MBM21C02: Business Economics

1.6 Multiple Choice Questions

1) Consider the following example.

Labour Costs: Rs. 7000.
Material Costs: Rs. 12,000.
Overhead Expenses: Rs.4500.
Selling Costs: 2000.
Administrative Costs: Rs.2000.
Assume that the incremental production can bring incremental revenue worth Rs. 22,000.
The firm has some idle capacity to the extent of manpower and overhead charges and
administrative cost worth Rs. 6000, 2000 and 4000 respectively. What is your decision on
additional production.?

a) No additional production
b) Go for additional production.
c) Go for additional production as profit is 15,500
d) No additional production due to loss worth 12,000

2) If TRn, TRn-1, TCn and TCn-1 are 800, 110 % of TRn, 500, and 116 % of TCn, is the firm in
equilibrium?
a) No b) Uncertain c) Information on fixed cost is required d) yes.

3) If the variable cost of producing one more unit of output is 50, what is the right concept
here?
a) Marginal b) Marginal cost c) Incremental cost d) Additional cost

4) Assume that ginger cultivators in South India decided to cultivate more area as the price of
the same in the previous year was above normal. This year there is a bumper crop of ginger.
What is the nature of elasticity?
a) Relatively elastic b) Elastic c) Inelastic d) Unitary elastic

5) If expected flow of income in the first, second, and third years are 4500,500, and 5500
respectively at a discount rate of 5% per annum, find out the sum of PV.
a) 4751 b) 4285 c) 9286 d) 13, 572.

6) If an investor has the options of investing in a bond with 6 % of interest or investing ina
share with 20 % return with 0.25 probability, which is a better option?
a) Bond b) Fixed deposit in a bank c) Share d) a & b.

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7) If an investor considers investment opportunities in 20 portfolios, the consideration of the

best alternative portfolio is called
a) Alternative investment b) Minimising risk
c) Opportunity cost d) Diversifying risk

8) Which of the following are associated with long term profitability?

i) No close substitutes ii) Weak entry barriers

iii) Weak market rivalry iv) Low market power of consumers,
v) Abundant complementary products vi) Harmful government intervention.

Codes
a) i, ii, and vi b) All except i, ii, and vi
c) i to v d) iii to vi.

9) The method of choosing a maximum level of output at a given cost or maximising the
difference between TR and TC is known as

a) Optimising b) Maximising c) Minimising d) Duality

10) Manager’s decision under a protectionist or liberalised regime is known as

a) Business practice b) Business option c) Business tactics d) a & c. d

11) The system of explaining the operation of industries is called as

a) Industrial organisation b) Meso level c) Macro d) a & b.

12) Introduction of smartphones in the mobile market is an example for

a) Business tactics b) Business strategic decisions
c) b & d d) Dynamism of business
13) If a bird represents a micro environment, what does a group of birds represent?
a) Meso b) Macro c) Micro d) Atmosphere
14) Out of the following, what is not applicable to Managerial Economics?

a) Not based on rules and principles b) Accounts international environment

c) Use tools from Mathematics and Statistics d) Identifies problems and tries to solve them.

15) Choose the correct sequence from the following.

a) Model, data collection, defining problem, test the model, interpretation.
b) Data collection, defining problem, model, interpretation, test the model.
c) Defining problem, model, data collection, test the model, interpretation.
d) Data collection, defining problem, test the model, interpretation, model.

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16) The composition of different market forms like perfect competition, monopoly, oligopoly
etc. are named as
a) Competition b) Structure of an economy
c) Monopolistic competition d) market structure

17) What are the main requirements for understanding the complexity of the market?
i) Pricing strategy ii) Understand customer demand
iii) Neglect competition factors iv) Know the magnitude of the elasticity of demand
v) Need not set the prices.
Choose the correct code:
a) All the above. b) 1,2,3, and 5 c) 1, 2, and 4 d) All except 3.
18) What are the important ingredients of market theory?
a) Market, subsidy, supply and NGO.
b) Market, supply, demand, and competition
c) Market, supply, demand and lack of competition
d) Market, demand , employment and transfer payments.

19) Match the following:

I II
i) Gather data A. Interdisciplinary
ii) Psychology & statistics B. Intuition of the managerial economist
iii) Unforeseen market situation C. Setting goals
iv) Experience & insights D. Rent seeking
E. Decision making
Codes
A B C D E A B C D E
a) iv iii i ii b) ii iii i iv
c) iii iv ii i d) iv i iii i

20) Match the following:

I II
A. C > B i) Economics
B. Discounting the benefits ii) Reduce price
C. More elastic demand iii) Ranking of investment
D. Description iv) Cost-benefit analysis

Codes
A B C D A B C D
a) ii iv i iii c) iv i iii ii
b) i ii iv iii d) iii iv ii i
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21) Why is the rate of interest important for an organisation?

a) It determines the cost of borrowing.
b) It offers income to depositors
c) It affects consumer demand for durable goods.
d) a and c.
22) Of the following, what is to be considered before conducting economic analysis of a
showroom or plant?

1) Familiar with location specific socio-economic feature

2) Assess business factors.
3) Decide to open the showroom.
4) Have adjustments for reaching a better position.
Codes:
a) 1 and 2 b) 1 and 4 c) 1 to 3 d) 2 and 3.

23) What is common in consumer equilibrium, producer equilibrium and marke equilibrium?
a) Equilibrium b) Optimisation c) Maximisation d. Minimisation

24) Identify the odd item from the following:

a) Consumption b) Investment c) Net Exports d) Fishing

25) What are the important determinants of stability of an economy?

i) Inflation ii) Low inflation iii) Volatile exchange rate
iv) High growth rate v) High growth with low inflation
vi) No inflation vii) Low current account deficit viii) Fiscal deficit < 3.
Codes
a) ii, v, vii, and viii b) i, iii, iv, and vii. C) All except iv d) i to iv.

26) Which of the following is not part of inclusivity?

i) Admitting more people into bank accounts ii) More loans are delivered
iii) More foreign exchanges are provided to citizens
iv) More employment are provided to the poor
v) Provision of subsidised food to targeted group
vi) Payment of part of salary which is the result of new employment
vii) General subsidy to increase the use of LPG
Codes
a) iii and vii only b) All except vii c) All except I and vi d) I to vi except iii.

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27) Headline inflation refers to

a) Rise in price of leading items b) Rise in price of food items
c) Rise in price is so high that it creates headache to people
d) Increase in price of food and energy items d

28) What are the leading export items from India?

i) Machinery ii) Light engineering goods iii) Telecommunications and IT services
iv) Electronic goods v) Personal services vi) Cultural services vii) Solar energy.
Codes
a) All except vi b) iii, v and vi c) i,iii,v, and vii d) i, ii, v, and vi.

29) The inflation that does not deal with food and energy is called
a) non-food inflation b) Core inflation c) oil inflation d) Medi Inflation

30) When net exports are positive, it implies

a) Exports > Imports b) Exports > Imports + FDI

c) Exports < imports – foreign exchange d) Current account deficit

31) What is common in the domestic economy and external sector in India?
a) Oil based economy b) Less use of manpower
c) Domination of service sector d) Low level of growth

32) Match the following:

I II
A. PLFS i. Aged 15 – 64 years
B. LFPR ii. Worker force participation
C. WPR iii. Unemployment and labour force
D. Unemployment iv. Employment and unemployment
v. CWS
Codes:
A B C D A B C D
a. iv i ii iii c. i ii iii v
c. v iv i ii d. iii i iv v

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33) Match the following:

I II
A. Money Income/Px 1) Tangency between budget line and indifference curve
B. Consumer equilibrium 2) Capital and labour
C. Isoquant 3) price of capital and labour
D. Iso-cost line 4) Quantity of X if Y = 0.

Codes:
1 2 3 4 1 2 3 4
a) C B A D b) B C D A
c) A D B C d) D C A B

34) If P, Q, TVC, and TFC are 100, 250, 7500, and 15, 000 respectively, find out the profit.
a) 25,000 b) 5000 c) 2500 d) 17500

35) Graphically, how does a manager fix the maximum level of profit?
a) TR = TC b) Maximum vertical distance between TR and TC.

c)TR > TC d) Maximum vertical distance between TR and TC provided TR > TC

36) What was the growth of the advanced economies in 2023?

a) 1.6 b) 1.9 c) 3.5 d) 3.2

37) What was the share of exports and imports as a percentage of GDP in India in 2020-21?
a) 21.5 and 2.64 b) 24.15 & 21.5 c) 21.5 & 24.5 d) 44 .5 c
37) What was the share of household savings in physical investment as a percentage of GDP in
India in 2023-24?
a) 12. 9 b) 10.8 c) 11.5 d) 12

38) Which are the contributors to capital formation in India?

a) Private sector and public sector b) Central and state governments
c) Private sector and household d) Private, household and public sectors

39) Assertion: There is a decline in fiscal deficit and increase in capital outlay between 2018-19
and 2022-23.
Reason: Revenue deficit decreased from 70% in 2018-19 to 61.6 % in 2022-23.
a) A is correct but R is false.
b) Both A and R are true, and R is the correct explanation of A. b
c) Both A and R are false d) Both A and R are true but R is not the correct explanation of
A.

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40) Which of the following countries had higher growth than India during 2022-24?
a) UAE b) Germany c) UK d) Mexico

41) What is/are not the component(s) of the Macroeconomic Vulnerability Index?
a) Inflation b) Current account deficit c) a & primary deficit d) Fiscal deficit

42) What was the growth in bank credit in 2022-23 in India?

a) 20.2 % b) 15 % c) 12 % d) 25%

43) What are the items which are not part of digital infrastructure in India?
1) UMUNG 2) CSCs 3) UPI 4) ADHARAM 5) Digilocker 6) Network Infrastructure 7)
SIP
Codes:
a) 4 and 7 only b) All except 5 c) 1,5 and 7 d) 1 to 5.
44) Which of the following is not part of capital market in India?

a) NIFTY b) Mutual Funds c) ASI d) Market Capitalisation.

45) Find out the mismatch as per Economic Survey, 2023.

a) Factories employing > 100 workers - CAGR = 11.8 % between 2017-18 and 2021-22.
b) Factories employing < 100 workers - CAGR = 11.8 % between 2017-18 and 2021-22.
c) Job Requirements in 2024: 78 lakhs
d) Share of agriculture and allied sectors I India in 2022-23 : 18 %.
46) Assertion: Coal imports to India increased between 2013-14 and 2023-24
Reason: Coal production declined between 2013-14 and 2023-24.

a. Both are true but R is not the correct explanation of A.

b. A is true but R is wrong.
c. Both are false
d. Both are true but R is the correct explanation of A.

47) The share of services exports from India in the global service exports is
a) > 4% b) 4% c) 2% d) 6%

48) What is the size of installed GCC talent as per Economic Survey, 2023?
a) 2940 b) 1659 c) 165,9, 000 d) 1800

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49) What is (are) the factor(s) that determine the gross value chain in India?
a) Increase in the share of India based medium and high technology manufacturing
b) High value added services in the service sector.
c) More share of the finished goods. D) All of the above.

50) What is the importance of GIFT city in India/

a) Leading financial centre. b) Leading industrial centre.
c) International financial centre d) Deaklin University centre.

51) What is the financial inclusion index in India?

a) 64.2% b) 60% c) 70% d) 59%

52) Match the following:

I II
A. SWACHH Bharat Mission i) Clean water
B. Jal Jeevan Mission ii) Hospital Administration
C. Ujjwala Yojana iii) Gas Connection
D. Ayushman Bharat Scheme iv) Sanitation
E. Awas Yojana v) Pukka House
vi) Tap Water.
Codes:

A B C D E A B C D E
a) iii v i iv ii b) vi ii v iii iv
c) iv vi iii ii v d) iv i ii iv vi

53) Assertion : Ukraine war occurred very recently

Reason : There was low inflation in India in 2022-23.
Codes:
a. Both are true but R is not the correct explanation of A
b. A is true but R is wrong.
c. Both are false
d. Both are true but R is the correct explanation of A.

54) What is the reason for the relative stability of core inflation in India?

a) Discount rate b) Effectiveness of repo rate

c) Relative effectiveness of the reverse rate d) Stability of lending rate.

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55) Pick out the odd item from the following.

a) Monetary policy transmission mechanism b) National Health Mission

c) Subsidy d) Import duty

56) Pick out the items not applicable to a stable market friendly environment from the following:
1) Boosting private sector investment 2) Encouraging MNCs
3) Promoting market friendly agriculture 4) Financing green transition
5) Disconnect education from employment 6) Maintain state capability.
Codes:
a) 1 to 5 b) 2 and 5 c) 3 to 6 d) 1, 4, and 5.
57) What are the policies that the Indian Government design to promote short to medium growth
in India from the following?
1) More employment 2) Skill formation 3) Easing funding constraints for MSMEs
4) Strengthen imports 5) promote health of old people 6) Expansion of the non-farm sector.

Codes:
a) All except 4 and 5 b) 6 only c) 1 to 5 d) 1 and 6 only
58) What is common with the Paris Conference?
a) Tree cover b) Emission intensity c) Solar energy d) All the above.

59) What is the total outlay for the PM Surya Ghar Yojana?
a) 75, 021 cr. b) 65, 021 cr. c) 95, 155 cr. d) 110,250 cr.

60) What is the treatment gap relating to mental health in India?

a) 70 to 92% b) 81% c) 85% d) 80%

61) What is the major problem with gig workers in India?

a) Absence of insurance scheme b) Absence of PF scheme
c) Absence of gratuity scheme d) Absence of social security scheme

62) LHPR (CWS) was -- in 2017-18 and WPR (CWS) was – in 2022-23.
a) 51.8 and 48.4 respectively b) 48.4 and 51.8 respectively
c) 49.8 and 56 respectively d) 57.9 and 54.6 respectively

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63) Choose the correct statement from the following:

a) There is no difference between ownership and management in partnership but it is not so
in the case of a corporation.
b) There is no lack of perpetuity in sole proprietorship but perpetuity is possible under
cooperatives.
c) Profit shared by agreed ratio in cooperatives but there is mixed income under partnership.
d) Succession is easier under sole proprietorship unlike under corporation.

64) Choose the mismatching item from the following:

a) Unlimited liability : Partnership
b) Limited resource mobilisation capacity : Cooperatives.
c) Extent of control by the size of the shares: Corporation
d) Customer as investor: Cooperatives.

Key to MCQs (Unit I)

1) c 11) c 21) d 31) c 41) c 51) a 61) d

2) d 12) c 22) a 32) a 42) a 52) c 62) b
3) b 13) c 23) b 33) b 43) a 53) a 63) a
4) a 14) a 24) d 34) c 44) c 54) b 64) b
5) d 15) c 25) a 35) d 45) b 55) b
6) a 16) d 26) d 36) a 46) c 56) b
7) c 17) c 27) d 37) a 47) a 57) a
8) b 18) b 28) b 38) d 48) c 58) d
9) a 19) c 29) b 39) b 49) d 59) a
10) d 20) d 30) a 40) a 50) c 60) a

1.7. Thought Provoking Questions

1. The Government of India is trying to promote the production of e-vehicles (EVs) in
India. There is a counter argument that the power used by the EVs are mainly
generated by thermal power units which are mainly using coal as a fuel, which
increases the carbon emission. How can you balance these two scenarios?

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Follow the same method to forecast sales for other quarters.

Quarter two a^ + b^ * 18 + c^2 = 139,625 + 2737.5 * 18 – 58775 = 130,125.
Quarter three a^ + b^ * 19 + c^3 = 139,625 + 2737.5 * 19 - 62013 = 129, 624.5.
Quarter four a^ + b^ * 20 = 139,625 + 2737.5 * 20= 194, 375.
Dummy variable technique can be used not only to seasonal variations but also to monthly,
weekly, or variations due to war, natural calamity etc. for forecasting.
As noted already, demand estimation is crucially related to the computation of elasticity of
demand. This issue is addressed in the next section.

2.8. Summary and Conclusion

● The learners of unit 2 are really earned knowledge in the following areas:
● To define demand law and derive demand curves based on indifference curve analysis;
● Developed capability in demand estimation and forecasting; and
● Compute various elasticities of demand, which are crucial in decision making.

2.9 Multiple Choice Questions

1) What is not applicable to demand, out of the following?

i) Thomas wishes to possess a car
ii) Thomas is a miser
iii) Thomas belongs to above poverty line group
iv) The current price of the car is 5 lakhs
v) Thomas is waiting for offers during the festive season.
Codes
a) All the above b) i and iii c) iv and v d) b and c.

2) Pick out the odd item

a) General demand b) Direct demand c) Demand by trade union d) Inverse demand
3) Assertion: The income elasticity of used fridge is negative
Reason: Income of consumers came down
Codes
a) Both A and R are false b) Both are correct, and R is the correct explanation of the A
b) A is correct but R is wrong d) Both are correct, but R is not the exact explanation.

4) Pick out the correct pair:

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a) Increase in Px leads to rise in demand for Qy : Substitutes

b) Increase in Px leads to rise in demand for Qy : Normal goods
c) Change in taste or preferences: No change in demand
d) Expectations of rise in price of commodity: Fall in current demand

5) Pick out the wrong statement:

a) Price and quantity demanded of a normal good are inversely related while income
and quantity demanded of a used good is also inverse.
b) Change in price of a related good has a direct relation to the other good.
c) Quantity demands of a good and taste & preferences are directly related.
d) Quantity demanded and expected rise in prices are directly related.

6) If demand is Qd = 4000 – 2P, what is quantity demanded if P = 0?

a) 3500 b) 4000 c) 2000 d) 7000

7) Why is demand estimation important for managers?

a) It facilitates production management
b) It leads to decision making based on deductive reasoning.
c) Decisions can be taken without field level data.
d) The manager tries to learn the impact on sales due to differences in price, income,
related goods etc.

8) Whether stopping consumers is a kind of consumer interview method?

a) No b) Not necessary c) Yes d) Such a method is not in vogue.

9) Assume that a population consists of 51 % females and the income of the 31 %

respondents in the study context have an income more than 50.000. How will you draw
the sample?
a) 81 % b) 51 % females and 30 % with income > 50,000
c) 49 % males and 70 % with income below 50,000
d) Only females with income > 50,000
10) What is the possible failure for the exit poll prediction in Haryana State Assembly
Election
in 2024?
a) Biased sampling b) Random sampling c) Probability sampling d) a and b

11) Suppose that a wrong question was asked to consumers so that the answer was also
irrelevant. This is known as
a) Wrong response b) Response bias c) Neutral response d) Convenient response

12) The inability of the consumers to respond to technical questions is called

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a) Constraints in consumer survey b) Consumers are illiterate

c) The sample is biased d) Questionnaire was not correctly set

13) Suppose that sales data shows that there is a surge in the third quarter of every year. In
this context, identify the relevant demand estimation function.
a) Q = a + bt b) Q = a^ + b^t c) Q = a + bt + c d) Qt = a + bt + cD

14) What is the technique used to study periodic variations in sales?

a) Dummy variable technique b) t test c) R^2 d) F test
15) Why do all points along an indifference curve (IC) have the same level of satisfaction?
a) When y increases x also increases
b) As x added by a specific quantity, the quantity of y decreases
c) x and y are not substitutes d) x is substituted at an increasing rate

16) When x increases at a constant quantity and y decreases at diminishing quantity, what is
the shape of an IC?
a) Convex b) Linear c) Concave d) U shaped.

17) When the consumer moves from point B to C along an IC, the y and x change from 15 to
12, and 5 to 7 respectively, what is the marginal rate of substitution?
a) -3/2 b) Δy/Δx c) Δx/Δy d) a and b

18) If y and x are 30 and 12 respectively at a point, on an IC, what is the slope of the IC?
a) MRSxy b) 2.5 c) 5.3 d) a and b

19) How can one person represent a higher level of satisfaction?

a) IC map b) Draw a Tangent at IC curve
c) Intersection of two ICs d) Midpoint of an IC.

20) Trace transitivity principle from the following.

a) I1 = I2 b) I1 > I2 c) I1 < I2 d) I1 < I2 < I3

21) Why do two ICs not intersect?

a) Transitivity b) IC has L shape
c) All points are same along the same IC but will be different on different ICs d) a & c
22) Find out change in utility (ΔU) from the following.
Mux = 25, Δx= 4, Muy = 14 and Δy = --2
a) – 28 b) 72 c) –72 d) 70

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23) If -- Δy/Δx = Mux/Muy, what is ΔU?

a) 0 b) 1 c) 10 d) > 1

24) If income (M), Px , x and Py are 2000, 40, 35 and 25 respectively, find out y.
a) 26 b) 30 c) 24 d) 32

25) Match the following:

I II
i) Px/Py A) Non-station
ii) A> B, B > C, A > C B) IC
iii) Higher quantity of consumer durables C) Transitivity
iv) Combination of two goods D) Slope of budget line
E) Slope of IC
Codes
A B C D E A B C D E
a) i ii iv iii b) i iv ii iii
b) i ii iii iv d) iii iv ii i

26) If the initial budget line has a position with income (M) = 3000, Px = 30, py = 60, what
happens to the vertical intercept and horizontal intercept once Px = 50?
a) 50, 60 b) 100, 50 c) 50, 100 d) 50, 75

27) If Px decreases, what happens to the budget line?

a) Shifts to right b) Shifts to left c) Becomes steeper d) b and c

28) If Pb and Pa are the price of banana and apple respectively, and Pb/Pa = 1/2, what does it
indicate?
a) One apple is half of banana b) One banana is half an apple
c) The consumer must sacrifice ½ of the apple to get one more unit of banana
d) The consumer must give up 2 units of apple.
29) A point above/ below the tangency point between budget line and an isoquant indicates
a) Higher satisfaction /lower satisfaction b) Inaccessible /lower satisfaction position
c) It is required to shift the equilibrium position d) Neglects tangency point
30) If MRSxy = Px/Py, what does it imply?
a) Slope of isoquant b) Slope of the budget line
c) Consumer equilibrium d) All of the above.

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31) If the slope at consumer equilibrium is equal to ½, a position where MRSxy > ½ implies
a) Less utility b) Higher utility c) Close to equilibrium d) same utility
32) Consumer optimisation refers to
a) Mux/ Px = Muy/Py b) MRS = -- Δy/Δx c) -- Δy/Δx = MUx/MUy d) All of the above
33) consider the following facts:
M = 600; Px = 10; Py = 12; MUx = 35 and MUy = 36. Shall the consumer need to
reallocate the money? If so, in favour of which commodity.
a) Increase purchase of x b) Decrease purchase of y
c) Increase purchase of x keeping y constant d) a and b
34) In N goods case, what is the condition of equilibrium?
a) MU1/P1 = …… = MUn/Pn b) MU1 = ……… = MUn
c) P1/MU1 = …….. = Pn/MUn d) Δx 1/P1 =…. = Δxn/Pn.
35) A shift in consumer equilibrium due to change in Px enables a person to draw a
a) Budget line b) Demand curve c) Supply curve d) a and b
36) Why is a manager more interested in market demand than in individual demand?
a) Individual demand is very tricky b) Individual demand is not a matter for market demand
c) The manager looks at the general trend rather than individual variations
d) Individual demand is a private matter.
37) Which of the following is/are applicable to demand price?
i) It is related to market demand ii) It is the economic value to consumers of that unit
iii) It is the minimum price that consumers are ready to pay for a particular unit of a good
Iv) The monetary value of the benefit to purchasers of that quantity of the
commodity.
Codes:
a) I and iii b) iii and iv c) I, ii and iv d) i alone
38) If the absolute value of elasticity of demand is > 1, -- effect will be more than --- effect.
a) Output, price b) Price, output c) income, price d) price, income
39) When IEpdI = 1, -- effect will be less/equal to --- effect.
a) Output, price b) Price, output c) Both effects are same d) TR, price
40) Assertion: Arc elasticity measures demand responsiveness over a range of sales

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Reason: The change in price is large

a) Both A and R are false b) Both are correct, and R is the correct explanation of the A
c) A is correct but R is wrong d) Both are correct, but R is not the exact explanation.
41) Match the following:
I II
A) ΔQ/ΔP * Average P/Average Q i) Arc income elasticity
B) ΔQ/ΔP * P /Q ii) Cross elasticity
C) ΔQx/ΔPR * P R/Qx iii) Arc price elasticity
D) ΔQx/ΔM * M/ Qx iv) Point elasticity
v) Point income elasticity
Codes
A B C D A B C D
a) iii iv ii v c) v iii i ii
b) iv i iii ii d) ii iii v iv
42) Compute Arc elasticity from the following:
Original New
Price 15 10
Quantity 90 120

a) - 1 b) 0.71 c) -0.271 d) – 0.71

43) If the demand function is Q = a + bP + cM -- + dP—R , what is point elasticity?

a) ΔQ/ΔP b) b*p/Q c) a*P/Q d) c * M/P
44 ) If Q = 3000 – 150P, what is 𝐸𝑝𝑑at P = 15
a) - 3 b) 2.5 c) -1 d) 1.5

45) If the intercept, P and slope of a demand function are 2000, 20 and -40 respectively,
compute the 𝐸𝑝𝑑

a) 0.75 b) 0.62 c) -0.67 d) 0.72

∆𝑃 5
46.) If ∆𝑄
= -- - 2 , P = 50 and Q = 20, what is price elasticity of demand?

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a) 1.5 b) -1 c) 2.5 d) 0.75

47 ) Pick out the correct statement from the following:

∆𝑄
a) ∆𝑃
is not constant along a linear demand curve.
b) The proportional rate of change in Q as P changes, differs along a linear demand
curve.
∆𝑄
c) Even if ∆𝑃
is constant P/Q is constant
d) The absolute value of elasticity increases as price falls.

𝑏
48 ) In Q = 𝑎𝑝 , what is the price elasticity of demand?
𝑃 𝑄 𝑃
a) b b) ln b c) b - 𝑎
d) 𝑎
. 𝑏

49 ) Marginal Revenue is
a) The slope of the TR function
b) The addition to the TR (∆TR)
c) Equal to the price when the first unit is produced
d) All the above

50 ) Difference between MR and infra marginal units (IMUs)

a) MR is the addition to TR due to lowering prices while IMUs represent the sales unit
that would have been sold at a higher price.
b) IMU is another term for MR.
c) MR = Price – Revenue lost by reducing price on the IMUs
d) a & c

51 ) What happens to TR when MR is zero and negative?

a) TR becomes constant and declines.
b) TR still increases but at a slower rate
c) TR also becomes zero and negative
d) TR becomes constant and turns upward later.

52 ) When revenue from IMUs is greater than revenue of the nth unit, what happens to the
MR?
a) Zero b) Positive c) Negative d) Turns Down

53 ) Suppose that TR and Q change from 50 to 70 and 15 to 20 respectively, what is the per
unit change in TR.
a) 3.5 b) 2.5 c) 5 d) 4

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54 ) If P = A +BQ (𝐴 > 0 & 𝐵 < 0)What is MR?

𝐵
a) A + 𝑃
𝑄 b) A + 2BQ c) 2A + BQ d) 2A + 2BQ

55 ) Match the following:

I II
A. TR increases when P decreases & Q i. Unitary
increases
B. TR decreases when P↓ and Q↑ ii. Infinity
C. When MR is Zero then TR remains same iii. Elastic

D. P (1 +
1
) iv. Inelastic
𝐸𝑝𝑑

v. MR

Codes

A B C D
a) iii v ii iv
b) iii iv i v
c) i ii v iv
d) ii iii iv v

56 ) If 𝐸𝑝𝑑 = -2.5, what is MR at P=5?

a) 3 b) 3.5 c) 2.5 d) 4.5

𝑃
57 ) When the 𝑃−𝐴
equation of elasticity and MR equation are used separately, what is the
difference in MR?
a) Double b) No difference c) Half d) Former one is
negative

58 ) Choose the incorrect pair from the following:

a) |𝐸𝑝𝑑| > 1: MR +ve
b) |𝐸𝑝𝑑| < 1: MR -ve

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c) |𝐸𝑝𝑑| = 1: MR is maximum
𝑃
d) |𝐸𝑝𝑑| : 𝑃−𝐴

59 ) Choose the correct pair from the following:

a) Income elasticity (𝐸𝑚𝑑) is positive: Inferior
b) Emd is negative: Normal
𝑀
c) c𝑄 (M = income): Arc income elasticity
∆𝑄 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑀
d) ∆𝑀
. 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑄
: Interval income elasticity

60 ) If original income and current income of the households in general are 60,000 and
75,000 respectively, find out the income elasticity and demand when original and current
quantity demand are 200 and 500 respectively:
a) 3.857 b) 4.892 c) 6 d) 2.94

61 ) Compute income elasticity from the following data and interpret it:

Original New
Income 40,000 50,000
Quantity Demanded 500 350

a) -2.95, Normal Good b) 1.59, Normal Good c) -1.2,

Inferior Good
d) 3.25, Giffen Good

62 ) Choose the mismatched Pair:

∆𝑄𝑥 𝑃𝑅
a) ∆𝑃𝑅
x 𝑄𝑋
: Income Elasticity
∆𝑄𝑥 𝑃𝑅
b) ∆𝑃𝑅
x 𝑄𝑋
= (+) : Substitutes
∆𝑄𝑥 𝑃𝑅
c) ∆𝑃𝑅
x 𝑄𝑋
= (-) : Compliments
∆𝑄𝑥 𝑃𝑅
d) ∆𝑃𝑅
x 𝑄𝑋
= (0) : Independent Goods

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63 ) Given the demand function that Q = 50,000 – 700 P + 0.70M + 500 𝑃𝐿 – 525 𝑃𝑃 where
P, M, 𝑃𝐿, and 𝑃𝑃 are 70, 60000, 40 and 10 respectively. Find out the cross elasticity with
respect to 𝑃𝐿 & 𝑃𝑃:
a) 0.346 & 4 b) 0.346 & - 0.090 c) 3.46 & -5 d) -2.46 & 0.090

64 ) Pick out the odd item in this case of 𝐸𝑃𝐷

a) Availability of substitutes b) Share of consumers budget c) Sugar & Diabetic patients
e) d) Time period of Adjustment.

65 ) Choose the correct pair:

a) Better substitutes: Sugar
b) Poor substitutes: Fruits
c) Increase in the price of Milma milk alone: Inelastic
d) Increase in the price of Milk: Inelastic

66 ) Why does demand for a car elastic?

a) No Petrol
b) High share of income needed to be spent on it
c) Small share of income needed to be spent on it
d) Its demand is relative

67 ) Suppose that the government wants to study the impact of diesel price hike on its
demand, its estimation should be done:
a) After some time b) Immediately c) After an year d) After 2 years

68 ) If the cross elasticity of demand between two goods is -0.21, what will be the impact on
demand for one good provided the price of the second good is raised by 5%?
a) Increase in sales by 10%
b) Increase in sales by 2%
c) Decrease in sales of first good by 1%
d) Decrease in sales by 1%

69 ) The method of studying the sensitiveness of buyers to a change in price after controlling
all the other revenant variable is known as:
a) Controlled market study b) Market Survey c) Experimental Studies
d) a & c

70 ) Experimental studies require the items of the following:

1)Advertisements

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2) Keep Exogenous variables constant

3) Sufficient stock in the stores
4) Heterogenous location
5) Actual measurement of the demand curve.

Codes:
a) 1 to 4 b) 2 and 5 c) 2,3 and 4 d) 1,4 and 5

71) Pick out the mismatch pair

a) Experiments in a laboratory or field: Compromise of market study and survey
b) Demonstration of actual buying: Laboratory experiments
c) Token economy: Exchanged for commodities
d) Shifting from the laboratory to the real field: Slow speed computers with less capacity

72) Which are the factors that influence the estimation of demand function, out of the
following?
1) Geographic boundaries
2) Prices of independent goods
3) Stagnant market
4) Size of population
5) Local level data on household income

Codes:
a) 1, 4 and 5 b) 2 & 3 c) 3 to 5 d) 1 & 3

73) Consider the following demand function:

Q = a + bP + cM + dPr + eN where P, M, Pr and N stand for own price, money income,
price of related goods and population size respectively. Identify the correct pair:

∆𝑄 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑐𝑜𝑚𝑒 ∆𝑄 ∆𝑄
a) b = ∆𝑃𝑟
b) c = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑄𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝐷𝑒𝑚𝑎𝑛𝑑𝑒𝑑
c) e = ∆𝑁
d) a = ∆𝑃
=1

74) Match the following based on question in 73:

I II
A |𝐸^𝑝𝑑| i c^ * M/Q

B 𝐸𝑝𝑑 ii d * PR/Qx
C 𝐸^𝑚𝑑 iii b^+ P/Q

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D 𝐸𝑥𝑝 iv B+ P/Q
v b*P/Q

Codes
A B C D
a iii v i ii
b v iii i iv
c v iv ii i
d i ii v iii

Answer Keys:
1) a 2) c 3) b 4) a 5) b 6) b 7)d 8) c 9) b 10) a 11)b 12) a 13)d 14) a 15) b 16) a
17) d 18) d 19) a 20) d 21) d 22) b 23) a 24) c 25) d 26) a 27) a 28) c 29) b 30) d
31) a 32) d 33) d 34) a 35) d 36) c 37) c 38)a 39) c 40) b 41) a 42) a 43) b 44) a
45) c 46) b 47) b 48) a 49) d 50) d 51) a 52) c 53) d 54) b 55) b 56) a 57) b 58) c 59) d
60) c 61) c 62) a 63) b 64) c 65) d 66) b 67) a 68) c 69) d 70) c 71) d 72) a 73) b 74)a

2.10. Thought Provoking Questions

1. Used car market is expanding in Kerala. It has the attraction of low price, but quality
is an issue. Comment on this dimension of the used Car market in the light of income
and cross elasticity of demand.
2. In Northern India, consumer durables get an extra demand in the month of
November every year. This occurs during the Holi season too. Discuss this
phenomenon in the context of demand forecasting.

2.11 Case Study/Caselets/Application Questions

In the 1990’s and 2000’s demand for flats in Kerala had been boosting up. In recent
years, it seems that it has reached a stagnant level. This may be verified in your

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