
self consumption and therefore not
I. Intermediate consumption excludes fixed included in national income
assets whose consumption is recorded as calculation
consumption of fixed capital.
(a) Only I is true
396. Which of the following does not enter
(b) Both I and II are true
into the calculation of national income?
(c) Only II is true
a) Exchange of previously produced
(d) Neither I nor II is true goods
b) Exchange of second hand goods
393. Gross Domestic Product (GDP) of any c) Exchange of stocks and bonds
nation d) All the above
a) excludes capital consumption and
intermediate consumption 397. Which of the following enters into the
b) is inclusive of capital consumption or calculation of national income?
depreciation a) The value of the services that
c) is inclusive of indirect taxes but accompany the sale
excludes subsidies
b) Additions to inventory stocks of
d) None of the above final goods and materials
c) Stocks and bonds sold during eth
current year
394. Read the following statements
d) (a) and (b) above
I. ‘Value added’ refers to the difference
between value of output and

398. Gross National Product at market 402. The GDP per capita is
prices GNP MP is
a. a measure of a country's economic
(a) GDP MP + Net Factor Income from output per person
Abroad b. actual current income receipts of
(b) GDP MP - Net Factor Income from persons
Abroad c. national income divided by
(c) GDP MP - Depreciation population
(d) GDP MP + Net Indirect Taxes d. (a)and (c) above
399. Choose the correct statement 403. Which of the following is an

example of transfer payment?
a. GNP includes earnings of Indian
corporations overseas and Indian a. Old age pensions and family
residents working overseas; but GDP pensions
does not include these b. Scholarships given to deserving
b. NNPFC = National Income = FID diligent students.
(factor income earned in domestic c. Compensation given for loss of
territory) – NFIA. property due to floods
c. Capital goods and inventory investment d. All the above
are excluded from computation of GDP
d. NDPMP = GDPMP + Depreciation
404. Mixed income of the self -employed
means
400.The basis of distinction between (a) net profits received by self -employed
market price and factor cost is people
a. net factor income from abroad (b) outside wages received by self-
b. net indirect taxes (i.e., Indirect taxes employed people
- Subsidies) (c) combined factor payments which are
c. net indirect taxes (i.e., Indirect taxes not distinguishable,
+ Subsidies) (d) wages due to non- economic activities
d. depreciation ( consumption of fixed
capital)
405. Which of the following is added to
national income while calculating
personal income?
401. If net factor income from abroad is
positive, then a. Transfer payments to individuals
a. national income will be greater than b. Undistributed profits of corporate
domestic factor incomes.
c. Transfer payments made to
b. national income will be less than foreigners
domestic factor incomes.
d. Mixed income of self employed
c. net exports will be negative
d. domestic factor incomes will be
greater than national income

Answer
Que Ans Que Ans Que Ans Que Ans Que Ans Que Ans
1 D 47 C 93 D 139 B 185 A 231 A
2 B 48 A 94 C 140 A 186 D 232 B
3 B 49 B 95 A 141 B 187 B 233 D
4 C 50 C 96 D 142 C 188 D 234 C
5 D 51 C 97 C 143 A 189 B 235 C
6 A 52 C 98 C 144 A 190 C 236 A
7 A 53 C 99 B 145 C 191 D 237 A
8 B 54 B 100 C 146 A 192 D 238 B
9 C 55 A 101 B 147 A 193 C 239 A
10 A 56 D 102 A 148 C 194 D 240 B
11 B 57 C 103 C 149 D 195 C 241 B
12 B 58 C 104 A 150 C 196 C 242 B
13 D 59 C 105 A 151 A 197 D 243 C
14 C 60 C 106 B 152 A 198 A 244 C
15 B 61 C 107 B 153 C 199 A 245 C
16 D 62 C 108 A 154 C 200 D 246 B
17 D 63 C 109 D 155 C 201 B 247 D
18 A 64 C 110 D 156 B 202 C 248 B
19 C 65 C 111 D 157 A 203 C 249 D
20 D 66 A 112 D 158 A 204 D 250 C
21 B 67 C 113 C 159 A 205 B 251 B
22 B 68 B 114 C 160 C 206 B 252 A
23 B 69 B 115 B 161 B 207 C 253 C
24 B 70 C 116 D 162 D 208 A 254 B
25 A 71 A 117 C 163 B 209 B 255 A
26 C 72 A 118 A 164 B 210 D 256 A
27 D 73 B 119 B 165 C 211 D 257 B
28 D 74 C 120 B 166 A 212 D 258 C
29 A 75 A 121 C 167 B 213 A 259 A
30 B 76 D 122 B 168 A 214 C 260 A
31 A 77 A 123 A 169 B 215 B 261 C
32 B 78 C 124 A 170 B 216 B 262 D
33 A 79 C 125 C 171 A 217 B 263 B
34 B 80 C 126 B 172 D 218 A 264 A
35 D 81 B 127 C 173 B 219 B 265 C
36 B 82 A 128 B 174 B 220 A 266 A
37 C 83 A 129 B 175 B 221 B 267 D
38 A 84 B 130 D 176 B 222 B 268 C
39 C 85 D 131 B 177 B 223 A 269 A
40 A 86 A 132 C 178 B 224 C 270 B
41 C 87 B 133 D 179 C 225 D 271 A
42 D 88 A 134 C 180 D 226 C 272 A
43 B 89 C 135 C 181 A 227 B 273 B
44 C 90 A 136 A 182 D 228 D 274 C
45 C 91 C 137 183 C 229 A 275 D
B C D D D B
46 92 138 184 230 276

Que Ans Que Ans Que Ans

277 C 323 D 369 B
278 D 324 C 370 C
279 C 325 C 371 C
280 A 326 A 372 C
281 C 327 B 373 C
282 B 328 A 374 C
283 B 329 C 375 A
284 C 330 A 376 A
285 A 331 A 377 B
286 D 332 A 378 C
287 C 333 C 379 B
288 C 334 A 380 A
289 A 335 B 381 C
290 C 336 A 382 C
291 C 337 A 383 B
292 B 338 A 384 C
293 B 339 C 385 B
294 B 340 C 386 B
295 B 341 C 387 C
296 A 342 C 388 A
297 B 343 C 389 D
298 C 344 B 390 D
299 D 345 B 391 B
300 A 346 B 392 B
301 C 347 D 393 B
302 D 348 C 394 B
303 C 349 B 395 B
304 C 350 A 396 D
305 A 351 B 397 D
306 B 352 A 398 A
307 C 353 B 399 A
308 C 354 A 400 B
309 D 355 B 401 D
310 D 356 A 402 D
311 D 357 D 403 C
312 A 358 C 404 A
313 B 359 A 405
314 C 360 B
315 D 361 A
316 D 362 C
317 C 363 C
318 C 364 A
319 B 365 A
320 C 366 D
321 A 367 B
322 B 368 C
.


CHAPTER – 7 PUBLIC FINANCE
CHAPTER 7 (b) Reducing government spending to control

budget deficit
PUBLIC FINANCE
(c) Increasing government spending and
Unit:1 Fiscal Functions: An cutting taxes to stimulate economic growth
Overview, Centre and State (d) Implementing austerity measures to
Finance address recession
Multiple Choice Questions 6. Fiscal functions refer to:

1. What does fiscal policy refer to? (a) The functions performed by the central
(a) The government's policy on taxation and bank to control the money supply.
public expenditure. (b) The functions performed by the
(b) The policy of the central bank to control government related to taxation, expenditure,
the money supply. and borrowing.
(c) The policy of promoting free trade and (c) The functions performed by commercial
globalization. banks to provide credit to the public.
(d) The policy of regulating foreign direct (d) The functions performed by the stock
investment. exchange to regulate financial markets.
2. What is the primary objective of fiscal 7. Fiscal policy is primarily concerned with:
policy? (a) Controlling the money supply and
(a) Controlling inflation interest rates in the economy.
(b) Achieving trade surplus (b) Regulating international trade and

exchange rates.
(c) Reducing income inequality
(c) Achieving price stability and controlling
(d) Stabilizing financial markets inflation.
(d) Influencing the level of aggregate demand
3. Which level of government is responsible and economic activity.
for formulating and implementing fiscal
policy in a federal system?
8. The central government's main source of
(a) Local government revenue is derived from:
(b) State government (a) State taxes and fees.
(c) Central government (b) Central excise duties and customs duties.
(d) Municipal government (c) Corporate income taxes and personal
income taxes.
4. What is the role of the state government (d) Borrowing from international financial
in fiscal policy? institutions.
(a) Implementing monetary policy
(b) Controlling inflation 9. The division of financial powers and
(c) Managing the country's foreign exchange responsibilities between the central
reserves government and state governments is
outlined in:
(d) Implementing certain tax and
expenditure policies within the state (a) The Fiscal Responsibility and Budget
Management Act.
(b) The Reserve Bank of India Act.
5. Which of the following is an example of an
expansionary fiscal policy? (c)The Finance Commission's
recommendations.
(a) Increasing taxes to reduce inflation

(d) The Securities and Exchange Board of
14. Fiscal policy is a tool used by the
India Act.
government to:
(a) Control the money supply and interest
10. A budget deficit occurs when: rates in the economy.
(a) Government revenues exceed government (b) Regulate international trade and
expenditures. exchange rates.
(b) Government expenditures exceed (c) Influence the level of economic activity
government revenues. and stabilize the economy through changes
in government spending and taxation.
(c) Tax revenues are equal to government
expenditures. (d) Manage the balance of payments and
foreign exchange reserves.
(d) The fiscal deficit is equal to the revenue
deficit.
15. Which of the following is an example of a
government providing a public good?
11. In a market economy, the primary role of
the government is to: (a) A private company producing
smartphones for sale in the market.
(a) Own and control all the means of
production. (b) A government-owned airline company
operating international flights.
(b) Set prices and allocate resources.
(c) A private university offering education
(c) Provide goods and services directly to
services to students.
consumers.
(d) A government building a public park for
(d) Ensure the functioning of markets and
the community.
enforce property rights.
16. The primary function of the government

12. In a planned economy, the government:
in an economic system is to:
(a) Leaves all economic decisions to the
(a) Maximize profits for businesses.
private sector.
(b) Ensure price stability in the market.
(b) Controls all aspects of the economy,
including production, distribution, and (c) Allocate and manage scarce resources.
pricing. (d) Promote international trade and exports.
(c) Promotes international trade and exports.
(d) Focuses on providing public goods and
17. In a market economy, the role of the
services only.
government is mostly:
(a) To control all aspects of production and
distribution.
13. The concept of "market failure" refers to:
(b) To centralize economic decision-making
(a) The government's inability to efficiently
in the hands of a few authorities.
allocate resources.
(c) To provide goods and services directly to
(b) The inability of markets to achieve an
the public.
equitable distribution of wealth.
(d) To intervene selectively to correct market
(c) Situations where the market does not
failures and ensure fair competition.
efficiently allocate resources to produce
goods and services.
(d) The government's inability to provide
18. Fiscal policy refers to the government's
public goods and services.
actions related to:
(a) Controlling the money supply and
interest rates.

(b) Managing taxation and government (d) The level of government spending.
spending.
(c) Regulating international trade and
23. Which economic system relies heavily on
exchange rates.
central planning and government control to
(d) Setting employment targets and wage allocate resources?
rates.
(a) Market economy
(b) Mixed economy
19. The concept of a "mixed economy"
(c) Planned economy
implies that:
(d) Command economy
(a) The government owns and controls all
means of production and distribution.
(b) The economy is entirely market-driven 24. The price mechanism in a market
without any government intervention. economy plays a crucial role in resource
allocation because it:
(c) The economy combines elements of both
a market economy and a planned economy. (a) Determines the level of government
spending on public goods.
(d) The government does not have any role in
economic decision-making. (b) Regulates international trade and
exchange rates.
(c) Adjusts supply and demand to reach
20. An example of a government's
equilibrium prices.
microeconomic role is:
(d) Allocates resources based on government
(a) Implementing monetary policy to control
subsidies.
inflation.
(b) Managing the country's balance of trade
and current account. 25. The concept of opportunity cost is
related to the allocation function in
(c) Regulating the labor market and setting
economics because it:
minimum wages.
(a) Represents the value of the next best
(d) Setting targets for economic growth and
alternative foregone when a choice is made.
GDP expansion.
(b) Determines the level of government
21. The allocation function in economics spending on public goods.
refers to:
(c) Indicates the monetary cost of production
(a) The government's role in distributing for a firm.
subsidies to various industries.
(d) Measures the overall cost of inflation in
(b) The process of allocating resources the economy.
among different uses to satisfy unlimited
wants.
26. The allocation function in an economic
(c) The role of financial institutions in
system refers to:
allocating credit to the public.
(a) How the government allocates its budget
(d) The process of allocating goods and
for different sectors.
services among different regions of the
country. (b) How resources are distributed among
households and firms.
(c) How the central bank allocates credit to
22. In a market economy, the allocation of
commercial banks.
resources is primarily determined by:
(d) How foreign trade is regulated and
(a) Central planning by the government.
controlled.
(b) Consumer preferences and demand.
(c) The availability of natural resources.

(a) Providing subsidies to domestic
27. In a command economy, the allocation of
industries to boost exports.
resources is mainly decided by:
(b) Implementing tax cuts to stimulate
(a) Market forces and competitive forces.
economic growth.
(b) The interaction of buyers and sellers in
(c) Introducing progressive income tax rates
the marketplace.
to tax higher incomes at a higher rate.
(c) Government authorities and central
(d) Reducing government spending to control
planners.
budget deficits.
(d) The balance of trade and foreign
exchange rates.
32. The objective of the redistribution
function is to:
28. The concept of "opportunity cost" is
(a) Maximize government revenue from
related to:
taxation.
(a) The cost of producing one additional unit
(b) Promote economic growth and increase
of a good or service.
GDP.
(b) The cost of investing in capital goods.
(c) Achieve a more equitable distribution of
(c) The cost of producing a good or service at income and wealth.
the lowest possible cost.
(d) Encourage international trade and
(d) The cost of choosing one option over the foreign investment.
next best alternative.
33. Social welfare programs, such as

29. Economic efficiency is achieved when: unemployment benefits and food assistance,
(a) The government intervenes in resource are examples of:
allocation. (a) Regressive policies that benefit higher-
(b) Production is maximized, regardless of income individuals.
the distribution of goods. (b) Supply-side policies aimed at stimulating
(c) Resources are allocated to produce the production.
highest quality goods. (c) Redistributive policies that provide
(d) Resources are allocated to produce goods support to those in need.
in a way that maximizes total welfare. (d) Demand-side policies that boost
consumer spending.
30. The redistribution function in an

economic system refers to: 34. A "means-tested" welfare program refers
(a) The process of reallocating resources to a program that:
among different sectors of the economy. (a) Provides benefits to all individuals
(b) The role of the government in regardless of their income level.
redistributing income and wealth among the (b) Is funded through progressive taxation.
population.
(c) Targets benefits to individuals based on
(c) The function of the central bank in their income or financial need.
regulating the money supply and interest
(d) Supports specific industries to boost
rates.
economic growth.
(d) The process of reallocating resources
between domestic and foreign markets. 35. The government's main tool for achieving
redistribution is through:
(a) Fiscal policy, involving taxation and
government spending.
redistributive policy?

(b) Monetary policy, involving controlling the (d) The stabilization of exchange rates in
money supply and interest rates. international trade.
(c) Exchange rate policies to promote
international trade.
40. During periods of high inflation, the
(d) Industrial policies to support specific government's main focus in terms of
industries. stabilization function is usually on:
(a) Increasing government spending to boost
aggregate demand.
36. Which of the following policies is an
example of redistribution function? (b) Implementing contractionary monetary
policies to reduce money supply and control
(a) A government policy aimed at promoting
inflation.
economic growth and investment.
(c) Reducing taxes to increase disposable
(b) A government policy to control inflation
income and boost consumer spending.
through monetary measures.
(d) Encouraging foreign trade to improve the
(c) A progressive income tax system where
trade balance.
higher-income individuals pay higher tax
rates.
(d) A policy to encourage exports and boost 41. In response to an economic recession,
foreign trade. the government can use fiscal policy to
stimulate the economy by:
(a) Decreasing government spending and
37. The objective of the redistribution
increasing taxes.
function is to:
(b) Decreasing taxes and increasing
(a) Maximize government revenue through
taxation.
(c) Increasing interest rates and reducing
(b) Encourage individuals to save and invest
more.
(d) Decreasing interest rates and reducing
(c) Achieve price stability and control
inflation.
(d) Reduce income and wealth disparities
among different segments of society. 42. The primary goal of the stabilization
function is to achieve:
(a) A balanced budget for the government.
38. Universal basic income (UBI) is an
example of: (b) Maximum economic growth and
expansion.
(a) An anti-inflationary measure.
(c) Full employment and price stability.
(b) A regressive tax policy.
(d) Increased international trade and
(c) A redistribution policy
exports.
(d) A trade promotion policy.
43. Automatic stabilizers in the economy

39. The stabilization function in an refer to:
economic system refers to:
(a) Government policies that automatically
(a) The government's role in stabilizing prices stabilize the stock market during
of essential goods and services. downturns.
(b) The process of stabilizing the stock (b) Economic factors that automatically
market and financial markets. offset economic fluctuations without
(c) The government's efforts to stabilize the government intervention.
overall economy and counter economic (c) Government agencies responsible for
fluctuations. regulating prices and wages.

(d) The stabilization of foreign exchange (b) Goods and Services Tax (GST)
rates in international trade.
(c) Corporate taxes
(d) Sales tax
44. During periods of economic recession,
the government can use fiscal policy to: 49. Which of the following represents a
capital receipt for the government?
(a) Increase taxes and reduce government
spending to boost private investment. (a) Income tax
(b) Increase government spending and (b) Goods and Services Tax (GST)
reduce taxes to stimulate aggregate demand. (c) Borrowings from the World Bank
(c) Implement contractionary monetary (d) Customs duty
policy to control inflation.
(d) Increase interest rates to encourage
savings. 50. In India, who is responsible for the
collection of most direct taxes?
(a) State Governments
45. Inflation targeting is an example of: (b) Local Governments (Panchayats)
(a) Fiscal policy to stabilize the economy. (c) Central Board of Direct Taxes (CBDT)
(b) An exchange rate policy to control (d) Reserve Bank of India (RBI)
imports.
(c) A monetary policy to achieve price
stability. 51. Which type of budget shows the receipts
and expenditures of both the Central and
(d) Industrial policy to support the
State Governments?
manufacturing sector.
(a) Consolidated Budget (b) Annual Financial
Statement
46. Automatic stabilizers are government (c) Deficit Budget (d) Revenue Budget
policies or programs that:
(a) Automatically increase government 52. In a market-oriented economic system,
spending during economic downturns. the primary role of the government is to:
(b) Automatically reduce taxes during (a) Own and operate key industries and
periods of economic growth. businesses.
(c) Require parliamentary approval for
(b) Regulate and control prices of goods and
implementation.
services.
(d) Are unrelated to economic conditions and
(c) Facilitate economic growth and stability
fluctuations.
while intervening minimally.
(d) Implement strict trade barriers and
47. Which of the following best defines fiscal tariffs.
functions?
(a) The management of public debt 53. Which of the following is an example of a
fiscal policy measure undertaken by the
(b) The management of private debt
government during an economic downturn?
(c) The management of monetary policy
(a) Reducing interest rates to encourage
(d) The management of government finances borrowing and spending.
(b) Decreasing the money supply to control
inflation.
48. What is the primary source of revenue
for the Central Government in India? (c) Implementing free trade agreements to
promote international trade.
(a) State taxes

(d) Privatizing state-owned enterprises to (b) Decreasing the money supply to control
boost competition. inflation.
(c) Implementing free trade agreements to
promote international trade.
54. The government's role in providing
public goods and services refers to: (d) Privatizing state-owned enterprises to
boost competition.
(a) The distribution of cash transfers to low-
income individuals.
(b) The provision of essential goods and 59. The government's role in providing
services for the entire population. public goods and services refers to:
(c) The implementation of tax cuts to (a) The distribution of cash transfers to low-
stimulate consumer spending. income individuals.
(d) The establishment of monopolies in (b) The provision of essential goods and
critical industries. services for the entire population.
(c) The implementation of tax cuts to
55. Which economic system involves
stimulate consumer spending.
extensive government planning and control
over resources and production? (d) The establishment of monopolies in
critical industries.
(a) Market economy
(b) Mixed economy
60. Which economic system involves
(c) Command economy
extensive government planning and control
(d) Traditional economy over resources and production?
(a) Market economy
56. During times of inflation, the (b) Mixed economy
government might employ which monetary
(c) Command economy
policy measure to reduce the money supply?
(d) Traditional economy
(a) Quantitative easing
(b) Open market operations
61. During times of inflation, the
(c) Increasing government spending
government might employ which monetary
(d) Lowering reserve requirements for banks policy measure to reduce the money supply?
(a) Quantitative easing
57. In a market-oriented economic system, (b) Open market operations
the primary role of the government is to:
(c) increasing government spending
(a) Own and operate key industries and
(d) Lowering reserve requirements for banks
businesses.
(b) Regulate and control prices of goods and
services. 62. The redistribution function in economics
refers to:
(c) Facilitate economic growth and stability
while intervening minimally. (a) The allocation of resources among
different sectors of the economy
(d) Implement strict trade barriers and
tariffs. (b) The transfer of wealth or income from one
group to another
58. Which of the following is an example of a (c) The process of increasing government
fiscal policy measure undertaken by the spending on social welfare programs
government during an economic downturn? (d) The implementation of progressive
(a) Reducing interest rates to encourage taxation to fund public goods
borrowing and spending.

(d) Expansionary fiscal policies
63. The primary goal of the redistribution
function is to:
(a) Maximize profits for businesses 68. One of the challenges in implementing
(b) Promote economic growth and the redistribution function is:
development (a) Balancing the budget and avoiding
(c) Reduce income inequality and poverty deficits
(b) Ensuring that all individuals have equal
(d) Encourage consumer spending and
investment incomes
(c) Overreliance on government intervention
in the economy
64. Which of the following is an example of (d) Ensuring that the redistribution does not
the redistribution function in action? discourage work and productivity
(a) A government investing in infrastructure
development
69. The redistribution function is often a
(b) A government providing subsidies to subject of debate due to:
farmers
(a) Its potential impact on economic growth
(c) A progressive income tax system and investment
(d) A central bank controlling the money (b) Its positive impact on reducing inflation
supply and unemployment
(c) The ease of implementing progressive
taxation
(d) Its association with increased
65. In a progressive income tax system: government spending on public goods
(a) The tax rate decreases as income
increases 70. The stabilization function in economics
(b) The tax rate remains constant regardless refers to:
of income levels (a) The government's role in redistributing
(c) The tax rate increases as income wealth and income
increases (b) The process of controlling inflation and
(d) There are no taxes imposed on personal unemployment in the economy
income (c) The allocation of resources among
different sectors of the economy
66. The redistribution function aims to
(d) The promotion of international trade and
achieve:
exports
(a) Economic efficiency and market
equilibrium 71. The primary goal of the stabilization
(b) A balanced budget for the government function is to:
(c) An equitable distribution of wealth and (a) Maximize profits for businesses
income (b) Achieve long-term economic growth and
(d) Increased consumer spending and development
investment (c) Maintain price stability and full
employment
67. Social welfare programs, such as (d) Increase government revenue through
unemployment benefits and food assistance, taxation
are examples of:
(a) Progressive taxation 72. Which of the following is an example of
the stabilization function in action?
(b) Redistribution of income
(c) Government subsidies to businesses

(a) The government implementing (a) Its potential impact on income
progressive taxation to reduce income distribution and wealth inequality
inequality (b) The complexity of implementing
monetary and fiscal policies
(b) A central bank adjusting interest rates to
(c) The conflict between short-term
control inflation
stabilization goals and long-term economic
(c) A government investing in infrastructure growth
development (d) The association with reduced government
(d) The implementation of tariffs to protect spending on public goods
domestic industries CHAPTER 7 PUBLIC FINANCE
73. In the context of the stabilization Unit:2 Market
function, "price stability" refers to: Failure/Government
(a) The constant level of prices for goods and
services Intervention to Correct
(b) A situation where prices are increasing Market Failure
moderately over time
(c) The absence of inflation or deflation in the 78. Market failure occurs when:
economy (a) The government intervenes in the market
(d) A situation where prices are determined to regulate prices.
by market forces without government
Intervention (b) Demand for a product exceeds its supply
in the market.
(c) The market fails to allocate resources
74. The stabilization function aims to
efficiently.
achieve:
(d) The government imposes taxes on goods
(a) A balanced budget for the government
and services.
(b) Full employment and stable economic
growth
(c) An equitable distribution of wealth and
income
market failure?
(d) Increased consumer spending and
investment (a) The production of a public good like street
lighting.
75. Monetary policy, such as changes in (b) The availability of luxury goods in the
interest rates and open market operations, market.
is an example of: (c) The price increase of a product due to
(a) Fiscal policy to stabilize the economy high demand.
(b) Redistribution of income to reduce (d) The availability of goods and services
poverty through competition.
(c) The stabilization function in action
(d) Supply-side policies to boost economic 80. Externalities refer to:
growth
(a) The costs and benefits that affect only the
76. One of the challenges in implementing producers in the market.
the stabilization function is: (b) The costs and benefits that affect both
(a) Achieving a balance between inflation producers and consumers in the market.
and unemployment
(b) Ensuring that all individuals have equal (c) The costs and benefits that affect only the
access to economic opportunities consumers in the market.
(c) Overreliance on government intervention (d) The costs and benefits that have no
in the economy impact on the market.
(d) Managing fluctuations in the exchange
rate
77. The stabilization function is often a

subject of debate due to:

(d) The ability of consumers to make
81. When a company pollutes the
informed decisions.
environment while producing goods, it is an
example of:
(a) Positive externality. 86. When a company pollutes a nearby river,
causing harm to the environment and
(b) Negative externality.
nearby communities, it is an example of:
(c) Public good.
(a) Positive externality.
(d) Market equilibrium.
(b) Negative externality.
(c) Perfect competition.
82. Government intervention to correct
(d) Government intervention.
market failure may involve:
(a) Reducing taxes to encourage investment. 87. How can the government address market
(b) Providing subsidies to producers to lower failure due to externalities?
costs. (a) By increasing taxes on the affected firms.
(c) Imposing price controls to regulate (b) By providing subsidies to the affected
market prices. firms.
(d) Correcting externalities through taxes or (c) By implementing regulations and
subsidies standards.
(d) By reducing public goods in the market.
positive externality?
(a) Pollution from a factory affecting nearby 88. Market failure occurs when:
residents' health negatively.
(a) The government intervenes excessively in
(b) A new technology leading to increased the market.
productivity in an industry.
(b) The market is unable to allocate
(c) Overfishing in an unregulated fishery. resources efficiently.
(d) A decrease in consumer spending (c) Producers dominate the market, leading
affecting local businesses negatively. to reduced competition.
(d) Consumer demand exceeds the available
supply of goods.
84. Which of the following is a cause of
market failure?
(a) Perfect competition in the market. 89. Which of the following is a cause of
(b) Government intervention to correct market failure?
externalities. (a) Perfect competition in the market.
(c) Absence of public goods in the market. (b) Externalities and public goods.
(d) Equilibrium between supply and (c) Government regulations promoting fair
demand. trade.
(d) Decrease in consumer demand.
85. Externalities refer to:
(a) The costs and benefits faced by producers 90. In the presence of negative externalities,
in the market. the market tends to produce:
(b) The positive impacts of government (a) Less of the good than is socially optimal.
policies on the economy.
(b) More of the good than is socially optimal.
(c) The spillover effects of market
(c) The socially optimal level of the good.
transactions on third parties.
(d) The good in the most efficient manner.

(c) They are available only to low-income
91. A public good is characterized by:
individuals.
(a) Rivalry in consumption and excludability.
(d) Individuals cannot be excluded from
(b) Non-rivalry in consumption and using them.
excludability.
(c) Rivalry in consumption and non-
96. Which of the following is a reason why
excludability.
markets fail?
(d) Non-rivalry in consumption and non-
excludability. (a) Perfect competition among firms.
(b) Absence of externalities.
(c) Adequate provision of public goods.
negative externality? (d) Information asymmetry.
(a) A new technology leading to increased
productivity in an industry.
97. When external costs are not accounted
(b) Pollution from a factory affecting nearby for in the market price of a good, it leads to:
residents' health negatively.
(a) Overproduction of the good.
(c) A decrease in consumer spending
(b) Underproduction of the good.
affecting local businesses negatively.
(c) Optimal production of the good.
(d) Government subsidies encouraging the
production of a specific good. (d) Equilibrium production of the good.
93. Which of the following is a reason for 98. Which of the following is a market failure
market failure? caused by incomplete information?
(a) Perfect competition in the market. (a) Perfect competition.
(b) Government regulations promoting fair (b) Monopoly power.
trade.
(c) Moral hazard in insurance markets.
(c) Externalities and public goods.
(d) Efficient allocation of resources.
(d) Increase in consumer demand
99. Public goods are typically underprovided

94. When a market is characterized by in the market because:
information asymmetry, it means that:
(a) They are non-excludable.
(a) Consumers have more information than
producers. (b) They are rivalrous in consumption.
(b) Producers have more information than (c) The government doesn't regulate their
consumers. production.
(c) Both consumers and producers have (d) Private firms find them unprofitable.
equal access to information.
(d) The market is perfectly efficient with no 100. Monopolies can lead to market failure
information gaps. because:
(a) They produce goods efficiently at lower
95. Public goods are non-excludable, which prices.
means: (b) They have a larger market share.
(a) Individuals can be excluded from using (c) They restrict output and charge higher
them. prices.
(b) They are available only to the public (d) They promote competition.
sector.

(d) Price-setting by a central authority
101. What is market power?
(a) The ability of a company to set prices
arbitrarily high 106. What is an externality?
(b) The ability of a company to influence (a) A situation where a company produces
market outcomes goods more efficiently than its competitors
(c) The ability of a company to manipulate (b) A cost or benefit that affects a party who
consumer preferences did not choose to incur that cost or benefit
(d) The ability of a company to engage in (c) A condition in which the price of a
predatory pricing product exceeds its production cost
(d) An agreement between two firms to fix
prices in the market
a perfectly competitive market?
(a) The market for smartphones with several
dominant companies a negative externality?
(b) The market for agricultural products with (a) A company providing free health check-
many small-scale farmers ups to. its employees
(c) The market for luxury watches with a few (b) Planting trees in a neighborhood park
high-end brands (c) A factory releasing pollutants into a
(d) The market for electric vehicles with one nearby river
leading manufacturer (d) Offering discounts on products to attract
more customers
103. A monopoly exists when:

108. Which statement best describes a
(a) There is a single seller, and there are no positive externality?
close substitutes for the product.
(a) An increase in the price of a good leads to
(b) There are a few dominant sellers, and a decrease in its demand.
they collude to set prices.
(b) Subsidizing the production of solar
(c) There are multiple sellers offering panels to promote renewable energy.
identical products.
(c) The consumption of cigarettes leading to
(d) The government regulates the prices of adverse health effects for smokers.
goods in the market.
(d) A decrease in consumer income leads to
a decrease in the consumption of luxury
104. Which of the following is a goods.
characteristic of an oligopoly?
(a) Large number of sellers in the market 109. What is the most effective way to
(b) Identical products offered by all firms internalize externalities?
(c) Little to no barriers to entry for new firms (a) Government intervention through
regulations and taxes
(d) Interdependence among the firms in the
market (b) Imposing price ceilings on goods and
services
(c) Encouraging monopolies to dominate the
105. Which of the following strategies is market
typical of a monopolistic competition?
(d) Allowing markets to reach equilibrium
(a) High barriers to entry for new firms naturally
(b) Identical products offered by all firms
110. Which market structure is most likely
(c) Heavy reliance on non-price competition to neglect externalities?

(a) Perfect competition (a) Individuals who benefit from public goods
without contributing to their provision.
(b) Monopoly
(b) Individuals who willingly pay for public
(c) Oligopoly
goods.
(d) Monopolistic competition
(c) Public sector employees responsible for
111. Public goods are characterized by: providing public goods.
(d) Non-profit organizations that supply
(a) Rivalry in consumption and excludability.
public goods.
(b) Non-rivalry in consumption and
excludability. 116. The free-rider problem refers to the
(c) Rivalry in consumption and non- situation where:
excludability. (a) The government provides goods and
(d) Non-rivalry in consumption and non- services without charging any taxes.
excludability. (b) Individuals benefit from a public good
without contributing to its provision.
112. Which of the following statements is (c) Private companies offer goods for free to
true about public goods? attract more customers.
(a) Public goods can be easily provided by (d) The supply of a public good exceeds its
private firms for a profit. demand.
(b) The free-rider problem is not a concern
for public goods.
(c) Public goods have a competitive market a pure public good?
price.
(a) Cable TV subscription with different
(d) Public goods are typically provided by the channels.
government or public sector.
(b) Toll road with limited access.
(c) National defense provided by the
113. The free-rider problem associated with government.
public goods refers to:
(d) Private tutoring service for individual
(a) Individuals who benefit from public goods students.
but refuse to pay for them.
(b) The lack of competition among providers
118. Public goods face challenges in the free
of public goods.
market because:
(c) The government's inability to regulate
(a) Private firms can charge high prices for
public goods effectively.
them.
(d) The high costs of production associated
(b) They are produced by the government.
with public goods.
(c) They are subject to demand and supply
fluctuations.
(d) They may be underprovided due to the
a public good?
free-rider problem.
(a) Private luxury goods like designer
handbags.
119. Incomplete information in a market
(b) Cable television service.
refers to:
(c) National defense and military protection.
(a) The lack of government regulations in the
(d) Exclusive membership at a country club. market.
(b) The presence of externalities in the
115. The concept of "free-rider" in the market.
context of public goods refers to:

(c) The absence of competition among firms (b) Sellers have perfect knowledge about
in the market. consumer preferences.
(d) Situations where one party in a (c) Market participants have unequal access
transaction has more information than the to information.
other.
(d) The government regulates the flow of
information in the market.
120. Moral hazard is an example of
incomplete information in:
(a) Insurance markets. 125. Adverse selection in the insurance
market refers to:
(b) Perfectly competitive markets.
(a) Insurance companies charging high
(c) Monopoly markets.
premiums for high-risk individuals.
(d) Labor markets.
(b) High-risk individuals selecting insurance
policies with high deductibles.
121. Adverse selection is a situation where:
(c) High-risk individuals being more likely to
(a) Buyers and sellers have equal knowledge
buy insurance.
about a product.
(d) Insurance companies excluding high-risk
(b) High-quality goods dominate the market.
individuals from coverage.
(c) Low-quality goods are more likely to be
traded.
(d) The market is characterized by perfect 126. Moral hazard in the context of
competition. insurance refers to:
(a) Insurance companies increasing
premiums for risky individuals.
122. How does incomplete information
(b) Policyholders taking less risk due to
impact market outcomes?
insurance coverage.
(a) It leads to a more efficient allocation of
(c) Policyholders misrepresenting
resources.
information to obtain lower premiums.
(b) It results in higher prices for goods and
(d) Insurance companies denying coverage to
services.
high-risk individuals
(c) It reduces transaction costs in the
market.
(d) It may lead to market failure and adverse selection in the used car market?
suboptimal outcomes.
(a) Sellers providing detailed information
about the car's condition.
123. Solutions to the problem of incomplete (b) Buyers selecting cars based on their
information in markets may include: preferences.
(a) Eliminating government regulations. (c) Sellers selling high-quality cars at
(b) Encouraging monopolies to dominate the premium prices.
market. (d) Buyers being unsure about the true
(c) Enhancing transparency and disclosure condition of the car.
of information.
(d) Reducing competition among firms. 128. How can markets mitigate the problem
of incomplete information?
124. Incomplete information in the market (a) By increasing government regulation and
refers to a situation where: control.
(a) Consumers have perfect knowledge about (b) By limiting the availability of information
the quality and price of goods. to all market participants.

(c) Through transparency and disclosure of (c) By avoiding selling insurance to high-risk
relevant information. individuals
(d) By reducing competition among market (d) By pooling the risks of diverse individuals
participants. through underwriting
129. What does "asymmetric information" 133. Which concept refers to a situation
refer to in economics? where the presence of asymmetric
information causes the deterioration of the
(a) A situation where buyers and sellers have quality of goods or services traded in the
the same level of information market?
(b) A situation where one party in a (a) Moral hazard
transaction has more information than the
other (b) Market equilibrium
(c) A situation where prices are the same for (c) Gresham's Law
all participants in the market (d) Lemons problem
(d) A situation where there is no information
available to make decisions
134. What is asymmetric information?
(a) A situation where all parties involved in a
130. Which of the following is an example of transaction have equal access to
asymmetric information in the used car information.
market?
(b) A situation where one party in a
(a) All used cars having the same market transaction has more information than the
price other party.
(b) Buyers and sellers having access to the (c) A situation where both parties in a
same car history reports transaction lack necessary information.
(c) A seller knowing the true condition of a (d) A situation where the market information
used car, but the buyer does not is not readily available to anyone.
(d) Buyers and sellers negotiating the price
of used cars in an open market
135. In the context of the used car market,
what is adverse selection?
131. What is adverse selection in the context
of asymmetric information? (a) The tendency of sellers to hide
information about the car's history.
(a) A situation where sellers selectively
disclose information to buyers (b) The tendency of buyers to pay more for
high-quality used cars.
(b) A situation where both parties have
complete and accurate information (c) The tendency of buyers to prefer new cars
over used cars.
(c) A situation where higher-quality goods
are driven out of the market (d) The tendency of sellers to offer warranties
on used cars.
(d) A situation where the presence of hidden
information leads to undesirable outcomes
moral hazard?
132. How can insurance companies address
the problem of adverse selection? (a) A person investing in a diversified
portfolio to reduce risk.
(a) By offering lower premiums to high-risk
individuals (b) A person purchasing health insurance to
cover medical expenses.
(b) By providing more information to
policyholders (c) A person taking more financial risks after
purchasing comprehensive insurance.

(d) A person conducting market research to
141. Antitrust laws are designed to:
make an informed purchasing decision.
(a) Protect firms with dominant market
positions from competition.
137. How does adverse selection impact the (b) Encourage collusion among competing
market for insurance?
firms.
(a) It leads to higher insurance premiums for (c) Promote mergers and acquisitions in the
everyone.
market.
(b) It encourages insurance companies to (d) Prevent monopolistic practices and
offer more coverage options. promote competition
(c) It results in a decrease in demand for
insurance products.
142. A natural monopoly occurs when:
(d) It reduces the profitability of insurance
(a) A single firm dominates the market due
companies.
to barriers to entry.
(b) There is perfect competition among
138. Which of the following is a solution to multiple firms in the market.
the problem of adverse selection in (c) The government owns and operates all
insurance markets? industries in the economy.
(a) Implementing price controls on insurance (d) Market power is evenly distributed among
premiums all firms in the industry.
(b) Requiring individuals to purchase
insurance
143. Government intervention to minimize
(c) Offering subsidies to insurance
market power can include:
companies
(a) Imposing price floors to protect
(d) Pooling individuals with different risk
producers.
levels
(b) Providing subsidies to encourage higher
production.
139. Market power refers to: (c) Breaking up monopolies or regulating
(a) The ability of the government to control their behavior.
market prices. (d) Implementing import tariffs to promote
(b) The ability of a single firm to influence domestic industries.
market prices and output.
(c) The government's ability to regulate
144. Market power refers to the ability of a
market competition.
firm or a group of firms to:
(d) The ability of consumers to make
(a) Minimize production costs and maximize
informed purchasing decisions.
profits.
(b) Influence market prices and control the
140. Which of the following is a consequence quantity of goods produced.
of excessive market power? (c) Compete fairly in the market and offer
(a) Increased competition and lower prices high-quality products.
for consumers. (d) Participate in international trade and
(b) Optimal allocation of resources in the expand their market share.
market.
145. Which of the following is a potential
(c) Reduced consumer choices and higher
consequence of excessive market power?
prices.
(a) Increased competition and lower prices
(d) Elimination of government regulations.
for consumers.

(b) Higher quality products and improved (d) The fluctuations in market prices due to
customer service. supply and demand.
(c) Limited choices and higher prices for
consumers.
150. A negative externality occurs when:
(d) Increased innovation and technological
(a) The production of a good benefits third
advancements.
parties.
(b) The production of a good imposes costs
146. Government intervention to minimize on third parties.
market power can include:
(c) The government imposes taxes on goods
(a) Providing subsidies to support and services.
monopolistic firms.
(d) The market is in equilibrium without any
(b) Enforcing antitrust laws to promote distortions.
competition.
(c) Imposing price controls to regulate the
151. Which of the following is a government
market.
intervention to correct negative
(d) Discouraging new firms from entering the externalities?
market.
(a) Subsidizing the production of goods with
negative externalities.
147. A natural monopoly occurs when:
(b) Imposing taxes on goods with negative
(a) There is only one firm in the market with
externalities.
significant market power.
(c) Restricting the production of goods with
(b) The government regulates the prices and
positive externalities.
operations of all firms.
(d) Providing direct financial support to
(c) Multiple firms compete in the market
firms.
without any dominance.
(d) Economies of scale make it more efficient
for one firm to serve the entire market. 152. Positive externalities occur when:
(a) The production of a good benefits third
parties.
148. How can the government promote
competition to minimize market power? (b) The production of a good imposes costs
on third parties.
(a) By granting exclusive rights to firms for
certain products. (c) The government intervenes in the market.
(b) By providing subsidies to dominant firms (d) There is overproduction of goods in the
to expand their production. market.
(c) By removing barriers to entry and
encouraging new competitors.
(d) By imposing price floors to protect intervention to correct positive externalities?
producers from low prices.
(a) Subsidizing the production of goods with
149. Externalities in the market refer to: (b) Imposing taxes on goods with positive
externalities.
(a) The influence of government policies on
market outcomes. (c) Imposing price ceilings on goods with
(b) The impact of international trade on
domestic industries. (d) Removing government regulations on
production.
(c) The spillover effects of market activities
on third parties.
154. Negative externalities occur when:

(a) The production of a good leads to higher (b) Are provided by the government without
demand for other goods. any cost to consumers.
(b) The consumption of a good benefits other (c) Are considered to have positive
individuals in society. externalities and are underprovided by the
market.
(c) Economic activities impose costs on third
parties. (d) Are characterized by rivalry in
consumption and excludability.
(d) There is an oversupply of goods in the
market.
a merit good?
solution for correcting negative (a) Fast food and soft drinks.
externalities?
(b) Private luxury cars.
(a) Providing subsidies to the firms
(c) Education and vaccinations.
generating negative externalities.
(d) High-end fashion products.
(b) Implementing price controls to regulate
the market.
(c) Enforcing property rights and allowing 160. Why might merit goods be
lawsuits against polluters. underprovided by the market?
(d) Imposing higher taxes on consumers of (a) Because they have low demand and high
the goods with negative externalities. supply.
(b) Because they are often inferior in quality
to other goods.
156. Positive externalities occur when:
(c) Because producers find it unprofitable to
(a) The production of a good leads to higher
supply them.
prices in the market.
(d) Because consumers are not aware of their
(b) Economic activities benefit third parties
benefits.
without compensation.
(c) There is a surplus of goods in the market.
161. How can the government intervene to
(d) There is an undersupply of goods in the
ensure adequate provision of merit goods?
market.
(a) By imposing price controls to keep prices
low.
(b) By reducing taxes on the production of
intervention to encourage positive
merit goods.
externalities?
(c) By providing subsidies to producers of
(a) Imposing taxes on the producers of goods
merit goods.
with positive externalities.
(d) By reducing government expenditure on
(b) Providing subsidies to the producers of
other sectors
goods with positive externalities.
(c) Enforcing price ceilings to reduce prices
162. The purpose of government
of goods with positive externalities.
intervention in the case of merit goods is to:
(d) Discouraging the consumption of goods
(a) Increase consumer choices in the market.
with positive externalities.
(b) Maximize government revenue from
taxes.
158. Merit goods are goods that:
(c) Correct market failures and ensure social
(a) Have high market demand and limited welfare.
supply.
(d) Encourage competition among
producers.

(c) Encouraging the consumption of these
goods.
163. Merit goods are goods that:
(d) Eliminating the production of these goods
(a) Are produced by government-owned
.
firms.
168. Demerit goods are goods that:
(b) Are provided by private firms but
subsidized by the government. (a) Have positive externalities and are
underprovided in the free market.
(c) Have positive externalities and are
underprovided in the free market. (b) Have negative externalities and are
overproduced in the free market.
(d) Have negative externalities and are
overproduced in the free market. (c) Are produced by government-owned
firms.
(d) Are provided by private firms but
subsidized by the government.
a merit good?
(a) Cigarettes and alcoholic beverages. 169. Which of the following is an example of
a demerit good?
(b) Fast food and sugary beverages.
(a) Education and vaccinations.
(c) Education and vaccinations.
(b) Fast food and sugary beverages.
(d) Luxury cars and high-end fashion.
(c) Renewable energy sources.
(d) Public transportation services.
165. Government intervention to promote
merit goods can include:
170. Government intervention to discourage
(a) Imposing higher taxes on the the consumption of demerit goods can
consumption of merit goods. include:
(b) Subsidizing the production of merit (a) Subsidizing the production of demerit
goods. goods.
(c) Implementing price controls to regulate (b) Implementing price controls to regulate
the prices of merit goods. the prices of demerit goods.
(d) Promoting advertisements for luxury (c) Enforcing property rights for demerit
goods. goods.
(d) Imposing higher taxes on the
consumption of demerit goods.
166. Why are merit goods often
underprovided in the free market?
(a) Because they are produced by 171. Why are demerit goods often
government-owned firms. overproduced in the free market?
(b) Because private firms find them (a) Because they are produced by
unprofitable to produce. government-owned firms.
(c) Because consumers do not value their (b) Because private firms find them
positive externalities. profitable to produce.
(d) Because they are subject to price ceilings. (c) Because consumers fully consider their
negative externalities.
(d) Because they are subject to price floors.
167. The government's intervention in the
case of merit goods is primarily aimed at:
(a) Restricting the consumption of these 172. The government's intervention in the
goods. case of demerit goods is primarily aimed at:
(b) Ensuring equitable distribution of these (a) Restricting the consumption of these
goods. goods.

(b) Ensuring equitable distribution of these (a) The phenomenon where the demand for
goods. public goods exceeds the government's
ability to provide them.
(c) Encouraging the consumption of these
goods. (b) Government spending on public goods
leading to reduced private sector
(d) Eliminating the production of these
investment.
goods.
(c) The government's attempt to exclude
certain individuals from accessing public
173. Public goods are characterized by: goods.
(a) Excludability and rivalry in consumption. (d) The competition between private firms in
(b) Non-excludability and rivalry in providing public goods.
consumption.
(c) Excludability and non-rivalry in 178. Why are public goods often
consumption. underprovided in the free market?
(d) Non-excludability and non-rivalry in (a) Because they are produced by
consumption. government-owned firms.
(b) Because private firms find them
unprofitable to produce.
174. Which of the following is a key
challenge in the provision of public goods? (c) Because consumers are fully aware of
their positive externalities.
(a) Free-rider problem.
(b) Price fluctuations in the market. (d) Because they are subject to price ceilings.
(c) Excessive competition among producers.

(d) Lack of demand from consumers. 179. Government intervention to provide
public goods can include:
(a) Imposing taxes on consumers to fund
175. Government intervention in the their production.
provision of public goods can involve:
(b) Subsidizing private firms to produce
(a) Imposing high taxes on consumers who public goods.
use public goods.
(c) Implementing price controls to regulate
(b) Restricting access to public goods to a the prices of public goods.
selected group of individuals.
(d) Encouraging consumers to purchase
(c) Privatizing the production and public goods.
distribution of public goods.
(d) Financing the provision of public goods
through taxes and government spending. 180. Which of the following is an example of
a public good?
(a) Education provided by a private school.
(b) Cable TV subscription with different
a public good that is typically provided by
channels.
the government?
(a) Movie tickets. (c) National defense provided by the
government.
(b) Cable TV subscriptions.
(d) Exclusive access to a members-only
(c) National defense. online forum.
(d) Smartphones.
181. How can the government promote the
177. The concept of "crowding out" refers to: provision of public goods?
certain public goods.

(b) By providing subsidies to private firms to
limit public goods production.
186. Non-market pricing is often used by the
(c) By increasing taxes on individuals to government to:
reduce public goods consumption.
(a) Encourage competition and innovation
(d) By directly funding the production of among firms.
public goods.
(b) Allow market forces to determine prices
freely.
182. Non-market pricing refers to:
(c) Correct market failures and ensure
(a) The setting of prices based on supply and
equitable distribution.
demand in the market.
(d) Eliminate the role of prices in resource
(b) The government's intervention to control
allocation.
prices in the market.
(c) The use of prices as a mechanism to
allocate resources efficiently. 187. Non-market pricing is often used to
(d) The setting of prices by the government address:
outside the regular market forces. (a) Market failures and externalities.
(b) Competitive pricing in the market.
183. Which of the following is an example of (c) Demand and supply fluctuations.
non-market pricing?
(d) Price discrimination by businesses.
(a) A competitive market where prices are
determined by supply and demand.
188. What is the primary purpose of non-
(b) Government-controlled price ceilings on
market pricing?
rent in certain areas.
(a) To increase profits for businesses.
(c) Pricing strategy based on product
differentiation. (b) To promote competition among firms.
(d) Dynamic pricing used by online retailers. (c) To allocate resources in the most efficient
way.
(d) To reduce government control over the
184. What is the primary objective of non-
economy.
market pricing by the government?
(a) To maximize profits for private firms. 189. Non-market pricing may lead to:
(b) To encourage competition among (a) Greater market efficiency and consumer
producers. welfare.
(c) To ensure price stability and affordability (b) Lower production and decreased
for consumers. consumer choices.
(d) To eliminate the role of prices in the (c) Increased competition among firms.
economy. (d) Higher prices due to supply shortages
185. Price floors imposed by the government 190. Information failure occurs when:
result in:
(a) The government intervenes in the market
(a) Higher prices and excess supply in the to regulate prices.
market. (b) Consumers have perfect knowledge about
(b) Lower prices and excess demand in the the quality and price of goods.
market. (c) Market participants have unequal access
(c) Higher prices and shortage of goods in the to information.
market. (d) There is an oversupply of goods in the
(d) Lower prices and increased competition market.
among producers.

(a) Requiring businesses to disclose
nutritional information on food labels.
consequence of information failure?
(b) Allowing businesses to keep their product
(a) Increased competition and lower prices
information confidential.
for consumers.
(c) Imposing price ceilings to control
(b) Higher quality products and improved
inflation.
customer service.
(d) Allowing businesses to mislead
(c) Limited choices and higher prices for
consumers with false advertisements.
consumers.
(d) Increased innovation and technological
advancements. 196. The primary goal of government
intervention for correcting information
failure is to:
(a) Control the prices of goods and services
information failure can include:
in the market.
(a) Imposing price controls to regulate the
(b) Limit competition and protect
market.
businesses.
(b) Limiting the availability of information to
(c) Ensure a level playing field for all market
all market participants.
participants.
(c) Enforcing property rights and allowing
(d) Enhance transparency and empower
lawsuits for misrepresentation.
consumers with information.
(d) Providing subsidies to firms with more
information. 197. Which of the following is an example of
information failure?
(a) Consumers conducting thorough
193. How can the government promote
research before making a purchase.
transparency and reduce information
failure? (b) Companies providing complete and
transparent information about their
products.
certain products.
(c) Misleading advertising that exaggerates
(b) By restricting the flow of information to
the benefits of 'a product.
protect businesses.
(d) Consumers making well-informed
(c) By enforcing regulations that require
decisions based on market prices.
firms to disclose relevant information.
(d) By reducing competition among market
participants. 198. The ultimate goal of government
intervention to correct information failure is
to:
194. Why is correcting information failure
(a) Increase government control over market
important in a market economy?
activities.
(a) To limit government interference in the
(b) Regulate market prices to ensure
market.
fairness.
(b) To protect businesses from competition.
(c) Ensure that consumers have access to
(c) To ensure that markets function accurate and relevant information.
efficiently and fairly.
(d) Promote competition among businesses.
(d) To increase profits for firms.

195. Which of the following is an example of consequence of inequitable distribution of
government intervention to correct resources?
information failure?

(a) Increased competition and economic (b) Reduced poverty and improved living
growth. standards for all.
(b) Higher levels of poverty and social unrest. (c) Social unrest and a sense of injustice in
society.
(c) Greater incentives for innovation and
entrepreneurship. (d) Greater investment and
entrepreneurship.
(d) Improved living standards for all
individuals.
205. Government intervention for equitable
distribution can include:
distribution can include: (a) Imposing taxes on high-income
individuals and redistributing the funds.
(a) Implementing price controls to regulate
resource allocation. (b) Implementing price controls to regulate
market prices.
(b) Promoting competition among firms to
increase efficiency. (c) Encouraging competition among
businesses to reduce income disparities.
(c) Providing social welfare programs to
support vulnerable populations. (d) Reducing government spending on social
welfare programs.
(d) Limiting the availability of resources to
maintain scarcity.
a government program aimed at equitable
distribution?
government intervention for equitable
distribution? (a) Providing subsidies to profitable
businesses.
(a) Imposing higher taxes on high-income
individuals. (b) Implementing a flat tax rate for all income
levels.
(b) Deregulating industries tp. encourage
competition. (c) Offering financial assistance to low-
income families.
(c) Allowing market forces to determine
resource allocation. (d) Reducing regulations on corporations.
(d) Implementing subsidies to support
profitable businesses.
207. The main objective of government
intervention for equitable distribution is to:
203. The main objective of government (a) Maximize government revenue through
intervention for equitable distribution is to: taxation.
(a) Maximize profits for businesses. (b) Minimize government control over the
economy.
(b) Ensure that everyone has equal wealth
and income. (c) Ensure that everyone receives equal
income and wealth.
(c) Promote economic growth and
development. (d) Reduce income and wealth disparities
and promote social welfare.
(d) Reduce economic inequalities and
provide support to the needy.
208. Market failure occurs when:
204. Which of the following is a potential (a) The government imposes excessive
consequence of income inequality? regulations on businesses
(b) The market is unable to allocate
(a) Increased economic growth and
resources efficiently
development.
(c) Consumers demand more goods and
services than producers can supply

(d) There is perfect competition among firms (b) Rivalry in consumption and non-
in the market exclusion of non-payers
(c) Non-rivalry in consumption and
209. The main cause of market failure is exclusion of non-payers
often attributed to:
(d) Non-rivalry in consumption and non-
(a) Excessive government intervention in the exclusion of non-payers
economy
(b) Monopoly power held by a single firm in
214. The free-rider problem refers to:
the market
(a) Consumers demanding more goods than
(c) Lack of consumer demand for certain
producers can supply
goods and services
(b) Firms in the market charging excessively
(d) Externalities and the absence of property
high prices for their products
rights
(c) People benefiting from a public good
210. Externalities refer to: without contributing to its provision
(a) The benefits or costs of production that (d) Government intervention causing market
spill over to affect third parties inefficiencies
(b) The government's interference in the
market
(c) The changes in demand and supply in the market failure aims to:
market
(a) Completely replace the market
(d) The fluctuations in the stock market mechanism with central planning
(b) Eliminate all externalities and market
distortions
a positive externality?
(c) Improve market efficiency and promote
(a) Pollution from a factory affecting the
economic welfare
health of nearby residents
(d) Privatize all public goods and services
(b) Vaccination programs reducing the
spread of infectious diseases
(c) Congestion and traffic jams in urban 216. Market failure occurs when:
areas
(a) The government intervenes too much in
(d) The depletion of natural resources due to the economy
overexploitation
(b) The market allocates resources efficiently
(c) The market fails to allocate resources
efficiently
market failure can include: (d) There is perfect competition among firms
in the market
(a) Imposing trade barriers and tariffs on
imports
(b) Reducing taxes to stimulate consumer 217. The main cause of market failure is
spending often attributed to:
(c) Providing subsidies to inefficient firms in (a) Perfect competition among firms in the
the market market
(d) Imposing taxes or regulations to address (b) The absence of government regulations
externalities
(c) Externalities and market imperfections
(d) H1.2 The Concept of Market Failure
213. Public goods are characterized by:
(a) Rivalry in consumption and exclusion of
non-payers

(a) The government's role in the market (d) Government subsidies promoting the
growth of a specific industry
(b) The benefits or costs of production that
spill over to affect third parties
(c) The changes in supply and demand in the 223. Government intervention to correct
market market failure aims to:
(d) The fluctuations in stock prices (a) Eliminate all externalities and market
distortions
(b) Replace the market mechanism with
central planning
a negative externality?
(c) Reduce competition and increase market
(a) A company providing scholarships to
power for firms
local students
(d) Improve market efficiency and promote
(b) The construction of a new park in the
economic welfare
neighborhood
(c) Pollution from a factory affecting nearby
residents 224. Market failure occurs when:
(d) Government subsidies to support (a) The government intervenes too much in
renewable energy the economy
(b) The market allocates resources efficiently
220. Public goods are characterized by: (c) The market fails to allocate resources
efficiently
non-payers (d) There is perfect competition among firms
in the market
(b) Rivalry in consumption and non-
exclusion of non-payers
(c) Non-rivalry in consumption and 225. Which of the following is a reason why
exclusion of non-payers markets fail?
(d) Non-rivalry in consumption and non- (a) Lack of consumer demand for goods and
exclusion of non-payers services
(b) Excessive government regulations in the
market
221. The free-rider problem refers to:
(c) High levels of competition among firms
producers can supply (d) Efficient allocation of resources by the
market
(c) People benefiting from a public good 226. Externalities refer to:
without contributing to its provision
(a) The government's role in the market
(d) Government intervention causing market
(b) The benefits or costs of production that
inefficiencies
(c) The changes in supply and demand in the
222. Which of the following is an example of market
market failure?
(d) The fluctuations in stock prices
(a) A competitive market with many buyers
and sellers
(b) A perfectly efficient allocation of
resources in a free market
(c) Overconsumption of natural resources
local students
leading to environmental degradation

(b) The construction of a new park in the (d) Improve market efficiency and promote
neighborhood economic welfare
residents
232. Public goods are characterized by:
(d) Government subsidies to support
renewable energy
non-payers
228. Public goods are characterized by: exclusion of non-payers
(a) Rivalry in consumption and exclusion of (c) Non-rivalry in consumption and
non-payers exclusion of non-payers
(b) Rivalry in consumption and non- (d) Non-rivalry in consumption and non-
exclusion of non-payers exclusion of non-payers
(c) Non-rivalry in consumption and
233. Which of the following is a
(d) Non-rivalry in consumption and non- characteristic of a public good?
(a) It is produced and provided by private
companies
229. The free-rider problem refers to: (b) It can only be consumed by one person at
a time
producers can supply (c) Consumers can be excluded from
consuming the good
high prices for their products (d) Consumption by one person does not
reduce its. availability to others
(c) People benefiting from a public good
without contributing to its provision
(d) Government intervention causing market 234. National defense is an example of a
inefficiencies public good because1:
(a) It is provided by private firms in the
market
230. Which of the following is a reason for
market failure? (b) It is non-excludable, and consumption,
and one person’s does mot diminish its
(a) Well-defined property rights and contract
availability to others
enforcement
(c) It is rivalrous in consumption, and one
(b) Perfect information and transparency in
person’s consumption reduces its
the market
availability to others
(c) Externalities and market imperfections
(d) It can be selectively' provided' to certain
(d) Equal distribution of income among individual Is based on their willingness to
consumers pay
231. Government intervention to correct 235. Which of the following statements is

market failure aims to: true regarding public goods?
(a) Eliminate all externalities and market (a) Private firms have a strong incentive to
distortions produce public goods due to high profits
(b) Replace the market mechanism with (b) Public goods are usually provided! by fie
central planning government to ensure widespread access
(c) Reduce competition and increase market (c) Public goods are always rivalrous in
power for firms consumption;

(d) Public goods have well-defined property (b) Situations where producers have perfect
rights for exclusive use knowledge about the costs of production
(c) Situations where there is uncertainty or
asymmetry of information between buyers
236. One of the main challenges with public
and sellers
goods is the:
(d) Situations where government regulations
(a) High cost of production and provision
provide complete information to all market
(b) Difficulty in excluding non-payers from participants
consuming the good
(c) Lack of consumer demand for such goods
241. Asymmetric information occurs when:
(d) Rivalry in consumption, leading to
scarcity
about the quality of goods and services
(b) One party in a transaction has more
237. Free-rider problem refers to the information than the other
situation where:
(c) Government agencies provide information
(a) Consumers demand more goods than to all market participants
producers can supply
(d) Market participants have perfect
(b) Firms in the market charge excessively knowledge about market prices
(c) People benefit from a public good without
242. Moral hazard refers to:
contributing to its provision
(a) The risk that one party in a transaction
(d) Government intervention causes market
will take advantage of the other's lack of
inefficiencies
information
(b) The risk that market prices will change
238. Which of the following is NOT an due to new information becoming available
example of a public good?
(c) The risk that a party will deliberately take
(a) Street lighting in a city actions that increase the probability of a
negative outcome
(b) National defense and military protection
(d) The risk that one party will change the
(c) A private toll road with restricted access
terms of a contract after it is agreed upon
(d) Air pollution control to benefit the entire
community
243. Adverse selection occurs when:
239. The concept of public goods is relevant
to: about the quality of goods and services
(b) One party in a transaction has more
(a) Only developed countries with strong
information about the product's quality than
governments
the other
(b) Both developed and developing countries
(c) The government provides complete
(c) Only developing countries with limited information to all market participants
resources
(d) Market participants have perfect
(d) Only countries with a large population knowledge about market prices
244. In the context of insurance markets,

240. In economics, incomplete information adverse selection refers to:
refers to:
(a) The tendency for high-risk individuals to
(a) Situations where consumers have perfect seek insurance coverage more than low-risk
knowledge about the goods and services they individuals
purchase

(b) The tendency for insurance companies to (d) The absence of government regulations in
offer low premiums to attract more the market
customers
(c) The presence of government regulations
249. Why is market power a concern for
that ensure complete information for
policymakers?
insurance buyers
(a) Market power leads to perfect competition
(d) The equal access to insurance products
and efficient markets
for all individuals, regardless of their risk
profile (b) Market power can lead to higher prices
and reduced consumer choice
(c) Market power promotes innovation and
technological advancements
adverse selection in the used car market?
(d) Market power ensures equitable
(a) A seller providing complete information
distribution of wealth in society
about a car's history to potential buyers
(b) A buyer knowing more about a car's
hidden defects than the seller 250. Government intervention to minimize
market power is aimed at:
(c) A government agency regulating the
prices of used cars (a) Promoting monopolistic practices for
economic growth
(d) All used cars being sold at the same price
regardless of their condition (b) Encouraging firms to merge and create
larger entities
(c) Increasing barriers to entry for new firms
246. How can market participants mitigate
in the market
the problem of incomplete information?
(d) Preventing anti-competitive behavior and
(a) By increasing government regulations
promoting competition
and oversight
(b) By sharing more information with each
other 251. Which of the following is an example of
government intervention to minimize market
(c) By avoiding any form of insurance
power?
contracts
(d) By refusing to engage in any transactions
market prices
247. The problem of adverse selection is (b) Providing subsidies to dominant firms in
most commonly observed in markets for: the market
(a) Luxury goods and services (c) Granting exclusive licenses to companies
to operate in a specific industry
(b) Essential commodities and basic
necessities (d) Enforcing antitrust laws to prevent
monopolistic practices
(c) Used cars and insurance products
(d) Government-subsidized products
252. Antitrust laws are designed to:
(a) Facilitate mergers and acquisitions
248. Market power refers to:
between large firms
(a) The ability of the government to control
(b) Restrict the entry of foreign companies in
market prices
the domestic market
(b) The dominance of a single firm or a group
(c) Promote fair competition and prevent
of firms in a market
monopolistic practices
(c) The efficiency of markets in allocating
(d) Allow companies to engage in price-fixing
resources
agreements

(b) The costs of production are borne by
253. A merger between two large companies
producers alone
in the same industry may raise concerns
about: (c) The benefits of production are enjoyed by
consumers alone
(a) Increased competition in the market
(d) The costs of production are imposed on
(b) Lower prices and better consumer choice
third parties not involved in the transaction
(c) Potential abuse of market power and
reduced competition
(d) A more efficient allocation of resources 258. Which of the following is an example of
254. How can the government promote local students
competition and minimize market power?
(b) The construction of a new park in the
(a) By providing subsidies and incentives to neighborhood
dominant firms
(b) By imposing price controls to limit price residents
fluctuations
(d) Government subsidies to support
(c) By enforcing antitrust laws and renewable energy
regulating mergers and acquisitions
(d) By granting exclusive licenses to
259. To correct negative externalities, the
companies for specific industries
government can use:
(a) Subsidies to encourage more production
255. The primary goal of government of goods with negative externalities
intervention to minimize market power is to:
(b) Taxes to discourage the production of
(a) Ensure maximum profits for dominant goods with negative externalities
firms in the market
(c) Import tariffs to protect domestic
(b) Restrict consumer choice and options to industries
prevent market inefficiencies
(d) Price controls to regulate the prices of
(c) Promote competition and protect goods with negative externalities
consumers from unfair practices
(d) Stifle innovation and technological
advancements in the market 260. Positive externalities occur when:
(a) The government provides subsidies to
firms to promote production
(b) The costs of production are imposed on
(a) The benefits or costs of production that third parties not involved in the transaction
(c) The benefits of production are enjoyed by
(b) The government's intervention in the producers alone
market to control prices
(d) The benefits of production spill over to
(c) The equal distribution of income and benefit third parties not involved in the
wealth in society transaction
(d) The fluctuations in supply and demand
in the market
a positive externality?
257. Negative externalities occur when: (a) A company selling a product at a higher
price than its competitors
(a) The government imposes taxes to fund
public goods (b) A vaccination program reducing the
spread of infectious diseases in a community

(c) A government imposing high tariffs on (a) Overprovided in the market due to high
imported goods consumer demand
(d) A company causing pollution that affects (b) Subject to competitive market forces and
the health of nearby residents price fluctuations
(c) Underprovided in the market due to
positive externalities
262. To correct positive externalities, the
government can use: (d) Provided by private companies with no
government involvement
(a) Subsidies to discourage the production of
goods with positive externalities
(b) Taxes to reduce consumption of goods 267. To encourage the consumption of merit
with positive externalities goods, the government can:
(c) Regulations to limit the benefits of (a) Impose taxes to reduce consumption and
production to certain individuals limit negative externalities
(d) Subsidies to encourage the production of (b) Provide subsidies to consumers to lower
goods with positive externalities the prices of these goods
(c) Deregulate the market to allow for greater
competition
263. The main goal of government
intervention to correct externalities is to: (d) Implement price controls to keep the
prices stable
(a) Completely eliminate all externalities
from the market
(b) Reduce the efficiency of market 268. The primary goal of government
transactions intervention in the case of merit goods is to:
(c) Internalize external costs or benefits to (a) Limit consumer choice and promote
achieve a more optimal outcome government-controlled markets
(d) Limit the role of government in economic (b) Increase the prices of these goods to
activities generate more government revenue
(c) Ensure that consumers have access to
these goods despite their positive
264. Merit goods are characterized by:
externalities
(a) Being produced and provided by private
(d) Eliminate the production of merit goods
companies only
to reduce market inefficiencies
(b) High prices and limited accessibility for
all consumers
269. One of the challenges of government
(c) Having positive externalities and being
intervention in providing merit goods is:
under-consumed in the market
(a) Overconsumption and excessive demand
(d) Being rivalrous in consumption and
for these goods
subject to market failures
(b) The difficulty in identifying which goods
have positive externalities
(c) The lack of interest from private
a merit good?
companies to produce merit goods
(a) Luxury cars with high price tags
(d) The need to impose high taxes on
(b) Fast food items with excessive sugar and consumers to fund the provision of these
fat content goods
(c) Public education and healthcare services
(d) Designer clothing and accessories 270. In the case of merit goods, the
government's role is to:
266. Merit goods are typically:

(a) Completely replace the private sector in (d) Provided by private companies with no
providing these goods government involvement
(b) Let the market forces determine their
prices and availability
275. To discourage the consumption of
(c) Encourage private companies to
demerit goods, the government can:
overproduce these goods for profit
(a) Impose taxes to reduce consumption and
(d) Correct market failures by ensuring
internalize negative externalities
adequate provision of these goods
(b) Provide subsidies to consumers to lower
the prices of these goods
(c) Deregulate the market to allow for greater
consequence of inadequate provision of
competition
merit goods in society?
(d) Implement price controls to keep the
(a) Increased consumption of harmful goods
prices stable
with negative externalities
(b) Lower government expenditures and
reduced budget deficits 276. The primary goal of government
intervention in the case of demerit goods is
(c) Higher prices of merit goods due to
to:
excessive demand
(a) Limit consumer choice and promote
(d) A more efficient allocation of resources in
government-controlled markets
the market
(b) Increase the prices of these goods to
generate more government revenue
272. Demerit goods are characterized by:
(c) Reduce the consumption of these goods
(a) Having positive externalities arid being due to their negative externalities
under-consumed in the market
(d) Encourage the production of demerit
(b) High prices and limited accessibility for goods for profit
all consumers
(c) Having negative externalities and being
over-consumed in the market
intervention in discouraging demerit goods
(d) Being rivalrous in consumption and is:
subject to market failures
(a) Overconsumption and excessive demand
for these goods
273. Which of the following is an example of (b) The difficulty in identifying which goods
a demerit good? have negative externalities
(a) Organic fruits and vegetables (c) The lack of interest from private
companies to produce demerit goods
(b) Cigarettes and tobacco products
(d) The need to provide subsidies to
(c) Public education and healthcare services
consumers to increase consumption
(d) Renewable energy sources
278. In the case of demerit goods, the

274. Demerit goods are typically: government's role is to:
(a) Overprovided in the market due to high (a) Completely replace the private sector in
consumer demand providing these goods
(b) Subject to competitive market forces and (b) Let the market forces determine their
price fluctuations prices and availability
(c) Underprovided in the market due to (c) Encourage private companies to

negative externalities overproduce these goods for profit

(d) Correct market failures by discouraging (a) Consumers demanding more goods than
the consumption of these goods producers can supply
consequence of excessive consumption of (c) People benefiting from a public good
demerit goods in society? without contributing to its provision
(a) Reduced government expenditures and (d) Government intervention causing market
increased budget surplus inefficiencies
(b) Higher healthcare costs and negative
health outcomes
284. To ensure the provision of public goods,
(c) Lower prices of demerit goods due to the government can:
excessive demand
(a) Impose taxes to fund the production of
(d) Improved allocation of resources in the public goods
market
(b) Provide subsidies to private firms to
produce public goods
280. Public goods are characterized by: (c) Deregulate the market to allow for greater
competition
non-payers (d) Implement price controls to regulate the
prices of public goods
(c) Non-rivalry in consumption and 285. Which of the following is NOT a
exclusion of non-payers characteristic of public goods?
(d) Non-rivalry in consumption and non- (a) Non-rivalry in consumption
(b) Non-exclusion of non-payers
(c) Positive externalities associated with
281. Which of the following is an example of consumption
a public good? (d) Under-consumption in the market
(a) A private toll road with restricted access
(b) National defense and military protection
286. The primary goal of government
(c) A company providing exclusive intervention in the case of public goods is to:
memberships
(a) Limit consumer choice and control the
(d) Pollution from a factory affecting nearby production of public goods
residents
(b) Increase prices of public goods to
generate more government revenue
282. Public goods are typically: (c) Ensure the provision of public goods
despite free-rider problem
(a) Overprovided in the market due to high
consumer demand (d) Encourage private companies to produce
public goods for profit
(b) Subject to competitive market forces and
price fluctuations
(c) Underprovided in the market due to free-
rider problem
consequence of under-provision of public
(d) Provided by private companies with no goods in society?
government involvement
(a) Excessive government spending and
budget deficit
283. The free-rider problem refers to: (b) Lower taxes and reduced government
expenditure

(c) Lack of access to essential services and (c) A company raises its product price to
infrastructure increase profit margins
(d) Inefficient allocation of resources in the (d) The government allows free-market forces
market to determine the price of luxury goods
292. Price floors are designed to:

288. Non-market pricing refers to:
(a) Prevent price discrimination in the
(a) The pricing mechanism determined by
market
supply and demand forces in a market
(b) Stabilize prices during periods of high
(b) The setting of prices by the government
inflation
or other authorities outside of the market
forces (c) Encourage competition among firms to
lower prices
(c) The practice of firms colluding to fix
prices in a competitive market (d) Set a minimum price for certain goods to
support producers
(d) The use of price controls to regulate
market prices
293. The primary purpose of implementing
non-market pricing measures like price
controls is to:
non-market pricing?
(a) Allow firms to maximize profits by freely
(a) A company setting its product price based
setting prices
on market demand and production costs
(b) Achieve an equitable distribution of
(b) The government capping the price of
income and wealth in society
essential goods to control inflation
(c) Increase government revenue by taxing
(c) A competitive market where prices are
consumer purchases
determined solely by supply and demand
(d) Eliminate all market inefficiencies and
(d) A company engaging in predatory pricing
imperfections
to drive competitors out of the market
294. One of the potential drawbacks of price

290. Price controls are government
controls is:
interventions that:
(a) The increased likelihood of price gouging
(a) Allow firms to set prices freely to
by firms
maximize profits
(b) The potential for excessive competition
(b) Restrict the entry of new firms in the
and price wars
market to maintain price stability
(c) The distortion of market signals and
(c) Fix maximum or minimum prices for
reduced incentives for producers
certain goods and services
(d) The elimination of all price fluctuations in
(d) Prohibit firms from engaging in price
the market
discrimination
295. Non-market pricing measures are often

implemented when:
a price ceiling?
(a) The market is experiencing perfect
(a) The government sets a minimum price for
competition and efficient price
agricultural products to support farmers
determination
(b) A city government caps the rent that
(b) There is a need to correct externalities
landlords can charge for residential
and market failures
properties
(c) The government seeks to maximize profits
for firms

(d) Consumers demand lower prices for
goods and services
intervention to correct information failure is
to:
296. Information failure refers to:
(a) Control market prices to ensure
(a) The inability of the government to
affordability for consumers
regulate markets effectively
(b) Limit consumer choice and promote
(b) The situation where the government has
government-controlled markets
access to all relevant information
(c) Improve market transparency and protect
(c) The lack of information or asymmetric
consumers from fraud
information in the market
(d) Increase government revenue by
(d) The government's interference in market
imposing higher taxes on businesses
pricing mechanisms
301. How can government intervention help

297. Asymmetric information occurs when: correct information failure in financial
(a) The government provides complete markets?
information to all market participants (a) By increasing taxes on financial
transactions
(b) Market participants have equal (b) By imposing price controls on financial
knowledge about market prices assets
(c) One party in a transaction has more (c) By requiring companies to disclose
information than the other accurate financial information
(d) By limiting consumer access to financial
(d) Buyers and sellers have equal knowledge products and services
about the quality of goods and services
298. Government intervention to correct intervention to correct information failure is:
information failure can involve: (a) The lack of willingness from firms to
(a) Imposing price controls to regulate provide accurate information
market prices (b) The potential for excessive competition
(b) Providing subsidies to consumers to and price wars
increase demand for goods (c) The difficulty in identifying goods with
(c) Encouraging firms to engage in price positive externalities
discrimination (d) The need to eliminate all market
(d) Implementing regulations to ensure inefficiencies
accurate and transparent information
303. Correcting information failure is

299. Which of the following is an example of essential to:
government intervention to correct (a) Ensure market prices are always at their
information failure? equilibrium level
(a) The government setting a maximum price (b) Encourage firms to engage in price
for a particular good discrimination
(c) Achieve a more efficient allocation of
(b) The implementation of consumer resources in the market
protection laws to prevent deceptive (d) Allow market forces to completely
advertising determine prices and quantities
(c) The government providing subsidies to a
specific industry 304. Equitable distribution refers to:
(d) The enforcement of monopolistic (a) The equal distribution of income and
practices by the government wealth among all individuals in society

(b) The distribution of resources based on 309. One of the challenges of government
merit and individual effort intervention for equitable distribution is:
(c) The concentration of wealth and income (a) The potential for excessive competition
in the hands of a few individuals and price wars
(d) The government's interference in market (b) The lack of willingness from individuals
pricing mechanisms to pay taxes for redistribution
(c) The difficulty in identifying goods with
positive externalities
(d) The need to eliminate all market
distribution can involve:
inefficiencies
market prices
310. In the context of equitable distribution,
(b) Providing subsidies to high-income what is a means-tested benefit?
individuals to support their lifestyles
(a) A benefit that is provided to all
(c) Imposing progressive taxation to individuals regardless of their income level
redistribute wealth from the rich to the poor (b) A benefit that is provided based on
(d) Encouraging firms to engage in price specific criteria, such as income or assets
discrimination (c) A benefit that is only available to high-
income individuals
(d) A benefit that is provided without any
306. Which of the following is an example of eligibility requirements
government intervention for equitable
distribution? 311. Correcting information failure is
(a) The government imposing a flat tax rate essential to:
on all income levels (a) Ensure market prices are always at their
(b) The implementation of consumer equilibrium level
protection laws to ensure fair prices for
goods (b) Encourage firms to engage in price
(c) The government providing subsidies to discrimination
wealthy individuals for luxury goods (c) Achieve a more efficient allocation of
(d) The enforcement of monopolistic resources in the market
practices by the government
(d) Allow market forces to completely
determine prices and quantities
intervention for equitable distribution is to:
(a) Control market prices to ensure CHAPTER 7 PUBLIC FINANCE
affordability for consumers
(b) Limit consumer choice and promote Unit:3 The Process of Budget
government-controlled markets Making: Sources of Revenue,
(c) Achieve a more equal distribution of Expenditure Management and
income and wealth in society
(d) Increase government revenue by Management of Public Debt
imposing higher taxes on businesses
312. What is the primary purpose of the
308. How can progressive taxation help government budget?
achieve a more equitable distribution of (a) To maximize government revenue
income? through taxes.
(a) By taxing low-income individuals at a (b) To allocate resources efficiently in the
higher rate than high-income individuals economy.
(b) By taxing high-income individuals at a
(c) To manage public debt and reduce fiscal
higher rate than low-income individuals
(c) By imposing a flat tax rate on all income deficits.
levels (d) To outline the government's financial
(d) By eliminating taxes on all sources of plans and policies for the fiscal year.
income

(b) Sales tax
313. Which of the following is considered a
source of government revenue? (c) Government grants to businesses
(a) Issuing bonds and borrowing from (d) Corporate tax
international lenders.
(b) Providing subsidies to low-income
318. What is the difference between capital
individuals.
expenditure and revenue expenditure?
(c) Investing in infrastructure development.
(a) Capital expenditure relates to expenses
(d) Collecting taxes from individuals and on public infrastructure, while revenue
businesses . expenditure relates to interest payments on
public debt.
314. What is revenue expenditure in the (b) Capital expenditure includes investments
government budget? in long-term assets, while revenue
expenditure includes day-to-day expenses
(a) Investment in long-term assets like
like salaries and subsidies.
infrastructure.
(c) Capital expenditure is funded through
(b) Day-to-day expenses like salaries and
taxes, while revenue expenditure is funded
subsidies.
through borrowing.
(c) Transferring funds to other levels of
(d) Capital expenditure is decided by the
government.
central bank, while revenue expenditure is
(d) Borrowing money from foreign countries. decided by the finance ministry.
315. How can the government manage 319. Why is effective management of public
public debt effectively? debt important for the government?
(a) By reducing taxes to increase disposable (a) To maximize government profits.
income.
(b) To reduce government spending.
(b) By increasing government spending on
(c) To ensure sustainable fiscal policy and
social programs.
debt repayment.
(c) By ensuring that debt remains
(d) To encourage private investment in the
sustainable with manageable interest
economy.
payments.
(d) By borrowing more to fund large
infrastructure projects. 320. What is the ultimate goal of the budget-
making process?
(a) To maximize government control over the
316. Why is the government budget subject
economy.
to public debate and scrutiny?
(b) To minimize government interference in
(a) To determine the profitability of
the market.
government projects.
(c) To achieve economic growth and
(b) To assess the performance of government
development.
employees.
(d) To promote fairness and social justice in
(c) To evaluate the effectiveness of
resource distribution.
government policies.
(d) To promote competition among different
government agencies 321. What is the first step in the process of
budget making?
317. Which of the following is NOT a source (a) Setting financial goals and objectives.
of government revenue?
(b) Estimating government revenue for the
(a) Income tax fiscal year.

(c) Allocating funds to various ministries and
327. Which government official is
departments.
responsible for presenting the budget to the
(d) Presenting the budget to the public. parliament or legislature?
(a) The Prime Minister
322. Which government agency is
(b) The Finance Minister
responsible for preparing the budget in most
countries? (c) The President
(a) The central bank. (d) The Governor of the Central Bank
(b) The finance ministry or treasury
department. 328. The "Budget Speech" usually includes:
(c) The department of taxation. (a) A detailed breakdown of individual
(d) The ministry of economic planning. taxpayers' contributions.
(b) Economic statistics of the previous fiscal
year.
323. The fiscal year for most governments
typically runs from: (c) A list of government employees and their
salaries.
(a) January 1st to December 31st.
(d) Policy recommendations from opposition
(b) April 1st to March 31st. parties.
(c) July 1st to June 30th.
(d) October 1st to September 30th.
329. After the budget is presented, it is
usually sent to:
324. During the budget making process, the (a) The President for approval.
estimation of government revenue includes: (b) The Supreme Court for review.
(a) Only tax revenue and non-tax revenue.
(c) The Central Bank for implementation.
(b) Tax revenue, non-tax revenue, and (d) The Parliament or Legislature for
borrowing. approval and debate.
(c) Tax revenue, non-tax revenue, borrowing,
and grants. 330. Which of the following is a direct source
of government revenue?
(d) Only borrowing and grants.
(a) Sales tax
(b) Corporate tax
325. After the budget is prepared by the
finance ministry, it is presented to: (c) Excise duty
(a) The president or prime minister. (d) Value Added Tax (VAT)
(b) The central bank governor. 331. What is the primary source of revenue
(c) The parliament or legislature. for the government in many countries?
(d) The ministry of economic planning. (a) Personal income tax
(b) Goods and Services Tax (GST)
326. The fiscal year in many countries (c) Customs duties
typically runs from: (d) Corporate tax
(a) January 1st to December 31st.
(b) April 1st to March 31st.
332. Revenue from non-tax sources may
(c) July 1st to June 30th. include:
(d) October 1st to September 30th. (a) Income tax from individuals.
(b) Sales tax on goods.

(c) Dividends from state-owned enterprises. (d) Property Tax
(d) Corporate tax from private companies .
333. Which of the following is an indirect an external source of revenue for the
source of government revenue? government?
(a) Property tax (a) Income Tax
(b) Goods and Services Tax (GST) (b) Corporate Tax
(c) Personal income tax (c) Foreign Aid
(d) Corporate tax (d) Sales Tax
334. Revenue from external sources may 340. What is the main objective of public
include: expenditure management?
(a) Income tax from individuals and (a) To increase government revenue through
corporations. taxation.
(b) Sales tax on goods and services. (b) To maximize government spending on
welfare programs.
(c) Foreign aid and grants from other
countries. (c) To ensure efficient allocation of resources
for public goods and services.
(d) Dividends from state-owned enterprises.
(d) To reduce government involvement in the
economy.
335. Which of the following is a direct tax?
(a) Goods and Services Tax (GST)
(b) Corporate Tax
capital expenditure?
(c) Excise Duty
(d) Customs Duty (a) Payment of salaries to government
employees.
336. Which of the following is an indirect (b) Investment in building new schools and
tax? hospitals.
(a) Income Tax (c) Subsidies provided to low-income
(b) Wealth Tax families.
(c) Sales Tax
(d) Interest payments on public debt.
(d) Property Tax
337. Which of the following sources of 342. What is the difference between revenue
revenue is considered non-tax revenue? expenditure and capital expenditure?
(a) Income Tax (a) Revenue expenditure relates to
investments in long-term assets, while
(b) Customs Duty
capital expenditure includes day-to-day
(c) Dividends from state-owned enterprises expenses.
(d) Goods and Services Tax (GST) (b) Revenue expenditure includes day-to-day
expenses, while capital expenditure relates
to interest payments on public debt.
338. Which of the following taxes is levied on
(c) Revenue expenditure is funded through
the value added at each stage of production
borrowing, while capital expenditure is
or distribution?
funded through taxes.
(a) Income Tax
(d) Revenue expenditure is incurred on
(b) Goods and Services Tax (GST) regular operations, while capital expenditure
(c) Excise Duty is incurred on long-term assets.

(b) Public expenditure management is a part
of fiscal policy
transfer payments?
(c) Both involve controlling the money supply
(a) Investment in infrastructure
in the economy
development.
(d) Fiscal policy focuses on regulating private
(b) Payment of salaries to government
sector spending only
employees.
(c) Subsidies provided to farmers.
(d) Interest payments on public debt. 348. What is the role of budgeting in public
expenditure management?
(a) Budgeting helps the government increase
344. Why is effective public expenditure taxes for revenue generation
management important for the government? (b) Budgeting ensures that government
(a) To reduce government revenue through spending aligns with its policy priorities
taxation. (c) Budgeting allows the government to
(b) To increase government control over the control private sector investments
economy. (d) Budgeting helps the government manage
(c) To ensure that public funds are used international trade relations
efficiently and effectively.
(d) To minimize government spending on 349. One of the challenges in public
welfare programs. expenditure management is:
(a) The inability of the government to borrow
from international financial institutions
345. What is public expenditure
management? (b) The difficulty in increasing government
spending to stimulate economic growth
(a) The process of managing private sector
spending in the economy (c) The lack of transparency and
accountability in budget execution
(b) The process of allocating and controlling
government spending (d) The lack of demand for public goods and
services in the economy
(c) The process of managing public debt and
borrowing
350. What is the role of the legislature in
(d) The process of managing foreign aid and public expenditure management?
grants
(a) The legislature sets monetary policy to
control government spending
346. Which of the following is not a primary (b) The legislature approves the national
objective of public expenditure budget and oversees government spending
management?
(c) The legislature controls the prices of
(a) Promoting economic growth and public goods and services
development
(d) The legislature regulates international
(b) Ensuring price stability in the economy trade and tariffs
(c) Reducing income inequality and poverty
(d) Maximizing government revenue through 351. In public expenditure management,
taxation "virement" refers to:
(a) The process of raising government
347. Fiscal policy is closely related to public revenue through taxes
expenditure management because: (b) The process of reallocating funds between
(a) Fiscal policy determines the level of different budget items
government spending

(c) The process of managing foreign aid and (a) Operating budget
grants
(b) Cash budget
(d) The process of controlling inflation
(c) Capital budget
through monetary policy
(d) Flexible budget
352. What is the purpose of conducting

performance evaluations in public 357. A flexible budget is useful for:
expenditure management? (a) Controlling day-to-day expenses in a
(a) To increase government spending on all business
sectors equally (b) Allocating funds for specific capital
(b) To determine the effectiveness and projects
efficiency of government programs (c) Adapting to changes in sales or
(c) To limit public spending to only essential production levels
goods and services (d) Forecasting long-term revenue and
(d) To ensure that all public expenditure is expenses
focused on defense and security
358. What is a master budget?

353. What is a budget? (a) A budget prepared by individuals for
(a) A financial statement showing the personal financial planning
revenue and expenses of a company (b) The total budget of a government for all
(b) The total income of an individual or its departments and agencies
household (c) The comprehensive budget that includes
(c) A plan that outlines expected income and all individual budgets of a company
expenses over a specific period (d) A budget prepared by businesses for
(d) The total assets and liabilities of a short-term cash management
government
354. Which of the following budgets is used 359. Zero-based budgeting requires:
by businesses to plan and control day-to-day (a) Using the previous year's budget as a
operations? starting point for the new budget
(a) Operating budget (b) Justifying every budgeted expense as if
(b) Cash budget starting from scratch
(c) Capital budget (c) Increasing the budget by a fixed
percentage every year
(d) Flexible budget
(d) Allocating funds based on the popularity
of different programs
355. A cash budget is essential for
managing:
360. Incremental budgeting involves:
(a) Long-term investments and capital
projects (a) Reducing the budget by a fixed
(b) Short-term cash flow and liquidity
(b) Increasing the budget by a fixed
(c) Marketing and advertising expenses
(d) Employee salaries and benefits
(c) Allocating funds based on the popularity
of different programs
356. Which type of budget is most suitable (d) Using the previous year's budget as a
for capital-intensive projects like building starting point for the new budget
infrastructure?

361. Capital receipts refer to: 366. How are capital receipts different from
revenue receipts?
(a) Money received from selling goods and
services (a) Capital receipts are used to finance day-
to-day expenses, while revenue receipts are
(b) Revenue earned from taxes and fines
used for long-term projects.
(c) Funds raised through long-term
(b) Capital receipts represent funds raised
borrowing or the sale of assets
through long-term borrowing or asset sales,
(d) Money received from grants and while revenue receipts represent funds from
subsidies regular income sources like taxes and fines.
(c) Capital receipts are non-tax revenue,
362. Which of the following is an example of while revenue receipts are tax revenue.
a capital receipt for a government? (d) Capital receipts are received from foreign
countries, while revenue receipts are
(a) Income tax collected from individuals
domestic receipts.
(b) Revenue generated from selling
government services
(c) Proceeds from selling government-owned 367. Government bonds and securities
land issued to the public represent:
(d) Grants received from other countries (a) Capital expenditure

(b) Capital receipts
363. Non-debt capital receipts include:
(c) Revenue expenditure
(a) Borrowings and loans from financial
institutions (d) Revenue receipts
(b) Revenue generated from taxes and fines

(c) Grants received from other countries 368. How do capital receipts impact the
fiscal deficit of a government?
(d) Interest received on government loans
(a) Capital receipts decrease the fiscal deficit
(b) Capital receipts have no impact on the
364. Why are capital receipts essential for a fiscal deficit
government's financial planning?
(c) Capital receipts increase the fiscal deficit
(a) They help the government generate
revenue from taxes (d) Capital receipts eliminate the fiscal deficit
(b) They enable the government to finance

day-to-day expenses 369. Revenue receipts refer to:
(c) They provide funds for development (a) Funds raised through long-term
projects and infrastructure borrowing or the sale of assets
(d) They ensure the government's financial (b) Money received from selling goods and
stability during economic downturns services
(c) Revenue earned from taxes, fines, and
other regular income sources
365. Which of the following represents a debt
capital receipt for a government? (d) Grants and aids received from other
(a) Revenue earned from government countries
services
(b) Proceeds from the sale of government 370. Which of the following is an example of
assets a revenue receipt for a government?
(c) Borrowing from the central bank (a) Proceeds from selling government-owned
(d) Grants received from international land
organizations (b) Borrowings from financial institutions

(c) Income tax collected from individuals and (d) Revenue receipts are non-tax revenue,
businesses while capital receipts are tax revenue.
(d) Grants received from international
organizations
375. Government revenue earned from
import duties and taxes on goods and
371. Non-tax revenue receipts include: services represents:
(a) Income tax collected from individuals and (a) Revenue expenditure
businesses
(b) Revenue receipts
(b) Borrowings from financial institutions
(c) Capital expenditure
(c) Grants received from other countries
(d) Capital receipts
(d) Revenue generated from government
services and fines
376. How do revenue receipts impact the
fiscal deficit of a government?
372. Why are revenue receipts essential for
a government's financial planning? (a) Revenue receipts decrease the fiscal
deficit
(a) They provide funds for development
projects and infrastructure (b) Revenue receipts have no impact on the
fiscal deficit
(b) They enable the government to finance
long-term borrowing (c) Revenue receipts increase the fiscal
deficit
(c) They ensure the government's financial
stability during economic downturns (d) Revenue receipts eliminate the fiscal
deficit
(d) They help the government generate
revenue from asset sales
377. Revenue expenditure refers to:

373. Which of the following represents a (a) Funds spent on long-term investments
non-debt revenue receipt for a government? and capital projects
(a) Proceeds from the sale of government (b) Money spent on acquiring assets and
assets properties
(b) Borrowing from the central bank (c) Expenditure incurred on day-to-day
(c) Grants received from international government operations and services
organizations (d) Expenditure on repaying long-term loans
(d) Revenue earned from government and debts
services

374. How are revenue receipts different from revenue expenditure for a government?
capital receipts? (a) Purchase of land for a new government
(a) Revenue receipts are funds raised office building
through long-term borrowing, while capital (b) Payment of interest on a government loan
receipts represent regular income sources.
(c) Construction of a new highway
(b) Revenue receipts represent funds raised infrastructure
through long-term borrowing or asset sales,
while capital receipts represent funds from (d) Investment in a state-owned enterprise
regular income sources like taxes and fines.
(c) Revenue receipts are used to finance day- 379. Revenue expenditure can be classified
to-day expenses, while capital receipts are into:
used for long-term projects.
(a) Capital and non-capital expenditure

(b) Debt and equity expenditure (c) Revenue expenditure
(c) Foreign and domestic expenditure (d) Revenue receipts
(d) Social and defense expenditure
384. How does revenue expenditure impact
the fiscal deficit of a government?
380. Why is revenue expenditure important
for a government's financial planning? (a) Revenue expenditure decreases the fiscal
deficit
(a) It provides funds for long-term
investments and development projects (b) Revenue expenditure has no impact on
the fiscal deficit
(b) It helps the government repay long-term
loans and debts (c) Revenue expenditure increases the fiscal
deficit
(c) It ensures efficient delivery of public
services and day-to-day operations (d) Revenue expenditure eliminates the fiscal
deficit
(d) It enables the government to increase tax
revenue
385. Capital expenditure refers to:
381. Which of the following represents a (a) Money spent on day-to-day government
non-capital revenue expenditure for a operations and services
government?
(b) Expenditure incurred on long-term
(a) Investment in building a new government investments and capital projects
office
(c) Funds received from the sale of
(b) Purchase of vehicles for government government assets
officials
(d) Expenditure on repaying long-term loans
(c) Payment of salaries to government and debts
employees
(d) Investment in a state-owned enterprise
capital expenditure for a government?
382. How are revenue expenditure and (a) Payment of salaries to government
capital expenditure different? employees
(a) Revenue expenditure is incurred on day- (b) Construction of a new government office
to-day operations, while capital expenditure building
is incurred on long-term investments and
(c) Purchase of office supplies and
projects.
equipment
(b) Revenue expenditure is funded through
long-term borrowing, while capital
expenditure is funded through regular
income sources.
387. Capital expenditure can be classified
(c) Revenue expenditure is related to asset into:
acquisition, while capital expenditure is
(a) Capital and non-capital expenditure
related to regular expenses.
(b) Debt and equity expenditure
(d) Revenue expenditure is non-tax revenue,
while capital expenditure is tax revenue. (c) Foreign and domestic expenditure
(d) Social and defense expenditure
383. Government spending on social welfare
programs and public education represents: 388. Why is capital expenditure important
(a) Capital expenditure for a government's financial planning?
(b) Capital receipts (a) It provides funds for long-term
investments and development projects

(b) It helps the government repay long-term (c) Capital expenditure increases the fiscal
loans and debts deficit
(c) It ensures efficient delivery of public (d) Capital expenditure eliminates the fiscal
services and day-to-day operations deficit
(d) It enables the government to increase tax
revenue
393. What is budgetary deficit?
(a) The difference between total revenue and
389. Which of the following represents a total expenditure of the government
non-capital expenditure for a government?
(b) The difference between capital receipts
(a) Investment in building a new government and capital expenditure of the government
office
(c) The difference between revenue receipts
(b) Purchase of vehicles for government and revenue expenditure of the government
officials
(d) The difference between government
(c) Payment of salaries to government savings and investments
employees
394. Budgetary deficit occurs when:
(a) Total revenue is greater than total
390. How are capital expenditure and
expenditure
revenue expenditure different?
(b) Capital receipts are greater than capital
(a) Capital expenditure is incurred on long-
expenditure
term investments and projects, while
revenue expenditure is incurred on day-to- (c) Total revenue is less than total
day operations. expenditure
(b) Capital expenditure is funded through (d) Capital receipts are less than capital
long-term borrowing, while revenue expenditure
expenditure is funded through regular
income sources.
395.Which of the following is a measure of
(c) Capital expenditure is related to asset
the overall deficit of a country?
acquisition, while revenue expenditure is
related to regular expenses. (a) Fiscal deficit
(d) Capital expenditure is non-tax revenue, (b) Budgetary deficit
while revenue expenditure is tax revenue. (c) Current account deficit
(d) Trade deficit
391. Government spending on defense and
military equipment represents:
(a) Capital expenditure 396. Budgetary deficit is also known as:
(b) Capital receipts (a) Revenue deficit
(c) Revenue expenditure (b) Trade deficit i
(d) Revenue receipts (c) Fiscal deficit
(d) Capital deficit
392. How does capital expenditure impact
the fiscal deficit of a government? 397. Fiscal deficit includes:
(a) Capital expenditure decreases the fiscal (a) Only revenue deficit
deficit (b) Only capital deficit
(b) Capital expenditure has no impact on the (c) Both revenue deficit and capital deficit
fiscal deficit
(d) Neither revenue deficit nor capital deficit

398. How does a budgetary deficit impact the
expenditure
overall financial health of a government?
(c) Total revenue is less than total
(a) A budgetary deficit indicates financial
expenditure
stability and fiscal responsibility
(d) Capital receipts are less than capital
(b) A budgetary deficit leads to an increase
expenditure
in government savings
(c) A budgetary deficit indicates that the
government is spending more than its 403. The revenue deficit implies that the
revenue government's regular income (revenue) is
(d) A budgetary deficit has no impact on the insufficient to meet its:
overall financial health of a government (a) Long-term investments
(b) Short-term loans
399. The formula to calculate budgetary (c) Day-to-day expenses
deficit is:
(d) Foreign debt obligations
(a) Budgetary Deficit = Total Revenue - Total
Expenditure
404. How is revenue deficit different from
(b) Budgetary Deficit = Revenue Receipts -
fiscal deficit?
Revenue Expenditure
(a) Revenue deficit considers only revenue
(c) Budgetary Deficit = Capital Receipts -
receipts and expenditure, while fiscal deficit
Capital Expenditure
considers both revenue and capital receipts
(d) Budgetary Deficit = Fiscal Receipts - and expenditure.
Fiscal Expenditure
(b) Revenue deficit is calculated annually,
while fiscal deficit is calculated monthly.
400. If a government has a budgetary
(c) Revenue deficit is the same as fiscal
surplus, it means:
deficit.
(a) Total revenue is less than total
(d) Revenue deficit is a type of fiscal deficit .
expenditure
(b) Total revenue is equal to total
405. How does revenue deficit impact a
expenditure
government's borrowing?
(c) Total revenue is greater than total
(a) A revenue deficit reduces the need for
expenditure
government borrowing.
(d) Total revenue is negative
(b) A revenue deficit may lead to increased
government borrowing to finance expenses.
401. What is revenue deficit? (c) A revenue deficit has no impact on
total expenditure of the government (d) A revenue deficit eliminates the need for
and capital expenditure of the government
(c) The difference between revenue receipts 406. The formula to calculate revenue deficit
and revenue expenditure of the government is:
(d) The difference between government (a) Revenue Deficit = Total Revenue - Total
savings and investments Expenditure
(b) Revenue Deficit = Revenue Receipts -
Revenue Expenditure
402. Revenue deficit occurs when:
(c) Revenue Deficit = Capital Receipts -
(a) Total revenue is greater than total
Capital Expenditure
expenditure

(d) Revenue Deficit = Fiscal Receipts - Fiscal
Expenditure
412. What is the primary deficit?
407. If a government has a revenue surplus, total expenditure of the government
it means:
(a) Total revenue is less than total and capital expenditure of the government
expenditure
(c) The difference between revenue receipts
(b) Total revenue is equal to total and revenue expenditure of the government
expenditure
(d) The difference between total revenue and
(c) Total revenue is greater than total total expenditure excluding interest
expenditure payments on debt
413. The primary deficit takes into account
which of the following items?
408. The revenue deficit primarily arises due
to: (a) Capital receipts and capital expenditure
(a) Capital investments in infrastructure (b) Revenue receipts and revenue
projects expenditure
(b) Repayment of long-term loans and debts (c) Total revenue and total expenditure
(c) Day-to-day operational expenses and (d) Interest payments on debt and
subsidies government savings
(d) Foreign aid and grants received
414. How is the primary deficit different from
the fiscal deficit?
409. What is fiscal deficit?
(a) The primary deficit considers total
revenue and total expenditure, while the
total expenditure of the government
fiscal deficit considers only revenue receipts
(b) The difference between capital receipts and revenue expenditure.
and capital expenditure of the government
(b) The primary deficit considers both
(c) The difference between revenue receipts revenue and capital receipts and
and revenue expenditure of the government expenditure, while the fiscal deficit
(d) The difference between government considers only revenue receipts and revenue
savings and investments expenditure.
(c) The primary deficit is the same as the
fiscal deficit.
410. Fiscal deficit occurs when:
(d) The primary deficit is a type of fiscal
(a) Total revenue is greater than total deficit.
expenditure
expenditure 415. Which of the following is true regarding
the primary deficit?
(a) A primary deficit can only occur when
total revenue is less than total expenditure.
411. The fiscal deficit primarily arises due to:
(b) A primary deficit occurs when total
(a) Capital investments in infrastructure revenue is greater than total expenditure.
projects
(c) A primary deficit is unrelated to the
(b) Repayment of long-term loans and debts government's borrowing.
(c) Day-to-day operational expenses and (d) A primary deficit is always equal to the
subsidies fiscal deficit.
(d) Foreign aid and grants received

expenditure
416. The fiscal deficit implies that the
government is spending more than its: (b) Total revenue is equal to total
expenditure
(a) Long-term investments
(b) Short-term loans
expenditure
(c) Day-to-day expenses
(d) Foreign debt obligations
421. The formula to calculate the primary

417. How is fiscal deficit different from
deficit is:
revenue deficit?
(a) Primary Deficit = Total Revenue - Total
(a) Fiscal deficit considers only revenue
Expenditure
receipts and expenditure, while revenue
deficit considers both revenue and capital (b) Primary Deficit = Revenue Receipts -
receipts and expenditure. Revenue Expenditure
(b) Fiscal deficit is calculated annually, while (c) Primary Deficit = Capital Receipts -
revenue deficit is calculated monthly. Capital Expenditure
(c) Fiscal deficit is the same as revenue (d) Primary Deficit = Fiscal Deficit - Interest
deficit. Payments on Debt
(d) Fiscal deficit is a type of revenue deficit.
422. What does a primary deficit imply about

a government's finances?
418. How does fiscal deficit impact a
government's borrowing? (a) The government is managing its expenses
efficiently without reliance on borrowings.
(a) A fiscal deficit reduces the need for
government borrowing. (b) The government is spending more than
its total revenue, including interest
(b) A fiscal deficit may lead to increased
payments on debt.
government borrowing to finance expenses.
(c) The government is generating enough
(c) A fiscal deficit has no impact on
revenue to cover all its expenses, including
interest payments on debt.
(d) A fiscal deficit eliminates the need for
(d) The government is not engaged in any
borrowing activities.
419 . The formula to calculate fiscal deficit

423. If a government has a primary surplus,
is:
it means:
(a) Fiscal Deficit = Total Revenue - Total
Expenditure
expenditure
(b) Fiscal Deficit = Revenue Receipts -
(b) Total revenue is equal to total
Revenue Expenditure
expenditure
(c) Fiscal Deficit = Capital Receipts - Capital
Expenditure
expenditure, including interest payments on
(d) Fiscal Deficit = Revenue Receipts + debt
Capital Receipts - Revenue Expenditure -
Capital Expenditure
420. If a government has a fiscal surplus, it

means: 424. The primary deficit is considered a
more appropriate measure of a government's
fiscal health because it focuses on:

(a) Long-term investments and capital (d) Passed by the State Assemblies and
projects receives the Governor's approval
(b) Day-to-day operational expenses and
subsidies
429. The provisions of the Finance Bill come
(c) Interest payments on debt
into effect from:
(d) Both revenue and capital receipts and
(a) The date of its presentation in the
expenditure
parliament
(b) The beginning of the next financial year
425. What is the Finance Bill? (c) The date of approval by the Lok Sabha
(a) A bill introduced in the parliament to (d) The date of approval by the Rajya Sabha.
allocate funds for various government
projects
(b) A bill introduced by the Ministry of 430. Who introduces the Finance Bill in the
Finance to propose new tax laws and make parliament?
amendments to existing ones
(a) The Prime Minister of the country
(c) A bill introduced to regulate the financial
(b) The Finance Minister of the country
sector and banking activities
(c) The President of the country
(d) A bill introduced to control government
expenditure and reduce fiscal deficit (d) The Chief Justice of the Supreme Court
426. The Finance Bill is presented every year 431. The Finance Bill is primarily concerned
during the presentation of: with which aspect of governance?
(a) The Economic Survey (a) Defense and security matters
(b) The Union Budget (b) Social welfare and education programs
(c) The Annual Financial Statement (c) Economic and financial matters
(d) The Fiscal Policy Statement (d) Environmental protection and
conservation
427. Which of the following is NOT included

in the Finance Bill? 432. The Finance Bill is discussed and
debated in which house of parliament?
(a) Proposals related to direct and indirect
taxes (a) The Lok Sabha
(b) Amendments to the rates of existing taxes (b) The Rajya Sabha
(c) Allocation of funds for various (c) Both the Lok Sabha and Rajya Sabha
government projects and schemes (d) The State Assemblies
(d) Measures to promote economic growth
and development
433. What is the Outcome Budget?
(a) A budget prepared by the Ministry of
428. The Finance Bill becomes an Act after Finance to allocate funds for various
it is: government projects
(a) Approved by the President of the country (b) A budget presented in the parliament that
(b) Passed by the Lok Sabha and Rajya includes proposals related to new taxes and
Sabha and receives the President's assent financial matters
(c) Approved by the Ministry of Finance

(c) A budget that focuses on the outcomes (c) Short-term goals and objectives of the
and results achieved by various government government
schemes and programs
(d) Public-private partnerships for effective
(d) A budget that outlines the government's governance
revenue and expenditure plans for the
upcoming financial year 438. How does the Outcome Budget differ
from the Regular Budget?
(a) The Regular Budget focuses on outcomes
434. The Outcome Budget is presented every and results, while the Outcome Budget
year by: focuses on budget allocation.
(a) The Ministry of Finance (b) The Regular Budget includes new tax
proposals, while the Outcome Budget
(b) The Planning Commission
includes fiscal deficit figures.
(c) The Ministry of Statistics and Program
(c) The Regular Budget presents the
Implementation
government's revenue and expenditure
(d) The Prime Minister of India plans, while the Outcome Budget assesses
the impact of government schemes.
(d) The Regular Budget is presented by the
435. The Outcome Budget assesses the Prime Minister, while the Outcome Budget is
performance of government schemes based presented by the Finance Minister.
on:
(a) The total budget allocated to each scheme
(b) The number of government employees 439. The Outcome Budget helps in
involved in the implementation of each identifying:
scheme (a) The number of government employees in
(c) The outcomes and outputs achieved by each department
each scheme (b) Areas of duplication in government
(d) The popularity of each scheme among the schemes
public (c) The popularity of government schemes
among the public
(d) The total funds allocated to each
436. The primary focus of the Outcome government department
Budget is to:
(a) Evaluate the financial health of the 440. The Outcome Budget is presented along
government with which other budget document?
(b) Monitor the implementation progress of (a) The Regular Budget

various government schemes (b) The Performance Budget
(c) Ensure compliance with fiscal (c) The Zero-based Budget
responsibility and budget management rules
(d) The Supplementary Budget
(d) Assess the impact and effectiveness of
government policies and programs
441. What is the Guillotine in the context of
the parliamentary budget process?
437. The Outcome Budget is aimed at
(a) A device used for capital punishment in
promoting:
some countries
(a) Fiscal discipline and reducing
(b) A method to close debates and allocate
government expenditure
time for discussions during the budget
(b) Transparency and accountability in session
government spending
(c) A parliamentary committee responsible
for reviewing the budget proposals

(d) A tool used by the finance minister to
446. Which house of parliament uses the
present the budget in the parliament
Guillotine during the budget session?
(a) Lok Sabha
442. When is the Guillotine typically used in (b) Rajya Sabha
the parliament?
(c) Both Lok Sabha and Rajya Sabha
(a) During discussions on non-financial bills (d) State Legislative Assemblies
(b) To extend the budget session beyond its
scheduled time
(c) To end discussions on budget proposals 447. How does the Guillotine impact the
and related bills participation of members in budget
discussions?
(d) To allow unlimited time for debates on
budget matters (a) It encourages active participation and
thorough discussions on each proposal.
(b) It limits the participation of members and
443. How does the Guillotine help in the curtails the time for discussions.
efficient passage of the budget? (c) It allows members to extend the budget
(a) It allows for unlimited time for debates on session for more detailed debates.
each budget proposal. (d) It has no impact on the participation of
(b) It ensures that all non-financial bills are members in budget discussions.
discussed thoroughly.
(c) It allows the finance minister to present
the budget efficiently. 448. What are Cut Motions in the context of
parliamentary procedures?
(d) It sets a deadline for discussions, thereby
streamlining the process. (a) Motions to cut short the duration of
parliamentary sessions
(b) Motions to reduce the salaries of
444. Who decides the allocation of time for government officials
discussions using the Guillotine? (c) Motions to reduce the amount of a
(a) The Speaker of the Lok Sabha demand for grant presented in the budget
(b) The Prime Minister (d) Motions to cut off funding for a specific
government project
(c) The Finance Minister
(d) The President of India
449. When are Cut Motions moved in the
parliament?
445. What happens when the Guillotine is
(a) During discussions on non-financial bills
applied during the budget session?
(b) Before the presentation of the budget
(a) All budget proposals are automatically
approved without any discussions. (c) During discussions on financial matters
and demands for grants
(b) Remaining discussions on budget
proposals are cut short, and votes are taken (d) After the passage of the budget
collectively.
(c) The budget session is extended to allow
for more time for discussions. 450. What is the purpose of a Cut Motion?
(d) The finance minister presents the budget (a) To propose a reduction in the total budget
to the President for approval. allocation fb) To criticize the functioning of
the opposition parties
(c) To express disapproval of a specific policy
or expenditure

(d) To delay the passage of the budget (b) To give MPs an opportunity to express
their grievances and concerns
(c) To increase the power of the opposition
451. Which of the following statements is parties
true about Cut Motions?
(d) To provide additional time for
(a) Cut Motions are moved after the budget parliamentary debates
is passed.
(b) Cut Motions can only be moved by the
ruling party MPs. 456. What is the Consolidated Fund of
India?
(c) Cut Motions are meant to propose an
increase in budget allocations. (a) A fund managed by the Reserve Bank of
India for foreign exchange transactions
(d) Cut Motions can be moved by any MP to
seek a reduction in budget allocations. (b) A fund maintained by the government to
finance development projects
(c) A fund that holds all revenues received
452. How many types of Cut Motions are and loans raised by the government
typically allowed in the parliament?
(d) A fund created to support the defense and
(a) One type security expenses of the country
(b) Two types
457. Which article of the Indian Constitution
(c) Three types deals with the Consolidated Fund of India?
(d) Four types (a) Article 110
453. Which type of Cut Motion aims at (b) Article 280

reducing the amount of a demand for grant (c) Article 266
to Re. 1 ?
(d) Article 360
(a) Policy Cut
(b) Economy Cut
458. All government revenues and receipts
(c) Token Cut
are credited to which fund?
(d) Fiscal Cut
(a) Public Account
(b) Contingency Fund
454. What is the consequence if a Cut (c) Consolidated Fund of India
Motion is accepted by the Speaker of the
(d) Development Fund
house?
(a) The demand for grant is withdrawn from
the budget.
459. The expenditure charged on the
(b) The budget is rejected and needs to be Consolidated Fund of India includes:
presented again.
(a) Expenditure on foreign aid and grants
(c) The amount of the demand for grant is
(b) Expenditure on salaries and allowances
reduced as proposed in the motion.
of the President and Governors
(d) The budget is passed without any
(c) Expenditure on defense and security
changes.
(d) Expenditure on welfare and social
programs
455. What is the purpose of allowing Cut
460. How is the money from the
Motions in the parliament?
Consolidated Fund of India withdrawn?
(a) To delay the passage of the budget and
(a) By the President's order
stall government activities
(b) By the Governor's order

(c) By the Finance Minister's order (b) Article 266
(d) Only through parliamentary approval (c) Article 360
(d) Article 280
461. Which fund is audited by the

Comptroller and Auditor General (CAG) of
466. How is the Contingency Fund of India
India?
financed?
(a) Public Account
(a) By the President from personal funds
(b) Contingency Fund
(b) By voluntary contributions from the
(c) Consolidated Fund of India public
(d) Development Fund (c) By budgetary allocations from the
Consolidated Fund of India
462. If there is a need for additional funds
(d) By external borrowings from
during an emergency, from which fund can
international agencies
the government draw money?
(a) Public Account
(b) Contingency Fund 467. What is the maximum amount that can
be kept in the Contingency Fund of India?
(c) Consolidated Fund of India
(a) ₹ 10,000 crore
(d) Development Fund
(b) ₹ 30,000 crore
(c) ₹ 50,000 crore
463. Which of the following statements
(d) There is no specified maximum limit.
about the Consolidated Fund of India is
correct?
(a) The President has complete control over
468. Who has the authority to make
the withdrawals from this fund.
withdrawals from the Contingency Fund of
(b) All government revenues are credited to India?
this fund, but no expenditure is charged on
(a) The President of India
it.
(b) The Prime Minister of India
(c) The fund is maintained by the Reserve
Bank of India. (c) The Finance Minister of India
(d) The fund is utilized for all government (d) The Reserve Bank of India
expenditure, except the expenditure charged
on the Contingency Fund
469. How are withdrawals from the
464. What is the Contingency Fund of India? Contingency Fund of India made?
(a) A fund managed by the Reserve Bank of (a) By the President's order
India for foreign exchange transactions
(b) By the Prime Minister's order
(b) A fund maintained by the government to
finance development projects (c) By the Finance Minister's order
(c) A fund that holds all revenues received (d) By the Reserve Bank of India's approval
and loans raised by the government
(d) A fund created to meet urgent and
unforeseen expenditure of the government 470. What happens if the amount in the
Contingency Fund of India is insufficient to
meet the expenditure?
465. Which article of the Indian Constitution (a) The government can draw additional
deals with the Contingency Fund of India? funds from the Consolidated Fund of India.
(a) Article 110

(b) The government can borrow from (a) Fiscal policy involves the use of changes
international financial institutions. in taxation and government spending; while
monetary policy involves the use of price
(c) The expenditure remains pending until
and profit controls.
the parliament approves additional funds.
(b) Fiscal policy involves the use of price and
(d) The President can use personal funds to profit controls; while monetary policy
cover the shortfall. involves the use of taxation and government
spending.
(c) Fiscal policy involves the use of changes
471. The Contingency Fund of India is in taxation and government spending; while
audited by: monetary policy involves the use of changes
in the supply of money and interest rates.
(a) The President of India (d) Fiscal policy involves the use of changes
(b) The Comptroller and Auditor General in the supply of money and interest rates;
(CAG) of India while monetary policy involves the use of
changes in taxation and government
(c) The Finance Minister of India spending.
(d) The Reserve Bank of India
477. The justification for government

intervention is best described by
472. What is the Public Account of India? (a) The need to prevent recession and
(a) A fund managed by the Reserve Bank of inflation in the economy
India for foreign exchange transactions (b) The need to modify the outcomes of
private market actions
(b) A fund maintained by the government to (c) The need to bring in justice in distribution
finance development projects of income and wealth
473. Redistribution policies are likely to (d) All the above
have efficiency costs because
(a) They will reduce the efficiency of
governments 478. Read the following statements:
(b) They may create disincentives to work 1. The market-generated allocation of
and save resources is usually imperfect and leads to
(c) Governments have to forego taxes inefficient allocation of resources in the
(d) They are likely to make the poor economy
people dependent on the rich 2. Market failures can at all times be
corrected through government intervention
474. Macroeconomic stabilization may be 3. Public goods will not be produced in
achieved through sufficient quantities in a market economy
(a) Free market economy Of the three statements above:
(b) Fiscal policy (a) 1,2 and 3 are correct
(c) Monetary policy (b) 1 and 3 are correct
(d) (b) and (c) above (c) 2 and 3 are correct
(d) 3 alone is correct
475. Which of the following policies of the 479.When a government offers

government fulfils the redistribution unemployment benefits and also resorts
function to progressive taxation which function
(a) Parking the army on the northern borders does it seem to fulfill?
of the country
(a) It is trying to establish stability in
(b) Supply of food grains at subsidized prices
an economy
to the poor people
(b) It is trying to redistribute income and
(c) Controlling the supply of money through
wealth
monetary policy
(c) It is trying to allocate resources to their
most efficient use
(d) It is creating a source of market failure
476. Choose the correct statement

480. Government of Emeline Land decides (b) II and III are correct
to provide most modern road (c) I, II and III are correct
infrastructure throughout the nation. This (d) All the above are correct
can be classified as
(a) Distribution function 485. In a federal set up, the stabilization
(b) Allocation function function can be effectively performed by
(c) Stabilization function (a) Respective state governments
(d) None of the above (b) Ministry of taxes
(c) The government at the centre
481. Which function does the government
perform when it provides transfer payments
to offer support to the underprivileged 486. Which of the following is concerned
(a) Allocation with division of economic responsibilities
(b) Efficiency between the central and state
(c) Distribution Government of India?
(d) None of the above (a) NITI Aayog
(b) central bank
(c) Finance Commission
482. Which of the following is true in (d) Parliament
respect of centre and state government
finances?
(a) The centre can tax agricultural 487. Fiscal Federalism refers to _.
income and mineral rights (a) Organizing and implementing
(b) Finance commission recommends development plans
distribution of taxes between the (b) Sharing of political power between
centre and states centers and states
(c) GST subsumes majority of direct (c) The management of fiscal policy by a
taxes and a few indirect taxes nation
(d) IGST is collected by the state (d) Division of economic functions and
governments resources among different layers of
the government
483. GST compensation is given to

(a) to the industries which have made 488. Which one of the following taxes is
losses due to the introduction of levied by the state government only?
GST (a) Corporation tax
(b) to compensate for the lower rates of (b) Wealth tax
GST on essential items (c) Income tax
(c) to the states to compensate for the loss (d) None of the above
of revenue due to the introduction of 489. The percentage of share of states in
GST central taxes for the period 2021-26
(d) to compensate for the loss of input tax recommended by the Fifteenth Finance
credit in manufacturing Commission is
(a) 38 percent
(b) 41 percent
484. Which of the following is true in (c) 42 percent
respect of the role of Finance Commissions (d) The commission has not
in India? submitted its report
I. The distribution between the union and
the states of the net proceeds of taxes
II. Allocation between the states of the 490. Which of the following is not a
respective shares of such proceeds. criterion for determining distribution
III. Make Recommendations on integrated of central taxes among states for
GST on inter-state movement of goods 2021-26 period
and services (a) Demographic performance
IV. To recommend expenditure (b) Forest and ecology
decentralization among different states (c) Infrastructure performance
(d) Tax and fiscal efforts
(a) I and II are correct

(a) makes price equal to marginal cost and

produce a positive external benefit on
491. As per the supreme court verdict in
others
May 2022
(b) can cause markets to be efficient due
(a) The union has greater powers than
to reduction in costs
the states for enacting GST laws
(c) makes the firms price makers and
(b) The union and state legislatures
restrict output so as to make allocation
have “equal, simultaneous powers“to
make laws inefficient
on Goods and Services Tax (d) (b) and(c) above
(c) The union legislature’s enactments
will prevail in case of a conflict
between those of union and states
496. Markets do not exist
(d) The state legislatures can make
rules only with the permission of (a) for goods which have positive
central government externalities
(b) for pure public goods
(c) for goods which have negative
492. Providing social sector services such externalities
as health and education is
(a) the responsibility of the central (d) none of the above
government
497. Which of the following is the right
(b) the responsibility of the respective state
governments argument for provision of public good by
(c) the responsibility of local administrative government?
bodies
(a) Governments have huge resources at
(d) none of the above
their disposal
(b) Public goods will never cause any
493. ‘Market failure’ is a situation which type of externality
occurs when (c) Markets are unlikely to produce
(a) private goods are not sufficiently sufficient quantity of public goods
provided by the market (d) Provision of public goods are very
(b) public goods are not sufficiently profitable for any government
provided by public sector
498. Adequate amount of a pure public
(c) The market fail to form or they good will not be provided by the private
allocate resources efficiently
market because of
(d) (b) and (c) above
(a) the possibility of free riding
494. Which of the following is an
(b) the existence of very low prices and low
example of market failure?
profits
(a) Prices of goods tend to rise because
(c) governments would any way produce
of shortages
them, so there will be overproduction
(b) Merit goods are not sufficiently
(d) there are restrictions as well as taxes
produced and supplied
on production of public goods
(c) Prices fall leading to fall in profits
and closure of firms
(d) None of the above 499. The free rider problem arises
because of
(a) ability of participants to produce
495. Which of the following is an goods at zero marginal cost
outcome of market power?

(b) marginal benefit cannot be (d) I and III are correct

calculated due to externalities present
(c) the good or service is non excludable
504. Which of the following statements is
(d) general poverty and unemployment
false?
of people
(a) Tradable permits provide incentive to
innovate and reduce negative externalities
500. A chemical factory has full (b) A subsidy on a good which has
information regarding the risks of a substantial positive externalities would
product, but continues to sell it. This reduce its cost and consequently its price
is possible because of would be lower
(a) asymmetric information (c) Substantial negative externalities are
(b) moral hazard involved in the consumption of merit goods.
(c) free riding (d) Merit goods are likely to be under-

produced and under consumed through the
(d) (a) and (c) above market mechanism
501. If an individual tends to drive his 505. Which one of the following would you
car in a dangerously high speed because suggest for reducing negative
he has a comprehensive insurance externality?
cover, it is a case of (a) Production subsidies
(a) free riding (b) Excise duty
(b) moral hazard (c) Pigouvian taxes
(c) poor upbringing (d) All of the above
(d) Inefficiency
506. A Pigouvian subsidy

502. Smoking in public is a case of
(a) cannot be present when externalities
(a) Negative consumption externality are present
(b) Negative production externality (b) is a good solution for negative
(c) Internalising externality externality as prices will increase
(d) None of the above (c) is not measurable in terms of money
and therefore not practical
503. Read the following statements
(d) may help production to be socially
I The market-based approaches to optimal when positive externalities are
control externalities operate present
through price mechanism
II. When externalities are present, the
welfare loss would be eliminated 507. If governments make it compulsory to
III. The key is to internalizing an avail insurance protection, it is because
externality is to ensure that those who (a) Insurance companies need to be
create the externalities include them running profitably
while making decisions Of the above (b) Insurance will generate moral
statements hazard and adverse selection
(a) II and III are correct (c) Insurance is a merit good and
(b) I only is correct government wants people to consume it
(c) II only is correct (d) None of the above

(a) is a market-based policy

508. The Competition Act, 2002 aims to -
(b) involves the government paying part of
(a) protect monopoly positions of firms the cost to the firms in order to promote
that have developed unique innovations the production of goods having positive
(b) to promote and sustain competition externalities
in markets (c) is generally provided for merit goods
(c) to determine pricing under natural (d) all the above
monopoly.
513. The production and consumption of
(d) None of the above demerit goods are
(a) likely to be more than optimal under
509. Rules regarding product labelling free markets.
(a) Seeks to correct market failure (b) likely to be less than optimal under free
due to externalities markets
(b) Is a method of solving the (c) likely to be subjected to price
problem of public good intervention by government
(c) May help solve market failure due (d) a) and c) above
to information failure 514. The argument for education subsidy
(d) Reduce the problem of is based on
monopolies in the product market (a) Education is costly
(b) the ground that education is merit
510. Identify the incorrect statement good
(a) A minimum support price for (c) education creates positive externalities
agricultural goods is a market intervention (d) b) and c) above
method to guarantee steady and assured 515. Read the following statements
incomes to farmers.
I. Social costs are the total costs incurred by
(b) An externality is internalised if the the society when a good is consumed or
ones that generated the externality
produced.
incorporate them into their private cost-
benefit analysis II The external costs are not included in
firms’ income statements or consumers’
(c) The production and consumption of
decisions
demerit goods are likely to be less than
optimal under free markets III. Each firm’s cost which is considered
for determining output would be only private
(d) Compared to pollution taxes, the cap
cost or direct cost of production which does
and trade method is administratively cheap
not include external costs
and simple to implement and ensures that
pollution is minimised in the most cost- IV. Production and consumption
effective way. decisions are efficient only when private
costs are Considered Of the above
511. The incentive to let other people pay
for a good or service, the benefits of which (a) Statements I and III are correct
are enjoyed by an individual (b) Statements I,II and III are correct
(a) Is a case of negative externality (c) Statement I only is correct
(b) Is a case of market efficiency (d) All the above are correct
(c)Is a case of free riding
(d)Is inappropriate and warrant action 516. Government failure occurs when
512. A government subsidy (a) Government fails to implement its
election promises on policies

(b) A government is unable to get re- Transforming India

elected (b) National Institution for
Transforming India
(c) Government intervention is
(c) National Institute for Technology and
ineffective and produces fresh and more
serious problems Innovation
522. The Appropriation Bill is intended to
517.The difference between the budget
(a) reduce unnecessary expenditure on the
deficit of a government and its debt service part of the government
payments is (b) give authority to government to incur
(a) Fiscal deficit expenditure from and out of the
(b) Budget deficit Consolidated
(c) Primary deficit Fund of India
(d) None of the above (c) give authority to government to incur
expenditure from the revenue receipts
The following hypothetical figures relate to only
country A (d) be passed before the budget is taken for
discussion
Revenue receipts 20,000
523. Public debt management aims at
Recovery of loans 1,500
(a) An efficient budgetary policy to avail of
Borrowing 15,000 domestic debt facilities
(b) Raising loans from international
Other Receipts 5,000
agencies at lower rates of interest
Expenditure on revenue 24,500 (c) Raising the required amount of funding
account at the desired risk and cost levels
Expenditure on capital 26,000 (d) Management of public expenditure to
account reduce public debt
Interest payments 2,000
524. The railway budget is
. (a) Part of the general budget, but is
518. The revenue deficit for country A is presented by the railway minister
(a) 5,000 (b) Part of the general budget from the
(b) 24,000 budget for financial year 2017 -18.
(c) 4,500 (c) Part of the general budget from the
(d) None of the above budget for financial year 2021 -22
(d) Part of the general budget but
presented on the next day of the
519. Fiscal deficit of country A is general budget
(a) 14,000
(b) 24,000
(c) 23,500 525. Outcome budgeting
(d) None of the above (a) shares information about the money
allocated for various purposes in a
budget
(b) establishes a direct link between
520. Primary deficit of Country A is budgetary allocations and
(a) 26,000 performance targets measured
(b) 26,500 through output and outcome
(c) 22,000 indicators
(d) 24,500 (c) establishes a direct link between
budgetary performance targets and
521. In NITI Aayog, NITI stands for public account disbursals
(a) National Initiative for (d) shares information about public

policies and programmes under the of this country is
budget. (a) 45.1
526 . Corporate tax (b) 16.7
(a) is collected by the union (c) 15.8
government and can be a capital (d) None of the above
receipt or revenue receipt
(b) may be collected by the respective 531. A budget is said to be unbalanced
states and fall under revenue when
receipts (a) when government’s revenue exceeds
(c) may be collected either by the government’s expenditure
centre or states and fall under (b) when government’s expenditure
revenue receipts exceeds government’s revenue
(d) is collected by the union (c) either budget surplus of budget
government and is a revenue deficit occurs
receipt (d) All the above
527. Government borrowings from foreign

governments and institutions 532. Fiscal deficit refers to
(a) Capital receipt (a) the excess of government’s revenue
(b) Revenue receipt expenditure over revenue receipts
(c) Accounts for fiscal deficit (b) The excess of total expenditure over
(d) Any of the above depending on total receipts excluding borrowings
the purpose of borrowing (c) Primary deficit - interest payments
(d) None of these
The following table relates to the revenue

and expenditure figures of a hypothetical 533. Budget of the government generally
economy impacts
(a) the resource allocation in the
In ₹ lakh Crores . economy
(a) Recovery of loans 5.1 (b) redistribution of income and
(b) Salaries of govt. servants 41.1 enhance equity
(c) stability in the economy by measures
(c) Capital Expenditure 45.0
to control price fluctuations
(d) Interest payments 1.3 (d) all the above
(e) Payments towards subsidies 3.2
(f) Other receipts (mainly from 11.6 534. Which of the following is a statement
disinvestment) submitted along with the budget as a
(g) Tax revenue (net of states’ share) 26.3 requirement
of FRBM Act
(h) Non-tax revenue 12.3
(a) Annual Financial Statement
(i) Borrowings and other liabilities 6.8 (b) Macro -Economic Framework
(j) States’ share in tax revenue 11.9 Statement
(c) Medium-Term Fiscal Policy cum
528. The capital receipts are Fiscal Policy Strategy Statement
(a) 23.5
(d) (b) and (c) above
(b) 19.7
(c) 11.3
(d) None of the above 535. Government borrowing is treated as
capital receipt because
(a) It is mainly used for creating assets
529. Revenue deficit is
by government
(a) 23.6
(b) It creates a liability for the
(b) 13.0 government
(c) 7.0 (c) Both a) and b) above are correct
(d) 2.6 (d) None of the above is correct
530. The non–debt capital receipts

536. ‘Retail Direct ‘scheme is
(b) government activities related to use
(a) Initiated by the Reserve Bank of India
of government spending for supply of
(b) facilitate investment in government essential goods
securities by individual investors.
(c) Direct sale of goods and services by (c) use of government spending,
government departments taxation and borrowing for reducing
the fiscal deficits
(d) Both (a) and (b) are correct
(d) and (b) above
537. Non-debt capital receipts 542. If real GDP is continuously

(a) do not add to the assets of the declining and the rate of unemployment
government and therefore not in the economy is increasing, the
treated as capital receipts appropriate policy should be to
(b) are those that do not create any (a) Increase taxes and decrease
future repayment burden for the government spending
government
(c) are those that create future (b) Decrease both taxes and government
liabilities for the government spending
(d) facilitate capital investments at low (c) Decrease taxes and increase
cost government spending
(d) Either (a) or (c)
538. Which of the following is a capital
receipt?
(a) License fee received
(b) Sale proceeds from disinvestment 543 Which of the following are likely to
(c) Assistance from Japan for covid vaccine occur when an economy is in an
(d) Dividend from a public sector enterprise expansionary phase of a business
cycle?
(A) Rising unemployment rate
539. Grants given by the central
government to state governments is (B) Falling unemployment rate
(a) A revenue expenditure as it is meant (C) Rising inflation rate
to meet the current expenditure of
the states (D) Deflation
(b) A revenue expenditure as it does (E) Falling or stagnant wage for workers
neither creates any asset, nor
reduces any liability of the (F) Increasing tax revenue
government (G) Falling tax revenue
(c) A capital expenditure because it
increase the capital base of the states (a) A, B and F are most likely to occur
(d) It is a grant and so does not come (b) B, C and F are most likely to occur
under revenue expenditure or capital (c) D, E and F are most likely to occur
expenditure.
(d) A, E and G are most likely to occur
540.
(a) RBI credit to states
(b) Commercial credit of RBI 544. During recession the fiscal policy of the
(c) Ways and Means Advances (WMA) government should be directed towards
(d) Short term facility
(a) Increasing the taxes and reducing the
541. Fiscal policy refers to the aggregate demand
(a) use of government spending, taxation (b) Decreasing taxes to ensure higher
and borrowing to influence the level disposable income
of economic activity
(c) Increasing government expenditure
and increasing taxes

(d) None of the above (a) A tax cut aimed at increasing the
disposable income and spending
545. According to Keynesian economics,
(b) A reduction in government expenditure
when we have inflation an effective fiscal
to contain inflation
policy should not include
(c) An increase in taxes and decrease in
(a) increase corporate taxes.
government expenditure to control
(b) decrease aggregate demand. inflation
(c) Increase government purchases. (d) All the above
(d) None of the above is correct
550. Which of the following would
546. Keynesian economists believe that illustrate a recognition lag?
(a) fiscal policy can have very powerful (a) The time required to identify the
effects in altering aggregate demand, appropriate policy
employment and output in an (b) The time required to identify to pass a
economy legislation
(b) when the economy is operating at less (c) The time required to identify the need
than full employment levels and when for a policy change
there is a need to offer stimulus to
(d) The time required to establish the
demand fiscal policy is of great use
outcomes of fiscal policy
(c) Wages are flexible and therefore
business fluctuations would be
automatically adjusted
551. An expansionary fiscal policy, taking
(d) (a) and (b) above everything else constant, would in the short-
run have the effect of
(a) a relative large increase in GDP and a
547. Which of the following may ensure a smaller increase in price
decrease in aggregate demand during
(b) a relative large increase in price, a
inflation?
relatively smaller increase in GDP
(a) decrease in all types of government
(c) both GDP and price will be increasing in
spending and/ or an increase in taxes
the same proportion
(b) increase in government spending and/
(d) both GDP and price will be increasing in
or a decrease in taxes
a smaller proportion
(c) decrease in government spending and/
or a decrease in taxes
(d) All the above 552. Which statement (s) is (are) correct
about crowding out?
I. A decline in private spending may be
548. A recession is characterized by partially or completely offset by the
(a) Declining prices and rising expansion of demand resulting from an
employment increase in government expenditure.
II. Crowding out effect is the negative
(b) Declining unemployment and rising
prices effect fiscal policy may generate when
money from the private sector is ‘crowded
(c) Declining real income and rising out’ to the public sector.
unemployment.
III When spending by government in an
(d) Rising real income and rising prices economy increases government spending
would be crowded out.
IV. Private investments, especially the ones
549. Which one of the following is an which are interest –sensitive, will be
example of fiscal policy? reduced if interest rates rise due to
increased spending by government

(a) I and III only (a) I and II are correct

(b) I, II, and III (b) I, II and III are correct
(c) I, II, and IV (c) Only III is correct
(d) III only (d) All are correct
556. While resorting to expansionary

fiscal policy
553. Which of the following policies is likely
to shift an economy’s aggregate demand (a) the government may possibly have a
curve to the right? budget surplus as increased
expenditure will bring more output
(a) Increase in government spending
and more tax revenue
(b) Decrease in taxes
(b) the government may run into
(c) A tax cut along with increase in public budget deficits because tax cuts
expenditure reduce government income and the
government expenditures exceed
(d) All the above tax revenues in a given year
(c) it is important to have a balanced
budget to avoid inflation and bring
554. Identify the incorrect statement in stability
(a) A progressive direct tax system ensures (d) None of the above will happen
economic growth with stability because it
distributes the burden of taxes unequally 557. Contractionary fiscal policy
(b) A carefully planned policy of public (a) is resorted to when government
expenditure helps in redistributing income expenditure is greater than tax
from the rich to the poorer sections of the revenues of any particular year
society.
(b) increase the aggregate demand to
(c) There are possible conflicts between sustain the economy
different objectives of fiscal policy such that
a policy designed to achieve one goal may (c) to increase the disposable income of
adversely affect another people through tax cuts and to enable
greater demand
(d) An increase in the size of government
spending during recessions may possibly (d) is designed to restrain the levels of
economic activity of the economy
‘crowd-out’ private spending in an economy. during an inflationary phase
555. Read the following statements 558. When government spending is

I. Fiscal policy is said to be contractionary deliberately reduced to bring in stability
when revenue is higher than spending (a) the government is resorting to
i.e., the government budget is in contractionary fiscal policy
surplus
(b) the government is resorting to
II. Other things constant, a fiscal expansion expansionary fiscal policy
will raise interest rates and “crowd out”
(c) trying to limit aggregate demand to
some private investment sustainable levels
III. During inflation new taxes can be levied (d) (a) and c) above
and the rates of existing taxes are raised
to reduce disposable incomes
IV. Classical economists advocated 559. An increase in personal income taxes
contractionary fiscal policy to solve the (a) reduces disposable incomes leading to
problem of inflation fall in consumption spending and
Of the above statements aggregate demand

(b) is desirable during inflation or when (d) None of the above will work
there is excessive levels of aggregate
demand 562 .While if governments compete with the
(c) is to compensate the deficiency in private sector to borrow money for
effective demand by boosting aggregate securingresources for expansionary
spending fiscal policy
(d) both a) and b) are correct (a) it is likely that interest rates will go up
and firms may not be willing to invest
560. While the government resorts to
deliberate fiscal policy it may not attempt (b) it is likely that interest rates will go up
to manipulate and the individuals too may be
reluctant to borrow and spend
(a) Government expenditures on public
works (c) it is likely that interest rates will go up
and the desired increase in aggregate
(b) The rates of personal income taxes and demand may not be realized
corporate taxes
(d) All the above are possible.
(c) Government expenditures on goods
and services purchased by
government
(d) The rate of interest prevailing in the
economy
561. Which of the following fiscal
remedy would you advice when an
economy is facing recession
(a) the government may cut interest rates
to encourage consumption and
investm
(b) the government may cut taxes to
increase aggregate demand
(c) the government may follow a policy of
balanced the budget.

CHAPTER – 7 PUBLIC F
1 A 49 C 97 A 145 C 193 C 241
2 C 50 C 98 C 146 B 194 C 242
3 C 51 A 99 D 147 D 195 A 243
4 D 52 C 100 C 148 C 196 D 244
5 C 53 A 101 B 149 C 197 C 245
6 B 54 B 102 B 150 B 198 C 246
7 D 55 C 103 A 151 B 199 B 247
8 C 56 B 104 D 152 A 200 B 248
9 C 57 C 105 C 153 A 201 C 249
10 B 58 A 106 B 154 C 202 A 250
11 D 59 B 107 C 155 C 203 D 251
12 B 60 C 108 B 156 B 204 C 252
13 C 61 B 109 A 157 B 205 A 253
14 C 62 B 110 A 158 C 206 C 254
15 D 63 C 111 D 159 C 207 D 255
16 C 64 C 112 D 160 C 208 B 256 A
17 D 65 C 113 A 161 C 209 D 257 D
18 B 66 C 114 C 162 C 210 A 258 C
19 C 67 B 115 A 163 C 211 B 259 B
20 C 68 D 116 B 164 C 212 D 260 D
21 B 69 A 117 C 165 B 213 D 261 B
22 B 70 B 118 D 166 B 214 C 262 D
23 D 71 C 119 D 167 C 215 C 263 C
24 C 72 B 120 A 168 B 216 C 264 C
25 A 73 C 121 C 169 B 217 C 265 C
26 B 74 B 122 D 170 D 218 B 266 C
27 C 75 C 123 C 171 D 219 C 267 B
28 D 76 A 124 C 172 A 220 D 268 C
29 D 77 C 125 C 173 D 221 C 269 B
30 B 78 C 126 D 174 A 222 C 270 D
31 C 79 A 127 D 175 D 223 271 A
32 C 80 B 128 C 176 C 224 272 C
33 C 81 B 129 B 177 B 225 273 B
34 C 82 D 130 C 178 B 226 274 C
35 A 83 B 131 D 179 B 227 275 A
36 C 84 C 132 D 180 C 228 276 C
37 B 85 C 133 D 181 D 229 277 B
38 C 86 B 134 B 182 D 230 278 D
39 C 87 C 135 A 183 B 231 279 B
40 D 88 B 136 C 184 C 232 280 D
41 B 89 B 137 A 185 C 233 281 B
42 C 90 D 138 D 186 C 234 282 C
43 B 91 D 139 B 187 A 235 283 C
44 B 92 B 140 C 188 C 236 284 A
45 C 93 C 141 D 189 B 237 285 C
46 A 94 B 142 A 190 C 238 286 C
47 D 95 D 143 C 191 C 239 287 C
48 B 96 B 144 B 192 C 240 288 B
CA Aditya Sharma Page No

CHAPTER – 7 PUBLIC F
289 B 334 C 379 A 424 B 469 B 514 D
290 C 335 B 380 C 425 B 470 A 515 b
291 B 336 C 381 C 426 B 471 B 516 c
292 D 337 C 382 A 427 C 472 517 c
293 B 338 B 383 C 428 B 473 B 518 c
294 C 339 C 384 C 429 B 474 D 519 B
295 B 340 C 385 B 430 B 475 B 520 C
296 C 341 B 386 B 431 C 476 C 521 B
297 C 342 D 387 A 432 C 477 D 522 B
298 D 343 C 388 A 433 C 478 B 523 C
299 B 344 C 389 C 434 C 479 B 524 B
300 C 345 B 390 A 435 C 480 D 525 B
301 C 346 D 391 A 436 D 481 C 526 D
302 A 347 A 392 C 437 B 482 B 527 A
303 C 348 D 393 C 438 C 483 C 528 A
304 A 349 C 394 C 439 B 484 A 529 C
305 C 350 B 395 C 440 B 485 c 530 B
306 A 351 B 396 A 441 B 486 C 531 D
307 C 352 B 397 C 442 C 487 D 532 D
308 B 353 C 398 C 443 D 488 D 533 D
309 B 354 A 399 B 444 A 489 D 534 D
310 B 355 B 400 C 445 B 490 C 535 B
311 C 356 C 401 C 446 C 491 B 536 D
312 D 357 C 402 C 447 B 492 B 537 B
313 D 358 C 403 C 448 C 493 C 538 B
314 B 359 B 404 A 449 C 494 B 539 B
315 C 360 D 405 B 450 C 495 C 540 C
316 C 361 C 406 B 451 D 496 B 541 A
317 C 362 C 407 C 452 C 497 C 542 C
318 B 363 C 408 C 453 C 498 A 543 B
319 C 364 C 409 A 454 C 499 C 544 B
320 D 365 C 410 455 B 500 A 545 C
321 A 366 B 411 C 456 C 501 B 546 D
322 B 367 B 412 D 457 C 502 A 547 A
323 B 368 A 413 B 458 C 503 D 548 C
324 C 369 C 414 B 459 D 504 C 549 D
325 C 370 C 415 C 460 D 505 C 550 C
326 B 371 D 416 C 461 C 506 D 551 A
327 B 372 A 417 A 462 B 507 C 552 C
328 B 373 D 418 B 463 D 508 B 553 B
329 D 374 C 419 A 464 D 509 C 554 A
330 B 375 B 420 C 465 C 510 C 555 B
331 A 376 C 421 D 466 C 511 C 556 B
332 C 377 C 422 B 467 D 512 D 557 D
333 B 378 B 423 C 468 A 513 D 558 D
559 D
560 D
561 B
562 D
CA Aditya Sharma Page No

CHAPTER – 8 MONEY MARKET
Chapter – 8 Money 5. The quantity theory of money holds

that
Market (a) changes in the general level of
Unit : 1 The concept of commodity prices are caused by
money Demand changes in the quantity of money
: Important theories (b) there is strong relationship between
money and price level and the
1. Choose the incorrect statement quantity of money is the main
(a) Anything that would act as a determinant of the price
medium of exchange is money (c) changes in the value of money or
(b) Money has generalized purchasing purchasing power of money are
power and is generally acceptable in determined first and foremost by
settlement of all transactions changes in the quantity of money in
(c) Money is a totally liquid asset and circulation
provides us with means to access (d) All the above
goods and services
(d) Currency which represents money 6. The Cambridge approach to
does not necessarily have intrinsic quantity theory is also known as
value. (a) Cash balance approach
(b) Fisher’s theory of money
2. Money performs all of the three (c) Classical approach
functions mentioned below, namely (d) Keynesian Approach
(a) medium of exchange, price
control, store of value 7. Fisher’s approach and the Cambridge
(b) unit of account, store of value , approach to demand for money
provide yields consider
(c) medium of exchange, unit of (a) money’s role in acting as a store of
account, store of value value and therefore, demand for
(d) medium of exchange, unit of money is for storing value
account, income distribution temporarily.
(b) money as a means of exchange and
3. Demand for money is therefore demand for money is
(a) Derived demand termed as for liquidity preference
(b) Direct demand (c) money as a means of transactions
(c) Real income demand and therefore, demand for money is
(d) Inverse demand only transaction demand for
money.
4. Higher the ______________, higher (d) None of the above
would be of holding cash and lower 8. Real money is
will be the ______________________ (a) nominal money adjusted to the
price level
(a) demand for money, opportunity (b) real national income
cost, interest rate (c) money demanded at given rate of
(b) price level , opportunity cost, interest
interest rate (d) nominal GNP divided by price level
(c) real income , opportunity cost,
demand for money 9. The precautionary money balances
(d) interest rate, opportunity cost, people want to hold
(a) as income elastic and not very
demand for money sensitive to rate of interest
(b) as income inelastic and very
sensitive to rate of interest
CA Aditya Sharma Page No - 8. 1

(c) are determined primarily by the 15. The nominal demand for money
level of transactions they expect to rises if____
make in the future. (a) the opportunity costs of money
(d) are determined primarily by the holdings – i.e. bonds and stock
current level of transactions returns, rB and rE , respectively-
decline and vice versa
10. Speculative demand for money (b) the opportunity costs of money
(a) is not determined by interest rates holdings – i.e. bonds and stock
(b) is positively related to interest rates returns, rB and rE , respectively-
rises and vice versa
(c) is negatively related to interest rates
(c) the opportunity costs of money
(d) is determined by general price level holdings – i.e. bonds and stock
returns, rB and rE , respectively
11. According to Keynes, if the current remain constant
interest rate is high (b) and c) above
(a) people will demand more money
because the capital gain on bonds 16. Reserve money is also known as
would be less than return on money (a) central bank money
(b) people will expect the interest rate to (b) base money
rise and bond price to fall in the future. (c) high powered money
(c) people will expect the interest rate to fall (d) all the above
and bond price to rise in the future.
(d) Either a) or b) will happen 17. Choose the correct statement from
the following
12. The inventory-theoretic (a) Money is deemed as something held by
approach to the transactions the public and therefore only currency
demand for money held by the public is included in
(a) explains the negative relationship money supply.
between money demand and the (b) Money is deemed as something held by
interest rate. the public and therefore inter-bank
(b) explains the positive relationship deposits are included in money
between money demand and the supply.
interest rate. (c) Since inter-bank deposits are not held
(c) explains the positive relationship by the public, therefore inter-bank
between money demand and deposits are excluded from the
general price level measure of money supply.
(d) explains the nature of expectations (d) Both (a) and (c) above.
of people with respect to interest
rates and bond prices 18. Reserve Money is composed of
(a) currency in circulation + demand
13. According to Baumol and Tobin’s deposits of banks (Current and
approach to demand for money, the Saving accounts) + Other deposits
optimal average money holding is: with the RBI.
(a) a positive function of income Y and (b) currency in circulation + Bankers’
the price level P deposits with the RBI + Other
(b) a positive function of transactions deposits with the RBI.
costs c, (c) currency in circulation + demand
(c) a negative function of the nominal deposits of banks + Other deposits
interest rate i with the RBI.
(d) All the above (d) currency in circulation + demand and
time deposits of banks + Other
14. ___________ considered deposits with the RBI.
demand for money is as an
application of a more general theory 19. M1 is the sum of
of demand for capital assets (a) currency and coins with the people
(a) Baumol + demand deposits of banks
(b) James Tobin (Current and Saving accounts) +
(c) J M Keynes other deposits of the RBI.
(d) Milton Friedman

(b) currency and coins with the people (d) to meet the money needs for the day
+ demand and time deposits of to day working of the commercial
banks (Current and Saving banks
accounts) + other deposits of the 24. If the behaviour of the public and
RBI. the commercial banks is constant,
(c) currency in circulation + Bankers’ then
deposits with the RBI + Other (a) the total supply of nominal money
deposits with the RBI in the economy will vary directly
(d) none of the above with the supply of the nominal
high-powered money issued by the
20. Under the’ minimum reserve central bank
system’ the central bank is (b) the total supply of nominal money
(a) empowered to issue currency to in the economy will vary directly
any extent by keeping an equivalent with the rate of interest and
reserve of gold and foreign inversely with reserve money
securities. (c) the total supply of nominal money
(b) empowered to issue currency to in the economy will vary inversely
any extent by keeping only a certain with the supply of high powered
minimum reserve of gold and money
foreign securities. (d) all the above are possible
(c) empowered to issue currency in
proportion to the reserve money by 25. Under the fractional reserve
keeping only a minimum reserve of system
gold and foreign securities. (a) the money supply is an increasing
(d) empowered to issue currency to any function of reserve money (or high
extent by keeping a reserve of gold powered money) and the money
and foreign securities to the extent multiplier.
of ` 350 crores (b) the money supply is an decreasing
function of reserve money (or high
21. The primary source of money powered money) and the money
supply in all countries is multiplier.
(a) the Reserve Bank of India (c) the money supply is an increasing
(b) the Central bank of the country function of reserve money (or high
(c) the Bank of England powered money) and a decreasing
(d) the Federal Reserve function of money multiplier.
(d) none of the above as the
22. The supply of money in an determinants of money supply are
economy depends on different
(a) the decision of the central bank
based on the authority conferred on 26. The money multiplier and the
it. money supply are
(b) the decision of the central bank (a) positively related to the excess
and the supply responses of the reserves ratio e.
commercial banking system. (b) negatively related to the excess
(c) the decision of the central bank in reserves ratio e.
respect of high powered money. (c) not related to the excess reserves
(d) both a) and c) above. ratio e.
(d) proportional to the excess reserves
23. Banks in the country are required ratio e.
to maintain deposits with the
central bank 27. The currency ratio represents
(a) to provide the necessary reserves (a) the behaviour of central bank in the
for the functioning of the central issue of currency.
bank (b) the behaviour of central bank in
(b) to meet the demand for money by respect cash reserve ratio.
the banking system (c) the behaviour of the public.
(c) to meet the central bank prescribed (d) the behaviour of commercial banks
reserve requirements and to meet in the country.
settlement obligations.

28. The size of the money multiplier 34. If commercial banks reduce their
is determined by holdings of excess reserves
(a) the currency ratio (c) of the public, (a) the monetary base increases.
(b) the required reserve ratio (r) at the (b) the monetary base falls.
central bank, and (c) the money supply increases.
(c) the excess reserve ratio (e) of (d) the money supply falls.
commercial banks. 35. Which of the following is the
(d) all the above function of monetary policy?
29. tells us how much new money (a) regulate the exchange rate and keep
will be created by the banking it stable
system for a given increase in the (b) regulate the movement of credit to
high-powered money. the corporate sector
(a) The currency ratio (c) regulate the level of production and
(b) The excess reserve ratio (e) prices
(c) The credit multiplier
(d) The currency ratio (c) (d) regulate the availability, cost and
use of money and credit
30. The money multiplier will be large
(a) for higher currency ratio (c), lower 36. The main objective of monetary
required reserve ratio (r) and lower policy in India is :
excess reserve ratio (e) (a) reduce food shortages to achieve
(b) for constant currency ratio (c), stability
higher required reserve ratio (r) and
lower excess reserve ratio (e) (b) economic growth with price
(c) for lower currency ratio (c), lower stability
required reserve ratio (r) and lower (c) overall monetary stability in the
excess banking system
reserve ratio (e) (d) reduction of poverty and
(d) None of the above unemployment
31. The ratio that relates the change in

the money supply to a given change
in the monetary base is called the 37. The monetary transmission
(a) required reserve ratio. mechanism refers to
(b) money multiplier. (a) how money gets circulated in
(c) deposit ratio. different sectors of the economy
(d) discount rate post monetary policy
(b) the ratio of nominal interest and
32. For a given level of the real interest rates consequent on a
monetary base, an increase in the monetary policy
required reserve ratio will denote (c) the process or channels through
(a) a decrease in the money supply. which the evolution of monetary
(b) an increase in the money supply. aggregates affects the level of
(c) an increase in demand deposits. product and prices
(d) Nothing precise can be said
33. For a given level of the monetary
base, an increase in the currency ratio
causes the money multiplier to _ 38. A contractionary monetary
and the money supply to _. policy‐induced increase in interest
(a) decrease; increase rates
(b) increase; decrease
(c) decrease; decrease (a) increases the cost of capital and the
(d) increase; increase real cost of borrowing for firms
(b) increases the cost of capital and the
real cost of borrowing for firms and
households

(c) decreases the cost of capital and the and lending through sale/purchase
real cost of borrowing for firms operations in debt instruments.
(d) has no interest rate effect on firms (a) OMO
and households (b) CRR
(c) SLR
(d) Repo
39. During deflation
43. In India, the term ‘Policy rate’
(a) the RBI reduces the CRR in order to refers to
enable the banks to expand credit
and increase the supply of money (a) The bank rate prescribed by the RBI
available in the economy in its half yearly monetary policy
statement
(b) the RBI increases the CRR in order
to enable the banks to expand (b) The CRR and SLR prescribed by RBI
credit and increase the supply of in its monetary policy statement
money available in the economy (c) the fixed repo rate quoted for
(c) the RBI reduces the CRR in order to sovereign securities in the overnight
enable the banks to contract credit segment of Liquidity Adjustment
and increase the supply of money Facility (LAF)
available in the economy (d) the fixed repo rate quoted for
(d) the RBI reduces the CRR but sovereign securities in the overnight
increase SLR in order to enable the segment of Marginal Standing
banks to contract credit and Facility (MSF)
increase the supply of money
available in the economy 44. Reverse repo operation takes place
when
40. Which of the following (a) RBI borrows money from banks by
statements is correct? giving them securities
(a) The governor of the RBI in (b) banks borrow money from RBI by
consultation with the Ministry of giving them securities
Finance decides the policy rate and (c) banks borrow money in the
implements the same overnight segment of the money
(b) While CRR has to be maintained by market
banks as cash with the RBI, the (d) RBI borrows money from the central
SLR requires holding of approved government
assets by the bank itself
(c) When repo rates increase, it means 45. The Monetary Policy Framework
that banks can now borrow money Agreement is on
through open market operations
(OMO) (a) the maximum repo rate that RBI
can charge from government
(b) the maximum tolerable inflation
rate that RBI should target to
41. RBI provides financial achieve price stability.
accommodation to the commercial
banks through repos/reverse repos (c) the maximum repo rate that RBI
under can charge from the commercial
banks
(a) Market Stabilisation Scheme (MSS)
(d) the maximum reverse repo rate that
(b) The Marginal Standing Facility (MSF) RBI can charge from the
(c) Liquidity Adjustment Facility (LAF). commercial banks
(d) Statutory Liquidity Ratio (SLR)
46. An open market operation is
an instrument of monetary policy
42. is a money market which involves buying or selling of
instrument, which enables from or to the public and banks
collateralised short term borrowing

(a) bonds and bills of exchange through debate and majority vote
by a panel of experts required to
(b) debentures and shares achieve the inflation target.
(c) government securities III. The Monetary Policy Committee
(d) none of these shall determine the policy rate
through consensus from the
governor of RBI
47. Which statement (s) is (are) IV. The Monetary Policy Committee
true about Monetary Policy shall determine the policy rate
Committee? through debate and majority vote
by a panel of bankers chosen for eth
I. The Reserve Bank of India (RBI) Act, purpose
1934 was amended on June 27,
2016, for giving a statutory backing (a) I only
to the Monetary Policy Framework (b) I and II only
Agreement and for setting up a (c) III and IV
Monetary Policy Committee
(d) III only.
II. The Monetary Policy Committee
shall determine the policy rate
Answer
1) A 11) C 21) B 31) B 41) C

2) C 12) A 22) B 32) A 42) D
3) A 13) D 23) C 33) C 43) C
4) D 14) D 24) A 34) C 44) A
5) D 15) A 25) A 35) D 45) B
6) A 16) D 26) B 36) B 46) C
7) C 17) C 27) C 37) C 47) B
8) A 18) B 28) D 38) B
9) A 19) A 29) C 39) A
10) C 20) B 30) C 40) B

CHAPTER - 9 INTERNATIONAL TRADE
Chapter 9 : that a country can increase

its wealth by encouraging
International Trade exports and discouraging
1. Which of the following does not imports
represent a difference between internal (a) Capitalism
trade and international trade?
(b) Socialism
(a) Transactions in multiple
currencies (c) Mercantilism
(b) homogeneity of customers and (d) Laissez faire
currencies
5. Given the number of labour
(c) differences in legal systems hours to produce cloth and
(d) none of the above grain in two countries, which
country should produce grain?
2. The theory of absolute advantage Labour cost (hours) for
states that production of one unit
(a) national wealth and power are

Country A Country B
best served by increasing
exports and decreasing imports Cloth 40 80
(b) nations can increase their Grain 80 40

economic well-being by (a) Country A
specializing in the production of
goods they produce more (b) Country B
efficiently than anyone else.
(c) Neither A nor B
(c) that the value or price of a
(d) Both A and B
commodity depends
exclusively on the amount of
labour going into its production 6. According to the theory of
and therefore factor prices will comparative advantage
be the same
(a) trade is a zero-sum game so that the
(d) differences in absolute net change in wealth or benefits
advantage explains differences among the participants is zero.
in factor endowments in
different countries (b) trade is not a zero-sum game so that
the net change in wealth or benefits
among the participants is positive
3. Which of the following theories (c) nothing definite can be said about
advocates that countries should the gains from trade
produce those goods for which it
has the greatest relative (d) gains from trade depends upon
advantage? factor endowment and utilization
(a) Modern theory of international

trade 7. Given the number of labour hours to
produce wheat and rice in two
(b) The factor endowment theory
countries and that these countries
(c) The Heckscher-Ohlin Theory specialise and engage in trade at a
relative price of 1:1 what will be the
gain of country X?
Labour cost (hours) for production
of one unit
4. Which of the following holds

Wheat Rice (b) the law of diminishing returns

Country X 10 20 (c) economies of scale
Country Y 20 10
(d) the labour theory of value
(a) 20 labour hours
(b) 10 labour hours
11. A specific tariff is
(c) 30 labour hours
(a) a tax on a set of specified
(d) Does not gain anything imported good
(b) an import tax that is common
8. Assume India and Bangladesh have to all goods imported during a
the unit labour requirements for given period
producing tables and mats shown in (c) a specified fraction of the
the table below. It follows that: economic value of an imported
Labour cost (hours) for good
production of one unit (d) a tax on imports defined as an

amount of currency per unit of
India Bangladesh the good
Tables 3 8
Mats 2 1 12. A tariff on imports is beneficial
to domestic producers of the
(a) Bangladesh has a comparative imported good because
advantage in mats
(a) they get a part of the tariff
(b) India has a comparative revenue
advantage in tables
(b) it raises the price for which
(c) Bangladesh has an absolute they can sell their product
advantage in mats in the domestic market
(d) All the above are true (c) it determines the quantity
that can be imported to the
country
9. Comparative advantage refers to
(d) it reduces their producer
(a) a country’s ability to produce surplus, making them more
some good or service at the efficient
lowest possible cost
compared to other countries
(b) a country’s ability to produce 13. A tax applied as a percentage
some good or service at a of the value of an imported
lower opportunity cost good is known as
than other countries.
(a) preferential tariff
(c) Choosing a productive method
which uses minimum of the (b) ad valorem tariff
abundant factor
(c) specific tariff
(d) (a) and (b) above
(d) mixed or compound tariff
10. Ricardo explained the law of

comparative advantage on the 14. Escalated tariff refers to
basis of
(a) nominal tariff rates on raw
(a) opportunity costs

materials which are greater
than tariffs on manufactured
products 17. A countervailing duty is
(b) nominal tariff rates on (a) a tariff that aim to offset
manufactured products which artificially low prices charged by
are greater than tariffs on raw exporters who enjoy export
materials subsidies and tax concessions in
(c) a tariff which is escalated to their home country
prohibit imports of a (b) charged by importing countries to
particular good to protect ensure fair and market-oriented
domestic industries pricing of imported products
(d) none of the above (c) charged by importing countries to
15. Voluntary export restraints involve: protect domestic industries and
firms from unfair price advantage
(a) an importing country voluntarily arising from subsidies
restraining the quantity of goods
that can be exported into the (d) All the above
country during a specified period of
18. Which of the following is an
time outcome of tariff?
(a) domestic firms agreeing to limit the
(a) create obstacles to trade and
quantity foreign products sold in increase the volume of imports
their domestic markets and exports
(b) an exporting country voluntarily (b) domestic consumers enjoy
restraining the quantity of goods consumer surplus because
that can be exported out of a consumers must now pay only a
country during a specified period of lower price for the good
time
(c) discourage domestic consumers
(c) quantitative restrictions imposed from consuming imported
by the importing country's foreign goods and encourage
government. consumption of domestically
produced import substitutes
(d) increase government revenues
16. Anti-dumping duties are of the importing country by
(a) additional import duties so as to more than value of the total
tariff it charges
offset the effects of exporting firm's
unfair charging of prices in the
foreign market which are lower
19. SPS measures and TBTs are
than production costs.
(a) permissible under WTO to
(b) additional import duties so as to protect the interests of
offset the effects of exporting firm's countries
increased competitiveness due to
subsidies by government (b) may result in loss of
competitive advantage of
(c) additional import duties so as to developing countries
offset the effects of exporting firm's (c) increases the costs of
unfair charging of lower prices in compliance to the exporting
the foreign market countries
(d) Both (a) and (c) above (d) All the above

20. Which of the following is not a (c) The Uruguay Round

non-tariff barrier.
(d) The Kennedy Round
(a) Complex documentation
requirements
(b) Import quotas on specific 24. Choose the correct statement
goods (a) The GATT was meant to prevent
(c) Countervailing duties charged exploitation of poor countries by
by importing country richer countries
(d) Pre shipment product (b) The GATT dealt with trade in
inspection and certification goods only, while, the WTO
requirements covers services as well as
intellectual property.
(c) All members of the World Trade
21. Under tariff rate quota Organization are required to
avoid tariffs of all types
(a) countries promise to impose
tariffs on imports from (d) All the above
members other than those
who are part of a preferential
trade agreement 25. The ‘National treatment’ principle
stands for
(b) a country permits an import
of limited quantities at low a) the procedures within the WTO
rates of duty but subjects an for resolving disagreements about
excess amount to a much trade policy among countries
higher rate b) the principle that imported
(c) lower tariff is charged from products are to be treated no
goods imported from a worse in the domestic market than
country which is given the local ones
preferential treatment c) exported products are to be
treated no worse in the domestic
market than the local ones
d) imported products should have
22. Non -tariff barriers (NTBs) include the same tariff, no matter where
all of the following except: they are imported from
(a) import quotas

(b) tariffs 26. ‘Bound tariff’ refers to
(c) export subsidies (a) clubbing of tariffs of different

commodities into one common
(d) technical standards of products measure
(b) the lower limit of the tariff below
which a nation cannot be taxing
23. Which of the following
its imports
culminated in the establishment
of the World Trade (c) the upper limit on the tariff that a
Organization? country can levy on a particular
good, according to its commitments
(a) The Doha Round under the GATT and WTO.
(b) The Tokyo Round (d) the limit within which the

country’s export duty should fall
so that there are cheaper exports (b) replaced the Multi-Fiber
Arrangement (MFA) which was
prevalent since 1974
27. The essence of ‘MFN principle’ is (c) granted rights of textile
(a) equality of treatment of all exporting countries to increase
member countries of WTO in tariffs to protect their domestic
respect of matters related to trade textile industries
(b) favour one, country, you need to (d) stipulated that tariffs in all
favour all in the same manner countries should be the same
(c) every WTO member will treat all

its trading partners equally 31. The Agreement on Trade-Related
without any prejudice and Aspects of Intellectual Property
discrimination Rights
(d) all the above (a) stipulates to administer a

system of enforcement of
28. The World Trade Organization intellectual property rights.
(WTO)
(b) provides for most-favoured-
(a) has now been replaced by the nation treatment and national
GATT treatment for intellectual
properties
(b) has an inbuilt mechanism to settle
disputes among members (c) mandates to maintain high
levels of intellectual property
(c) was established to ensure free and protection by all members
fair trade internationally.
(d) all the above
(d) (b) and c) above
32. The most controversial topic in

29. The Agreement on Agriculture the yet to conclude Doha
includes explicit and binding Agenda is
commitments made by WTO
Member governments (a) trade in manufactured goods
(a) on increasing agricultural (b) trade in intellectual property

productivity and rural rights-based goods
development
(c) trade in agricultural goods
(b) market access and agricultural
credit support (d) market access to goods from
developed countries
(c) market access, domestic support
and export subsidies
(d) market access, import subsidies 33. The WTO commitments
and export subsidies
(a) affect developed countries
adversely because they have
comparatively less agricultural
30. The Agreement on Textiles and goods
Clothing
(b) affect developing countries more
(a) provides that textile trade should because they need to make
be deregulated gradually and the radical adjustments
tariffs should be increased
(c) affect both developed and

developing countries equally (a) wholly correct
(d) affect none as they increase (b) partially correct
world trade and ensure
prosperity to all (c) wholly incorrect
34. Based on the supply and demand

model of determination of 37. Match the following by choosing the
exchange rate, which of the term which has the same meaning
following ought to cause the i) floating exchange rate
domestic currency of Country X ii) fixed exchange rate
to appreciate against dollar? iii) pegged exchange rate
iv) devaluation
(a) The US decides not to import v) appreciation
from Country X
a. Deprecation
(b) An increase in remittances b. Revolution
from the employees who are c. Flexible exchange rate
employed abroad to their (a) (i c); (ii d); (iii b); (iv a))
families in the home country (b) (i b); (ii a); (iii d); (iv c)
(c) Increased imports by (c) (i a ); (ii d ) ; (iii b); (iv c)
consumers of Country X
(d) (i d); ( ii a); (iii b); (iv c)
(d) Repayment of foreign debts by
Country X
38. Choose the correct statement
(a) An indirect quote is the number of

35. All else equal, which of the
following is true if consumers units of a local currency
of India develop taste for exchangeable for one unit of a
imported commodities and foreign currency
decide to buy more from the US?
(b) the fixed exchange rate regime is
(a) The demand curve for dollars said to be efficient and highly
shifts to the right and Indian transparent.
Rupee appreciates
(b) The supply of US dollars shrinks (c) A direct quote is the number of
and, therefore, import prices units of a local currency
decrease exchangeable for one unit of a
(c) The demand curve for dollars foreign currency
shifts to the right and Indian
Rupee depreciates (d) Exchange rates are generally fixed
(d) The demand curve for dollars by the central bank of the country
shifts to the left and leads to an
increase in exchange rate
39. Which of the following
statements is true?
36. ‘The nominal exchange rate is
expressed in units of one currency (a) Home-currency appreciation or
per unit of the other currency. A foreign-currency depreciation
real exchange rate adjusts this takes place when there is a
for changes in price levels’. The decrease in the home currency
statements are price of foreign currency

(b) Home-currency depreciation 42. At any point of time, all markets

takes place when there is an
tend to have the same exchange
increase in the home currency
rate for a given currency due to
price of the foreign currency
(a) Hedging
(c) Home-currency depreciation is (b) Speculation
the same as foreign-currency (c) Arbitrage
appreciation and implies that the (d) Currency futures
home currency has become
43. ‘Vehicle Currency’ refers to
relatively less valuable.
(a) a currency that is widely used to
(d) All the above
denominate international
contracts made by parties
40. An increase in the supply of because it is the national
foreign exchange
currency of either of the parties
(a) shifts the supply curve to the (b) a currency that is traded
right and as a consequence, the internationally and, therefore, is
exchange rate declines in high demand
(b) shifts the supply curve to the (c) a type of currency used in euro
area for synchronization of
right and as a consequence, the
exchange rates
exchange rate increases
(d) a currency that is widely used to
(c) more units of domestic currency denominate international
are required to buy a unit of
foreign exchange contracts made by parties even
when it is not the national
(d) the domestic currency depreciates currency of either of the parties.
and the foreign currency
appreciates 44.Which of the following statements
is incorrect?
41. Currency devaluation a) Direct investments are real

investments in factories, assets,
(a) may increase the price of land, inventories etc. and involve
imported commodities and, foreign ownership of production
facilities.
therefore, reduce the international
competitiveness of domestic b) Foreign portfolio investments involve
industries flow of ‘financial capital’.
C) Foreign direct investment (FDI) is not
(b) may reduce export prices and
concerned with either manufacture
increase the international of goods or with provision of services.
competitiveness of domestic
D) Portfolio capital moves to a recipient
industries country which has revealed its
potential for higher returns and
(c) may cause a fall in the volume of
profitability.
exports and promote consumer
welfare through increased
availability of goods and services 45. Which of the following is a component
of foreign capital?
(d) (a) and (c) above
a. Direct inter government loans

b. Loans from international institutions c. protect domestic industries

(e.g. World Bank, IMF, ADB)
d. keep inflation under control
c. Soft loans for e.g. from affiliates of
World Bank such as IDA
d. All the above 50. Which of the following is a reason
for foreign direct investment?
a. secure access to minerals or raw
46. Which of the following would be an materials
example of foreign direct investment
b. desire to capture of large and
from Country X?
rapidly growing emerging markets
a. A firm in Country X buys bonds c. desire to influence home country
issued by a Chinese computer industries
manufacturer.
d. (a) and (b) above
b. A computer firm in Country X enters
into a contract with a Malaysian firm
for the latter to make and sell to it
51. A foreign direct investor
processors
a. May enter India only through
c. Mr. Z a citizen of Country X buys a
automatic route
controlling share in an Italian
electronics firm b. May enter India only through
government route
d. None of the above
c. May enter India only through equity
in domestic enterprises
47. Which of the following types of FDI
d. Any of the above
includes creation of fresh assets
and production facilities in the host
country? 52. Foreign investment are prohibited in
(a) Brownfield investment a. Power generation and distribution
(b) Merger and acquisition b. Highways and waterways
(c) Greenfield investment c. Chit funds and Nidhi company
(d) Strategic alliances d. Airports and air transport
48. Which is the leading country in 53. Which of the following statement is
respect of inflow of FDI to India? false in respect of FPI?
a. Mauritius a. portfolio capital in general, moves to
investment in financial stocks, bonds
b. USA
and other financial instruments
c. Japan
b. is effected largely by individuals and
d. USA institutions through the mechanism
of capital market
c. is difficult to recover as it involves
49. An argument in favour of direct
foreign investment is that it purely long-term investments and the
tends to investors have controlling interest
a. promote rural development d. investors also do not have any

intention of exercising voting power or
b. increase access to modern controlling or managing the affairs of
technology the company.

Answer
Que Ans Que Ans Que Ans Que Ans Que Ans
1 B 13 B 25 B 37 D 49 B
2 B 14 B 26 C 38 C 50 D
3 B 15 C 27 D 39 D 51 D
4 C 16 D 28 D 40 A 52 C
5 B 17 D 29 C 41 B 53 C
6 B 18 C 30 B 42 C
7 B 19 D 31 D 43 D
8 D 20 C 32 C 44 C
9 B 21 B 33 B 45 D
10 D 22 B 34 B 46 C
11 D 23 C 35 C 47 C
12 B 24 B 36 A 48 A

CHAPTER - 10 INDIAN ECONOMY
Chapter –10 Indian Economy (b) no more exists as the same is replaced
by a new regime namely Foreign
Investment Facilitation Portal
1. The Indian industry stagnated under
(c) no more exists as all inward
the colonial rule because
investments are through automatic
(a) Indians were keen on building huge
route and need no approval
structures and monuments only
(d) is the body which connects different
(b) Deterioration was caused by high prices
ministries in respect of foreign portfolio
of inputs due to draught
investments
(c) The Indian manufactures could not
compete with the imports of cheap
6. FAME-India Scheme aims to
machine made goods
(a) Enhance faster industrialization
through private participation
(b) to promote manufacturing of electric
2. The first wave of liberalization starts in
and hybrid vehicle technology
India
(c) to spread India’s fame among its
(a) In 1951
trading partners
(b) In 1980’s
(c) In 1990
(d) In 1966
7. In terms of Ease of Doing Business
in 2020 India ranks
3. The sequence of growth and
(a) 63
structural change in Indian economy
(b) 77
is characterized by
(c) 45
(a) The historical pattern of prominence
of sectors as agriculture, industry,
services
8. E-NAM is -
(b) The historical pattern of prominence
(a) An electronic name card given to
of sectors as industry, services,
citizens of India
agriculture
(b) National Agriculture Market with
(c) Unique experience of the sequence as
the objective of creating a unified
agriculture, services, industry
national market for agricultural
(d) All the above are correct
commodities.
(c) a pan-India electronic trading portal
4. Merchandise Exports from India
which networks the existing APMC
Scheme was replaced by -
mandis
(a) Remission of Duties and Taxes on
(d) b) and c) above
Export Products (RoDTEP) in 2021
(b) National Logistics Policy (NLP) in
9. Which of the following is not a policy
2020
reform included in the new economic policy
(c) Remission of Duties and Taxes on
of 1991 -
Export Products (RoDTEP) in 2019
(a) removing licensing requirements for
all industries
(b) Foreign investment was liberalized
5. The Foreign Investment Promotion
(c) Liberalisation of international trade
Board (FIPB)
(d) The disinvestment of government
(a) a government entity through which
holdings of equity share capital of
inward investment proposals were
public sector enterprises
routed to obtain required government
approvals
CA Aditya Sharma Page No – 10 . 1

10. Imports of foreign goods and entry of (a) to ensure that the operation of the
foreign investments were restricted in India economic system does not result in the
because - concentration of economic power in
(a) The government wanted people to hands of a few
follow the policy of’ Be Indian; Buy (b) to provide for the control of monopolies
Indian’ (c) to prohibit monopolistic and restrictive
(b) Because foreign goods were costly trade practice
and meant loss of precious foreign (d) all the above
exchange
(c) Government policy was directed
towards protection of domestic 14. Which one of the following is a feature
industries from foreign competition of green revolution -
(d) Government wanted to preserve (a) use of soil friendly green manure to
Indian culture and to avoid influence preserve fertility of soil
of foreign culture (b) grow more crops by redistributing land
to landless people
11. The ‘Hindu growth rate’ is a term (c) High yielding varieties of seeds and
used to refer to - scientific cultivation
(a) the high rate of growth achieved (d) Diversification to horticulture
after the new economic policy of
1991 15. The strategy of agricultural
(b) the low rate of economic growth of development in India before green revolution
India from the 1950s to the 1980s, was -
which averaged around 3.5 per cent (a) High yielding varieties of seeds and
per year chemical fertilizers to boost productivity
(c) the low growth of the economy (b) Institutional reforms such as land
during British period marked by an reforms
average of 3.5 percent (c) Technological up gradation of
(d) the growth rate of the country agriculture
because India is referred to as (d) All the above
‘Hindustan’
16. The Industrial Policy Resolution
12. In the context of the new economic (1948) aimed at -
policy of 1991, the term (a) Market oriented economic reforms and
‘disinvestment’ stands for - opening up of economy
(a) A policy whereby government (b) A shift from state led industrialization
investments are reduced to correct to private sector led industrialisation
fiscal deficit (c) an expanded role for the public sector
(b) The policy of sale of portion of the and licensing to the private sector
government shareholding of a (d) an expanded role of private sector a
public sector enterprise limited role of public sector
(c) The policy of public partnership in
private enterprise 17. The new economic policy of 1991
(d) A policy of opening up government manifest in -
monopoly to the privates sector (a) State led industrialization and
import substitution
13. The objective of introducing (b) Rethinking the role of markets
Monopolies and Restrictive Trade versus the state
Practices Act 1969 was - (c) Emphasized the role of good
governance

(d) Bringing about reduction in poverty

and redistributive justice 23. If the consumption function is
expressed as C = a + bY then b represents
18. The post independence economic (a) autonomous consumer expenditure
policy was rooted in - when income is zero
(a) A capitalist mode of production with (b) the marginal propensity to consume.
heavy industrialization (c) the expenditure multiplier when
(b) social and economic redistribution consumption is increased
and industrialization directed by the (d) part of disposable income
state
(c) social and economic redistribution 24. If the consumption function is
through private sector initiatives expressed as C = a + bY then a represents
(d) Industrialization led by private (a) autonomous consumer expenditure.
entrepreneurs and redistribution by (b) the marginal propensity to consume.
state (c) the consumption income relationship
(d) Non- linear consumption function
19. In the Keynesian model, equilibrium
aggregate output is determined by 25. If the consumption function is C = 20 +
(a) aggregate demand 0.5Yd, then an increase in disposable
(b) consumption function income by 100 will result in an increase in
(c) the national demand for labor consumer expenditure by -----------
(d) the price level (a) 25
(b) 70
20. Keynes believed that an economy may (c) 50
attain equilibrium level of output (d) 100
(a) only at the full-employment level of
output 26. If the autonomous consumption equals
(b) below the full-employment level of ₹ 2,000 and the marginal propensity to
output consume equals 0.8. If disposable income
(c) only if prices were inflexible equals ₹10,000, then total consumption will
(d) a) and c) above be ₹ _____
(a) 8,000
21. According to Keynes, consumption (b) 6,000
expenditure is determined by (c) 10,000
(a) the level of interest rates (d) None of the above
(b) extent of government taxes and
subsidies 27. In the Keynesian cross diagram, the
(c) disposable income point at which the aggregate demand
(d) autonomous investment function crosses the 45-degree line
expenditure indicates the
(a) level of full employment income.
22. The marginal propensity to consume (b) less than full employment level of income.
(MPC) can be defined as (c) equilibrium level of income which may or
(a) a change in spending due to a may not be full employment level of
change in income income
(b) a change in income that is saved (d) autonomous level of income which may
after consumption not be full employment level of income
(c) part of income that is spent on
consumption. 28. In a closed economy, aggregate demand
(d) part of income that is not saved. is the sum of

(a) consumer expenditure, demand for 29. Under equation C= a+by, b=0.8, what is
exports and government spending. the value of 2 sector expenditure
(b) consumer expenditure, planned multiplier?
investment spending and government (a) 4
spending. (b) 2
(c) consumer expenditure, actual (c) 5
investment spending, government (d) 1
spending and net exports.
(d) consumer expenditure, planned
investment spending, government
spending, and net exports.
Answer
1) C 11) B 21) C
2) B 12) B 22) A
3) C 13) D 23) B
4) A 14) C 24) A
5) B 15) B 25) C
6) B 16) C 26) C
7) A 17) B 27) C
8) D 18) B 28) B
9) A 19) A 29) C
10) C 20) B

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PREFACE

First of all I would like to thank my parents, my guide, my

Lots of efforts and research was involved in curating this

ABOUT THE BOOKS

The books are divided into Two Volumes of Ten chapters

Efforts were made to include 100% syllabus in the book

22nd January, 2024

Pune CA. Aditya Sharma

Section A - Business Economics

Chapter 2- Utility, Demand and Supply Analysis ………………………………..

Chapter 3- Production, cost and Revenue Concepts ………………………….

Chapter 4 - Market and Its Types……………………………………………………….

Chapter 5 - Business Cycle…………………………………………………………………

Chapter 6 – National Income ………………………………………………………….. 6.1 – 6.49

Chapter 7 – Public Finance ………………………………………………………....... 7.1 - 7.65

Chapter 8 – Money Market …………………………………………………………… 8.1 - 8.6

Chapter 9 – International Trade ……………………………………………………. 9.1 – 9.9

Chapter 10 – Indian Economy ………………………………………………………… 10.1 - 10.4

Q 21. Which of the following involves Business decision Q 30.

Q 36. …………explains the relationship between input and Q 44.

Q 103. In India areas like atomic energy, defence, etc are

Q 104. ……….. is the demerit of capitalist economy

Q 105. Indian economy is an example of………

Qn. no Ans Qn. no Ans Qn. no Ans Qn. no Ans

Q 89. Consumer consumed three products. MU derived

Q 102. As per………… approach to utility ‘Human Q 111. Indifference curve slopes-

Q 143. MUx of X is 100 and MUy is 300. If the price of Y

Q 16. Individual Demand is also called —

Q 31. Q 38. If X and Y are Complementary Goods, if there is

Q 60. While drawing the Demand Curve, the change Q 67.

Q 75. The term "Ceteris Paribus" in the Law of Demand Q 82.

Q 152. If the demand for the good is less elastic, the

Q 155. PERFECTLY ELASTIC

Demand Curve will be — Q 162.

MORE ELASTIC Q 163. What is the mean by price elasticity of demand

Q 157. greater than 1-

Q 202. Q 210. For a product to be called income elastic, its

Q 203. Negative Income Elasticity implies that as income Q 211.

Q 204. Q 212. What would be the value of Income Elasticity of

Q 234. Negative Cross Elasticity always implies that the Q 242.

Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n Q. n A.n

Q 54. Inventions and Innovations on this commodity

Q 73. Other things being equal, as Demand increases Q 80.

Q 100. When a market is in equilibrium:

Q 101. The market of computers is not in equilibrium,

Q 99. What combinations of changes would most likely

Q.10. An indifference curve is L shaped, then two goods

Q.28. Forecasting of demand is the Art and Science of

Q.138. After reaching saturation point consumption of

Q.139. As the price of a commodity increases, normally,

Q.140. If equilibrium is present in a market then it can be

Q.141. An increase in supply denotes a shift in the supply

Q.142. Which among the following is not a determinant

Q 51. As a Factor of Production, the Supply of Land is Q 58.

Q 78. (a) Wealth

Q 120. Q 127. Entrepreneurship is a wider term than

Q 200. Find the value of "D" in the above Table.

If Total Product (TP) increases, Marginal Q 224. Marginal Product (MP) —

Q 221. If TP decreases, MP will be — Q 228. Which of the following is correct?