II SEMESTER; DEPARTMENT OF ECONOMICS;

OBJECTIVES
NAME OF THE PAPER: MICROECONOMICS-II

SECTION – A
MULTIPLE CHOICE QUESTIONS

UNIT-I

1.
The former is a wider concept than the latter b) The latter is a wider concept than the
former
c) Both concept mean the same thing d) All of the above

2. The concept of Quasi-rent mean

The rent to the workers b) The rent shared by the Landlord and workers
c) The interest paid to the entrepreneur
d) The return to a factor of production which is fixed in supply in the short period

3. The return to a factor of production which is fixed in supply in the short period is called
Scarcity rent b) Economic rent
c) Quasi-rent d) Contractual rent

4. The marginal productivity theory of distribution was firstly formulated in its complete form
by
Adam Smith b) J. S. Mill
c) J. B. Clark d) David Ricardo

5. The „ iron law of wages‟ is

The wage-fund theory b)The marginal productivity theory
of wagesc)Collective bargaining d)The subsistence theory of
wages

6. According to Prof Knight, profit is the reward for

Innovation b) Capital
c) Foreseeable risks d) Uncertainty bearing

7. The uncertainty-bearing theory of profit was

propounded by
F. H. Knight b) F. B. Hawley
c) P. A. Samuelson d) Joseph Schumpeter

8. Which of the following is not included in the assumptions of Clark‟ s marginal

productivity ofdistribution
Perfect competition b) Constant population
c) Constant amount of capital d) Labour is heterogeneous
9. Marginal productivity theory is also called
Real theory b) Classical theory
c) Monetary theory d)None of the above

10. Subsistence theory of wages was used by

Karl Marx b) Robinson
c) J. S. Mill d) David Ricardo
11. Profit is also known as
Contractual rent b) Residual income
c) Net income d)None of the above

12. Changes in the rate of interest affect the amount of money held for
(a) transaction motive (b) precautionary motive
(c) speculative motive ( d)Normal Motive

13. The marginal productivity theory of distribution is associated with

(a) Adam Smith (b) Lionel Robbins
(c) J. B. Clark (d) Bergson
14. Who has contributed the modem theory of interest rate determination?
(a) Paul A. Samuelson (b) Gunnar Myrdal
(c) Knut Wicksell (d) J.R. Hicks

15. Whose name is associated with the “Uncertainty-bearing theory of profit” ?

(a) J. Schumpeter (b) F.H. Knight
(c) J.B. Clark (d) F.W. Watker

16. Who has sought to measure Consumer‟ s Surplus with the help of indifference curve
technique?
(a) Edgeworth (b) Alfred Marshall
(c) J.R. Hick (d) Pareto

17. Which among the following is NOT an assumption of Pareto optimality?

Every consumer wishes to maximize his level of satisfaction.
All the factors of production are used in the production of every commodity.
Conditions of perfect competition exist making all the factors of production
perfectlymobile
The concept of utility is cardinal and cardinal utility function of every
consumer isgiven.

18. When a firm‟ s average revenue is equal to its average cost, it gets .
(a) Sub normal profit (b) Normal profit
(c) Abnormal profit (d) Super profit

19. Given the price, if the cost of production increases because of higher price of raw
materials, thesupply
(a) Decrease (b) Increase
(c) Remains the same (d) Any of the above

20. Under , price is determined by the interaction of total demand and total supply
in themarket.
(a) Perfect competition (b) Monopoly
(c) Imperfect competition (d) Monopolistic Competition
21. Standard of living of workers depends upon
their
(a) Nominal wages (b) Real wages
(c) Average product (d) Govt. policy

22. Under Marginal productivity Theory, reward for labour is determined by

 (a) Owner (b) Labour
(c) Government (d) Marginal Product

23. The economist Ricardo argued that prices were because land rents were
(a) High, High (b) Low, Low
(c) Low, High (d) High, Low

24. As for the cost of production of an individual farmer, the rent paid by him
(a) Enters into the price of his product (b) None of these
(c) Does not enter into price of his product (d) Is unjustified

25. He presented a theory of rent

(a) Malthus (b) Prof. Knight
(c) Ricardo (d) Marshall

26. The following affect rent EXCEPT

(a) Better location (b) Fertility of land
(c) Cleverness of landlords (d) Scarcity of land

27. These are kinds of rent EXCEPT

(a) Differential rent (b) Scarcity rent
(c) Mobility rent (d) Location rent

28. This is capital:

(a) Money (b) Forests
(c) Machinery (d) Trademarks

29. According to Keynes interest is a payment for

(a) Consumer's preference (b) Producer's preference
(c) Liquidity preference (d) State Bank's preference

30. Interest is paid because

(a) Capital is scarce (b) Capital is productive
(c) Capital is attractive (d) Capital is surplus

31. With decrease in price of bonds, rate of interest:

(a) Decreases b) Increases
(c) Does not change (d) None of the above

32. Every factor of production gets reward equal to its:

(a) Cost (b) Marginal product
(c) Price (d) Increasing return

33. According to Keynes, interest is a payment for:

(a) Use of durable goods (b) Use of capital
(c) Use of money (d) Use of land
34. In economics capital refers to:
(a) Money (b) High quality goods
(c) Trade mark (d) Machinery and factories
35. Professor Knight is famous for his theory of:
(a) Rent (b) Profit
(c) Population (d) Wages

36. Profits:
(a) Are residual payment (b) Are pre-determined
(c) Are fixed contract (d) Are always higher than wages

37. Profits:
(a) Are lower in the long run than in the short run (b) Can be negative
(c) Are less in perfect competition than in monopoly (d) All of the above

38. Profits arise because an entrepreneur:

(a) Prepares plan (b) Innovates
(c) Lends money (d) Both (a) and (b)

39. Gross profit does NOT include:

(a) Rent of land owned by the firm (b) Pure profit
(c) Interest on capital owned by firm (d) Taxes

40. Some economists say that profit earner is a

kind of:
(a) Wage earner (b) Rent receiver
(c) Interest receiver (d) Govt. officer

41. Risks in the business arise because of:

(a) Introduction of the new products (b) Uncertain policy of rival firms
(c) Changes in tastes (d) All the above

42. According to Professor Knight risks are of kinds:

(a) two (b) three
(c) four (d) many

43. This is not a function of the entrepreneur:

(a) Supervise (b) Innovate
(c) Lend money (d) Prepare plan

44. According to Modern Theory of Rent, rent accrues to

(a) Land only (b) Any factor

(c) Capital only (d) Labour only

45. An increase in the wage rate:

Will usually lead to more people employed
 Will decrease total earnings of employees if the demand for labour is wage elastic
Is illegal in a free market
Will cause a shift in the demand for labour

46. A decrease in the supply of labour is likely to lead to:

A lower equilibrium wage and lower quantity of labour employed
 A lower equilibrium wage and higher quantity of labour employed
A higher equilibrium wage and higher quantity of labour employed
A higher equilibrium wage and lower quantity of labour

UNIT-II

47. In order to maximize profits, a firm should produce at the output level for which
(a) Average cost is minimised (b) Marginal cost equals marginal revenue
(c) marginal cost is minimised (d) All of the above

48. A market system where there is only one buyer, is known as.
Monopoly b) Monopolistic competition
c) Monopsony d) Monopsonistic competition

49. The market, where the services of factor of production are bought and sold is, is
Product market b) Factor market
c) Commodity market d) Monopoly market

50. Factor prices are determined in the market under forces of

Elasticity of demand b) Elasticity of supply
c) Elasticity and supply d)None of the above

51. The firm is in equilibrium in the factor market when it employs units of labour upto the
point where
The marginal revenue product of labour is equal to its marginal cost
The marginal revenue product of labour is more than its marginal cost
The marginal revenue product of labour is less than its marginal cost

52. A market system, where there is only one seller is known as

Monopoly b) Monopolistic competition
c) Oligopoly d) Monopsony

53. Equilibrium in the factor market achieved at the factor price and factor quantity is given by
The intersection of the factor demand curve and the factor supply curve
The sum total of the elasticities of demand and supply
The product of the elasticities of demand and supply

54. Monopsony means

A single seller b) A single buyer
c) Large number of buyers d)None of the above

55. Monopoly means

A single seller b) A single buyer
c) Large number of buyers d)None of the above

56. Factor prices are determined in the factor market under the forces of
 Marginal productivity b) Elasticity of demand
c) Elasticity of supply d) Demand and supply

57. The labour market equilibrium determines the wage rate and
Investment b) Employment
c) Savings d) Profits
58. Equilibrium conditions for factor market is
Demand for factors is equal to supply of factors
Demand for factors is less than supply of factors
Demand for factors is more than supply of factors
None of the above

59. Demand for factor of production is

Supplementary demand b) Intermediate goods
c) Derived demand d) Complementary demand

60. Factor market will be in equilibrium when

Demand for factors is less than its supply
Demand for factors is equal to supply of factors
Supply of factors is less than for it
All of the above

61. Which of the following is not a factor of production?

Land b) Labour
c) Money d) Capital

62. A monopolist maximizes profit by producing the quantity at which

marginal revenue equals marginal cost. b) marginal revenue equals price.
c) marginal cost equals price. d) marginal cost equals demand.

63. The supply of a good refers to:

Stock available for sale
Total stock in the warehouse
Actual Production of the good
Quantity of the good offered for sale at a particular price per unit of time

64 The cost of one thing in terms of the alternative given up is called:

Real cost b) opportunity cost
c) Production cost d) Physical cost

65. The producer‟ s demand for a factor of production is governed by the of that factor.
Price b) Marginal Productivity
c) Availability d) Profitability

66. Under conditions of perfect competition in the product market:

MRP=VMP b) MRP >VMP
c) VMP > MRP d) None of the above

67. In a perfectly competitive market a firm in the long run will be in equilibrium when:
AC =MC b) AR = MR
c) MR = MC d) Price=AR=MR=AC=MC
68. Which of the following is a characteristic of capital as a factor of production?
It is fixed in supply b) It never depreciates
c) It is a passive factor of production d) It is an active factor of production
69. On which law of consumption the concept of consumer‟ s surplus is based?
Engel‟ s law b) Law of demand
c) First law of Gossen d) Second law of Gossen

70. The relation that the law of demand for factor defines is.

Income and quantity demanded of a factor b) Price and quantity of a factor

c) Income and price of a factor d) Quantity demanded and quantity supplied of a factor

71. Union leaders are in a better position to bargain for higher wages if demand for labour is
Elastic b) Inelastic
c) Very large d) Permanent

72. Sometimes the supply curve of labour

ends:
Downward b) Upward
c) Backward d) Firstly upward and then downward

73. A firm maximizes profit if:

MRP = Wage rate b) MRP is rising
c) MRP = ARP d) None of these

74. The opportunity cost of a machine which can produce only one product is:
Low b) Infinite
c) High d) Medium

75. When price is below equilibrium level, there will be:

Surplus commodity in the market b) Supply curve will shift
c) Demand curve will shift d) Shortage of commodity in the market

76. If equilibrium price rises but equilibrium quantity remains unchanged, the cause is:
Supply and demand both decrease equallyb) Supply and demand both increase equally
c) Supply decreases and demand increases d) Supply increases and demand decreases

77. A decrease in demand causes the equilibrium price to:

Rise b) Fall
c) Remain constant d) Indeterminate

78. Price of a product is determined in a free market:

By demand for the product b) By supply of the product

c) By both demand and supply d) By the government

79. In market equilibrium, supply is vertical line. The downward sloping demand curve
shifts to therights. Then
 Price will rise b) Quantity rises
c) Price remains same d) Price will fall

80. A rise in supply and demand in equal proportion will result in:
Increase in equilibrium price and decrease in equilibrium quantity
 Decrease in equilibrium price and increase in equilibrium quantity
No change in equilibrium price and increase in equilibrium quantity
Increase in equilibrium price and no change in equilibrium quantity

81. Every factor of production gets reward equal to:

Value of average product b) Value of marginal product
c) Value of total product d) Total revenue

82. Under perfect competition, demand for a factor is its:

MRP curve b) ARP curve
c) TRP curve d) TR – TC

83. We should employ units of a factor to a point where:

MR is negative b) MP is equal to price of the factor
c) MP is positive d) MP is rising

84. If marginal product of labour rises because of new technology:

Wages will rise b) Wages will fall
c) Wages will be unaffected d) May rise or fall

85. Increasing the minimum wage for workers will:

Sole the unemployment problem b) Result in scarcity of workers
c) Cause a substitution of capital for labour d) Decrease the MP of those workers

86. The price of capital is

(a) money (b) Interest
(c) profits (d) wages

87. If MRP > Price of the factor: firm should hire

(a) less factors (b) more factors
(c) the same factors (d) All of the above

88. If MRP = Price of the factor: firm should at the unit of factor
(a) less factors (b) more factors
(c) stop hiring more (d) All of the above

89. If MRP < P of the factor, firm should

hire
(a) less factors (b) more factors
(c) the same factors (d) All of the above

90. The labour market equilibrium determines the wage rate and
(a) market (b) employment
(c) money (d) interest
91. Union leaders are in a worse position to bargain for higher wages if demand for labour is
perfectly Elastic b) perfectly Inelastic
c) Very large d) permanent

UNIT-V
161.The basis of trade between countries lies in the
a) Difference in monetary standard b) Difference in political system
c) Difference in resource endowment d)None of the above

162. One similarity between international trade and inter-regional trade is that in general
both mustovercome
a) The difference in language b) Tariffs
c) Distance or space d)The difference in currencies

163. The basis of trade between countries lies in the

a) The difference in factor endowment b) The difference in money standard
c) Difference in political system d)All of the above

164. The absolute advantage theory of international trade is associated with

a) David Ricardo b) Adam Smith
c) Samuelson d)Heckscher-Ohlin

165.Trade between nations occur due to

a) Difference in monetary b) Difference in resource endowment
c) Difference in political status d) Difference in population

166.Adam Smith propounded the theory of

a) Comparative cost b) Opportunity cost
c) Absolute advantage in international trade d)None of the above

167.David Ricardo propounded theory of

a) Law of reciprocal demand b) Absolute theory of international trade
c) Comparative theory of international trade d)None of the above

168.In Heckscher-Ohlin model, factor abundance have been defined in two terms. Those are
a) Price and location criteria b) Physical and location criteria
c) Price and physical criteria d)None of the above

169. The absolute advantage theory of international trade is associated with

a) David Ricardo b) Adam Smith
c) Alfred Marshall d)Heckscher-Ohlin

170. Trade among different regions within the same country is known as
a) International trade b) Interregional trade
c) Bilateral trade d)Trilateral trade

171. Heckscher-Ohlin theory of international trade is based on

a) Factor price equalization b) Absolute advantage
c) Factor endowment differentials d) Labour
productivity172.The main objective of international trade is
a) To maximize production b) To remove political bondage
 c) To establish world bank d) To remove poverty

173.Import quota implies

Physical limitation of quantities of goods traded to other countries
Physical limitation of quantities of goods traded from other countries
 A duty imposed by the government upon the goods traded
All of the above

174. According to Heckscher-Ohlin theory as a result of international trade, thedifference in

factorprice between nations
diminishes (b) increases
(c) is constant (d) All of the above

175.The imposition of an import tariff by a nation usually

improves the nation‟ s terms of trade and increases the volume of trade
worsens the nation‟ s terms of trade but increases the volume of trade
improves the nation’ s terms of trade but reduces the volume of trade
None of the above

176.If a nation has a comparative advantage in the production of a good,

it can produce that good at a lower opportunity cost than its trading partner.
it can benefit by restricting imports of that good
it can produce that good using fewer resources than its trading partner.
it must be the only country with the ability to produce that good

177.According to the principle of comparative advantage,

countries should specialize in the production of goods that they enjoy consuming.
countries should specialize in the production of goods for which they have a
loweropportunity cost of production than their trading partners.
countries with a comparative advantage in the production of every good need not
specialize.
countries should specialize in the production of goods for which they use fewer
resources inproduction than their trading partners.

178. Suppose a country's workers can produce 4 watches per hour or 12 rings per hour. If
there is notrade,
the domestic price of 1 ring is 1/4 of a watch.
the domestic price of 1 ring is 3 watches.
the domestic price of 1 ring is 1/3 of a watch.
the domestic price of 1 ring is 12 watches

179. Suppose the world consists of two countries: the UK and Spain. Further, suppose there
are onlytwo goods--food and clothing. Which of the following statements is true?
If the UK has an absolute advantage in the production of food, then Spain must
have anabsolute advantage in the production of clothing.
If the UK has a comparative advantage in the production of food, Spain might
also have acomparative advantage in the production of food.
If the UK has a comparative advantage in the production of food, it must
also have acomparative advantage in the production of clothing
If the UK has a comparative advantage in the production of food, then Spain
musthave a comparative advantage in the production of clothing
180.Who propounded the opportunity cost Theory of international trade?
Ricardo (b) Marshall
(c) Heckscher & Ohlin (d) Haberler
181. „ Infant industry argument‟ in international trade is given in support of:
Granting Protection (b) Free trade
(c) Curbing export (d) None of the above

182.The Heckscher-Ohlin approach to international trade provides important insights, in

Gains from trade
Effect of trade on production and consumption
Effect of trade on the incomes of production factors
All of the above

183. Which of the following trade policies limits specified quantity of goods to be imported at
one tariffrate.
Quota (b) Import tariff
(c) Specific tariff (d) All of the above

184.In the 2-factor, 2 good Heckscher-Ohlin model, the two countries differ in

Military capabilities
labour productivities
relative availabilities of factors of production
tastes

185.According to Ricardo, a country will have a comparative advantage in:

Industries in which there are neither imports nor exports
import competiting industries
Industries that sell to domestic and foreign buyers
industries that sell to only foreign buyers

186.Nations conduct international trade because:

Some nations prefer to produce one thing while others produce other things.
Resources are not equally distributed among all trading nations.
Trade enhances opportunities to accumulate profits.
Interest rates are not identical in all trading nations

187.Which of the following is a determinant of trade?

Tastes (b) Per capita income
(c) Technological change (d) All of the above

188.Which of the following is not a benefit of international trade?

High wage levels for all domestic workers
Lower domestic prices
Development of more efficient methods and new products.
A greater range of consumption choices.
189.Who benefits from tariff protection?
Domestic consumers on the good produced
Domestic producers of the good produced
Foreign producers of the good produced
Foreign consumers of the good produced.

190.A closed economy is one in which:

Imports exactly equal exports, so that trade is balanced.
Domestic firms invest in industries overseas.
The home economy is isolated from foreign trade
Saving exactly equals investment at full employment.

191. What determines the pattern of specialisation and trade in industries with external
economies ofscale?
Product differentiation (b) Monopolistic competition
(c) Historical competition (d) None of the above

192.David Ricardo's trading principle emphasis the:

Demand side of the market (b) supply side of the market
(c) role of comparative costs (d) role of absolute costs

193.Under Heckscher-Ohlin Model, international trade can lead to increases in:

Consumer welfare only if output of both products is increased
Output of both products and consumer welfare in both countries
Total production of both products, but not consumer welfare in both countries
Consumer welfare in both countries, but not toal production of both products.

194.A main advantage in specialisation results from:

Economies of large-scale production
The specializing country behaving as monopoly
Smaller production runs resulting in lower unit costs.
High wages paied to foreign workers.

195.The exchange of goods and services are known as

International Trade (b) Trade

(c) None of these (d) Domestic Trade
196.Which is not an advantage of international trade:

Export of surplus production (b) Import of defence material

(c) Dependence on foreign countries (d) Availability of cheap raw material
197. The first classical theory of International Trade is given by

Friedman (b) Keynes

(c) Adam Smith (d) Heckscher-Ohlin

198.In classical theory of International Trade, the exchange of goods and services takes on the
basis of
… … … … .. system?

Barter (b) Money

(c) Labour (d) Capital

199.If capital is available in large proportion and labour is less, then that economy is known as
Capital Intensive (b) Labour Intensive
(c) Both a. and b (d) None of above

200.. In Heckscher Ohlin theory, what is assumed to be same across the countries?
(a) Capital (b) Labour
(c) Transportation cost (d) Technology