BE Unit Wise Imp Questions

Unit- Demand
For Q.1-4, refer the following demand equation: Q = 180 – 6p
Q.1 At what price no one would be willing to buy the commodity?
(a) Rs 20 (b) Rs 30
(c) Rs 40 (d) Rs 15
Q.2 If the commodity is given free i.e. if the demand is autonomous, what is the quantity demanded?
(a) 180 (b) 160
(c) 140 (d) 120
Q.3 If the price of the commodity falls down to Rs 1, by how much will the quantity demanded change?
(a) 6 (b) 5
(c) 10 (d) 12
Q.4 The total quantity demanded when the price Rs 1 per unit is:
(a) 180 (b) 174
(c) 190 (d) 186
Q.5 Income effect operates when there is an:
(a) increase in real income due to fall in price of commodity
(b) increase in real income due to rise in price of commodity
(c) increase in real income due to fall in demand of commodity
(d) increase in money/nominal income due to fall in the price of the commodity
Q.6 For goods with less elastic demand:
(a) ▲q > ▲p
(b) ▲q = ▲p
(c) ▲q < ▲p
(d) none of the above

Q.7 The factors which generally keep the price elasticity of demand for a good low is:
(a) variety of uses of that good
(b) its low price
(c) close substitutes for that good
(d) high proportion of the consumer’s income spent on it
Q.8 The devaluation of currency would increase the export earnings only when demand for the nation’s
exports in foreign market is:
(a) elastic (b) inelastic
(c) perfectly inelastic (d) unitary elastic
Q.9 Demand is ________ in the long period than in the short period.
(a) less elastic (b) perfectly elastic
(c) perfectly inelastic (d) more elastic
Q.10 If demand is _________ then price cuts will __________ spending.
(a) perfectly inelastic, increase (b) elastic, increase
(c) elastic, decrease (d) none of the above
Q.11 On typical straight line demand curve, the elasticity of demand at a point where it meets the price
axis is
(a) 2 (b) 0.75
(c) 1 (d) infinite
Q.12 If the demand for a good is elastic, an increase in its price will cause the total expenditure of the
consumers of the good to:
(a) remain the same
(b) increase
(c) decrease
(d) none of these

Q.13 Let Qx= 1,400/Px. Find total expenditure on good X when Px falls from Rs 6 to Rs 1. Derive the
value of Ed and what shape the demand curve will take?
(a) Rs 1,400; Ed= 1; rectangular hyperbola (b) Rs 1,400; Ed< 1; steep demand curve
(c) Rs 1,400; Ed> 1; flatter demand curve (d) Rs 2,800; Ed= 1; rectangular hyperbola
Q.14 As the price of the product falls by 7%, total expenditure on it has gone up by 3.5%. the elasticity
of demand of this product is:
(a) 0 (b) >1
(c) <1 (d) 1
Q.15 Point elasticity is useful for which of the following situations?
(a) a restaurant is considering increasing the price of dosa from Rs 100 to Rs 200
(b) Lakme is considering lowering the price of its lipsticks by 50%
(c) Maruti Car Ltd lower the price of Alto 800 by Rs 1,000
Q.16 When price elasticity at a single point on a demand curve is measured, we use ______
(a) proportionate method (b) geometric method
(c) total expenditure method (d) arc elasticity
Q.17 __________ method only classifies elasticity into elastic, inelastic or unitary elastic.
(a) proportionate method (b) geometric method
(c) total expenditure method (d) arc elasticity
For Q.18-20, refer the following information
Quantity Total outlay (Rs)
20 100
30 120
Q.18 What is the price of the commodity when quantity demanded is 20 units?
(a) Rs 4 (b) Rs 5
(c) Rs 6 (d) Rs 7
Q.19 What is the price of the commodity when the quantity demanded is 30 units?
(a) Rs 4 (b) Rs 5
(c) Rs 6 (d) Rs 7
Q.20 Using percentage method, the price elasticity of demand is
(a) 1.5 (b) 2
(c) 2.5 (d) 3
Q.21 The price elasticity of demand for good X is twice that of good Y. price of X falls by 5% while that
of Y rises by 5%. The percentage change in the quantities demanded of X and Y will be:
(a) 10%, 5% (b) 5%, 10%
(c) 10%, 15% (d) 15%, 20%
Consider the following diagram to answer Q.22-23
Q.22 At a price of OP the total expenditure of the consumer is:
(a) OCRP1
(b) OBTP
(c) BCRT

Q.23 At a price of OP1, the total expenditure of the consumer is:
(a) OCRP1 (b) OBTP
(c) BCRT (d) none of the above
Q.24 Salt, match box, etc are _______ goods as Σy=0.
(a) neutral (b) necessary
(c) luxury (d) none of the above
Consider the following information and answer Q.25-26
Price elasticity= 1.50
Cross elasticity between the demand for corn and price of wheat= 0.75
Income elasticity= 0.50
Q.25 If the price of the corn rises, other things being the same, the consumers will spend _______ on
corn.
(a) more (b) less
(c) same amount (d) none of the above
Q.26 the above information shows that wheat and corn are _______ goods
(a) neutral (b) necessity
(c) complementary (d) substitute
Q.27 A negative income elasticity of demand for a commodity indicates that as income falls the amount
of commodity purchased:
(a) remains unchanged
(b) falls
(c) rises
(d) none of these

Consider the following figure to answer Q.28-30
Q.28 In the figure above, for a given fall in price to P1, the change in quantity is highest in case of:
(a) D1
(b) D2
(c) D3
(d) none of the above as all curves shoot from same point
Q.29 demand curve D2 is:
(a) more elastic than D1 (b) less elastic than D1
(c) more elastic than D2 (d) none of the above
Q.30 Of the three demand curves, highest elasticity is denoted by
(a) D1 (b) D2
(c) D3 (d) all show same elasticity
Q.31 All but one are correct about demand forecasting. Which one is not correct?
(a) it is the art and science of predicting probable demand of a product in future
(b) it is simple guesses

(c) it considers past behaviour pattern and prevailing trends in the present
(d) it plays an important role in planning and decision making.

Study the following information and answer Q.32-36.
In Ecoville, there is one grocery shop, Economvenience. It used to sell fresh milk at Rs 20 per litre. At
this price 400 litres of milk were sold per month. After some time, the price was raised to Rs 30 per litre.
Following the price rise:
 only 200 litres of milk were sold every month

 the number of boxes of cereal customers bought went down from 280 to 240
 the number of packets of powdered milk customers bought went up from 90 to 220
Q.32 The cross elasticity of monthly demand for cereal when the price of fresh milk increases from Rs
20 to Rs 30
(a) –0.38 (b) 0.25
(c) -0.19 (d) 0.38
Q.33 The cross elasticity of monthly demand for powdered milk when the price of fresh milk increases
from Rs 20 to Rs 30 per litre
(a) 1.06 (b) -1.06
(c) -2.09 (d) 2.09
Q.34 What can be said about the price elasticity of demand for fresh milk?
(a) perfectly elastic (b) elastic
(c) perfectly inelastic (d) inelastic
Q.35 Suppose the income of residents of Ecoville increases by 50% and the quantity of fresh milk
demanded increases by 30%. What is income elasticity of demand for fresh milk?
(a) 0.5 (b) 0.6
(c) 1.25 (d) 1.50
Q.36 We can say that fresh milk in economic sense is a/an

(a) luxury good
(b) inferior good
(c) normal good
(d) nothing can be said
Refer the following table and answer Q.37 to 39.
% change in price % change in quantity Elasticity

demanded (quantity
supplied)
Demand for salt 20 -1 X
Demand for bananas 15 Y 3
Supply of chicken Z 14 1
Q.37 Find value of X

(a) -20 (b) -0.05
(c) -1 (d) cannot be determined
Q.38 Find the value of Y

(a) -5 (b) 15
(c) 45 (d) -3
Q.39 Find the value of Z

(a) 14 (b) 1
(c) 0.07 (d) 5
Q.40 If a good has a price elasticity greater than one then

(a) demand is unit elastic and a change in price does not affect sellers’ revenue
(b) demand is elastic and a change in price causes sellers’ revenue to change in the opposite
direction
(c) demand is inelastic and a change in price causes sellers’ revenue to change in same direction
(d) none of the above is correct
Q.41 What will be the price elasticity if original price is Rs 5, original quantity is 8 units and changed
price is Rs 6, changed quantity is 4 units.
(a) 2.5 (b) 2
(c) 1.5 (d) 1
Q.42 If the price decreases from Rs 80 to Rs 60 and elasticity of demand is 1

(a) Demand increase by 25% (b) Demand decrease by 25%
(c) Remains constant (d) None of the above
Q.43 Which of the following will affect the demand for non-durable goods?
(a) Disposable income (b) Price
(c) Demography (d) All of the above
Q.44 For a normal good with a downward sloping demand curve

(a) Ep is negative, Ey is negative (b) Ep is positive, Ey is negative
(c) Ep is positive, Ey is positive (d) Ep is negative, Ey is positive
Q.45 Demonstration effect is one of the determinants of

(a) Supply (b) Demand
(c) Status of the individual (d) None of the above
Q.46 Giifen paradox explain that poor people buy more of inferior goods when their prices
(a) go down (b) go up
(c) remain constant (d) all of the above
Q.47 In the case of giffen goods such as Bajra, a fall in its price tends to
(a) increase in demand (b) decrease in demand
(c) create abnormal demand (d) keep its demand constant
Q.48 If the price of any complement good rises, then demand curve
(a) shifts to right (b) shifts to left
(c) movement is uncertain (d) none of the above
Q.49 Arc elasticity is measured with reference to

(a) original and new demand
(b) original and new price
(c) original and new demand in relation to original and new price
(d) all of the above
Q.50 A commodity such as coal with many uses to its demand tend to be
(a) less elastic (b) perfectly elastic

(c) more elastic (d) unit elastic
Q.51 The substitution effect takes place due to change in
(a) income of consumer (b) prices of commodity
(c) relative prices of commodities (d) all of the above
Q.52 Which of the following is not rationale of law of demand?

(a) law of diminishing marginal utility (b) demand for necessaries
(c) arrival of new consumers (d) multiple uses of commodities
Q.53 Demand for water is

(c) perfectly elastic (d) relatively elastic
Q.54 Demand for pepsi is elastic because

(a) it is luxury (b) its consumption can be postponed
(c) of availability of its substitutes (d) it’s a multiple use product
Q.55 Forecasting of demand is the art and science of predicting probable demand for a product or a
service at some future date on the basis of
(a) past behaviour pattern of some related events (b) prevailing trends in the present
(c) both a and b (d) none of the above
Q.56 Which of the following is incorrect regarding controlled experiment method of demand forecasting?
(a) it is also known as market experiment method

(b) market divisions here must be heterogeneous with regard to income, tastes, etc
(c) market studies and experiments are conducted on consumer behaviour under actuals
(d) market divisions here must be homogeneous with regard to income, tastes, etc
Q.57 Durable goods have ___________ demand.

(a) repeated (b) replacement
Unit- Supply
Q.1 In economics, supply means:
(a) quantity of a commodity which is actually offered for sale at a given price in a given period
of time
(b) quantity of a commodity which is offered for sale at a particular price
(c) stock of commodity which is sold at a given price
Q.2 Which of the following statement is correct?

(a) supply does not depend on government tax policy
(b) stock is the quantity brought to market for sale
(c) there is difference between stock and supply
(d) stock and supply are always equal
Q.3 The supply curve slopes:

(a) downward from left to right (b) upward from left to right
(c) upward from right to left (d) none of the above
Q.4 Expansion of supply takes place due to:

(a) change in goal of the firm (b) rise in price of the commodity
(c) number of firms (d) technique of production
Q.5 When more units of a good are supplied at higher price, it is called:
(a) contraction of supply (b) change in supply
(c) extension in supply (d) increase in supply
Q.6 When supply price increases in the short run, the profit of the producer:
(a) increase (b) decreases
(c) remains constant (d) decreases a bit
Q.7 Supply is relatively elastic in:

(a) very short period (b) short period
(c) long period (d) both b and c
Q.8 The supply function of a commodity is given by Q= 20 + 3Px. If the price is Rs 6, the quantity
supplied is:
(a) 35 units (b) 38 units
(c) 40 units (d) 42 units
Q.9 A vegetable vendor sells 80 quintals of tomatoes at a price of Rs 4 per kg. the elasticity of supply
of tomatoes is known to be 2. How much quantity will he sell at Rs 5 per kg?
(a) 100 quintals (b) 110 quintals

(c) 120 quintals (d) 130 quintals
Q.10 The price of a commodity doubles, to its response the quantity supplied increases 4 times of
original quantity supplied. The coefficient of price elasticity of supply is:
(a) 1 (b) 2
(c) 3 (d) 4
Q.10 At price of Rs 10 per unit, the quantity supplied is 500 units. if the price falls by 10% and quantity
supplied falls to 400 units, the coefficient of price elasticity of supply is:
(a) 1 (b) 2
(c) 3 (d) 4
Q.11 Which of the following methods of measurement elasticity of supply is used for calculating elasticity
over a portion of the supply curve?
(a) Percentage method (b) Point method
(c) Arc method (d) any of the above
Q.12 Change in quantity supplied includes:

(a) expansion of supply (b) contraction of supply
(c) both a and b (d) either a or b
Q.13 Essential features of supply include:

(a) Price (b) quantity
(c) willingness to supply (d) all of the above
Q.14 Change in supply as a result of increase and decrease in supply is technically termed as:
(a) movement along the same supply curve (b) shift in supply curve
(c) change in quantity supplied (d) expansion in supply
Q.15 In the book market, the supply of books will decrease if any of the following occurs except
(a) a decrease in the number of book publishers (b) decrease in the price of the book
(c) increase in future expected price of the book (d) increase in the price of paper used
Q.16 The supply curve for perishable commodities is

(c) perfectly elastic (d) perfectly inelastic
Q.17 According to the law of supply, the supply of commodity normally depends on
(a) price of related commodity (b) price of commodity
(c) price of factors of production (d) demand for the product

(a) Supply is inversely related to its cost of production
(b) Price and quantity demand of a good have direct relationship
(d) Taxes and subsidies have no impact on the supply of the product
(d) Seasonal changes have no impact on the supply of the commodity
Q.19 Supply of land is

(a) elastic (b) perfectly elastic
(c) perfectly inelastic (d) inelastic
Q.20 The diagram shows changes in supply. It means
(a) decrease in supply (b) left shift of supply curve

Q.21 This diagram shows that elasticity of supply is

(a) More than one (b) Equal to one
(c) Less than one (d) Infinity
Q.22 Behavior of supply depends on
(a) phenomenon concerned (b) time period
(c) degree of possible adjustment in supply (d) all of the above
Q.23 Suppose we are drawing a supply curve of a farmer. Which of the following will be held constant?
(a) price of inputs (b) weather conditions
(c) technology (d) price of the commodity under consideration
Unit- Price Determination
Q.1 When demand increases, equilibrium price will increase only if:
(a) supply also increases (b) supply also decreases
(c) supply remains same (d) if the elasticity remains same
Q.2 The price will decrease if demand remains same and
(a) supply increases (b) supply decreases
(c) supply is more than the previous level (d) none of these
Q.3 The intersection of the market demand and supply curves determine the
(a) equilibrium price (b) reserve price
(c) both a and b (d) none of these
Q.4 At a particular price level, there are no forces tending to move it either up or down. It means
(1) the firm is in equilibrium
(2) the price is in equilibrium
(3) equilibrium price of the firm
(4) equilibrium price and quantity of the firm
(a) 1 and 4 only (b) 1,2 and 4 only
(c) 3 and 1 only (d) 4 only

Use the following figure to answer Q.5-Q.6
Q.5 In the figure above, at point E
(a) Demand > Supply (b) Supply > Demand
(c) Supply = Demand (d) none of the above
Q.6 In the above figure, equilibrium point, quantity and price are
(a) E, OQ, OP (b) E, ES, EP
(c) ES, ED, OQ (d) E, EP, ED
Q.7 Equilibrium price is also known as:
(a) reserve price (b) market clearing price
(c) factor price (d) transfer price
Q.8 It is assumed in economic theory that
(a) decision making within firm is usually undertaken by managers, but never by the owners
(b) the ultimate goal of the firm is to maximize profits, regardless of firm size or type of
business organization
(c) as the firm’s size increases, so do its goals
(d) the basic decision making unit of any firm is its owners
Unit- Consumer Theory
Q.1 A rise in price will __________ consumer surplus
(a) increase (b) decrease
(c) no change (d) none of the above
Q.2 Consumer surplus is represented by the area
(a) above demand curve and below price line (b) below demand curve and above price
(c) on the right of demand curve (d) none of the above
Q.3 A buyer’s willingness to pay is that buyer’s
(a) minimum amount he is willing to pay for a good
(b) producer surplus
(c) consumer surplus
(d) maximum amount he is willing to pay for a good
Q.4 Which of the following equations is incorrect?
(a) MUn= TUn+2 – Tun+1 (b) MU= TU/Q
(c) MUn= TUn – Tun-1 (d) TU= Sum of MU
Q.5 At saturation point, the slope of total utility curve is _____________.
(a) Rising (b) Falling
(c) Zero (d) None of these
Q.6 The value paradox (diamond and water) arises because:
(a) Water has too low price
(b) Value in use differs from utility
(c) Diamonds are too highly priced
(d) Value in use differs from value in exchange

Q.7 Marginal utility of a commodity depends on its quantity and is:
(a) Inversely proportional to its quantity
(b) Not proportional to its quantity
(c) Independent of its quantity
(d) None of the above
Q.8 Traditional economic theory could not explain choices involving risk because it assumed that
(a) MU always declines (b) MU first declines and then rises
(c) MU first rises and then declines (d) MU always increase
Q.9 The excess of the price which a person would be willing to pay rather than go without the thing
over that he actually does pay is called:
(a) Extra satisfaction (b) Surplus satisfaction
(c) consumer’s surplus (d) all of the above
Q.10 Buyer’s surplus is highest in case of ___________.
(a) Luxuries (b) Comforts
(c) Necessaries (d) All of the above
Q.11 According to Marshall, the consumer has diminishing utility for each additional unit of a
commodity and therefore he will be willing to pay
(a) only less for each additional unit (b) only more for each additional unit
(c) same for each additional unit (d) as per situation
Q.12 The more rapidly the marginal utility of additional units of a good fall, the ________ will be the
elasticity of demand.
(a) More
(b) Less
(c) Zero
(d) Infinite
Q.13 The law of diminishing MU states that
(a) TU is maximized when a consumer obtains the same amount of utility per unit of each product
consumed
(b) beyond some point additional units of a product will yield less and less extra satisfaction to a
consumer
(c) price must be lowered to induce firms to supply more of a product
(d) it will take larger and larger amounts of resources beyond some point to produce successive units
of a product
Q.14 The oldest approach to the theory of demand is
(a) TU approach (b) Cardinal utility approach
(c) Ordinal utility approach (d) none of the above
Q.15 After reaching the saturation point, consumption of additional units of a commodity cause
(a) TU to fall and MU to increase (b) TU, MU both increase
(c) TU to fall and MU to become negative (d) TU to become negative and MU to fall
Q.16 As one moves upwards towards left along an indifference curve, the MRS of commodity X for
commodity Y tend to:
(a) Increase (b) Decrease
(c) Constant (d) Fluctuates
Q.17 Marginal Rate of Substitution indicates the slope of:
(a) Budget line (b) Indifference Curve
(c) Total utility curve (d) Demand curve
Q.18 Marshallian theory of consumer behavior is based on
(a) hypothesis of additive utilities
(b) hypothesis of independent utilities
(c) both a and b
(d) weak ordering

Q.19 Should a consumer move upward along an IC, his total utility:
(a) First increases and then decreases (b) First decreases and then increases
(c) Remains constant (d) Increases
Q.20 One combination can lie only on one IC means:
(a) Only one IC will pass through the point (b) Two ICs will pass through the point
(c) As many ICs can pass through the point (d) None of the above
Q.21 If a combination is below the budget line, it indicates that there is
(a) Underspending (b) Overspending
(c) Full spending (d) None of the above
Q.22 Ravina consumes momos and burger whose price are Rs 6 and Rs 3 per unit. If she is in the
state of equilibrium, the value of MRS is:
(a) 4 (b) 3
(c) 2 (d) 1
Q.23 Which of the following conditions is necessary for utility to be maximum?
(a) MRS xy= MUx/MUy= P x/Py (b) Convexity of IC
(c) Mux= MUy (d) Intersection of 2 ICs
Consider the following situation and answer Q.24 to Q.25.
Q.24 A consumer wants to buy two goods X and Y. He has Rs 24 to spend. The prices of two goods
X and Y are Rs 4 and Rs 2 respectively. How much should he buy of each product?
(a) (4,5) (b) (2,7)
(c) (3,6) (d) None of the above
Q.25 What will be the MRSxy when the consumer is at equilibrium?
(a) 1 : 2 (b) 2 : 1
(c) 1 : 1 (d) 2 : 2
From the following data given below, answer Q.26-27
Units TU MU
1 200 -
2 - 180
3 480 -
Q.26 Total utility derived from 2nd unit?
(a) 380 (b) 20
(c) 100 (d) 280
Q.27 Marginal Utility of 3rd unit is?
(a) 200 (b) 280
(c) 100 (d) 50
Q.28 Cardinal approach is related to
(a) indifference curve (b) equi-marginal utility
(c) law of diminishing returns (d) none of these
Q.29 Marginal utility analysis is _______ concept.
(a) cardinal
(b) ordinal
(c) sequential
(d) none of these
Q.30 According to neo-classical economists, utility is a cardinal concept. It means
(a) utility is measurable and quantifiable entity
(b) a psychological unit of measurement of utility is available as called UTILS
(c) utilities from different units of the commodities can be added

Q.31 Which of the following statement is incorrect as regards consumer surplus?
(a) it can be measured in money (b) it cannot be measured precisely
(c) it is affected by a variability of substitutes (d) it is always infinite for necessaries
Q.32 Which of the following is/are the condition’s theory of consumer surplus if the price is same for
all the units be purchased?
(a) consumer gains extra utility or surplus
(b) consumer surplus for the last commodity is zero
(c) both
(d) none
Q.33 Diminishing MU implies that the
(a) MU of a good diminishes over time
(b) TU is negative
(c) last unit of a good consumed will contribute most to the consumer’s satisfaction
(d) first unit of a good consumed will contribute most to the consumer’s satisfaction
Q.34 Which of the following is a property of an indifference curve?
(a) it is convex to the origin
(b) MRS is constant as you move along an IC
(c) MU is constant as you move along an IC
(d) TU is greatest where the 45-degree line cuts the indifference curve
Q.35 When MUa is divided by MUb, then it is the MRS of
(a) a for b
(b) b for a
(c) a and b for other product
(d) none of these

Q.36 MU from the last unit consumed of commodity Y=50 and Mum (MU of money) =10. Consumer is
in equilibrium and is consuming commodity Y only. Find its price.
(a) 5 (b) 10
(c) 40 (d) none of these
Q.37 The way in which rational consumers allocate their expenditure on goods and services is best
described by
(a) law of DMU (b) law of demand
(c) theory of value (d) MRS
Q.38 ______________ depicts the complete picture of consumer’s tastes and preferences
(a) budget line (b) average cost curve
(c) indifference map (d) marginal revenue curve
Q.39 If Mux=30, Px=5, MUy=40, value of Py will be
(a) 10 (b) 15
(c) 6.67 (d) none of these
Q.40 Budget line is otherwise called
(a) money line (b) preference line
(c) income line (d) price line
Q.1 b Q.2 b Q.3 d Q.4 b Q.5 c
Q.6 d Q.7 a Q.8 a Q.9 d Q.10 c
Q.11 a Q.12 b Q.13 b Q.14 b Q.15 c
Q.16 a Q.17 b Q.18 c Q.19 c Q.20 a
Q.21 a Q.22 c Q.23 a Q.24 c Q.25 b
Q.26 a Q.27 c Q.28 b Q.29 a Q.30 d
Q.31 a Q.32 c Q.33 a Q.34 a Q.35 a
Q.36 a Q.37 a Q.38 c Q.39 c Q.40 d

Unit- Theory of Production
Q.1 Reason for rise in both AP and MP curves is:
(a) under utilisation of fixed factors (b) under utilisation of variable factor
(c) over utilisation of fixed factor (d) over utilisation of variable factor
Q.2 When the ideal factor ratio is violated in short run:
(a) diminishing returns to a factor set in (b) MP of variable factor starts falling
(c) TP increases at a diminishing rate (d) all of the above
Q.3 AP increases as long as:
(a) MP > AP (b) MP < AP
(c) MP = AP (d) MP is zero
Q.4 MP curve cuts AP curve from its top, this means:
(a) MP < AP (b) MP > AP
(c) MP is rising (d) MP is zero
Q.5 MP of labour becoming negative implies:
(a) excessive employment
(b) disguised unemployment
(c) over exploitation of the fixed factor
Q.6 MP of the variable factor may be zero or negative, but AP continues to be:
(a) constant
(b) positive
(c) negative
(d) zero
Use the following data to answer questions 7-9.
Hours of labour Total output Marginal output
0 - -
1 300 300
2 - 240
3 720 -
Q.7 What is the total product when 2 hours of labour are employed?
(a) 160 (b) 200
(c) 360 (d) 540
Q.8 What is the average product of the first 2 hours of labour?
(a) 250 (b) 260
(c) 270 (d) 280
Q.9 What is the marginal product of the 3rd hour of labour?
(a) 160 (b) 180
(c) 120 (d) 200
Q.10 Which of the following statements reveal the diminishing returns?
(a) MP of a factor is constant (b) MP of a factor is positive and rising
(c) MP of a factor is falling and negative (d) MP of a factor is positive but falling
Use the following data to answer Q.11-Q.12
Units of labour employed 1 2 3 4 5
AP 50 45 40 35 30
Q.11 TP of 3 units of labour is:
(a) 30 (b) 50
(c) 90 (d) 120
Q.12 The MP of 5th unit of labour is:
(a) 10 (b) 20
(c) 30 (d) 40
Q.13 Find the odd one out.
(a) law of diminishing returns to factor (b) law of returns to scale
(c) cost function (d) production function
Q.14 The production process described below exhibits:
Number of labourers Output
0 0
1 20
2 50
3 90
(a) increasing MP of labour (b) increasing returns to scale
(c) diminishing MP of labour (d) constant MP of labour
Q.15 Diminishing marginal returns for the first four doses of inputs when all factors of production are
increased in the same proportion is revealed by the total product sequence
(a) 50,50, 50, 50 (b) 50, 100, 150, 200
(c) 50, 90, 120, 140 (d) 50, 110, 180, 260
Q.16 The behaviour of output in response to a change in the scale is studied in the:
(a) market period (b) short period
(c) long period (d) very short period

Q.17 In the theory of production the long run is defined as the period of time in which:
(a) all factors can be varied (b) no factor can be varied
(c) some factors are fixed but other can be varied (d) none of these
Q.18 Law of increasing returns to scale will apply if:
(a) economies exceed the diseconomies (b) economies and diseconomies are equal
(c) diseconomies exceed the economies (d) in all the above situations
Q.19 ____________ shows all the input combinations that will produce the same level of output.
(a) isoquant (b) isocost line
(c) expansion path (d) none of the above
Q.20 In the context of input-output relation __________ means same output produced from different
combinations of inputs
(a) law of variable proportions (b) ridge lines
(c) law of constant returns (d) isoquant
Q.21 An isoquant is ______ indifference curve.
(a) buyer’s (b) producer’s
(c) trader’s (d) economy’s
Q.22 The rate of which one factor of production can be substituted for the other is known as:
(a) marginal rate of substitution (b) marginal opportunity cost
(c) marginal rate of technical substitution (d) marginal cost
Q.23 The slope of iso-product curve shows:
(a) MRS xy
(b) MRTSxy
(c) elasticity of an iso-product curve

Q.24 An isoquant is:
(a) downward sloping and concave to origin (b) downward sloping and convex to origin
(c) downward sloping straight line curve (d) horizontal straight line curve
Q.25 The convexity of isoquants is due to the ____________ MRTS xy.
(a) increasing (b) constant
(c) diminishing (d) none of the above
Q.26 At a point near the right hand below the corner of isoquant curve, the MRTS xy of factor X for factor
Y is:
(a) very high (b) very low
(c) zero (d) neither high nor low
Q.27 In order to increase the output, if both inputs must be increased in fixed proportion, it follows that
both the inputs are ____________ of each other.
(a) perfect substitutes (b) perfect compliments
(c) imperfect substitutes (d) imperfect compliments
Q.28 The slope of iso-cost line can change when the outlay remains the same but the price of:
(a) only one input can change (b) both the inputs can change
(c) both inputs remain unchanged (d) both a and b
Q.29 The slope of isocost line with factor Y on the vertical axis and factor X on the horizontal axis is:
(a) Py/P x (b) x/y
(c) y/x (d) Px/Py
Q.30 Where the slope of isoquant = slope of isocost line, it is the __________ combination of inputs.
(a) maximum cost (b) least cost
(c) balanced cost (d) cost production

Q.31 Production is defined as
(a) creation of matter (b) creation of utility in matter
(c) creation of infrastructural facilities (d) none of the above
Q.32 The supply of land is:
(a) unlimited (b) increased
(c) decreased (d) limited
Q.33 Linear homogeneous production function is based on
(a) increasing returns to scale (b) decreasing returns to scale
(c) constant returns to scale (d) none
Q.34 Which factor loses its value if it cannot find a purchaser today?
(a) land (b) labour
(c) capital (d) all of the above
Q.35 Supply curve of labour is:
(a) upward sloping (b) horizontal
(c) backward sloping (d) vertical
Q.36 Which of the following is not a feature of land?
(a) a free gift of nature (b) its supply is fixed
(c) an active factor of production (d) it has different uses
Q.37 Tools, machines, etc. are included in:
(a) circulating capital
(b) fixed capital
(c) social capital
(d) human capital

Q.38 Raw materials is an example of:
(a) circulating capital (b) fixed capital
(c) tangible capital (d) real capital
Q.39 Goodwill, patent rights, etc. are examples of:
(a) tangible capital (b) real capital
(c) intangible capital (d) human capital
Q.40 The third stage of capital formation is:
(a) creation of savings (b) mobilisation of savings
(c) distribution of savings (d) investment of savings
Q.41 The reward of an entrepreneur i.e. profit is:
(a) pre-determined income (b) residual income
(c) constant income (d) none of the above
Q.42 The risks which can be anticipated and can be insured against are called:
(a) insurable risks (b) non-insurable risks
(c) unforeseeable risks (d) none of the above
Q.43 The risks like change in demand for a commodity, the cost structure, fashion, technological, etc.
which an entrepreneur has to bear are called:
(a) uncertainties (b) insurable risks
(c) foreseeable risks (d) both a and c
Q.44 According to _____________, innovations introduced by an entrepreneur give rise to profits.
(a) FH Knight
(b) Joseph Schumpeter
(c) Paul Samuelson
(d) Alfred Marshall

Q.45 Which of the following statement is incorrect?
(a) Mobilisation of savings is done through network of banking and other financial institutions
(b) land lacks geographical mobility but has occupational mobility
(c) entrepreneur is also called organiser, manager or risk bearer
(d) land can be stored
Q.46 Leather in a shoe factory is _______
(a) fixed capital (b) sunk capital
(c) floating capital (d) circulating capital
Q.47 Capital that can be used for several purposes or by several industries is _________
(a) working capital (b) social capital
(c) floating capital (d) human capital
Q.48 Addition to the stock of capital goods in a country means __________
(a) capital reduction (b) investment
(c) capital formation (d) both b and c
Q.49 Suppose production function is given by Qx=L 1/2 K1/2= 15. What type of return does it exhibit?
(a) constant return (b) increasing returns
(c) decreasing return (d) none of the above
Q.50 In the Cobb-Douglas production function given as
Q= A.La.K1-a
The share of labour in total production is
(a) a (b) 1-a
(c) A (d) aL
Unit- Theory of Cost
Q.1 The long run average cost curve shows the average cost of production when ________ in supply.
(a) all factors are fixed (b) all factors are variable
(c) some factors are fixed while some are variable (d) one factor is fixed while all others are variable
Q.2 LAC curve helps the firm to make choice about size of plant for producing a particular output at
_____.
(a) optimum cost (b) minimum cost
(c) maximum cost (d) nothing can be said
Q.3 When production level is zero, the fixed cost is
(a) zero (b) negative
(c) positive (d) equal to variable cost
Q.4 The costs which are neither perfectly variable nor absolutely fixed when output level are changed
are __________
(a) variable costs (b) semi variable costs
(c) stair step costs (d) prime costs
Q.5 TC reflects the behaviour of
(a) TFC (b) TVC
(c) AFC (d) none of the above
Q.6 When a firm’s dependence on external sources of funds increase and it finds difficulty to repay, it
is a case of:
(a) financial diseconomies
(b) financial economies
(c) managerial diseconomies
(d) technical diseconomies

Q.7 Benefits like improved organisation, division of labour and specialization, better supervision and
control, etc. enjoyed by a firm when it expands production leads to:
(a) economies of scale (b) real economies
(c) diseconomies of scale (d) both a and b
Q.8 The development of Special Economic Zone will generate:
(a) internal economies and lower per unit cost
(b) external economies and lower per unit cost
(c) internal diseconomies and increase per unit cost
(d) external diseconomies and increase per unit cost
Q.9 TVC cost curve originate from the point of origin means:
(a) variable cost is zero at zero output (b) variable cost has to be incurred at zero output
(c) variable cost is diminishing (d) all of the above
Q.10 The total cost curve and total variable cost curve are parallel because:
(a) vertical distance between the two is total fixed cost which is constant
(b) behaviour of total cost depends upon total variable cost
(c) change in total cost is only due to change in variable cost
Q.11 When a large firm takes up advertising and grants higher margin to retailers, it is called:
(a) technical economies (b) managerial economies
(c) marketing economies (d) financial economies
Q.12 AFC curve ___________
(a) slopes upward
(b) slopes downward
(c) is U shaped
(d) is S shaped
Q.13 Beyond normal capacity output, as output increases AVC will:
(a) remain constant (b) decrease
(c) increase (d) nothing can be said
Q.14 __________ and ____________ curves start from the same point on y-axis which is above the
origin.
(a) TFC and TVC (b) TVC and TC
(c) TFC and TC (d) none of the above
Q.15 Internal economies and diseconomies of scale occur due to ___________ causes.
(i) endogenous (ii) exogenous
(iii) internal (iv) external
(a)i and ii (b) iii and iv
(c) i and iii (d) ii and iv
Q.16 When output is increased average cost at all levels of output includes both AVC and AFC means
that:
(a) AC curve will always lie above the AVC curve
(b) AC curve will always lie below the AVC curve
(c) AC and AVC are parallel to each other with the same vertical distance throughout
Q.17 Technically efficient combinations of inputs is those which:
(a) minimizes cost
(b) minimizes loss
(c) maximize profits
(d) maximizes revenue

Q.18 The two inverted S shaped short run curves are parallel to each other and maintain a constant
distance of Rs 100. Which cost is indicated by Rs 100?
(a) TVC (b) TC
(c) TFC (d) AFC
Q.19 At the minimum AC, a firm can produce the _________
(a) maximum output (b) optimum profits
(c) optimum output (d) marginal output
Q.20 ____________ economies can be of long term in nature.
(a) external (b) internal
(c) production (d) real
Q.21 I am making a loss, but the rent I have to pay, I cant afford to shut down at this point of time. If
this entrepreneur is attempting to maximize profits or minimize losses, his behavior in the short run is
(a) rational, if the firm is covering its variable cost
(b) rational, if the firm covering its fixed cost
(c) irrational, since plant closing is necessary to eliminate losses
(d) irrational, since fixed costs are eliminated if a firm shuts down
Q.22 When TVC increases at an increasing rate, MC
(a) rises (b) falls
(c) remains constant (d) none of the above
Q.23 Gopal inherited 1 acre of land from his father in 1960. Today the value of land is Rs 90 lakh per
acre. What is the opportunity cost to Gopal for keeping that land? His father paid Rs 50,000 for this
land.
(a) nothing, since land was inherited
(b) Rs 50,000 which his father paid
(c) Rs 90,00,000 since this amount Gopal is getting now if he sells it
(d) Both b and c

Q.24 The shape of AFC curve is
(a) concave (b) convex
(c) u shaped (d) upward sloping
Q.25 If a table shows number of units produced and average cost of each unit, one can calculate:
(a) AVC (b) MC
(c) TC (d) all of the above
Q.26 When AC is at its minimum, then:
(a) AC > MC (b) AC < MC
(c) AC = MC (d) all of the above
Q.27 When MC curve cuts AC curve:
(a) AC = MC (b) AC > MC
(c) AC < MC (d) both AC and MC are falling
Q.28 What happens to average cost when MC > AC?
(a) AC will fall (b) AC will rise
(c) AC will remain constant (d) none of the above
Q.29 MC includes:
(a) fixed cost and variable cost (b) only fixed cost
(c) only variable cost (d) none of the above
Q.30 AC > MC, so long as:
(a) AC is falling
(b) AC is rising
(c) AC is constant

Q.31 ATC and AVC curves tend to intersect at some level of output.
(a) incorrect (b) correct
(c) partially correct (d) none of the above
Q.32 When MC < AVC, _____________ with increase in the output.
(a) AVC rises (b) AVC falls
(c) AVC remain constant (d) AVC curve cut MC curve
Q.33 Economies of localization, cheaper inputs, growth of ancillary industries, etc are examples of:
(a) internal economies (b) internal diseconomies
(c) external economies (d) external diseconomies
Q.34 Average fixed cost for producing 8 units of output was 60. What is the AFC at 6 units of output?
(a) 40 (b) 60
(c) 80 (d) 50
Q.35 The slope of the TVC or TC curve indicates the:
(a) marginal revenue (b) average cost
(c) variable cost (d) marginal cost
Q.36 Economic cost of production differ from accounting costs of production because
(a) economic cost include expenditures for hired resources while accounting costs do not
(b) accounting costs include opportunity costs which are deducted later to find paid out costs
(c) accounting costs include expenditure for hired resources while economic costs do not
(d) economic cost add the opportunity cost of a firm which uses its own resources.
Q.37 MC curve passes through the minimum point of
(a) AC curve (b) TC curve
(c) AVC curve (d) both a and c

Q.38 Which of the following statements about the relationship between marginal cost and average cost
is correct?
(a) When MC is falling, AC is falling (b) AC equals MC at MC’s lowest point
(c) when MC exceeds AC, AC must be rising (d) when AC exceeds MC, MC must be rising
Q.39 Salesman’s commission is an example of:
(a) fixed cost
(b) variable cost
(c) semi variable cost i.e. fixed over some range and then increase
(d) stair step cost
Q.40 MC is ___________
(a) always less than AC (b) always more than AC
(c) equal to AC at its minimum point (d) never equal to AC
Q.41 Cost analysis refer to the study of ______________ in relation to different production criteria.
(a) production (b) cost
(c) price (d) inputs
Q.42 ____________ costs relate to those costs which involve cash payments by the entrepreneur of
the firm.
(a) accounting (b) marginal
(c) economic (d) implicit
Q.43 ____________ means all those factors which raise the cost of production per unit when production
is expanded by a firm beyond optimal capacity.
(a) external economies
(b) internal economies
(c) external diseconomies
(d) internal diseconomies

Q.44 ____________ costs are the value of foregone opportunities that do not involve any contractual
obligation of cash payment.
(a) explicit (b) implicit
(c) accounting (d) hidden
Q.45 _____________ costs includes all payments made to factors of production and opportunity costs.
(a) accounting (b) economic
(c) implicit (d) explicit
Q.46 An entrepreneur must recover his ____________ costs if he wants to earn normal and abnormal
profits.
(a) accounting (b) implicit
(c) economic (d) all of the above
Q.47 Which of the following are implicit costs?
(i) a shop taken on rent by entrepreneur
(ii) savings invested to start a business
(iii) an individual is both owner and manager of business
(iv) a farmer takes a farm on rent
(a) i and ii (b) iii and iv
(c) ii and iii (d) i and iv
Q.48 Which of the following are explicit costs?
(i) a producer borrows money to start a factory
(ii) a producer invests his savings to start a business
(iii) wages paid to workers
(iv) an individual is both owner and manager of business

Q.49 All but one is not included in the books of accounts? Which one?
(a) taxes (b) electricity charges
(c) cost of raw materials (d) imputed salary of owner
Q.50 Opportunity costs find its application in situations __________
(a) for short and long run decision making
(b) capital expenditure budgeting
(c) when the supply of input factors is strictly limited
Q.51 All but one are true about opportunity costs. Which one is not true?
(a) it is recorded in books of accounts
(b) it is applicable to those factors which have alternative uses
(c) it is also known as alternative costs
(d) it is also known as displacement cost.
Q.52 If you give up a full time job to go to a college, the major cost is:
(a) tuition fees (b) room and board
(c) the income you could have earned from job (d) social expenses
Q.53 If you own a cottage in Kashmir which you could have rent for August and September to some
family for a net gain of Rs 20,000/- after all expenses and taxes, the opportunity cost of living in it
yourself for summer is:
(a) Rs 10,000 (b) Rs 20,000
(c) Rs 30,000 (d) Rs 40,000
Q.54 Cost of getting something involves losing something else means ____________ costs.
(i) accounting (ii) opportunity
(iii) explicit (iv) implicit

(a) only I (b) ii and iii
Q.55 _____________ costs are not identified readily and indisputably to specific product, process,
department, plant, operations, etc.
(a) indirect costs (b) traceable costs
(c) non traceable cost (d) both a and c
Q.56 The function which gives least cost combination to different levels of output is called:
(a) production function (b) demand function
(c) cost function (d) supply function
Q.57 Cost functions are derived from:
(a) demand function (b) supply function
(c) isoquant function (d) production function
Q.58 In a cost function, the total cost or cost per unit is a / an:
(a) dependent variable (b) independent variable
(c) either a or b (d) neither a nor b
Q.59 Which one of the following is the dependent variable in cost function?
(a) level of capacity utilization (b) lot size of output
(c) scale of operations (d) total cost
Q.60 Which one of the following is an independent variable in a cost function?
(a) cost per unit
(b) total cost
(c) managerial efficiency

Q.61 Find the odd one.
(a) output (b) price of raw materials
(c) time period (d) total cost
Q.62 Fixed costs include:
(a) historical cost (b) explicit costs
(c) implicit costs (d) both b and c
Q.63 ______________ costs are incurred even before the production starts.
(a) fixed (b) variable
(c) real (d) marginal
Q.64 At zero level of output, fixed cost must be greater than variable cost.
(a) false (b) partially true
(c) true (d) none of the above
Q.65 Fixed costs are a function of:
(a) time (b) output
Q.66 ____________ costs are directly or positively related to output.
(a) fixed (b) stair step
(c) semi variable (d) variable
Q.67 Which of the following indicates fixed costs?
(a) electricity bills
(b) wages to daily labourers
(c) expenses on transportation
(d) interest on fixed capital

Q.68 Which of the following costs increases continuously with the increase in the production?
(a) AC (b) MC
(c) FC (d) VC
Q.69 Variable costs include costs of:
(a) hiring the building for factory (b) purchase of heavy machines
(c) pay wages to factory manager (d) paying for power and fuel
Q.70 ___________ costs are independent of the level of output.
(a) fixed (b) variable
(c) marginal (d) semi variable cost
Q.71 __________ costs involve actual expenditure of funds on wages, materials, rent, etc.
(a) opportunity (b) outlay
(c) economic (d) implicit
Q.72 The cost that a firm incurs in purchasing or hiring, the services of various productive factors is
referred to as:
(a) explicit cost (b) fixed cost
(c) implicit cost (d) variable cost
Q.73 Explicit costs are also known as:
(a) accounting costs (b) outlay costs
(c) out of pocket costs (d) all of the above
Q.74 For an economist, the cost means:
(a) accounting costs
(b) economic costs
(c) outlay costs
(d) sink cost

Q.75 Which one of the following is not a determinant of the firm’s cost function?
(a) price of firm’s output (b) production function
(c) price of labour (d) rent paid for use of building
Q.76 Internal economies accrue when:
(a) an industry develops (b) an economy grows
(c) foreign trade develops (d) a firm expands production in long run
Q77 External economies accrue when:
(a) a firm expands (b) an individual progress
(c) an industry expands (d) trade expands
Q.78 Economies of scale means:
(a) reduction in per unit cost of production (b) reduction in per unit cost of distribution
(c) addition to per unit cost of production (d) reduction in total cost of production
Q.79 Internal economies relate to:
(a) marketing economies (b) financial economies
(c) managerial economies (d) all of the above
Q.80 Problems like difficulties in management, lack of supervision, higher input cost, etc due to large
scale of production leads to:
(a) economies of scale (b) real economies of scale
(c) diseconomies of scale (d) both b and c
Q.81 _____________ economies are related to an individual firm’s own cost reduction effort.
(a) internal (b) external
(c) real (d) all of the above

Q.1 b Q.2 b Q.3 c Q.4 b Q.5 b
Q.6 a Q.7 a Q.8 b Q.9 a Q.10 d
Q.11 c Q.12 b Q.13 c Q.14 c Q.15 c
Q.16 a Q.17 a Q.18 c Q.19 c Q.20 b
Q.21 a Q.22 a Q.23 c Q.24 b Q.25 d
Q.26 c Q.27 a Q.28 b Q.29 c Q.30 a

Q.31 a Q.32 b Q.33 c Q.34 c Q.35 d
Q.36 d Q.37 d Q.38 c Q.39 c Q.40 c
Q.41 b Q.42 a Q.43 d Q.44 b Q.45 b
Q.46 c Q.47 c Q.48 c Q.49 d Q.50 d
Q.51 a Q.52 c Q.53 b Q.54 d Q.55 d
Q.56 c Q.57 d Q.58 a Q.59 d Q.60 c
Q.61 d Q.62 d Q.63 a Q.64 c Q.65 a

Q.66 d Q.67 d Q.68 d Q.69 d Q.70 a
Q.71 b Q.72 a Q.73 d Q.74 b Q.75 a
Q.76 d Q.77 c Q.78 a Q.79 d Q.80 c
Q.81 a
Unit- Types of Markets

Q.1 When MR is zero the elasticity of demand on AR curve is:
(a) e>1 and TR is maximum (b) e=1 and TR is maximum
(c) e>1 and TR is rising (d) none of these
Q.2 If e>1 on AR curve:
(a) MR is positive and TR is rising (b) MR is negative and TR is falling
(c) MR is zero and TR is maximum (d) none of these
Q.3 In the long run, some firms will exit the market if the price of the good offered for sale is less than
(a) MR (b) MC
(c) ATC (d) AR

Q.4 For maximisation of profits, MR=MC is the first order condition
(a) only under monopoly (b) only under perfect competition
(c) both a and b (d) in any type of market
Q.5 Which one of the following features of the term ‘market’ is incorrect?
(a) it is the collection of buyers and sellers with potential to trade
(b) it need not be formal
(c) it need not to be held in a particular place
(d) it must be formal or to be held in a particular place
Q.6 The study of demand and supply model is useful in explaining
(a) how government works
(b) how market works
(c) how consumers behave
Q.7 A firm making zero economic profits
(a) earns super normal profits (b) incur losses
(c) earns a normal profit (d) profit or loss is indeterminate
Q.8 If AVC exceeds the market price, the firm should produce
(a) zero output with fixed cost (b) zero output without fixed cost
(c) less output without fixed cost (d) zero output with or without fixed cost
Q.9 At the quantity where MR=MC, the AFC is Rs 7, AVC is Rs 23 and the price is Rs 30, hence, the
firm:
(a) should continue production in short run
(b) should continue production in long run
(c) should shut down
(d) none of these

Q.10 Price of goods express their
(a) value in use (b) exchange value
(c) economic value (d) both b and c
Q.11 When demand is elastic; MR is:
(a) negative (b) positive
(c) zero (d) one
Q.12 The point where P=AC is called:
(a) profit earning point (b) loss making point
(c) breakeven point (d) shut down point
Q.13 TR minus total explicit cost is called:
(a) profit (b) economic profit
(c) super normal profits (d) accounting profits
Q.14 Which of the following is not correct?
(a) if e>1, MR is +ve (b) if e<1, MR is -ve
(c) if e=1, MR is zero (d) if e=0, MR is zero
Q.15 Market price is the price that prevails in a _________
(a) very short period market (b) short period market
(c) long period market (d) secular period market
Q.16 When AR=Rs 10 and AC= Rs 8, the firm makes
(a) normal profits
(b) net profits
(c) gross profits
(d) super normal profit

Q.17 A firm’s AVC curve is rising, its MC curve must be ________
(a) constant (b) above TC curve
(c) above AVC curve (d) all of the above
Q.18 If a producer sells 4 units of a good at Rs 10 per unit and 5 units at Rs 8 per unit, marginal revenue
would be:
(a) 0 (b) 1
(c) 2 (d) 3
Q.19 When MR is zero, TR will be:
(a) lowest (b) highest
(c) negative (d) zero
Q.20 On the basis of nature of transaction, a market can be classified into:
(a) regulated market (b) wholesale market
(c) future market (d) long period market
Q.21 Given, AR= 5 and elasticity of demand= 2. Find MR.
(a) 2.5 (b) -2.5
(c) 1.5 (d) 2
Q.22 According to behavioural principles,
(a) a firm should not produce at all if its total variable costs are not met
(b) a firm will be making maximum profits by expanding output to the level where MR is equal to MC
(c) Both a and b
(d) none of these
Q.23 Market consists of
(a) buyer and seller (b) one price for one product at a given time
(c) both a and b (d) none

Q.24 If a seller obtains Rs 3,000 after selling 50 units and Rs 3,100 after selling 52 units, then MR will
be
(a) 59.62 (b) 50
(c) 60 (d) 59.80
Q.25 When TR is at its peak, then MR is equal to
(a) zero (b) positive
(c) negative (d) none of the above
Q.26 Exchange value is determined in
(a) monopoly market
(b) oligopoly market
(c) in market where exchange of goods and services take place
Q.1 b Q.2 a Q.3 c Q.4 d Q.5 b
Q.6 d Q.7 c Q.8 d Q.9 a Q.10 d
Q.11 b Q.12 c Q.13 d Q.14 d Q.15 a
Q.16 d Q.17 c Q.18 a Q.19 b Q.20 c
Q.21 a Q.22 c Q.23 c Q.24 b Q.25 a
Q.26 c
Unit- P/O Determination under Different Market Forms
Q.1 A firm under perfect competition will be making minimum losses in the short run at a point where
(a) MC>MR (b) MR>MC
(c) MC=MR (d) AC=AR
Q.2 Precious metals (gold, silver, platinum) approach the conditions of ________ is applicable
(a) perfect competition (b) oligopoly
(c) monopolistic competition (d) monopoly
Q.3 In case of monopolistic competition, the less differentiated the product is from its competitors, the
demand curve will be _______
(a) less elastic (b) more elastic
(c) more-steeper (d) none of the above
Q.4 The dilemma faced by a monopolistic is setting
(a) price (b) output
(c) both a and b (d) either a or b
Q.5 Price under monopoly is higher than the price under _________
(a) perfect competition (b) monopolistic
(c) oligopoly (d) all of the above
Q.6 This type of oligopoly tends to process raw materials or produce intermediate goods that are used
as inputs by other industries is called _________ oligopoly.
(a) open
(b) collusive
(c) pure
(d) full
Q.7 The firm’s short run supply curve is its marginal cost above its average variable cost curve is correct
about:
(a) perfect competition (b) oligopoly
(c) monopoly (d) duopoly
Q.8 Under perfect competition, if the AR curve lies below the AC curve, the firm would:
(a) make only normal profits (b) incur losses
(c) make super normal profit (d) firm cannot determine profit
Q.9 Short run supply curve of a perfectly competitive firm is represented by:
(a) short run MC curve (b) short run AC curve
(c) the part of the MC curve that lies above AVC (d) none of these
Q.10 Consider the following figure:
The shaded area PRLM shows:
(a) super normal profits (b) normal profit
(c) loss (d) shut down point
Q.11 Odd one out of the following with regards to perfect competition:
(a) firms are of optimum size and earn normal profits only in the long run
(b) firms sell identical product at uniform price
(c) firms are not of optimum size and earn super normal profits in long run
(d) firms are free to move in or out of the industry
Q.12 The industry’s demand curve and the firm’s average revenue curve are same in case of:
(a) perfect competition (b) monopoly
(c) oligopoly (d) none of these
Q.13 When MR is zero the elasticity of demand on AR curve is:
(a) e>1 and TR is maximum (b) e=1 and TR is maximum
(c) e>1 and TR is rising (d) none of these
Q.14 If e>1 on AR curve:
(a) MR is positive and TR is rising (b) MR is negative and TR is falling
(c) MR is zero and TR is maximum (d) none of these
Q.15 The demand curve of consumers for product produced by firm is indicated by:
(a) AC curve of firm (b) MC curve of firm
(c) AR curve of firm (d) AR curve of industry
Q.16 Find the odd out:
(a) Monopoly may be the result of control over raw materials
(b) Monopoly may be the result of business combines
(c) Monopoly may be the result of patents, copyrights, etc.
(d) Monopoly may be the result of control over demand of commodity
Q.17 Lux, Supreme, Rexona, Dove Soap, Pears soap, Liril soap, etc. indicates:
(a) perfectly competitive market (b) monopoly market
(c) monopolistic competitive market (d) duopoly market
Q.18 If the price and marginal revenue are same then the demand curve must be:
(a) perfectly inelastic and vertical (b) highly elastic and downward sloping
(c) perfectly elastic and horizontal (d) highly inelastic and downward sloping
Q.19 Monopoly price is the function of:
(a) MC of production (b) price elasticity of demand
(c) neither a nor b (d) both a and b
Q.20 Railways is an example of:
(c) oligopoly (d) monopolistic competition
Q.21 Highly elastic negatively sloped demand curve is related to:
(a) monopoly (b) monopolistic competition
(c) perfect competition (d) both a and b
Q.22 The cross elasticity of demand for the product of a firm under perfect competition is:
(a) zero (b) less than zero
(c) infinite (d) unity
Q.23 Under monopolistic competition the cross elasticity of demand for the product of a single firm is:
(a) infinite (b) highly elastic
(c) highly inelastic (d) zero
Q.24 A movie theatre in a small town or city means:
(c) monopolistic competition (d) both a and b
Q.25 A firm under perfectly competitive market wants to double its sales. The firm would:
(a) lower the price of commodity
(b) improve quality of commodity
(c) offer double the quantity for sale at ruling price
(d) advertise the product aggressively

Q.26 For maximisation of profits, MR=MC is the first order condition
(a) only under monopoly (b) only under perfect competition
(c) both a and b (d) in any type of market
Q.27 A firm under monopolistic competition is in long run equilibrium
(a) at the minimum point of LAC curve (b) at the falling segment of LAC curve
(c) at the rising segment of LAC curve (d) when Price=MC
Q.28 In the long run, one firm operates at the optimum level while other operates at sub-optimum level.
Such firm belongs to:
(a) monopoly and perfect competition
(b) perfect and monopolistic competition
(c) monopolistic competition and oligopoly
(d) oligopoly and monopoly
Q.29 Which of the following gives the correct relationship between MR, AR and price elasticity?
(a) AR=MR [(e-1)/e] (b) MR=AR [(e-1)/e]
(c) MR= AR/(e-1) (d) AR=MR – e
Q.30 MR will be negative if elasticity of demand is:
(a) zero (b) less than zero
(c) greater than zero (d) less than one
Q.31 The phenomena of excess production capacity is associated with
(a) perfect competition (b) monopolistic competition
(c) monopoly (d) oligopoly
Q.32 A firm making zero economic profits
(a) earns super normal profits (b) incur losses
(c) earns a normal profit (d) profit or loss is indeterminate

Q.33 If AVC exceeds the market price, the firm should produce
(a) zero output with fixed cost (b) zero output without fixed cost
(c) less output without fixed cost (d) zero output with or without fixed cost
Q.34 Kinked demand curve shows:
(a) fall in price (b) rise in price
(c) stability in price (d) both a and b
Q.35 At the quantity where MR=MC, the AFC is Rs 7, AVC is Rs 23 and the price is is RS 30, hence,
the firm:
(a) should continue production in short run (b) should continue production in long run
(c) should shut down (d) none of these
Q.36 A firm has to take decision whether to produce 15h unit of output but finds its MC of 15 th unit to be
Rs 25 and MR to be Rs 18. Hence firm,
(a) should produce 15th unit (b) should cut down its output level
(c) should further expand production beyond 15 th unit (d) cannot determine output level
Use the following data for Q.37 to Q.39
A perfectly competitive firm has the following cost schedule
Output (units) 0 1 2 3 4 5 6 7 8 9 10
MC (Rs) - 11 10 9 8 7 6 7 10 13 19
TC (Rs) 9 20 30 39 47 54 60 67 77 90 109
Q.37 If the market price is Rs 13, to maximise profits the firm should produce ______ units.
(a) 8 (b) 7
(c) 6 (d) 9
Q.38 At the market price of Rs 6, the maximum profits would be Rs:
(a) 5 (b) 10
(c) 15 (d) (-) 24

Q.39 Suppose the price falls to Rs 7, the firm would choose to produce _______ units.
(a) 5 (b) 6
(c) 7 (d) 8
Q.40 A competitive firm’s MC curve and AVC curve are given to you, show which region of the curves
show the firm’s supply curve in the short run?
(a) region HE (b) region EG
(c) region EF (d) region YE
Q.41 In the below figure, the demand curves facing a seller under perfect competition, monopolistic
competition and monopoly are:
(a) AR2, AR1, AR
(b) AR1, AR2, AR
(c) AR, AR2, AR1
(d) AR, AR1, AR2

Q.42 When demand is elastic; MR is:
(a) negative (b) positive
(c) zero (d) one
Q.43 Match the following:
A. group behaviour 1. two sellers
B. duopoly 2. one buyer, one seller
C. oligopsony 3. Paul Sweezy
D. Kinky demand curve 4. Prof. Chamberlin
(a) A-2; B-3; C-1; D-4 (b) A-4; B-1; C-2; D-3
(c) A-1; B-2; C-3; D-4 (d) A-2; B-1; C-4; D-3
Q.44 The characteristic of monopolistic competition which is compatible with monopoly is:
(a) one seller and large number of buyers (b) full control over price
(c) freedom of entry and exit (d) demand curve slopes downward
Q.45 A rational producer will always operate on the ____________ portion of the demand curve
(c) unitary elastic (d) perfectly inelastic
Q.46 Firms have chronic excess production capacity in _________ market.
(a) duopoly (b) perfect competition
(c) monopolistic competition (d) oligopoly
Q.47 The theory of monopolistic competition is developed by:
(a) H.E. Chamberlin (b) Mrs Joan Robinson
(c) Dr. Marshall (d) Nicholas Kaldor

Q.48 The point where P=AC is called:
(a) profit earning point (b) loss making point
(c) breakeven point (d) shut down point
Q.49
In the figure above, if OP is price, then ACO represents
(a) TC (b) TR at OP price
(c) TR (d) TR at OY price
Q.50 Price exceeds MC under monopoly, but not under perfect competition because:
(a) in perfect competition AR=MR (b) in perfect competition AR=MC
(c) in monopoly AR>MR (d) all of the above
Q.51 In the long run, a monopolist produces ____________ level of output and charge _______ price
than
a firm under perfect competition market
(a) lower, higher (b) lower, lower
(c) higher, lower (d) higher, higher
Q.52 TR minus total explicit cost is called:
(a) profit
(b) economic profit
(c) super normal profits
(d) accounting profits

Q.53 At the shut-down point, losses of a firm under perfect competition are equal to:
(a) AVC (b) TFC
(c) AC (d) MC
Q.54 In the long run under monopolistic competition, profit maximizing level is:
(a) less than least cost output (b) more than least cost output
(c) equal to least cost output (d) none of the above
Q.55 ‘Purchase of only made in India jadi-booti toothpaste’ will impact the _______ market.
(a) monopoly (b) duopoly
(c) oligopoly (d) none of the above
Q.56 Which of the following statements refer to ‘price leadership’?
(a) existence of perfect competition (b) a form of price collusion
(c) stiff competition (d) maintenance of a monopolistic price
Q.57 Charging different prices by monopolist to customers in geographically separate market is

_______ degree of price discrimination.
(a) first (b) second
(c) third (d) price discrimination is not possible in separate markets
Q.58 In perfect competition, in the long run, if new firms enter the industry the supply curve shifts to
the right resulting in:
(a) fall in price (b) rise in price
(c) no change in price (d) none of the above
Q.59 Which of the following is not correct?
(a) if e>1, MR is +ve (b) if e<1, MR is -ve
(c) if e=1, MR is zero (d) if e=0, MR is zero

Q.60 The concept of group equilibrium is related to
(a) Paul Sweezy (b) Chamberlin’s monopolistic competition
(c) perfect competition (d) none of the above
Q.61 The long run supply curve sloping down towards right belongs to _________ industry.
(a) increasing cost (b) decreasing cost
(c) constant cost (d) none of these
Q.62 Market price is the price that prevails in a _________
(a) very short period market (b) short period market
(c) long period market (d) secular period market
Q.63 Excess capacity is not found under ______
(c) oligopoly (d) perfect competition
Q.64 The sale of branded goods is common situation in case of:
(a) perfect competition (b) monopolistic competition
(c) monopoly (d) pure competition
Q.65 When AR=Rs 10 and AC= Rs 8, the firm makes
(a) normal profits (b) net profits
(c) gross profits (d) super normal profit
Q.66 A firm’s AVC curve is rising, its MC curve must be ________
(a) constant
(b) above TC curve
(c) above AVC curve

Q.67 When a market is in equilibrium or has cleared it means,
(a) no shortage exists (b) quantity demanded equals quantity supplied
(c) a price is established that clears the market (d) all of the above
Q.68 Full capacity is utilised only when there is
(a) monopoly (b) perfect competition
(c) price discrimination (d) oligopoly
Q.69 The upper portion of the kinked demand curve is relatively:
(a) more elastic (b) more inelastic
(c) less elastic (d) inelastic
Q.70 The degree of monopoly power is measured in terms of difference between:
(a) marginal cost and the price (b) average cost and average revenue
(c) marginal cost and average cost (d) marginal revenue and average cost
Q.71 In _________ market, price being given, a firm decides only about the output.
(c) oligopoly (d) perfect competition
Q.72 An economy achieves productive efficiency when
(a) best quality goods are produced
(b) highly skillful resources in the country are fully employed
(c) all resources are utilized and goods and services are produced at least cost
Q.73 Raw materials and other factor of production is not monopolized and labour is not unionized in
which form of market structure?

Q.74 Wild animals had destroyed the entire crops of a farmer. What effect it will have on the price in
perfect competition?
(a) price will remain constant (b) price will decrease
(c) price will decrease (d) none of the above
Q.75 In which type of market buyers have no preference between different sellers and between different
units of commodity offered for sale?
Q.76 price taker firms
(a) advertise to increase demand for their products
(b) do not advertise because most advertising is harmful for society
(c) do not advertise because they can sell as mush as they want at the current price
(d) who advertise will get more profits than those who do not
Q.77 In the long run, normal profits are included in the ________ curve
(a) LAC (b) LMC
(c) AFC (d) SAC
Q.78 A competitive firm maximizes profits at the output level where
(a) P=MC (b) slope of firm’s profit function is equal to zero
(c) MR=MC (d) all of the above
Q.79 Which of the following is correct?
(a) If MR is positive and falling, TR will rise at a decreasing rate
(b) TR is equal to price times the quantity sold
(c) under perfect competition, TR=MR times the quantity sold

Q.1 c Q.2 a Q.3 b Q.4 d Q.5 d
Q.6 c Q.7 a Q.8 b Q.9 c Q.10 a
Q.11 c Q.12 b Q.13 b Q.14 a Q.15 c
Q.16 d Q.17 c Q.18 c Q.19 d Q.20 b
Q.21 b Q,22 c Q.23 b Q.24 c Q.25 c
Q.26 d Q.27 b Q.28 b Q.29 b Q.30 d

Q.31 b Q.32 c Q.33 d Q.34 c Q.35 a
Q.36 b Q.37 d Q.38 d Q.39 d Q.40 c
Q.41 d Q.42 b Q.43 b Q.44 d Q.45 a
Q.46 c Q.47 a Q.48 c Q.49 b Q.50 d
Q.51 a Q.52 d Q.53 b Q.54 a Q.55 c
Q.56 b Q.57 c Q.58 a Q.59 d Q.60 b
Q.61 b Q,62 a Q.63 d Q.64 b Q.65 d

Q.66 c Q.67 d Q.68 b Q.69 a Q.70 a
Q.71 d Q.72 c Q.73 b Q.74 a Q.75 b
Q.76 c Q.77 a Q.78 d Q.79 d
Unit- Business Cycles
Q.1 Expansion phase has all but one of the following characteristics.
(a) increase in national output (b) increase in consumer spending
(c) excess production capacity of industries (d) expansion of bank credit
Q.2 Which one of the following is not the characteristic of business cycle?
(a) they are recurrent (b) they are not at regular intervals
(c) they have uniform causes (d) all of the above
Q.3 Involuntary unemployment is almost zero in the _________ phase of business cycle.
(a) expansion (b) contraction
(c) trough (d) depression

Q.4 The economy is said to be overheated at the ____________ of business cycle.
(a) expansion (b) peak
(c) contraction (d) depression
Q.5 All but one are the endogenous factors of business cycle.
(a) war (b) changes in government spending
(c) money supply (d) fluctuations in investments
Q.6 During depression, __________ industry suffer from excess production capacity.
(a) capital goods (b) consumer durable goods
(c) non-durable goods (d) both a and b
Q.7 Industries that are most adversely affected by business cycles are the ___________
(a) durable goods and service sectors (b) non-durable goods and services
(c) capital goods and non-durable goods sectors (d) capital goods and durable goods sectors
Q.8 Changes in stock prices, profits margins and profits, manufacturing activity, etc. are examples of
_______ indicator.
(a) leading (b) lagging
(c) concurrent (d) coincident
Q.9 While _______ indicators forecast economic fluctuations, ________ indicators confirm the trends.
(a) lagging, leading (b) lagging, coincident
(c) coincident, leading (d) leading, lagging
Q.10 Coincident indicators show ___________
(a) the current state of business cycle
(b) the rate of change of expansion
(c) the rate of change of contraction

Q.11 Which one of the following is an example of lagging indicators?
(a) personal income (b) new orders for plant and equipment
(c) consumer price index (d) slower deliveries
Q.12 ____________ is of the view that fluctuations in economic activities are because of fluctuations in
aggregate effective demand.
(a) Keynes (b) Schumpeter
(c) Nicholas Kaldor (d) Joan Robinson
Q.13 If any unemployment exists during expansion phase of business cycle, it is ___________
unemployment.
(a) voluntary and frictional (b) technological and structural
(c) frictional and structural (d) structural and involuntary
Q.14 Optimistic and pessimistic mood of the business community also affects the economic activities
is the view of ___________
(a) Hawtrey (b) Schumpeter
(c) Pigou (d) Keynes
Q.15 Business cycles appear due to present fluctuations in prices affecting the output and employment
in future is ___________
(a) Cobweb theory by Nicholas Kaldor (b) Ordinal theory by Allen & Hicks
(c) Cobweb theory by JM Keynes (d) none of the above
Q.16 Production of ___________ goods fall during the war times.
(a) arms and ammunition (b) non-durable and capital
(c) capital and weapons (d) capital and consumer
Q.17 Production of new and better goods and services using new technology results in:
(a) expansion of employment (b) increase in the income and profits
(c) boost to economy (d) all of the above

Q.18 Understanding the business cycle is important for business managers because:
(a) they affect the demand for their products
(b) they affect their profits
(c) to frame appropriate policies and forward planning
Q.19 Businesses whose fortunes are closely linked to the rate of economic growth called
____________
(a) cyclic business (b) capital good business
Q.20 If the population growth rate is higher than the economic growth rate it will result in _________
(a) higher income, lower savings, lower employment
(b) lower income, lower savings, lower investments
(c) higher investment, lower income, higher savings
(d) lower income, lower savings, higher employment
Q.21 A rise in sale of which type of good is expected in the case of recession?
(a) luxury (b) necessity
(c) inferior (d) normal
Q.22 Decrease in input demand
(a) does not affect input prices (b) pushes input prices up
(c) pulls input prices down (d) either b or c
Q.23 A typical feature of depression is ________ in the interest rate.
(a) rise
(b) constant
(c) fall
(d) infinity
Q.24 Which of the following statement is correct for a business cycle?
(a) a typical feature of depression is the rise in the interest rate
(b) typical feature of depression is constant interest rate
(c) recession is the severe form of depression
(d) depression is the severe form of recession
Unit- Introduction to Business Economics
Q.1 Micro-economics is concerned with

(a) economy as a whole (b) electronics industry
(c) study of individual economic behaviour (d) interaction within entire economy
Q.2 Which of the following statements is normative?
(a) Large government deficits cause an economy to grow more slowly.
(b) People work harder if the wage is higher.

(c) The unemployment rate should be less.
(d) Printing too much money causes inflation.
Q.3 The law of scarcity

(a) does not apply to rich developed countries
(b) applies only to the less developed countries
(c) implies that consumers want will be satisfied in a socialistic system
(d) implies that consumers want will never be completely satisfied
Q.4 Which of the following statements is correct?

(a) Employment and economic growth are studied in micro-economics.
(b) Micro economics deals with balance of trade
(c) Economic condition of a section of the people is studied in micro-economics
(d) External value of money is dealt with in micro-economics
Q.5 Which of the following falls under Micro Economics?
(a) National Income (b) General Price level
(c) Factor Pricing (d) National Saving and Investment
Q.6 Which of the following statements are positive statements?

(i) India is overpopulated
(ii) Income from agricultural activities should be taxed
(iii) Middle-class people should be exempted from paying taxes
(iv) There is tremendous tax evasion in India
(a) i and ii (b) i and iii
(c) i and iv (d) iii and iv
Q.7 Macro-economic studies about

(a) Problems, principles and policies relating to full employment of available resources
(b) Problems, principles and policies relating to optimum allocation of resources
(c) Growth of resources
(d) Both a and c
Study the following conversation and answer Q.8 to Q.11

Radhika: Rise in prices of goods have made it difficult to make two ends meet
Sharma: Yes, the cost of cultivation has too increased a lot
Raj: Government should take steps to curb the price rise and provide relief to common man
Bholu: Yes, the government should deal strictly on hoarders and black marketers
Q.8 Whose statement shows positive aspect of Economics?

(a) Radhika (b) Sharma
(c) Both a and b (d) Bholu
Q.9 Whose statement shows normative aspect of Economics?

(a) Sharma (b) Raj
(c) Bholu (d) Both b and c
Q.10 Sharma’s statement in the above conversation shows:
(a) What is (b) What can be
(c) What ought to be (d) What will be
Q.11 Bholu’s statement in the above conversation shows:

(a) What is
(b) What should be the things
(c) What was
Q.12 ________Economics explains the cause and effect relationship between economic phenomena.
(a) Positive (b) Normative
(c) Micro (d) Applied
Q.13 Study of poverty problem and then framing suitable policies to reduce the extent of poverty shows
that economics is
(a) Science and art (b) Positive and normative
(c) Art (d) Science, art, positive and normative
Q.14 Micro economics is the study of:

(a) Individual parts of the economy (b) Economy as a whole
(c) Choice making (d) Development of the economy
Q.15 Economic problems are complex that are affected by

(a) Economic factors (b) Social factors
(c) Political factors (d) All of the above
Q.16 Economics in general means:

(a) Household management
(b) Financial Management
(c) Business management
Q.17 Which of the following micro economic tools can be used to deal with internal business issues?
(a) Demand and Supply (b) Resource allocation
(c) Production and cost analysis (d) all of the above
Q.18 Economics is not a pure science since

(a) Economists do not have uniform opinions
(b) Money used to measure the outcomes in economics is itself a dependent variable
(c) It is not possible to make correct predictions about the behaviour of economic variables
(d) All of the above
Q.19 Select the incorrect option:

(a) Human wants are unlimited (b) Resources are limited
(c) Resources have alternative uses (d) None of the above
Q.20 Which of the following is not within the scope of Business Economics?
(a) Capital Budgeting (b) Investment Decisions
(c) Risk Analysis (d) IND AS
Q.21 According to Alfred Marshall, economics on the one side is the study of wealth and on the other
more important side is a part of study of
(a) Welfare (b) Man
(c) Scarcity (d) Choice
Q.22 Economics is the study of

(a) how society manages its unlimited resources (b) how to reduce our wants until we are satisfied
(c) how society manages its scarce resources (d) how to fully satisfy our unlimited wants
Q.23 Pigou emphasizes social welfare but only that part of it which can be measured with
(a) Satisfaction
(b) Certainty
(c) Money
(d) Utility
Q.24 Which of the following is an example of macroeconomics?
(a) problem of unemployment in India (b) rising price level in the country
(c) increase in disparities of income (d) all of the above
Q.25 Normative economics is based on

(a) ethical considerations (b) facts and generalisation
(c) what is? (d) all of the above
Q.26 State which of the following represents a macro concept from the national point of view?
(a) Balance sheet of Maruti Udyog Limited (b) Growth rate of Indian Industries
(c) Capital-output ratio of Reliance Industries Limited (d) All of the above
Q.27 Positive Science only explains

(a) what is? (b) what ought to be?
(c) what is right or wrong? (d) none of the above
Q.28 What is not included in Economics?

(a) family structure (b) managerial economics
(c) micro economics (d) macro economics
Q.29 Which of the following is the best general definition of the study of Economics?
(a) Inflation and unemployment in a growing economy
(b) Business decision making under foreign competition
(c) Individual and social choice in the face of scarcity
(d) The best way to invest in the stock market
Q.30 Business economics is
(a) normative in nature

(b) interdisciplinary in nature
(c) Both
(d) none
Q.31 Although economic laws are not so exact as the laws of physical science; they are more exact
than the laws of other social sciences because is
(a) is based on ethical and moral principles (b) uses the measuring rod of money
(c) is enforceable such as statutory laws (d) all of the above
Q.32 Economic laws are inexact because the subject matter of economics is based on _______
behaviour.
(a) Collective (b) National
(c) Human (d) Global
Q.33 Economic laws or theories are true only under conditions of

(a) Ceteris Paribus
(b) other things being altered

(c) Measurability
Q.34 Micro economic theory is otherwise called

(a) Income theory (b) Output theory
(c) Price theory (d) Employment theory

(a) What is macro at one point may become micro when it is compared to bigger concepts
(b) National income is micro when it is compared with world income
(c) Compared to national income, state income is micro
(d) All of the above
Q.36 What is the fundamental premise of economics?
(a) Individuals choose the alternatives from which they get the maximum gains
(b) Individuals can set goals and act in a manner consistent with goals
(c) Under all circumstances, individual choice always involves trade off
(d) Natural resources are always scarce
Q.37 Which of the following statements would you consider as normative?
(a) Increase the rate of taxation collect more revenue
(b) Tax the higher income on a higher rate, middle income on moderate rate and lower income
on a lower rate to collect more revenue
(c) Reduce inflation with more unemployment

(d) Tax more people to collect more revenue
Q.38 Robbins definition does not cover the theory of

(a) Scarcity (b) Economic growth
(c) Choice making (d) alternative uses
Q.39 Who said that ‘economics is neutral between ends’?

(a) Adam Smith (b) Robbins
(c) Marshall (d) Pigou
Q.40 Adam Smith published his masterpiece ‘An Enquiry into the Nature and Causes of Wealth of
Nations’ in the year
(a) 1776 (b) 1778
(c) 1786 (d) 1768
Q.41 Scarcity of resources occur due to

(a) high demand of resources (b) absence of substitutes
(c) mismanagement and inequality (d) all of the above
Q.42 ________ defined Business Economics as use of economic analysis in the formulation of business
policies.
(a) Joel Dean (b) Adam Smith
(c) Alfred Marshall (d) Lionel Robbins
Q.43 Rational decision making requires that
(a) one’s choice be arrived at logically and without error

(b) one’s choice be consistent with one’s goal
(c) one’s choice never vary
(d) the consumer plan’s to attains the highest possible level of satisfaction
Q.44 The survival and success of any business depends on sound _________
(a) mind (b) environment
(c) decisions (d) none of these
Q.45 The long run trends in business world are determined by prevailing ______ factors.
(a) micro-economic (b) macro-economic
Unit- Central Problems and Types of Economies
Q.1 The problem of ‘what to produce’ relates to:
(a) choice (and distribution) of produced goods and services
(b) technique of production to produce goods
(c) distribution of income among factors
(d) none of these
Q.2 The objective of macro-economics is to study about:
(a) problems, principles and policies relating to full employment of available resources
(b) problems, principles and policies relating to optimum allocation of resources
(c) growth of resources
(d) both b and c
Q.3 A mixed economy to solve its problems relies on:
(a) economic planning (b) price mechanism
(c) price fixing (d) both a and b
Q.4 The interference of the government is very limited in ________ economy:
(a) socialist (b) capitalist
(c) mixed (d) all of the above

Q.5 Both private and public sectors exist side by side in:
(a) China (b) USA
(c) India (d) Russia
Q.6 In a competitive economy, the uncrowned king is:
(a) government (b) producer
(c) consumer (d) seller
Q.7 A dual system of pricing exists in _______ economy:
(a) capitalist (b) socialist
(c) mixed (d) none of these
Q.8 One of the important features of capitalist economy is:
(a) economic planning (b) price mechanism
(c) economic equalities (d) social welfare
Q.9 ‘During the boom periods when aggregate demand, national income and prices are high,
entrepreneurs tend to make high profits’. This statement shows:
(a) effect of micro-economic variables on macro variables
(b) effect of macro-economic variables on micro variables
(c) interdependence of micro and macro economics
(d) both b and c
Q.10 Social insurance, sickness benefits, old age pension are some social benefits provided by state
in _________ economy:
(a) capitalist
(b) socialist
(c) mixed
(d) both b and c

Q.11 In a capitalist economy what to produce depends on:
(a) government’s policy (b) consumer’s preferences
(c) profits of the firm (d) none of these
Q.12 The economy in which the government allows freedom of action of all economic units is essentially
___________ economy:
(a) socialist (b) mixed
(c) capitalistic (d) none of these
Q.13 Which of the following is not correct about capitalistic system?
(a) too much of waste due to cut throat competition
(b) there is right of private property
(c) conditions are not favourable for equitable distribution of wealth
(d) there is central planning authority
Q.14 Which of the following is not the feature of socialist economy?
(a) economic planning (b) social welfare
(c) private ownership of productive resources (d) economic equalities
Q.15 As compared to other economic systems, inequalities of incomes are relatively less in __________
economic system.
(a) capitalist (b) socialist
(c) mixed (d) none of the above
Q.16 Price- mechanism is an important feature of __________ economy.
(i) market (ii) regulated (iii) mixed (iv) capitalist
(c) i and iii (d) i and iv

Q.17 Consumers and producers make their choices based on the market forces of demand and supply
in _________ economy:
(a) command (b) mixed
(c) capitalist (d) closed
Q.18 The problem of what goods and services are produced and how much is covered by the general
term:
(a) resource allocation (b) choice of technique of production
(c) distribution (d) macro-economics
Q.19 Capital intensive techniques would be chosen in a _________
(a) labour surplus economy where the relative price of capital is lower
(b) capital surplus economy where the relative price of capital is lower
(c) developed economy where technology is better
(d) developing economy where technology is poor
Q.20 Which of the following is considered as a disadvantage of allocating resources in a capitalist

economy?
(a) income will tend to be unevenly distributed
(b) people do not get goods of their choice
(c) men of initiative and enterprise are not rewarded
(d) profits will tend to be low
Q.21 In a free market economy when consumers increase their purchase of a good and the level of
___________ exceeds _______ then prices tend to rise.
(a) demand, supply (b) supply, demand
(c) prices, demand (d) profits, supply
Q.22 A free market economy’s driving force is
(a) profit motive (b) welfare of the people
(c) rising income and levels of living (d) none of the above
Q.23 Which economic system is described by Schumpeter as capitalism in the oxygen tent?
(a) Laissez faire economy (b) Command economy
(c) Mixed economy (d) Agrarian economy
Q.24 Which out of these are the features of capitalism?
(i) Profit motive
(ii) Human Welfare
(iii) Work through price mechanism
(a) I and ii (b) ii and iii
(b) I and iii (d) All of these
Q.25 Which of the following statements is correct?
(a) All economic system deals with the economic problem of scarcity of resources in relation to wants
(b) Economic problem is not the concern of capitalism
(c) Future progress is neglected in dealing with the current economic problem
(d) Mixed economies alone are successful in resolving the economic problem
Q.26 Economic policy based on a nation’s economic philosophy determines the ________
(a) Economic growth (b) Economic development
(c) Economic system (d) Economic relations
Q.27 Two opposite economic systems are
(a) Capitalism and free market economy (b) Capitalism and socialism
(c) Socialism and communism (d) Socialism and mixed economy
Q.28 Methods of competition practiced in capitalist economy
(a) Advertisement (b) discounts
(c) Price cutting (d) all of the above

Q.29 Emergence of _____ is the major drawback of capitalism along with it attended consequences
(a) oligopoly (b) Monopoly
(c) Competition (d) Duopoly
Q.30 The central economic problem in a capitalism system is resolved by
(a) Competitive mechanism (b) Freedom of enterprise
(c) Price mechanism (d) Collective mechanism
Q.31 In a capitalist economy, what provisions should be made for economic growth
(a) Demand and supply (b) Production and cost
(c) Savings and investment (d) Cost and profit
Q.32 Among other things, consumer savings is mainly governed by
(a) Rate of interest (b) Rate of return
(c) Capital availability (d) None of the above
Q.33 In a mixed economy, there is ______ of both private and public enterprise
(a) Co-partnership (b) Co-existence
(c) Co-ownership (d) All of the above
Q.34 Which of the following is/are example/s of socialist economy?
(a) China (b) Cuba
(c) North Korea (d) All of the above
Q.35 Economic systems are classified on the basis of
(a) Role of government (b) Methods of production
(c) Methods of distribution (d) All of the above

Q.1 a Q.2 d Q.3 d Q.4 b Q.5 c
Q.6 c Q.7 c Q.8 b Q.9 d Q.10 d
Q.11 b Q.12 c Q.13 d Q.14 c Q.15 b

Q.16 d Q.17 c Q.18 a Q.19 b Q.20 a
Q.21 a Q.22 a Q.23 c Q.24 c Q.25 a
Q.26 c Q.27 b Q.27 d Q.29 b Q.30 c
Q.31 c Q.32 a Q.33 b Q.34 d Q.35 d

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Unit- Demand

For Q.1-4, refer the following demand equation: Q = 180 – 6p

Q.1 At what price no one would be willing to buy the commodity?

(a) 180 (b) 160

(c) 140 (d) 120

(a) 180 (b) 174

(c) 190 (d) 186

Q.5 Income effect operates when there is an:

(a) increase in real income due to fall in price of commodity

(b) increase in real income due to rise in price of commodity

(c) increase in real income due to fall in demand of commodity

Q.6 For goods with less elastic demand:

(d) none of the above

(a) variety of uses of that good

(b) its low price

(c) close substitutes for that good

(d) high proportion of the consumer’s income spent on it

exports in foreign market is:

(a) elastic (b) inelastic

(c) perfectly inelastic (d) unitary elastic

(a) less elastic (b) perfectly elastic

(c) perfectly inelastic (d) more elastic

Q.10 If demand is _________ then price cuts will __________ spending.

(a) perfectly inelastic, increase (b) elastic, increase

(c) elastic, decrease (d) none of the above

(a) 2 (b) 0.75

(c) 1 (d) infinite

consumers of the good to:

(a) remain the same

(d) none of these

value of Ed and what shape the demand curve will take?

of demand of this product is:

(a) 0 (b) >1

(c) <1 (d) 1

Q.15 Point elasticity is useful for which of the following situations?

(b) Lakme is considering lowering the price of its lipsticks by 50%

(d) none of the above

(a) proportionate method (b) geometric method

(c) total expenditure method (d) arc elasticity

(a) proportionate method (b) geometric method

(c) total expenditure method (d) arc elasticity

For Q.18-20, refer the following information

Quantity Total outlay (Rs)

Q.20 Using percentage method, the price elasticity of demand is

(a) 1.5 (b) 2

(c) 2.5 (d) 3

(a) 10%, 5% (b) 5%, 10%

(c) 10%, 15% (d) 15%, 20%

Consider the following diagram to answer Q.22-23

Q.22 At a price of OP the total expenditure of the consumer is:

(d) none of the above

(a) OCRP1 (b) OBTP

(c) BCRT (d) none of the above

Q.24 Salt, match box, etc are _______ goods as Σy=0.

(a) neutral (b) necessary

(c) luxury (d) none of the above

Consider the following information and answer Q.25-26

Price elasticity= 1.50

Income elasticity= 0.50

(a) more (b) less

Q.10 If demand is _ then price cuts will __ spending.