Chapter 1- Nature & Scope of Business Economics

1) Economists regard decision making as important because:

a. The resources required to satisfy our unlimited wants and needs are finite, or scarce
b. It is crucial to understand how we can best allocate our scarce resources to satisfy society’s
unlimited wants and needs.
c. Resources have alternative uses.
d. All the above.

2) Business Economics is
a. Abstract and applies the tools of Microeconomics.
b. Involves practical application of economic theory in business decision making
c. Incorporates tools from multiple disciplines.
d. (b) and (c) above.

3) In Economics, we use the term scarcity to mean

a. Absolute scarcity and lack of resources in less developed countries.
b. Relative scarcity i.e. scarcity in relation to the wants of the society
c. Scarcity during times of business failure and natural calamities.
d. Scarcity caused on account of excessive consumption by the rich.

4) What implication(s) does resource scarcity have for the satisfaction of wants?
a. Not all wants can be satisfied.
b. We will never be faced with the need to make choices
c. We must develop ways to decrease our individual wants.
d. The discovery of new natural resources is necessary to increase our ability to satisfy wants.

5) Which of the following is a normative statement?

a. Planned economies allocate resources via government departments.
b. Most transitional economies have experienced problems of falling output and rising prices
over the past decade.
c. There is a greater degree of consumer sovereignty in market economies than planned
economies
d. Reducing inequality should be a major priority for mixed economies.

6) In every economic system, scarcity imposes limitations on

a. households, business firms, governments, and the nation as a whole
b. households and business firms, but not the governments.
c. local and state governments, but not the federal government.
d. households and governments, but not business firms.
7) Macroeconomics is also called——— economics.
a. Applied
b. Aggregate
c. Experimental
d. none of the above

8) An example of ‘positive’ economic analysis would be:

a. an analysis of the relationship between the price of food and the quantity purchased.
b. determining how much income each person should be guaranteed.
c. determining the ‘fair’ price for food
d. deciding how to distribute the output of the economy.

9) A study of how increases in the corporate income tax rate will affect the national unemployment
rate is an example of
a. Macro-Economics
b. Descriptive Economics.
c. Micro-economics.
d. Normative economics.

10)Which of the following does not suggest a macro approach for India?
a. Determining the GNP of India.
b. Finding the causes of failure of ABC Ltd.
c. Identifying the causes of inflation in India
d. Analyze the causes of failure of industry in providing large scale employment

11)Ram: My corn harvest this year is poor.

Krishan: Don’t worry. Price increases will compensate for the fall in quantity supplied.
Vinod: Climate affects crop yields. Some years are bad, others are good.
Madhu: The Government ought to guarantee that our income will not fall.
In this conversation, the normative statement is made by:

a. Ram
b. Krishan
c. Vinod
d. Madhu

12)Consider the following and decide which, if any, economy is without scarcity:
a. The pre-independent Indian economy, where most people were farmers.
b. A mythical economy where everybody is a billionaire.
c. Any economy where income is distributed equally among its people.
d. None of the above.
13)Which of the following is not a subject matter of Micro-economies?
a. The price of mangoes.
b. The cost of producing a fire truck for the fire department of Delhi, India.
c. The quantity of mangoes produced for the mangoes market.
d. The national economy’s annual rate of growth.

14)The branch of economic theory that deals with the problem of allocation of resources is
a. Micro-Economic theory.
b. Macro-economic theory.
c. Econometrics.
d. none of the above.

15)Which of the following is not the subject matter of Business Economics?

a. Should our firm be in this business?
b. How much should be produced and at price should be kept?
c. How will the product be placed in the market?
d. How should we decrease unemployment in the economy?

16)Which of the following is a normative economic statement?

a. Unemployment rate decreases with industrialization
b. Economics is a social science that studies human behaviour.
c. The minimum wage should be raised to Rs. 200/- per day
d. India spends a huge amount of money on national defense.

17)The difference between positive and normative Economics is:

a. Positive Economics explains the performance of the economy while normative Economics
finds out the reasons for poor performance.
b. Positive Economics describes the facts of the economy while normative Economics
involves evaluating whether some of these are good or bad for the welfare of the
people.
c. Normative Economics describes the facts of the economy while positive Economics
involves evaluating whether some of these are good or bad for the welfare of the people.
d. Positive Economics prescribes while normative Economics describes.

18)Which of the following is not within the scope of Business Economics?

a. Capital Budgeting
b. Risk Analysis
c. Business Cycles
d. Accounting Standards

19)Which of the following statements is incorrect?

a. Business economics is normative in nature.
b. Business Economics has a close connection with statistics.
c. Business Economist need not worry about macro variables.
d. Business Economics is also called Managerial Economics.
20)Economic goods are considered scarce resources because they
a. cannot be increased in quantity.
b. do not exist in adequate quantity to satisfy the requirements of the society.
c. are of primary importance in satisfying social requirements.
d. are limited to man made goods

21) The definition ‘Science which deals with wealth of nation’ was given by
a. Alfred Marshall
b. A C Pigou
c. Adam Smith
d. J B Say

22)The benefit of economic study is

a. It ensures that all the problems will be appropriately tackled
b. It helps in identifying problems
c. It enables to examine a problem in its right perspective
d. It gives exact solutions to every problem

23)In a free market economy, the allocation of resources is determined by

a. voting done by consumers
b. a central planning authority.
c. consumer preferences.
d. the level of profits of firms.

24)A capitalist economy uses ____________________ as the principal means of allocating resources.
a. Demand
b. Supply
c. Efficiency
d. Prices

25)Which of the following is considered as a disadvantage of allocating resources using the market
system?
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

26)Which of the following statements does not apply to a market economy?

a. Firms decide whom to hire and what to produce
b. Firms aim at maximizing profits.
c. Households decide which firms to work for and what to buy with their incomes.
d. Government policies are the primary forces that guide the decisions of firms and
households
27)In a mixed economy
a. all economic decisions are taken by the central authority.
b. all economic decisions are taken by private entrepreneurs.
c. economic decisions are partly taken by the state and partly by the private
entrepreneurs.
d. none of the above

28)The central problem in economics is that of

a. comparing the success of command versus market economies.
b. guaranteeing that production occurs in the most efficient manner
c. guaranteeing a minimum level of income for every citizen
d. allocating scarce resources in such a manner that society’s unlimited needs or wants
are satisfied in the best possible manner.

29)Capital intensive technique would get 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

30)Which of the following is not one of the four central questions that the study of economics is
supposed to answer?
a. Who produces what?
b. When are goods produced?
c. Who consumes what?
d. How are goods produced?

31)Larger production of ____goods would lead to higher production in future.

a. consumer goods
b. capital goods
c. agricultural goods
d. public good

32)The economic system in which all the means of production are owned and controlled by private
individuals for profit.
a. Socialism
b. Capitalism
c. Mixed economy
d. Communism

33)Macro Economics is the study of ________________________.

a. all aspects of scarcity
b. the national economy and the global economy as a whole.
c. big businesses
d. the decisions of individual businesses and people.
34)Freedom of choice is the advantage of
a. Socialism
b. Capitalism
c. Communism
d. None of the above

35)Exploitation and inequality are minimal under:

a. Socialism
b. Capitalism
c. Mixed economy
d. None of the above

36)Administered prices refer to:

a. Prices determined by forces of demand and supply
b. Prices determined by sellers in the market
c. Prices determined by an external authority which is usually the government
d. None of the above

37)In Economics, the central economic problem means:

a. Output is restricted to the limited availability of resources
b. Consumer do not have as much money as they would wish
c. There will always be certain level of unemployment
d. Resources are not always allocated in an optimum way

38)Scarcity definition of Economics is given by

a. Alfred Marshall
b. Samuelson
c. Robinson
d. Adam Smith

39)Which of the following is not one of the features of capitalist economy?

a. Right of private property
b. Freedom of choice by the consumers
c. No profit, No Loss motive
d. Competition

40)There is need of economic study, because –

a. The resources are limited
b. The wants are unlimited
c. The resources are unlimited
d. Both a and b
41)The managerial economics –
a. Is Applied Economics that fills the gap between economic theory and business
practice
b. is just a theory concept
c. Trains managers how to behave in recession
d. Provides the tools which explain various concepts

42)Which of the following statements is correct?

a. Micro economics is important for study of a particular household and a particular firm
b. Macro economics is important for study of economic conditions of a country
c. None of the above
d. Both a and b

43)Mr. Satish hired a business consultant to guide him for growth of his business. The consultant
visited his factory and suggested some changes with respect to staff appointment, loan availability
and so on. Which approach is that consultant using?
a. Micro economics
b. Macro economics
c. None of the above
d. Both a and b

44)_______ is also called as command economy

a. Socialist
b. Capitalist
c. Mixed economy
d. None of the above

45) Unlimited ends and limited means together present the problem of
a. Scarcity of resources
b. Choice
c. Distribution
d. None of the above

46)Which of the following is/are limitation(s) of the wealth definitions of economics given by
classical economists?
a. By considering the problem of production distribution & exchange of wealth, they focused
attention on important issues with which economics is concerned.
b. By restricting the definition of wealth to material wealth & the neglect of immaterial
services, they narrowed down the scope of economics.
c. Both (A) and (B)
d. None of these
47)According to which of the following definitions, economics studies human behavior regarding how
he satisfied his wants with scare resources?
a. Robbin’s definition
b. Marshall’s definition
c. J.B. Say’s definition
d. Adam Smith’s definition

48)______________________ is concerned with welfare proposition.

a. Normative Economics
b. Positive Economics
c. Both (A) and (B)
d. None of these

49)Which of the following is/are correct about micro economics?

a. Micro economics studies the economy in its totality.
b. In micro economics we make a microscopic study of the economy
c. Micro economics deals with the division of total output among industries and firms & the
allocation of resources among competing uses.
d. Both (B) and (C)

50)“If Americans today, for example were to content to live at the level of the Indian middle class
people, all their wants would be fully satisfied with their available resources and capacity to
produce.” On the basis of the above statement, which of the following conclusion can be made?
a. The possession of goods and services by USA has enormously increased to exceed their
wants.
b. The affluent and developed countries of USA and Western Europe face the problem
of scarcity even today as their present wants remain ahead of their increased
resources and capacity to produce.
c. The affluent and developed countries are not facing the problem of scarcity.
d. None of these

51)If there is no central planning authority to make the fundamental economic decisions and thus to
allocate productive resources, how can then free enterprise or capitalist economy solve its central
problems?
a. Through the power of God
b. On the basis of decision taken by industrial groups.
c. The free market economy uses the impersonal forces of the market to solve its
central problems
d. None of these
52)The industrialization and economic development of the USA, Great Britain and other Western
European countries have taken place under the condition of _______________________.
a. Socialism and planned structure
b. Capitalism and laissez faire
c. Mixed economic structure
d. None of these

53)The greater the inequalities in the distribution of money incomes, the __________________ the
inequalities in the distribution of national output.
a. Greater
b. Lesser
c. (A) or (B)
d. None of these

54)“A wise individual or a society likes to provide for its growth of productive capacity.” This requires
that a part of its resources should be devoted to the production of ______________________.
a. Consumer goods
b. Capital goods
c. Defense goods
d. None of these

55)In the beginning the name of economics was ___________________________.

a. Economics of wealth
b. Political economy
c. Welfare economics
d. None of these

56)The word economics has been derived from a _____________________ word.

a. French
b. Latin
c. Greek
d. German

57)Economics is mainly concerned with

a. the achievement of economic development
b. the achievement and use of material requirements to satisfy human wants
c. the exploring more resources to satisfy human wants
d. the limiting human wants with respect to given resources

58)Business economics is a field in __________________ which uses economic theory and quantitative
methods to analyze business enterprises
a. Welfare Economics
b. Development Economics
c. Applied economics
d. None of these
59)Economics is a branch of ___________________ focused on the production, distribution and
consumption of goods and services
a. Natural science
b. Physical science
c. Social science
d. None of these

60)“Generally a business manager is concerned with problems of his own business units. He does not
study the economic problems of an economy as a whole.” State whether the above statement
is___________
a. True
b. False
c. Partly True
d. Partly False

61)Business economics is _______________________ in its approach.

a. Idealistic
b. Pragmatic
c. Both (A) and (B)
d. None of these

62)“A business manager must know the external forces working over his business environment.”
State whether the above statement is___________
a. True
b. False
c. Partly True
d. Partly False

63)The scope of business economics includes ______________________

a. Demand analysis
b. Cost analysis
c. Inventory management
d. All of these

64)A socialist economy is a system of production where goods and services are produced
_______________
a. to generate profit
b. directly for use
c. Both (A) and (B)
d. None of these
65)Which one of the following statements is correct regarding socialist economy?
a. Production is planned or coordinated and suffers from the business cycle
b. Production suffers from the business cycle
c. Production is planned and does not suffers from business cycle
d. None of these

66)Which of the following is not a merit of socialist economy?

a. It provides equal access to health care and education
b. Workers are no longer exploited because they own the means of production
c. Profits are not spread equitably among all workers according to their individual
contributions.
d. Natural resources are preserved for the good of the whole.

67)Which of the following is/are the merit(s) of mixed economic system?

a. Entrepreneurs able to make profit
b. Progressive taxes to reduce inequality
c. Government’s provision of public goods
d. All of the above

68)Which of the following falls under Micro Economics?

a. National Income
b. General Price level
c. Factor Pricing
d. National Saving and Investment

69)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

70)Which of the following is not an economic activity?

a. A son looking after his ailing mother
b. A chartered accountant doing his own practice
c. A soldier serving at the border
d. A farmer growing millets

71)‘A government deficit will reduce unemployment and cause and increase in prices’ This statement is:
a. Positive
b. Normative
c. Both
d. None of the above
72)Normative economics is _____________ in nature
a. Modern
b. Descriptive
c. Prescriptive
d. None of the above

73)The term economics is derived from Greek work “Oikonomia” which means
a. Household management
b. Art of Living
c. Science of good governance
d. Law of rational behavior

74)The famous book “Wealth of Nations” was published in

a. 1776
b. 1750
c. 1850
d. 1886

75)________ guide a capitalist economy to decide what to produce

a. Market survey
b. Economic models
c. Intensity of consumer demand
d. Cost of Production

76)Which of the following is not a characteristics of capitalist economy?

a. Right to Private property
b. Freedom of Enterprise
c. Consumer sovereignty
d. Planned Production

77)_____ economics explains cause and effect relationship between economic phenomena
a. Positive
b. Normative
c. Negative
d. Applied

78)________ refers to the sum total of arrangements for the production and distribution of goods and
services in a society
a. Business Economics
b. Micro Economics
c. Economic System
d. Economics
79)_______ is the mainstay in the capitalism
a. Profit motive
b. Private property
c. Consumers
d. Competition

80)Which of the following is not an example of Capitalist economy?

a. USA
b. Germany
c. North Korea
d. South Korea

81)The word ‘Economics’ originates from the word

a. Oikonomicos
b. Oyekonomic
c. Oikonomia
d. Oiconomia

82)………..refers to the process of selecting an appropriate alternative that will provide the most
efficient means of attaining a desired end, from two or more alternative courses of action?
a. Problem solving
b. Problem analyzing
c. Managerial expertise
d. Decision making

83)Which of the following is not the feature of capitalist economy?

a. Right to private property
b. Freedom of economic choice.
c. Collective ownership
d. Consumer Sovereignty

84)The concept of socialist economy was propounded by…….

a. Karl Marx and Frederic Engels.
b. Marshall
c. Adam Smith
d. Joel Dean

85)Which economic system is the predominant in the modern global economy?

a. Socialism
b. Capitalism
c. Mixed
d. All of the above
86)Under the pragmatic approach, economics is abstract and purely theoretical in nature and takes
assumptions:
a. Practical, Unrealistic
b. Practical, Realistic
c. Theoretical, Unrealistic
d. Theoretical, Realistic

87)Which of the following is a subject matter of macroeconomics?

a. Behavior of firms
b. Factor Pricing
c. Overall level of savings and investments
d. The economic condition of a section of people

88)Mr. X had been given a task to segregate normative and non-normative statements. Help him to
identify which one of these is a normative economic statement?
a. Pollution level is rising day by day because of urbanization.
b. The part-time working hours of students should be increased to 25 hours per week.
c. Due to the increased number of cars on roads, people will be stuck in traffic jams.
d. The government has allotted a major portion of revenue to defense.

89)What is the nature of business economics, which is an applied branch of economics?

a. It is positive in nature.
b. It is normative in nature.
c. It is neutral in nature.
d. It is both positive as well as normative in nature.

90)Which statement differentiates business economics from economics?

a. It is abstract in nature.
b. It is a narrower concept than economics.
c. It is no different from economics.
d. It is pragmatic in nature

91)Sarah, runs a lemonade stall, her decision-making process involves assessing the demand for her
lemonade, pricing strategies, and maximizing her profit within the limited scope of her small
business. Which level of the economy does Sarah's lemonade stall represent?
a. Macro Economy
b. Global Economy
c. Micro Economy
d. National Economy
92)In which economy, the material means of production i.e. factories, capital, mines, etc. are owned by
the whole community represented by the State?
a. Socialist Economy
b. Capitalist Economy
c. Mixed Economy
d. Communist Economy

93)Which of the following is related with the total arrangements for the production and distribution
of goods and services in a society?
a. Economic Problem
b. Economic Choice
c. Economic System
d. Economic Institution

94)Business Economics is basically concerned with:

a. Applied Economics
b. Managerial Economics
c. Micro Economics
d. Macro Economics

95)Price in capitalist economy is determined by:

a. Small private firms
b. Big corporates
c. Market forces of demand and supply
d. Government
 Chapter 2 - Theory of Demand
1) Demand for a commodity refers to:
a. desire backed by ability to pay for the commodity.
b. need for the commodity and willingness to pay for it
c. the quantity demanded of that commodity at ascertain price.
d. the quantity of the commodity demanded at a certain price during any particular
period of time.

2) Contraction of demand is the result of:

a. decrease in the number of consumers.
b. increase in the price of the good concerned.
c. increase in the prices of other goods.
d. decrease in the income of purchasers

3) All but one of the following are assumed to remain the same while drawing an individual’s
demand curve for a commodity. Which one is it?
a. The preference of the individual.
b. His monetary income.
c. Price of the commodity
d. Price of related goods.

4) In the case of a straight line demand curve meeting the two axes, the price-elasticity of demand at
the mid-point of the line would be:
a. 0
b. 1
c. 1.5
d. 2

5) The Law of Demand, assuming other things to remain constant, establishes the relationship
between:
a. income of the consumer and the quantity of a good demanded by him.
b. price of a good and the quantity demanded
c. price of a good and the demand for its substitute.
d. quantity demanded of a good and the relative prices of its complementary goods.

6) Identify the factor which generally keeps the price-elasticity of demand for a good low:
a. Variety of uses for that good
b. Very low price of a commodity
c. Close substitutes for that good.
d. High proportion of the consumer’s income spent on it
7) Identify the coefficient of price-elasticity of demand when the percentage increase in the quantity
of a good demanded is smaller than the percentage fall in its price:
a. Equal to one
b. Greater than one
c. Less than one
d. Zero.

8) In the case of an inferior good, the income elasticity of demand is:

a. Positive
b. Zero
c. Negative
d. Infinite

9) If the demand for a good is inelastic, 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. Any of these.

10)If regardless of changes in its price, the quantity demanded of a good remains unchanged, then the
demand curve for the good will be:
a. Horizontal
b. Vertical
c. positively sloped.
d. negatively sloped.

11)Suppose the price of Pepsi increases, we will expect the demand curve of Coca Cola to:
a. Shift towards left since these are substitute
b. Shift towards right since these are substitutes
c. Remain at the same level
d. None of the above

12)All of the following are determinants of demand except:

a. Tastes and preferences
b. Quantity supplied.
c. Income of the consumer
d. Price of related goods.

13)A movement along the demand curve for soft drinks is best described as:
a. An increase in demand.
b. A decrease in demand
c. A change in quantity demanded.
d. A change in demand.
14)If the price of Pepsi decreases relative to the price of Coke and 7-UP, the demand for:
a. Coke will decrease
b. 7-Up will decrease.
c. Coke and 7-UP will increase.
d. Coke and 7-Up will decrease

15)If a good is a luxury, its income elasticity of demand is

a. Positive and less than 1.
b. Negative but greater than -1.
c. Positive and greater than 1.
d. Zero

16)The price of hot dogs increases by 22% and the quantity of hot dogs demanded falls by 25%. This
indicates that demand for hot dogs is:
a. Elastic
b. Inelastic
c. Unitarily elastic
d. Perfectly elastic

17)If the quantity demanded of mutton increases by 5% when the price of chicken increases by 20%,
the cross price elasticity of demand between mutton and chicken is
a. -0.25
b. 0.25
c. -4
d. 4

18)Given the following four possibilities, which one results in an increase in total consumer
expenditure?
a. Demand is unitary elastic and price falls.
b. Demand is elastic and price rises.
c. Demand is inelastic and price falls.
d. Demand is inelastic and prices rises

19)Which of the following is an incorrect statement?

a. When goods are substitutes, a fall in the price of one (ceteris paribus) leads to a fall in the
quantity demanded of its substitutes.
b. When commodities are complements, a fall in the price of one (other things being equal)
will cause the demand of the other to rise
c. As the income of the consumer increases, the demand for the commodity increases
always and vice versa.
d. When a commodity becomes fashionable people prefer to buy it and therefore its demand
increases
20)Suppose the price of movies seen at a theatre rises from Rs 120 per person to Rs 200 per person.
The theatre manager observes that the rise in price causes attendance at a given movie to fall from
300 persons to 200 persons. What is the price elasticity of demand for movies? (Use Arc Elasticity
Method)
a. 0.5
b. 0.8
c. 1.0
d. 1.2

21)When the numerical value of cross elasticity between two goods is very high, it means
a. The goods are perfect complements and therefore have to be used together
b. The goods are perfect substitutes and can be used with ease in place of one another
c. There is a high degree of substitutability between the two goods
d. The goods are neutral and therefore cannot be considered as substitutes

22)If electricity demand is inelastic, and electricity charges increase, which of the following is likely to
occur’?
a. Quantity demanded will fall by a relatively large amount.
b. Quantity demanded will fall by a relatively small amount
c. Quantity demanded will rise in the short run, but fall in the long run
d. Quantity demanded will fall in the short run, but rise in the long run

23)Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the
restaurant is considering raising prices, it can expect a relatively:
a. Large fall in quantity demanded
b. Large fall in demand
c. Small fall in quantity demanded.
d. Small fall in demand.

24)Point elasticity is useful for which of the following situations?

a. The bookstore is considering doubling the price of notebooks.
b. A restaurant is considering lowering the price of its most expensive dishes by 50 percent.
c. An auto producer is interested in determining the response of consumers to the
price of cars being lowered by Rs 100.
d. None of the above.

25)A decrease in price will result in an increase in total revenue if

a. The percentage change in quantity demanded in less than the percentage change in price.
b. The percentage change in quantity demanded is greater than the percentage change
in price.
c. Demand is inelastic.
d. The consumer is operating along a linear demand curve at a point at which the price is very
low and the quantity demanded is very high.
26)An increase in price will result in an increase in total revenue if:
a. The percentage change in quantity demanded is less than the percentage change in
price.
b. The percentage change in quantity demanded is greater than the percentage change in
price.
c. Demand is elastic
d. The consumer is operating along a linear demand curve at a point at which the price is very
high and the quantity demanded is very low

27)Demand for a good will tend to be more elastic if it exhibits which of the following characteristics?
a. It represents a small part of the consumer’s income.
b. The good has many substitutes available.
c. It is a necessity (as opposed to a luxury).
d. There is little time for the consumer to adjust to the price change.

28)Demand for a good will tend to be more inelastic if it exhibits which of the following
characteristics?
a. The good has many substitutes
b. The good is a luxury (as opposed to a necessity).
c. The good is a small part of the consumer’s income.
d. There is a great deal of time for the consumer to adjust to the change in prices

29)What will happen in the rice market if buyers are expecting higher rice prices in the near future?
a. The demand for rice will increase and the demand curve will shift to the right
b. The demand for rice will decrease and the demand curve will shift to the left
c. The demand for rice will be unaffected as it is a necessity
d. The demand for wheat will increase and the demand curve will shift to the right

30)In the case of a Giffen good, the demand curve will usually be
a. Horizontal
b. Downward-sloping to the right.
c. Vertical
d. Upward-sloping to the right

31)For a normal good with a downward sloping demand curve

a. The price elasticity of demand is negative; the income elasticity of demand is negative.
b. The price elasticity of demand is positive; the income elasticity of demand is negative.
c. The price elasticity of demand is positive; the income elasticity of demand is positive.
d. The price elasticity of demand is negative; the income elasticity of demand is
positive.
32)Conspicuous goods are also known as
a. Prestige goods
b. Snob goods
c. Veblen goods
d. All of the above

33)The quantity purchased remains constant irrespective of the change in income. This is known as
a. negative income elasticity of demand
b. income elasticity of demand less than one
c. zero income elasticity of demand
d. income elasticity of demand is greater than one

34)As income increases, the consumer will go in for superior goods and consequently the demand for
inferior goods will fall. This means inferior goods have
a. income elasticity of demand less than one
b. negative income elasticity of demand
c. zero income elasticity of demand
d. unitary income elasticity of demand

35)When income increases the money spent on necessaries of life may not increase in the same
proportion, This means
a. income elasticity of demand is zero
b. income elasticity of demand is one
c. income elasticity of demand is greater than one
d. income elasticity of demand is less than one

36)The luxury goods like jewellery and fancy articles will have
a. low income elasticity of demand
b. high income elasticity of demand
c. zero income elasticity of demand
d. none of the above

37)A good which cannot be consumed more than once is known as

a. Durable good
b. Non-durable good
c. Producer good
d. None of the above

38)A relative price is

a. price expressed in terms of money
b. what you get paid for babysitting your cousin
c. the ratio of one money price to another
d. equal to a money price
39)Demand is the
a. the desire for a commodity given its price and those of related commodities
b. the entire relationship between the quantity demanded and the price of a good other
things remaining the same
c. willingness to pay for a good if income is larger enough
d. ability to pay for a good

40)Suppose potatoes have (-).0.4 as income elasticity. We can say from the data given that:
a. Potatoes are superior goods
b. Potatoes are necessities
c. Potatoes are inferior goods.
d. There is a need to increase the income of consumers so that they can purchase potatoes.

41)The price of tomatoes increases and people buy tomato puree. You infer that tomato puree and
tomatoes are
a. Normal goods
b. Complements
c. Substitutes
d. Inferior goods

42)Chicken and fish are substitutes. If the price of chicken increases, the demand for fish will
a. Increase or decrease but the demand curve for chicken will not change
b. Increase and the demand curve for fish will shift rightwards
c. Not change but there will be a movement along the demand curve for fish.
d. Decrease and the demand curve for fish will shift leftwards.

43)Potato chips and popcorn are substitutes. A rise in the price of potato chips will —————— the
demand for popcorn and the quantity of popcorn sold will ———————
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase

44)If the price of orange Juice increases, the demand for apple Juice will _____________.
a. increase because they are substitutes
b. decrease because they are substitutes
c. remain the same because real income is increased
d. decrease as real income decreases

45)An increase in the demand for computers, other things remaining same, will:
a. Increase the number of computers bought.
b. Decrease the price but increase the number of computers bought.
c. Increase the price of computers.
d. Increase the price and number of computers bought.
46)When total demand for a commodity whose price has fallen increases, it is due to:
a. Income effect.
b. Substitution effect
c. Complementary effect
d. Price effect

47)With a fall in the price of a commodity:

a. Consumer’s real income increases
b. Consumer’s real income decreases
c. There is no change in the real income of the consumer
d. None of the above

48)With an increase in the price of diamond, the quantity demanded also increases. This is because it
is a:
a. Substitute good
b. Complementary good
c. Conspicuous good
d. None of the above

49)An example of goods that exhibit direct price-demand relationship is

a. Giffen goods
b. Complementary goods
c. Substitute goods
d. None of the above

50)In Economics, when demand for a commodity increases with a fall in its price it is known as:
a. Contraction of demand
b. Expansion of demand
c. No change in demand
d. None of the above

51)A decrease in the demand for cameras, other things remaining the same will
a. Increase the number of cameras bought
b. Decrease the price but increase the number of cameras bought
c. Decrease in quantity of camera demanded
d. Decrease the price and decrease in the number of cameras bought.

52)Which of the following statements about inferior goods is/are false?

I. Inferior goods are those that we will never buy, no matter how cheap they are.
II. Inferior goods are those that we buy more of, if we become poorer.
III. Inferior goods are those that we buy more of, if we become richer.
a. I and III only
b. I only
c. III only.
d. I, II, and III.
53)The price of a commodity decreases from Rs 6 to Rs 4 and the quantity demanded of the good
increases from 10 units to 15 units, find the coefficient of price elasticity.
a. 1.5
b. 2.5
c. -1.5
d. 0.5

54)At higher prices people demand more of certain goods not for their worth but for their prestige
value – This is called
a. Veblen effect
b. Giffen paradox
c. Speculative effect
d. None of the above

55)If the price of air-conditioner increases from Rs 30,000 to Rs 30,010 and resultant change in
demand is negligible, we use the measure of __________ to measure elasticity.
a. Point elasticity of demand since it is a small change
b. Arc elasticity of demand since it is a small change
c. Price elasticity based on average prices method
d. Any of the above

56)Given the following four possibilities, which one will result in an increase in total expenditure of
the consumer?
a. Demand is unit elastic and price rises
b. Demand is elastic and price rises
c. Demand is inelastic and price falls
d. demand is inelastic and price rises

57)Which of the following statements is correct?

a. With the help of statistical tools, the demand can be forecasted with perfect accuracy
b. The more the number of substitutes of a commodity, the more elastic is the demand
c. Demand for butter is perfectly elastic.
d. Gold jewellery will have negative income elasticity.

58)Suppose the income elasticity of education in private school in India is 3.6. What does this indicate
a. Private school education is highly wanted by rich
b. Private school education is a necessity
c. Private school education is a luxury
d. We should have more private schools.
59)If the organizers of an upcoming cricket match decide to increase the ticket price in order to raise
its revenues, what they have learned from past experience is;
a. The percentage increase in ticket rates will be always equal the percentage decrease in
tickets sold
b. The percentage increase in ticket rates will be always greater than the percentage
decrease in tickets sold
c. The percentage increase in ticket rates will be less than the percentage decrease in tickets
sold
d. (a) and (c) above are true

60)The following diagram shows the relationship between price of Good X and quantity demanded of
Good Y. What we infer from the diagram is;

a. Good X and Good Y are perfect complements

b. Good X and Good Y are perfect substitutes
c. Good X and Good Y are remote substitutes
d. Good X and Good Y are close substitutes
61)The diagram given below shows

a. A change in demand which may be caused by a rise in income and the good is a normal
good
b. A shift of demand curve caused by a fall in the price of a complementary good
c. A change in demand which is caused by a rise in income and the good is an inferior
good
d. A shift of demand curve caused by a rise in the price of a substitute and the good is a
normal good

62)The demand curve of a normal good has shifted to the right. Which of the four events would have
caused the shift?
a. A fall in the price of a substitute with the price of the good unchanged
b. A fall in the nominal income of the consumer and a fall in the price of the normal good
c. A fall in the price of a complementary good with the price of the normal good
unchanged
d. A fall in the price of the normal good, other things remaining the same

63)If roller- coaster ride is a function of amusement park visit, then, if the price of amusement park
entry falls
a. The demand for roller- coaster rides will rise and the demand curve will shift to right
b. The demand for roller coaster ride cannot be predicted as it depends on the tastes of
consumers for the ride
c. There will be an expansion in the demand for roller coaster drive as it complementary
d. None of the above
64)The average income of residents of two cities A and B and the corresponding change in demand
for two goods is given in the following table. Which of the following statements is true?

a. Both goods are normal goods in both cities A and B

b. Good X is a normal good in both cities; good Y is an inferior good in city A
c. Good X is a normal good in both cities; good Y is an inferior good in city B
d. Need more information to make an accurate comment

65)During a recession, economies experience increased unemployment and a reduced level of

income. How would a recession likely to affect the market demand for new cars?
a. Demand curve will shift to the right.
b. Demand curve will shift to the left
c. Demand will not shift, but the quantity of cars sold per month will decrease.
d. Demand will not shift, but the quantity of cars sold per month will increase.

66)Which of the following groups of goods have inelastic demand?

a. Salt, Smart Phone and Branded Lipstick
b. School Uniform, Branded Goggles and Smart Phone
c. Salt, School Uniform and Medicine
d. Medicine, Branded Sports Shoes and Diamond ring

67)If the price of a commodity raised by 12% and Ed is (-) 0.63, the expenditure made on the
commodity by a consumer will _____________
a. Decrease
b. Increase
c. Remain same
d. Can’t say

68)During lockdown due to COVID-19, a consumer finds the vegetable vendors selling vegetables in the
street have raised the prices of vegetables than usual prices. She will buy ____________ vegetables
than/as her usual demand showing the demand of vegetables is ____________.
a. more, inelastic demand
b. less, elastic demand
c. same, inelastic demand
d. same, elastic demand
69)Commodities such as prescribed medicines and salt have __________________ and hence, have an
___________________ demand.
a. Several substitutes, elastic
b. Several substitutes, inelastic
c. No close substitutes, inelastic
d. No close substitutes, elastic

70)Let slope of demand curve is (-) 0.6, calculate elasticity of demand when initial price is Rs. 30 per
unit and initial quantity is 100 units of the commodity
a. 0.5
b. 5.55
c. -0.5
d. -0.18

71)Let Qx = 1500/ Px, the elasticity of demand of the good X when its price falls from Rs. 8 to Rs. 2 per
unit, will be-
a. greater than one
b. less than one
c. equal to one
d. can’t say

72)Law of demand is a qualitative concept whereas price elasticity of demand is _____________.

a. also qualitative concept
b. Quantitative concept
c. Quantitative and qualitative concept
d. Neither qualitative nor quantitative concept

73)The most crucial determinant of demand for an item is __________________________

a. Income of consumer
b. Prices of other related goods
c. Taste and preference of consumer
d. Its own price

74)The price of a piece of jewellery rises, the demand for it may also rise as consumers attach a
______________ to owning and displaying expensive items.
a. money value
b. use value
c. snob value
d. None of these
75)With reference to Arc elasticity measures the responsiveness of demand _____________ on the
demand curve
a. at one given point
b. at intercepts on X-axis & Y-axis
c. between two points
d. Any of the above

76)

In the above figure, DD1 is the demand curve of a commodity. There are two points on the demand
curve i.e., A and B with (P, Q) as (10, 2) & (8, 3) respectively. If the initial point is A OR initial point
is B, the price elasticity of demand will be –
a. same in both cases by point method of price elasticity of demand
b. different in both cases by Arc method of price elasticity of demand
c. same in both cases by Arc method & different by point method of price elasticity of
demand
d. None of these

77)Goods X and Y being independent goods, the cross price elasticity of demand (ignoring the sign)
between them will be-
a. 1 (unit elastic)
b. less than 1
c. greater than 1
d. Zero

78)‘Ceteris Paribus’ clause in Law of demand does not mean-

a. The price of the commodity does not change
b. The price of substitutes does not change
c. The income of consumer does not change
d. The price of complementary goods does not change

79)Demand for electricity is elastic because ——————.

a. it is very expensive
b. it has a number of close substitutes
c. it has alternative uses
d. none of the above
80) ________ and ________ do not directly affect the demand curve
a. the price of related goods, consumer incomes
b. Consumer incomes, tastes
c. the costs of production, bank opening hours
d. the price of related goods, preferences

81)If consumers always spend 15 percent of their income on food, then the income elasticity of
demand for food is _________.
a. 1.50
b. 1.15
c. 1
d. 0.15

82)The elasticity of substitution between two perfect substitutes is:

a. Zero
b. greater than zero
c. less than infinity
d. infinite

83)In the case of a straight line demand curve meeting the two axes the price – elasticity of demand at
the mid-point of the line would be:
a. 0
b. 1
c. 1.5
d. 2

84)Cross elasticity of demand between tea and coffee is:

a. Positive
b. Negative
c. Zero
d. Infinity

85)If a point on a demand curve of any commodity lies on X Axis, then price elasticity of demand of
that commodity at that point will be __________
a. Infinite
b. More than zero
c. Less than zero
d. Zero
Read the following data and answer Questions Number 86-91.
XYZ are three commodities where X and Y are complements whereas X and Z are substitutes. A shopkeeper
sells commodity X at Rs. 40 per piece. At this price he is able to sell 100 pieces of X per month. After some
time, he decreases the price of X to Rs. 20. Following the price decrease, he is able to sell 150 pieces of X
per month, the demand for Y increases from 25 units to 50 units and the demand for commodity Z
decreases from 150 to 75 units.
86)The price elasticity of demand when the price of X decreases from Rs. 40 per piece to Rs. 20 per
piece will be equal to:
a. 1.5
b. 1
c. 1.66
d. 0.6

87)The cross elasticity of monthly demand for Y when the price of X decrease from Rs. 40 to Rs. 20 is
equal to:
a. 2
b. -2
c. -1.5
d. 1.5

88)The cross-elasticity of Z when the price of X decreases from 40 to 20 is equal to:

a. -0.6
b. 0.6
c. -1
d. 1

89)What can be said about price elasticity of demand for X?

a. Demand is unit elastic
b. Demand is highly elastic
c. Demand is perfectly elastic
d. Demand is inelastic

90)Suppose income of the residents of locality increase by 50% and the quantity of X commodity
increases by 20%. What is income elasticity of demand for commodity X?
a. 0.6
b. 0.4
c. 1.25
d. 1.35

91)We can say that commodity X in economics is a/an

a. luxury good
b. inferior Good
c. normal Good
d. none of the above
92)If the demand for a good is inelastic, 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. Any of these

93)For Giffen goods, the Engel curve is:

a. Positive sloped
b. Vertical
c. Horizontal
d. Negative sloped

94)The Coefficient of Price elasticity of demand between two points on a demand curve is ____
a. Arc elasticity
b. Point elasticity
c. Price elasticity
d. None of these

95)When the demand curve is a rectangular hyperbola an increase in the price of the commodity
causes the total expenditure of consumers of the commodity to:
a. Remain unchanged
b. Increase
c. Decrease
d. Any of the above

96)A movement along a curve rather than a shift in the curve can be measured by:
a. Cross elasticity of demand
b. Income elasticity of demand
c. Price elasticity of demand & Price elasticity of Supply
d. None of these

97)The Substitution effect will be stronger when-

a. The goods are closer substitutes
b. There is lower cost of switching to the substitute good
c. There is lower inconvenience while switching to the substitute good.
d. All of these

98)According to Hicks and Allen the demand curve slope downwards due to _____
a. Law of diminishing marginal utility
b. Income effect and substitution effect
c. Either (a) or (b)
d. None of these
99)If increasing railway fare increases revenue, then the demand for railway travel has a price
elasticity of _____
a. Greater than 1
b. 1
c. Greater than 0 but less than 1
d. None of these

100) ‘No matter what the price of coffee is, Ram always spend a total of exactly 100 per week on
coffee.’ The statement implies that;
a. Ram is very fond coffee and therefore he has an inelastic demand for coffee
b. Ram has elastic demand for coffee
c. Ram’s demand for coffee is relatively less elastic
d. Ram’s demand for coffee is unit elastic

101) The substitution effect works to encourage a consumer to purchase more of a product
when the price of that product is falling because-
a. The consumer’s real income has increased.
b. The consumer’s real income has decreased.
c. The product is now relatively less expensive than before.
d. Other products are now less expensive than before.

102) Demonstration effect, a term coined by _____________

a. Adam Smith
b. James Duesenberry
c. Alfred Marshall
d. None of these

103) “The increase in demand of a commodity due to the fact that others are also consuming the
same commodity” is known as___________
a. Veblen effect
b. Bandwagon effect
c. Snob effect
d. Demonstration effect

104) A necessity is defined as a good having:

a. A positive income elasticity of demand
b. A negative income elasticity of demand
c. An income elasticity of demand between zero and 1.
d. An income elasticity of more than 1.

105) Snob effect is explained as ______

a. It is a function of consumption of others
b. It is a function of price
c. Both (a) and (b)
d. None of these
106) As the consumer’s income increases, the demand for necessities of life will increase _________
to the increase in income
a. Less than proportionate
b. More than proportionate
c. Proportionate
d. None of these

107) The tendency of people to imitate the consumption pattern of other people is known as
a. Demonstration
b. Bandwagon
c. Prestige
d. Veblen

108) When the quantity of a commodity than an individual buyer demand falls in response to the
growth of purchases by other buyers, such an effect
a. Bandwagon
b. Snob
c. Veblen
d. Demonstration

109) If the demand for petrol remains unchanged with rise in its price, it means petrol is a
a. Normal good
b. Necessity
c. Luxury good
d. Giffen good

110) The demand function is given as Q= 100 - 10P. Find the elasticity using point method when
price is Rs. 5
a. 2
b. -2
c. 1
d. -1

111) A firm learns that the own price elasticity of a product it manufactures is 3.5. What should
be the correct action for the firm if it wishes to raise its total revenue?
a. Lower the price because demand for the good is elastic
b. Raise the price because demand for the product is elastic
c. Raise the price because demand is elastic
d. We need information in order to answer this question.
112) A consumer buys 80 units of a commodity at Rs. 4 per unit. When the price falls, he buys
100 units. If Ed = -1, the new price will be:
a. Rs. 3.5
b. Rs. 3
c. Rs. 2.5
d. Rs. 2

113) Goods which have fewer substitutes are:

a. Less elastic
b. Unit elastic
c. More elastic
d. Perfectly elastic

114) Price elasticity of Demand for addictive products like Cigarettes and alcohol would be
a. Greater than 1
b. Less than 1
c. Infinity
d. One

115) Ceteris paribus, what would be the impact on foreign exchange earnings for a given falling
export prices, if the demand for the country's exports is inelastic?
a. Foreign Exchange Earnings decrease
b. Foreign Exchange Earnings increase
c. No effect on Foreign Exchange earnings
d. None of the above

116) If the co-efficient of cross elasticity of demand for X & Y is 2, it means that X and Y are:
a. Complementary goods
b. Substitute goods
c. Inferior goods
d. Normal goods

117) The demand for which type of goods is likely to be derived demand?
a. Consumer goods
b. Non-durable consumer goods
c. Non-durable producer goods
d. Durable goods

118) In case of unequal distribution of income in the country, the propensity to consume will be
...., and demand for Consumer Goods will be___
a. Higher; Higher
b. Higher; Lower
c. Lower; Higher
d. Lower; Lower
119) If the Consumers expect an Increase in Income in the future, its current demand will be ____
a. Decrease
b. Increase
c. No change
d. Nothing can be said

120) When Consumers feel that if the commodity is expensive, that it has got more utility, we are
referring to—
a. Inferior goods
b. Normal goods
c. Conspicuous goods
d. Giffen goods

121) Giffen Goods are goods which:

a. Are considered inferior by consumers
b. Occupy a substantial place in the consumers’ budget
c. Both a. and b.
d. None of the above

122) Goods which are required for immediate or urgent consumption are:
a. Less elastic
b. Unit elastic
c. More elastic
d. None of the above

123) If the demand for the good is more elastic, the Demand curve will be:
a. Parallel to the X-axis
b. Downward sloping to the right, flatter
c. Downward sloping to the right, steeper
d. Parallel to the y-axis

124) What is the elasticity between midpoint & upper extreme point of a straight line demand
curve?
a. Infinite
b. Zero
c. >1
d. <1
125) Total Expenditure of a consumer increases if:
(i) Demand is elastic and price rises
(ii) Demand is elastic and price falls
(iii) Demand is inelastic and price rises
(iv) Demand is inelastic and price falls
a. Only (ii)
b. Only (iii)
c. Both (i) and (iii)
d. Both (ii) and (iii)

126) What will be the Slope of Demand Curve when it shows the Cross Elasticity between two
Complementary Goods?
a. Negative
b. Positive
c. Zero
d. Can’t say

127) Which one of the following is an example of Non-Durable Producer goods?

a. Mobile Phone
b. Machinery
c. Furniture
d. Raw Material

128) ___________ goods require special facilities for their use

a. Non-Durable Consumer goods
b. Non-Durable producer goods
c. Durable consumer goods
d. All of the above

129) Consumption of high-priced goods by status-seeking rich people for conspicuous

consumption is called:
a. Snob effect
b. Bandwagon effect
c. Demonstration effect
d. Veblen effect

130) If the quantity demanded of coffee increased by 8% while the price of tea increased by 25%,
the cross elasticity of demand between coffee and tea is:
a. -0.32
b. 0.32
c. 3.125
d. -3.125
131) Calculate the price elasticity of demand when the price increases from Rs. 20 to Rs. 22 and
quantity demanded falls from 300 to 200 units (Midpoint method):
a. 4.2
b. -4.2
c. 4
d. -4

132) Mr. Z went to a stationery shop to buy pens. The price of a pen decreased from Rs. 5 to Rs. 3
per unit. If the price elasticity of demand for pens is 2.5 and the original quantity demanded for
pens is 20, then what is the new quantity demanded?
a. 10
b. 40
c. 30
d. 20

133) Suppose the price elasticity of demand of a firm for its product is -1.2. If the price of the
product is increased by 5%, then it is most probable that:
a. Both total revenue and profit would increase.
b. Both total revenue and profit would decrease,
c. Total revenue would decrease but profit may increase.
d. Total revenue would increase but profit may decrease

134) Mr. X and Mr. Y are rich rivals and, in a party, Mr. X wears an expensive dress and on seeing
it Mr. Y who also has the same dress decided to reject the use of the same dress further. Rather Mr.
Y will try to use an even more expensive one. Which effect affects Mr. Y?
a. Bandwagon Effect
b. Demonstration Effect
c. Snob Effect
d. Veblen Effect

135) If the income elasticity of a specific types of goods is greater than one, what does it suggest
about the goods?
a. It is an inferior good
b. It is a normal good
c. It is a necessity good
d. It is a luxury good
136) The demand function of a product X (in kg.) is expressed as Q = 1000-50P, where Q is the
quantity demanded and P is the price of the product. When price of X is 10 per kg., it's price
elasticity will be:
a. -1
b. 1
c. -2
d. 2

137) The price of 1 kg. of tea is Rs. 50. At this price, 10kg of tea is demanded. If the price of coffee
rises from Rs. 30 to Rs. 40 per kg, the quantity demanded of tea rises from 10kg to 15kg. What will
be the cross price elasticity of tea?
a. +1
b. -1.5
c. +1.5
d. -1

138) If change in quantity demanded is 60% and change in advertisement expenditure is 20%
then what will be the advertisement elasticity?
a. 3
b. 0.33
c. 6
d. 20

Consumer Behaviour
1) Total utility is maximum when:
a. Marginal utility is zero
b. Marginal utility is at its highest point.
c. Marginal utility is negative
d. None of the above

2) Which one is not an assumption of the theory of consumer behaviour based on analysis of
indifference curves?
a. Given scale of preferences as between different combinations of two goods.
b. Diminishing marginal rate of substitution
c. Diminishing marginal utility of money
d. Consumers would always prefer more of a particular good to less of it, other things
remaining the same.
3) An indifference curve slopes down towards right since more of one commodity and less of another
result in
a. Same level of satisfaction
b. Greater satisfaction
c. Maximum satisfaction
d. Any of the above

4) Which of the following statements is incorrect?

a. An indifference curve must be downward-sloping to the right
b. Convexity of a curve implies that the slope of the curve diminishes as one moves from left
to right.
c. The income elasticity for inferior goods to a consumer is positive
d. The total effect of a change in the price of a good on its quantity demanded is called the
price effect.

5) The successive units of stamps collected by a little boy give him greater and greater satisfaction.
This is a clear case of
a. Operation of the law of demand.
b. Consumer surplus enjoyed in hobbies and rare collections
c. Exception to the law of diminishing utility.
d. None of the above

6) By consumer surplus, economists mean

a. The area inside the budget line above the price of the commodity
b. The area between the average revenue and marginal revenue curves.
c. The difference between the maximum amount a person is willing to pay for a good
and its market price
d. The difference between the market price and the supply curve

7) Which of the following is a property of an indifference curve

a. It is convex to the origin due to diminishing marginal rate of substitution
b. The marginal rate of substitution is constant as you move along an indifference curve.
c. Marginal utility is constant as you move along an indifference curve.
d. Total utility is greatest where the budget line cuts the indifference curve

8) When economists speak of the utility of a certain good, they are referring to
a. The demand for the good.
b. The usefulness of the good in consumption.
c. The expected satisfaction derived from consuming the good.
d. The rate at which consumers are willing to exchange one good for another.
9) A point below the budget line of a consumer
a. Represents a combination of goods which costs the whole of consumer’s income
b. Represents a combination of goods which costs less than the consumer’s income
c. Represents a combination of goods which is unattainable to the consumer given his/her
money income
d. Represents a combination of goods which costs more than the consumers’ income

10)Comforts lie between

a. inferior goods and necessaries
b. luxuries and inferior goods
c. necessaries and luxuries
d. none of the above

11)The figure below shows the budget constraint of a consumer with an income of Rs. 900/- to spend
on two commodities, namely ice cream and chocolates.

The prices of these two commodities respectively are:

a. Rs. 10 and Rs 20
b. Rs 20 and Rs. 10
c. Rs. 10 and Rs 5
d. Any of the above
Refer to the figure below. Answer questions 12 and 13
12) The effect on consumer surplus of a fall in price from E to F is

a. A decrease in consumer surplus by EFGR

b. A decrease in consumer surplus by AER
c. A decrease in consumer surplus by EFCR
d. None of the above

13)When price rises from F to E, the increase in revenue earned by the seller is
a. Equivalent to area EFGR
b. Equivalent to area EFCR
c. Equivalent to area AER
d. None of the above

14)How would the budget line be affected if the price of both goods fell?
a. The budget line would not shift.
b. The new budget line must be parallel to the old budget line.
c. The budget line must be shifting to the left
d. The new budget line will have the same slope as the original so long as the prices of
both goods change in the same proportion.

15)The desire for a commodity by a person depends upon the ________________ he expects to obtain from
it.
a. Utility
b. Pleasure
c. Taste
d. None of these
16)Being _____________________, utility varies with different persons.
a. Absolute
b. Objective
c. Subjective
d. None of these

17)The economist’s concept of demand is _____________ as desire or need or choice or preference or

order
a. the same thing
b. not the same thing
c. (A) or (B)
d. None of these

18)A consumer’s preferences are monotonic if and only if between two bundles, the consumer prefers
the bundle which has _______________________
a. more of one of the goods
b. less of at least one of the goods
c. more of at least one of the goods and less of the other good.
d. more of at least one of the goods and no less of the other good

19)Which of the following is incorrect regarding indifference curve approach of consumer’s behavior?
a. Indifference curve analysis assumes utility is merely orderable and not quantitative.
b. Consumer is capable of comparing the different levels of utilities or satisfactions from
different commodities.
c. Consumer can say by how much one level of satisfaction is higher or lower than
other.
d. None of these

20)According to ordinal approach of consumer’s behavior-

a. Consumer is able to indicate the exact amounts of utilities that he derives from commodity
or any combinations of them
b. Utility being psychological feeling is not quantifiable.
c. The consumer is capable of simply comparing the different levels of satisfaction.
d. Both (B) and (C)

21)While drawing budget line of a consumer consuming Nachos chips and Pepsi, if the quantity of
Nachos taken on Y-axis and quantity of Pepsi on X-axis. The slope of budget line will be:
a. Pp/ Pn
b. Pn/Pp
c. M/Pn
d. M/Pp
Where, Pp – Price of Pepsi, Pn - Price of Nachos & M – Money income of consumer
22)Match the following
List – I List –II
A. Cardinal Approach 1. Marginal Utility
B. Ordinal Approach 2. Alfred Marshall
C. Hicks & Allen Approach 3. J.R. Hicks
D. Consumers’ surplus 4. Indifference curve

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

23) Law of diminishing marginal rate of substitution is associated with

a. Marshall
b. Hicks
c. Slutsky
d. Keynes

24)According to principle of diminishing marginal rate of substitution

i. One commodity must be decreased while other is increased
ii. Commodity which is increased has higher marginal significance
iii. Commodity which is decreased has higher marginal significance
iv. Neither qualitative nor quantitative concept
Of these concepts:
a. Only i. is correct
b. Both i. & ii. are correct
c. Both i. & iii. are correct
d. All are correct

25)MU curve will be below X-axis when

a. MU is zero
b. TU is falling
c. MU is negative
d. Both (B) and (C)

26)A falling MU curve illustrates

a. The principle of diminishing marginal utility
b. The principle of diminishing marginal rate of substitution
c. The principle of equi-marginal utility
d. Any of the above
27)The Slope of Indifference Curve indicate
a. Marginal Rate of Substitution of x for y
b. Slope of the budget line
c. Prices of x and y
d. Change in prices

28)An indifference curve slopes down towards right since more of one commodity and less of another
result in:
a. same satisfaction
b. greater satisfaction
c. maximum satisfaction
d. decreasing expenditure

29)The law of consumer surplus is based on:

a. indifferent curve analysis
b. revealed preference theory
c. law of substitution
d. the law of diminishing marginal utility

30)In economics, what a consumer is ready to pay minus what he actually pays, is termed as
a. Consumer’s equilibrium
b. Consumer’s surplus
c. Consumer’s expenditure
d. None of the above

31)The indifference curve approach does not assume:

a. Rationality on the parts of consumer
b. Ordinal measurement of satisfaction
c. Consistent consumption pattern behaviour of consumers
d. Cardinal measurement of utility

32)A rise in price of a good:

a. Reduce Consumer Surplus
b. Increase in Consumer Surplus
c. It will not change
d. None of these

33)What are the limitation of Consumer Surplus?

a. Consumer surplus cannot be measured precisely
b. The Consumer surplus derived from a commodity is affected by availability of substitute
c. Both (a) & (b)
d. None of these
34)The indifference curve of two perfect substitutes will be:
a. Straight line
b. U- Shaped
c. C Shaped
d. L shaped

35)The rate at which the consumer is prepared to exchange-good x and y is:

a. Marginal rate of substitution
b. Elasticity of Substitution
c. Diminishing Marginal Utility
d. None of these

36)When two goods are perfect substitute for each other:

a. Indifference curve for these two goods are straight parallel line with a constant slope along
the curve
b. Indifference curve has a constant MRS
c. Concave to the Origin
d. Both (a) and (b)

37)After reaching the saturation point, consumption of additional units of the commodity cause -.
a. Total utility to fall and marginal utility to increase
b. Total and marginal utility both to increase.
c. Total utility to fall and marginal utility to become negative.
d. Marginal utility to fall and total utility to become negative.

38)Diminishing marginal utility implies that the

a. marginal utility of a good diminishes over time.
b. total utility 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.

39)The law of diminishing marginal utility states that

a. total utility 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.

40)A consumer is in equilibrium when s/he is deriving ____________ satisfaction from the goods.
a. Maximum
b. Possible
c. maximum possible
d. None of these
41)The price which a consumer would be willing to pay for a commodity equals to his-.
a. Total utility
b. Marginal utility
c. Average utility
d. Does not have any relation to any of these

42)Match the following

List – I List –II
A. Two perfect substitute goods 1. Linear Indifference Curve
B. Two perfect complementary goods 2. Monotonic Preference
C. Indifference curve is always 3. L-Shape Indifference Curve
D. Higher IC gives higher level of 4. Convex to the origin
satisfaction

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

43)The other name of the Budget line is:

a. Demand line
b. Price line
c. Supply line
d. None of the above

44)If Mux > Px, then consumer:

a. Is at equilibrium
b. He will buy more of X good
c. He will but less of X good
d. None of the above

45)The farther the IC is from the origin, then

a. The lower is the satisfaction level
b. The higher is the satisfaction level
c. Same satisfaction level
d. None of the above

46)………….. shows all those combinations of two goods which a consumer can buy spending his given
money income on two goods at their given prices.
a. Budget Line
b. Indifference Curve
c. Demand curve
d. Supply curve
47)The indifference curve becomes __________ as we move down and to the right.
a. Steeper
b. Flatter
c. Linear
d. None of the above

48)When MRSxy < Px/Py, in order to reach equilibrium, the consumption of

a. Good Y should increase
b. Good X should increase
c. Good X & Y should increase
d. None of the above

49)Following are the characteristics of wants, except:

a. Each want is satiable
b. All wants recur again & again
c. Wants are not independent; they are complementary
d. Wants are subjective & relative

50)Change in total utility generated by consuming one additional unit of that good or service is
known as:
a. Total Utility
b. Marginal Utility
c. Utility
d. None of the above

51)Which of the following is not an assumption of Marginal Utility Analysis?

a. There should not be any gap between consumption of different units
b. Different units of the commodity are assumed to be heterogeneous
c. Constancy of marginal utility of money
d. Independent utility

52)The consumer’s objective of reaching highest Indifference curve and maximizing satisfaction is
restricted by-
a. Total utility curve
b. Marginal utility curve
c. Marginal rate of substitution
d. Price line
53) Ram wanted to purchase an Apple tab at Rs. 12,000/. The actual price in the market (MRP)
is Rs. 11,000/ and a discount was given at 20%. Additionally, there is a cash discount of Rs. 300.
Find the consumer's surplus:
a. 3200
b. 3500
c. 1000
d. 3300

54) When the total income of a consumer is Rs. 750, find out the prices of pancake & muffins
respectively if:

a. 15, 30
b. 30, 15
c. 50, 25
d. 25, 50

55)A point above the budget line of a consumer represents:

a. Represents costs less than the whole consumer's income.
b. Represents a combination of goods which costs the whole of the consumer's income.
c. Represents a combination which is totally unattainable.
d. Represents a combination that is attainable.

56)An increase in consumer surplus is likely to occur when

a. There is a rise in price of goods.
b. There is a fall in price of goods.
c. Demand decreases.
d. Supply increases.

57)Which tool does the ordinal utility approach use to analyses consumer behaviour and is based on
consumer preferences?
a. Indifference Curve Analysis
b. Law of Diminishing Marginal Utility
c. Elasticity of Demand
d. Consumer Surplus
 58)With respect to the properties of the indifference curve, which of the following statements is false?
a. Higher indifference curve represents higher level of satisfaction.
b. Indifference curve is a negatively sloped line.
c. Intersecting point of two indifference curves represents highest level of satisfaction.
d. An indifference curve is convex to the origin.
_____________________________________________________

Supply
1) A vertical supply curve parallel to Y axis implies that the elasticity of supply is:
a. Zero
b. Infinity
c. Equal to one
d. Greater than zero but less than infinity

2) An increase in the supply of a good is caused by:

a. Improvements in its production technology
b. Fall in the prices of other goods which can be produced using the same inputs
c. Fall in the prices of factors of production used in its production
d. all of the above

3) A horizontal supply curve parallel to the quantity axis implies that the elasticity of supply is:
a. Zero
b. Infinite
c. Equal to one
d. Greater than zero but less than one

4) Contraction of supply is the result of:

a. Decrease in the number of producers.
b. Decrease in the price of the good concerned.
c. Increase in the prices of other goods.
d. Decrease in the outlay of sellers.

5) Supply is the
a. limited resources that are available with the seller
b. cost of producing a good
c. entire relationship between the quantity supplied and the price of good
d. Willingness to produce a good if the technology to produce it becomes available

6) 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. a decrease in the price of the book
c. an increase in the future expected price of the book
d. an increase in the price of paper used.
7) If price of computers increases by 10% and supply increases by 25%. The elasticity of supply is
a. 2.5
b. 0.4
c. -2.5
d. -4

8) An increase in the number of sellers of bikes will increase the

a. The price of a bike
b. Demand for bikes
c. The supply of bikes
d. Demand for helmets

9) If the supply of bottled water decreases, other things remaining the same, the equilibrium price —
———— —————— and the equilibrium quantity —————————
a. increases; decreases
b. decreases; increases
c. decreases; decreases
d. increases; increases

10)In a very short period, the supply

a. can be changed
b. cannot be changed
c. can be increased
d. none of the above

11)When supply curve moves to right, it means

a. supply increases and more quantity is supplied at a given price
b. supply decreases and less quantity is supplied at a given price
c. supply remains constant at a given price
d. none of the above

12)Elasticity of supply is measured by dividing the percentage change in quantity supplied of a good
by ——— ———————
a. Percentage change in income
b. Percentage change in quantity demanded of goods
c. Percentage change in price
d. Percentage change in taste and preference

13)Elasticity of supply is greater than one when

a. Proportionate change in quantity supplied is more than the proportionate change in
price.
b. Proportionate change in price is greater than the proportionate change in quantity
supplied.
c. change in price and quantity supplied are equal
d. None of the above
14)The supply function is given as Q= -100 + 10P. Find the elasticity using point method, when price
is Rs. 15.
a. 4
b. -3
c. -5
d. 3

15)The supply curve shifts to the right because of———————

a. improved technology
b. increased price of factors of production
c. increased excise duty
d. all of the above

16)Which of the following statements is correct?

a. When the price falls the quantity demanded falls
b. Seasonal changes do not affect the supply of a commodity
c. Taxes and subsidies do not influence the supply of the commodity
d. With lower cost, it is profitable to supply more of the commodity.
17)If the demand is more than supply, then the pressure on price will be
a. Upward
b. Downward
c. Constant
d. None of the above

18)The supply curve for highly perishable commodities during very short period is generally ——
a. Elastic
b. Inelastic
c. Perfectly elastic
d. Perfectly inelastic

19)Supply is a ___________ concept.

a. Stock
b. Flow and stock
c. Flow
d. None of the above

20)Data on production of vegetables for the past two years showed that, despite stable prices, there is
a substantial decline in output of cabbage leading to lower supply into the market. Which of the
following can possibly be the reason?
a. An increase in the price of cauliflower which is equally preferred by consumers
b. Announcement of a subsidy by government on vegetable production
c. More farmers producing cabbage and the increasing competition among them
d. A substantial decrease in the price of capsicum
21)Which of the following alternatives would be true if the event presented in the following diagram
occurs?

a. A fall in wage costs of the firm along with a fall in consumer incomes
b. A shortage of raw materials and consequent increase in raw material price
c. An increase in subsidy by the government and a reduction in taxes
d. Decrease in the market price of the commodity in question

22)If a short run supply curve is plotted for the following table which presents price and quantity of
fighter aircrafts, what will be its shape?

a. Horizontal straight line parallel to the quantity axis

b. Steeply rising with elasticity less than one
c. Vertical straight line parallel to Y axis
d. A perfectly elastic supply curve

23)If there is decrease in quantity supplied of a commodity, there will be-

a. Upward movement on same supply curve
b. Rightward shift in supply curve
c. Downward movement on same supply curve
d. Leftward shift in supply curve
24)Relationship between slope of supply curve and elasticity of supply can be defined as
a. Product of slope of supply curve and ratio of quantity supply to price
b. Elasticity of supply is equal to the slope of supply curve.
c. Product of reciprocal of supply curve and ratio of price to quantity supplied
d. Elasticity of supply is equal to reciprocal of slope of supply curve.

25)A new technique of production reduces the marginal cost of producing paper. How will this affect
the supply curve of writing material like notebook, register & notepad etc.?
a. Upward movement on same supply curve
b. Downward movement on same supply curve
c. Leftward shift in supply curve
d. Rightward shift in supply curve

26)Supply and stock are _________________________

a. same things
b. different
c. having no comparison
d. Both (B) and (C)

27)Elasticity of demand and supply are ___________________ concepts.

a. Relative
b. Absolute
c. Both (A) and (B)
d. Neither (A) and (B)

28)Yesterday, seller A supplied 400 units of a good X at Rs. 10 per unit. Today, seller A supplies the
same quantity of units at Rs. 5 per unit. Based on this evidence, seller A has experienced a (an)
a. Decrease in supply
b. Increase in supply.
c. Increase in the quantity supplied.
d. Decrease in the quantity supplied.

29)Suppose we are drawing a supply curve of a farmer which of the following will not be held
constant?
a. Price of Inputs
b. Weather Conditions
c. Technology
d. The price of the Commodity under consideration

30)Behavior of Supply depends upon:

a. Phenomenon Considered
b. Degree of possible adjustment in supply
c. Time Period under Consideration
d. All the above
31)If the supply of mangoes decreases, other things remaining the same, the equilibrium price and
the equilibrium quantity _______
a. Increases; decreases
b. Decreases; increases
c. Decreases; decreases
d. Increases; increases

32) The supply function is given as Q = -50 + 15p. Find the elasticity using point method,
when price is Rs. 20.
a. 1.2
b. 0.83
c. 0.86
d. None of the above

33)When price of a good rises from Rs. 20 to Rs. 30 the producer supplies 20% more, the price
elasticity of supply is:
a. 0.5
b. 0.4
c. 1
d. None of the above

34) The supply curve shows:

a. The minimum quantity that supplier is willing to supply at each price
b. The minimum price which will induce suppliers to offer the various quantities for
sale
c. The maximum price which will induce suppliers to offer the various quantities for sale
d. Both a & c

35) The flatter the curve, supply elasticity is:

a. Less
b. More
c. zero
d. 1

36)Commodities which requires specialized resources for production may have:

a. Less elastic supply
b. More elastic supply
c. Unitary elastic supply
d. Infinite elasticity
37)The market demand curve is: Qd = 10-2p and the market supply curve is: Qs = -2 + 10p. The
market will be in equilibrium if:
a. P = 1 and Q = 12
b. P = 5 and Q = 8
c. P = 1 and Q = 8
d. None of the above

38) Producer surplus is represented by the area:

a. Above the supply curve and below the demand curve
b. Below the supply curve and above the demand curve
c. Above the supply curve and below the price line
d. Below the supply curve and above the price line
39)In case there are fewer barriers of entry into the market, elasticity of supply will be:
a. Low
b. High
c. Zero
d. None of the above

40)Commodities which can be easily and inexpensively stored without losing value may have
a. Inelastic supply
b. Perfectly inelastic supply
c. Elastic supply
d. Any of the above

41)Slope of supply curve is 0.6, calculate elasticity of supply when initial price is Rs. 30 per unit and
initial quantity is 100 units
a. 0.5
b. 5.5
c. -0.5
d. -0.18

42)Supply will be __________ if firms are not working to full capacity

a. Inelastic
b. Perfectly inelastic
c. Elastic
d. Any of the above

43)The price of a commodity is 10 per unit. At this price, the quantity supplied is 500 units. Price
elasticity of supply of the commodity is 1.25. At what price the quantity to be supplied would be
20% more?
a. 8.40
b. 11.60
c. 12.50
d. 7.50
 Chapter 3
Theory of Production

1) Which of the following is considered production in Economics?

a. Tilling of soil
b. Singing a song before friends.
c. Preventing a child from falling into a manhole on the road.
d. Painting a picture for pleasure.

2) Identify the correct statement:

a. The average product is at its maximum when marginal product is equal to average
product.
b. The law of increasing returns to scale relates to the effect of changes in factor proportions.
c. Economies of scale arise only because of indivisibilities of factor proportions.
d. Internal economies of scale can accrue when industry expands beyond optimum.

3) Which of the following is not a characteristic of land?

a. Its supply for the economy is limited.
b. It is immobile.
c. Its usefulness depends on human efforts.
d. It is produced by our forefathers.

4) Which of the following statements is true?

a. Accumulation of capital depends solely on income of individuals.
b. Savings can be influenced by government policies.
c. External economies go with size and internal economies with location.
d. The supply curve of labour is an upward slopping curve.

5) In the production of wheat, all of the following are variable factors that are used by the farmer
except:
a. the seed and fertilizer used when the crop is planted.
b. the field that has been cleared of trees and in which the crop is planted.
c. the tractor used by the farmer in planting and cultivating not only wheat but also corn and
barley
d. the number of hours that the farmer spends in cultivating the wheat fields.

6) The marginal product of a variable input is best described as:

a. total product divided by the number of units of variable input
b. the additional output resulting from a one-unit increase in the variable input.
c. the additional output resulting from a one-unit increase in both the variable and fixed
inputs.
d. the ratio of the amount of the variable input that is being used to the amount of the fixed
input that is being used
7) Diminishing marginal returns implies:
a. decreasing average variable costs.
b. decreasing marginal costs
c. increasing marginal costs
d. decreasing average fixed costs.

8) The short run, as economists use the phrase, is characterized by

a. at least one fixed factor of production and firms neither leaving nor entering the
industry.
b. generally, a period which is shorter than one year.
c. all factors of production are fixed and no variable inputs.
d. all inputs are variable and production is done in less than one year.

9) The marginal, average, and total product curves encountered by the firm producing in the short
run exhibit all of the following relationships except:
a. when total product is rising, average and marginal product may be either rising or falling.
b. when marginal product is negative, total product and average product are falling.
c. when average product is at a maximum, marginal product equals average product, and
total product is rising.
d. when marginal product is at a maximum, average product equals marginal product,
and total product is rising.

10) To economists, the main difference between the short run and the long run is that:
a. In the short run all inputs are fixed, while in the long run all inputs are variable
b. In the short run the firm varies all of its inputs to find the least-cost combination of inputs.
c. In the short run, at least one of the firm’s input levels is fixed.
d. In the long run, the firm is making a constrained decision about how to use existing plant
and equipment efficiently.

11)Which of the following is the best definition of “production function”?

a. The relationship between market price and quantity supplied.
b. The relationship between the firm’s total revenue and the cost of production.
c. The relationship between the quantities of inputs needed to produce a given level of
output
d. The relationship between the quantity of inputs and the firm’s marginal cost of production.

12)The “law of diminishing returns” applies to:

a. the short run, but not the long run.
b. the long run, but not the short run.
c. both the short run and the long run.
d. neither the short run nor the long run.
 13)Diminishing returns occur:
a. when units of a variable input are added to a fixed input and total product falls.
b. when units of a variable input are added to a fixed input and marginal product falls
c. when the size of the plant is increased in the long run
d. when the quantity of the fixed input is increased and returns to the variable input falls.
Use the following information to answer questions 14-16.
Hours of Labour Total Output Marginal product
0 - -
1 100 100
2 - 80
3 240 0

14)What is the total output when 2 hours of labour are employed?

a. 80
b. 100
c. 180
d. 200

15)What is the marginal product of the third hour of labour?

a. 60
b. 80
c. 100
d. 240

16)What is the average product of the first three hours of labour?

a. 60
b. 80
c. 100
d. 240

17)If a firm moves from one point on a production isoquant to another, which of the following will not
happen.
a. A change in the ratio in which the inputs are combined to produce output
b. A change in the ratio of marginal products of the inputs
c. A change in the marginal rate of technical substitution
d. A change in the level of output.

18) Which of the following statements is true?

a. The services of a doctor are considered production
b. Man can create matter
c. The services of a housewife are considered production.
d. When a man creates a table, he creates matter.
19)Which of the following is a function of an entrepreneur?
a. Initiating a business enterprise
b. Risk bearing
c. Innovating.
d. All of the above

20)In describing a given production technology, the short run is best described as lasting:
a. up to six months from now.
b. up to five years from now
c. as long as all inputs are fixed
d. as long as at least one input is fixed.

21)If decreasing returns to scale are present, then if all inputs are increased by 10% then:
a. output will also decrease by 10%
b. output will increase by 10%.
c. output will increase by less than 10%
d. output will increase by more than 10%

22)The production function is a relationship between a given combination of inputs and:

a. another combination that yields the same output.
b. the highest resulting output.
c. the increase in output generated by one-unit increase in one output.
d. all levels of output that can be generated by those inputs.

23)If the marginal product of labour is below the average product of labour, it must be true that:
a. the marginal product of labour is negative.
b. the marginal product of labour is zero
c. the average product of labour is falling.
d. the average product of labour is negative

24)The average product of labour is maximized when marginal product of labour

a. equals the average product of labour
b. equals zero
c. is maximized
d. none of the above.

25)The law of variable proportions is drawn under all of the assumptions mentioned below except
the assumption that:
a. the technology is changing
b. there must be some inputs whose quantity is kept fixed
c. we consider only physical inputs and not economically profitability in monetary terms.
d. the technology is given and stable.
26)What is a production function?
a. Technical relationship between physical inputs and physical output
b. Relationship between fixed factors of production and variable factors of production.
c. Relationship between a factor of production and the utility created by it.
d. Relationship between quantity of output produced and time taken to produce the output.

27)Laws of production does not include ……

a. returns to scale.
b. law of diminishing returns to a factor
c. law of variable proportions
d. least cost combination of factors.

28)An Iso-quant shows:

a. All the alternative combinations of two inputs that can be produced by using a given set of
output fully and in the best possible way.
b. All the alternative combinations of two products among which a producer is indifferent
because they yield the same profit
c. All the alternative combinations of two inputs that yield the same total product.
d. Both (b) and (c).

29)Economies of scale exist because as a firm increases its size in the long run:
a. Labour and management can specialize in their activities more.
b. As a larger input buyer, the firm can get finance at lower cost and purchase inputs at a
lower per unit cost
c. The firm can afford to employ more sophisticated technology in production.
d. All of these

30)The production function:

a. Is the relationship between the quantity of inputs used and the resulting quantity of
product.
b. Tells us the maximum attainable output from a given combination of inputs.
c. Expresses the technological relationship between inputs and output of a product.
d. All the above.

31)The production process described below exhibits.

Number of Workers Output
0 0
1 23
2 40
3 50
a. constant marginal product of labour.
b. diminishing marginal product of labour
c. increasing return to scale
d. increasing marginal product of labour.
32)In the short run, the firm's product curves show that
a. Total product begins to decrease when average product begins to decrease but continues to
increase at a decreasing rate.
b. When marginal product is equal to average product, average product is decreasing but at
its highest.
c. When the marginal product curve cuts the average product curve from below, the average
product is equal to marginal product.
d. In stage two, total product increases at a diminishing rate and reaches maximum at
the end of this stage.

33)A fixed input is defined as

a. That input whose quantity can be quickly changed in the short run, in response to the
desire of the company to change its production.
b. That input whose quantity cannot be quickly changed in the short run, in response to
the desire of the company to change its production.
c. That input whose quantities can be easily changed in response to the desire to increase or
reduce the level of production.
d. That input whose demand can be easily changed in response to the desire to increase or
reduce the level of production.

34)Average product is defined as

a. total product divided by the total cost.
b. total product divided by marginal product.
c. total product divided by the number of units of variable input
d. marginal product divided by the number of units of variable input.

35)Which of the following statements is true?

a. After the inflection point of the production function, a greater use of the variable input
induces a reduction in the marginal product
b. Before reaching the inevitable point of decreasing marginal returns, the quantity of output
obtained can increase at an increasing rate
c. The first stage corresponds to the range in which the AP is increasing as a result of utilizing
increasing quantities of variable inputs
d. All the above.

36)Marginal product, mathematically, is the slope of the

a. total product curve.
b. average product curve
c. marginal product curve
d. implicit product curve.
 37)Suppose the first four units of a variable input generate corresponding total outputs of 200, 350,
450, 500. The marginal product of the third unit of input is:
a. 50
b. 100
c. 150
d. 200

38)Which of the following statements is false in respect of fixed cost of a firm?

a. As the fixed inputs for a firm cannot be changed in the short run, the TFC are constant,
except when the prices of the fixed inputs change
b. TFC continue to exist even when production is stopped in the short run, but they
exist in the long run even when production is not stopped
c. Total Fixed Costs (TFC) can be defined as the total sum of the costs of all the fixed inputs
associated with production in the short run.
d. In the short run, a firm’s fixed cost cannot be escaped even when production is stopped.

39)Diminishing marginal returns for the first four units of a variable input is exhibited by the total
product sequence
a. 50, 50, 50, 50
b. 50, 110, 180, 260
c. 50, 100, 150, 200
d. 50, 90, 120, 140

40)Use the following diagram to answer the question given below it

The marginal physical product of the third unit of labour is _____, the MP of the _____ labour is
Negative
a. Six; fourth
b. Six; third
c. Six; fifth
d. Six; sixth
41)In the third of the three stages of production:
a. the marginal product curve has a positive slope.
b. the marginal product curve lies completely below the average product curve.
c. total product increases
d. marginal product is positive.

42)Which of the following statements describes increasing returns to scale?

a. Doubling of all inputs used leads to doubling of the output.
b. Increasing the inputs by 50% leads to a 25% increase in output.
c. Increasing inputs by 1/4 leads to an increase in output of 1/3
d. None of the above

43)The most important function of an entrepreneur is to ____________.

a. Innovate
b. Bear the sense of responsibility
c. Finance
d. Earn profit

44)Assertion (A): In the short run, a producer operates in only II stage of Law of Diminishing Returns
where average product of variable factor is declining
Reason (R): In stage I and stage III the marginal product of the fixed and the variable factors
respectively are negative.
a. (A) is true and (R) is false
b. Both (A) and (R) are true & (R) is the correct explanation of (A)
c. Both (A) and (R) are true & (R) is not the correct explanation of (A)
d. (A) is false and (R) is true

45)In the long run which factor of production is fixed?

a. Labour
b. Capital
c. Building
d. None of these

46)Law of diminishing returns to scale is relevant to_

a. Short period
b. Long period
c. Market period
d. None of these

47)The Cobb-Douglas homogeneous production function given as: Q = L1/2 k1/2 exhibits-
a. Constant returns to scale
b. Decreasing returns to scale
c. Increasing returns to scale
d. All of the above at various level of output
48)In second stage of the Law of Variable Proportion-
a. MP diminishes & AP increases
b. AP diminishes but MP increases
c. Both MP& AP diminish
d. Both MP& AP increase

49)If all inputs are increased in the same proportion, then it is the case of
1. Short run production function
2. Long run production function
3. Law of Variable Proportion
4. Law of Returns to Scale
a. 1 & 2 only
b. 2 & 3 only
c. 1 & 4 only
d. 2 & 4 only

50)

Iso-Quants shown in the above figure exhibits:

1. Perfect substitutability of factors
2. Perfect complementarily of factors
3. Fixed proportion production function
4. Variable proportion production function

a. 1 & 2 only
b. 1 & 3 only
c. 3 & 4 only
d. 2 & 3 only
51)Match List I with List II and choose the correct answer using the codes given below.
List – I List –II
A. MP is larger than AP 1. AP is at its maximum
B. MP is equal to AP 2. AP is falling
C. MP is smaller than AP 3. AP is rising

Codes A B C
a. 1 2 3
b. 3 1 2
c. 2 3 1
d. 3 2 1

52)Cobb-Douglas function
When, P = Actual output
L = Labour C = Capital
b = No. of units of labour
k = Exponent of labour
j = Exponent of capital is represented as-
a. P = b LjCk
b. P = b L1/jC1/k
c. P = b LkCj
d. P = 1/ b LkCj

53)Assertion (A): An Iso-cost line is a straight line.

Reason (R): The market rate of exchange between the two inputs is constant.
a. (A) is true and (R) is false
b. Both (A) and (R) are true & (R) is the correct explanation of (A)
c. Both (A) and (R) are true & (R) is not the correct explanation of (A)
d. (A) is false and (R) is true

54)“Returns to Scale” refers to the effect on total output of changes in:

a. a factor
b. various inputs separately
c. all the inputs simultaneously
d. None of these
55)Consider the following statements about the relationship between cost and production
1. When AP rises, AVC falls
2. When AP reaches at maximum, AVC is minimum
3. When AP falls, AVC rises
Which of the above statements is correct?
a. 1 & 2
b. 3 only
c. 1, 2 & 3
d. 2 & 3

56)Which one of the following is not an assumption of law of variable proportion?

a. Technology of production remains unchanged.
b. Only physical inputs & output are considered.
c. All units of variable factors are different.
d. The must be some inputs whose quantity is kept fixed.

57)The schedule given below representing the combinations of two variable inputs (Labour &
Capital) for two Isoquants of output 100 and 200 respectively

On the basis of above schedule, which of the following statement is true?

a. IQ1 & IQ2 are parallel to each other
b. IQ1 & IQ2 are non-parallel & intersecting to each other.
c. IQ1 & IQ2 are neither parallel nor intersecting each other.
d. Can’t say

58)Isoquant word is made up of two words i.e., Iso & Quant. Where quant means quantity or output
then Iso means-
a. Maximum
b. Equal
c. Minimum
d. None of these
59)Isoquant curve is convex to the origin due to diminishing MRTS. If X-axis is labour (L) axis & Y-axis
is Capital (K) axis, then MRTS =
a. ∆ L / ∆ K
b. ∆ K / ∆ L
c. 1 / ∆ K
d. a. and b.

60)An isoquant slopes:

a. downward to the left
b. downward to the right
c. upward to the left
d. upward to the right

61)At shut down point:

a. Price is equal to AVC
b. Total revenue is equal to TVC
c. Total loss of the firm is equal to TFC
d. All of the above

62)The marginal cost curve intersects the average cost curve when average cost is:
a. Maximum
b. Minimum
c. Raising
d. Falling

63)If the total cost of manufacturing commodity ‘X’ is Rs. 1,50,000. Out of this implicit cost is Rs.
80,000 what will be explicit cost:
a. Rs. 95,000
b. Rs. 1,25,000
c. Rs. 80,000
d. Rs. 70,000

64)Which is the other name that is given to the long run average cost curve?
a. profit curve
b. planning curve
c. demand curve
d. indifference curve

65)Diminishing marginal returns imply

a. decreasing average variable costs
b. decreasing marginal costs
c. increasing marginal costs
d. decreasing average fixed costs
66)The producer is in equilibrium at a point where the cost line is:
a. above the isoquant
b. below the isoquant
c. cutting the isoquant
d. tangent to isoquant

67)Which of the following is not a characteristic of land?

a. its supply for the economy is limited
b. it is immobile
c. its usefulness depends on human efforts
d. it is produced by our forefathers

68)A firm’s production function:

a. Shows how much output and the level of input required for the firm to maximize profits
b. Establishes the minimum level of output that can be produced using the available resources
c. Shows the maximum output that can be produced with a given amount of inputs with
available technology
d. Shows labour force which is employed

69)According to ____, land has certain original and indestructible powers and these properties of land
cannot be destroyed
a. Ricardo
b. James bates
c. James bates
d. J.R. Parkinson

70)Which of the following function can never be delegated by the entrepreneur?

a. Initiating the business enterprise
b. Innovation
c. Risk bearing
d. All of the above

71)When Average product is maximum:

a. MP is at maximum
b. MP curve cuts AP from below
c. Total Product is at maximum
d. First stage of Increasing returns to factor ends.

72)Which of the following statement is not true?

a. Iso-cost line never touches the axis
b. Isoquants are convex to the origin
c. Isoquants are non-intersecting
d. Higher Iso-cost line shows higher budget
73)______ is that point on TP at which MP is maximum
a. Saturation point
b. Production Optimization point
c. Inflexion point
d. Maximum point

74)The quantity of the variable factor becomes too excessive relative to the fixed factor so that they
get in each other’s way, is the case of:
a. Increasing return to scale
b. Decreasing return to scale
c. Diminishing return to factor
d. Negative return to factor

75)In Cobb-Douglas production function, if labour elasticity and capital elasticity is more than 1, it
refers to:
a. Increasing return to factor
b. Constant return to scale
c. Increasing return to scale
d. Decreasing return to scale

76)Profit is the reward for bearing________

a. Foreseeable risk
b. Uncertainties
c. Both of the above
d. None of the above

77)_________ is a precondition for mobilization of savings?

a. Income of individual
b. Ability to save
c. Availability of financial products and institutions
d. Willingness to save

78)If a firm moves from one point on a production isoquant to another, which of the following will not
happen:
a. A change in the ratio in which the inputs are combined to produce output
b. A change in the ratio of marginal products of the inputs
c. A change in the marginal rate of technical substitution
d. A change in the level of output

79)Stages I and III are called

a. Economic Absurdity
b. Economic Stability
c. Economic Equilibrium
d. All of the above
80) Circulating capital means:
a. Capital is a durable source which gives returns for a specific period.
b. Interest generated from capital and reinvested to earn more interest.
c. Capital performs its production function in single use and is not used further.
d. Used for a series of services over a period of time.

81)A person went to buy land and thought one of the following was a wrong feature regarding land:
a. Homogeneous
b. Heterogeneous
c. Immobile
d. No supply price

Given the following data, calculate the missing values:

L TP MP

1 200 200

2 380 180

3 160

4 680

5 120

82) What is the marginal production of the 4th unit?

a. 170
b. 140
c. 120
d. 160

83)What is the total output at the 3rd unit?

a. 520
b. 680
c. 540
d. 600

84)What is the Average Product of the 5th unit?

a. 200
b. 160
c. 190
d. 800
 85)Which of the following defines all those combinations of inputs which are capable of producing the
same level of output?
a. Indifference curve
b. Iso quant
c. Iso cost
d. Budget line

86)How is production in the economic sense distinguished from non-market activities performed
within a household?
a. Involvement of love and affection
b. Exchange in the market
c. Voluntary nature of the activity
d. Intangible outputs
Use the following information to answer questions 87-88.

Hours of Labour Total Product Average Product Marginal Product

0 - - -

1 20 20 -

2 50 25 30

3 90 30 40

4 - 30 -

87)What is the average product for the third hour of labour?

a. 25
b. 30
c. 35
d. 40

88)What is the marginal product of the second hour of labour?

a. 10
b. 20
c. 30
d. 40
89)What is the primary characteristic of Decreasing Returns to Scale?
a. Total output increases at an increasing rate
b. Total output increases at a decreasing rate
c. Total output remains constant
d. Total output decreases

90)When does the Law of Variable Proportions, or the Law of Diminishing Returns, become relevant?
a. In the long run
b. In the short run
c. In both the short and long run
d. Only when all factors are variable

Theory of Cost
1) Which of the following cost curves is never ‘U’ shaped?
a. Average cost curve
b. Marginal cost curve
c. Average variable cost curve
d. Average fixed cost curve.

2) Total cost in the short run is classified into fixed costs and variable costs. Which one of the
following is a variable cost?
a. Cost of raw materials.
b. Cost of equipment
c. Interest payment on past borrowings
d. Payment of rent on building

3) In the short run, when the output of a firm increases, its average fixed cost:
a. Increases
b. Decreases
c. remains constant
d. first declines and then rises

4) Which one of the following is also known as planning curve?

a. Long run average cost curve.
b. Short run average cost curve
c. Average variable cost curve
d. Average total cost curve

5) With which of the following is the concept of marginal cost closely related?
a. Variable cost.
b. Fixed cost
c. Opportunity cost
d. Economic cost
 6) Which of the following statements is correct?
a. When the average cost is rising, the marginal cost must also be rising.
b. When the average cost is rising, the marginal cost must be falling.
c. When the average cost is rising, the marginal cost is above the average cost
d. When the average cost is falling, the marginal cost must be rising.

7) Which of the following is an example of “explicit cost”?

a. The wages a proprietor could have made by working as an employee of a large firm
b. The income that could have been earned in alternative uses by the resources owned by the
firm
c. The payment of wages by the firm.
d. The normal profit earned by a firm.

8) Which of the following is an example of an “implicit cost”?

a. Interest that could have been earned on retained earnings used by the firm to
finance expansion
b. The payment of rent by the firm for the building in which it is housed
c. The interest payment made by the firm for funds borrowed from a bank.
d. The payment of wages by the firm.

9) Marginal cost is defined as:

a. the change in total cost due to a one unit change in output.
b. total cost divided by output.
c. the change in output due to a one unit change in an input
d. total product divided by the quantity of input.
Use the following data to answer questions 10-12.
Output 0 1 2 3 4 5 6
Total Cost 240 330 410 480 540 610 690

10)The average fixed cost of 2 units of output is:

a. Rs. 80
b. Rs. 85
c. Rs. 120
d. Rs. 205

11)The marginal cost of the sixth unit of output is:

a. Rs. 133
b. Rs. 75
c. Rs. 80
d. Rs. 450
12)Diminishing marginal returns start to occur between units:
a. 2 and 3
b. 3 and 4
c. 4 and 5
d. 5 and 6

13)Which of the following is true of the relationship between the marginal cost function and the
average cost function?
a. If MC is greater than ATC, then ATC is falling
b. The ATC curve intersects the MC curve at minimum MC
c. The MC curve intersects the ATC curve at minimum ATC
d. If MC is less than ATC, then ATC is increasing.

14)Which of the following statements is true of the relationship among the average cost functions?
a. ATC = AFC – AVC
b. AVC = AFC + ATC.
c. AFC = ATC + AVC
d. AFC = ATC – AVC

15)Which of the following is not a determinant of the firm’s cost function?

a. The production function.
b. The price of labour.
c. Taxes
d. The price of the firm’s output

16)Which of the following statements is correct concerning the relationships among the firm’s cost
functions?
a. TC = TFC – TVC.
b. TVC = TFC – TC
c. TFC = TC – TVC.
d. TC = TVC – TFC.

17)Suppose output increases in the short run. Total cost will:

a. increase due to an increase in fixed costs only
b. increase due to an increase in variable costs only.
c. increase due to an increase in both fixed and variable costs
d. decrease if the firm is in the region of diminishing returns

18)Which of the following statements concerning the long-run average cost curve is false?
a. It represents the least-cost input combination for producing each level of output.
b. It is derived from a series of short-run average cost curves.
c. The short-run cost curve at the minimum point of the long-run average cost curve
represents the least–cost plant size for all levels of output
d. As output increases, the amount of capital employed by the firm increases along the curve.
19)The negatively-sloped (i.e. falling) part of the long-run average total cost curve is due to which of
the following?
a. Diseconomies of scale
b. Diminishing returns
c. The difficulties encountered in coordinating the many activities of a large firm.
d. The increase in productivity that results from specialization

20)The positively sloped (i.e. rising) part of the long run average total cost curve is due to which of
the following?
a. Diseconomies of scale.
b. Increasing returns
c. The firm being able to take advantage of large-scale production techniques as it expands its
output.
d. The increase in productivity that results from specialization

21)A firm’s average total cost is Rs. 300 at 5 units of output and Rs. 320 at 6 units of output. The
marginal cost of producing the 6th unit is:
a. Rs. 20
b. Rs. 120
c. Rs. 320
d. Rs. 420

22)A firm producing 7 units of output has an average total cost of Rs. 150 and has to pay Rs. 350 to its
fixed factors of production whether it produces or not. How much of the average total cost is made
up of variable costs?
a. Rs. 200
b. Rs. 50
c. Rs. 300
d. Rs. 100

23)A firm has a variable cost of Rs. 1000 at 5 units of output. If fixed costs are Rs. 400, what will be
the average total cost at 5 units of output?
a. Rs. 280
b. Rs. 60
c. Rs. 120
d. Rs. 1,400

24)A firm’s average fixed cost is Rs. 20 at 6 units of output. What will it be at 4 units of output?
a. Rs. 60
b. Rs. 30
c. Rs. 40
d. Rs. 20
25)The efficient scale of production is the quantity of output that minimizes
a. average fixed cost.
b. average total cost.
c. average variable cost.
d. marginal cost.

26)When marginal costs are below average total costs,

a. average fixed costs are rising.
b. average total costs are falling
c. average total costs are rising.
d. average total costs are minimized.

27)A firm’s long-run average total cost curve is

a. Identical to its long-run marginal-cost curve.
b. Also its long-run supply curve because it explains the relationship between price and
quantity supplied.
c. In fact, the average total cost curve of the optimal plant in the short run as it tries to
produce at least cost.
d. Tangent to all the curves of short-run average total cost.

28)In the long run, if a very small factory were to expand its scale of operations, it is likely that it
would initially experience
a. an increase in pollution level
b. diseconomies of scale.
c. economies of scale.
d. constant returns to scale.

29)A firm’s long-run average total cost curve is

a. Identical to its long-run marginal-cost curve as all factors are variable.
b. Also its long-run total cost curve because it explains the relationship cost and quantity
supplied in the long run
c. In fact, the average total cost curve of the optimal plant in the short run as it tries to
produce at least cost.
d. Tangent to all short-run average total cost the curves and represents the lowest
average total cost for producing each level of output.

30)The marginal cost for a firm of producing the 9th unit of output is Rs. 20. Average cost at the same
level of output is Rs. 15. Which of the following must be true?
a. marginal cost and average cost are both falling
b. marginal cost and average cost are both rising
c. marginal cost is rising and average cost is falling
d. it is impossible to tell if either of the curves are rising or falling
31)Economic costs of production differ from accounting costs of production because
a. Economic costs 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 expenditures for hired resources while economic costs do not.
d. Economic costs add the opportunity cost of a firm which uses its own resources.

32)In figure below, possible reason why the average variable cost curve approaches the average total
cost curve as output rises is:

a. Fixed costs are falling while total costs are rising at rising output.
b. Total costs are rising and average costs are also rising.
c. Marginal costs are above average variable costs as output rises.
d. Average fixed costs are falling as output rises.

33)Which of the following statements is incorrect?

a. The LAC curve is also called the planning curve of a firm.
b. Total revenue = price per unit × number of units sold.
c. Opportunity cost is also called alternative cost.
d. If total revenue is divided by the number of units sold, we get marginal revenue.

34)Cost incurred which has ‘no relevance’ to future planning is called_

a. Marginal Cost
b. Sunk Cost
c. Book Cost
d. Average Cost

35)Which one of the following cost curve is rectangular hyperbola in shape?

a. TFC
b. MC
c. AFC
d. AVC

36)Which of the following is not a formula for marginal cost?

a. MCN = TCN – TCN-1
b. MC = ∆ TC/∆ Q
c. MCN = TVCN – TVCN-1
d. MCN = TFCN – TFCN-1
 37)Which of the following is incorrect formula?
a. TC = AC × Q
b. ∑ MC = TC
c. ∑ MC = TVC
d. ∑ MC + TFC = TC
38)A firm encounters its “shutdown point” when:
a. average total cost equals price at the profit-maximizing level of output
b. average variable cost equals price at the profit-maximizing level of output
c. average fixed cost equals price at the profit-maximizing level of output
d. marginal cost equals price at the profit-maximizing level of output
Read the following paragraph and answer question 39-41.
Suppose that a sole proprietorship is earning total revenues of Rs.10, 00,000 and is incurring explicit
costs of Rs.7,50,000. The owner could work for another company for Rs. 3,00,000 a year.
39)What will be the implicit cost of the firm?
a. Rs. 3,00,000
b. Rs. 2,50,000
c. Rs. 7,50,000
d. Insufficient data

40)The above mentioned firm is earning:

a. Accounting profit of Rs. 2,50,000.
b. Economic loss of Rs. 50,000
c. Both a. and b. are correct.
d. None of the above is correct.

41)Suppose in the above mentioned question, the owner had invested Rs. 500,000 by withdrawing
from his saving accounts on which he was earning 5% interest per annum, the economic profit or
loss is
a. economic profit of Rs. 75,000
b. economic loss of Rs. 75,000
c. economic profit of Rs. 2,50,000
d. economic loss of Rs. 2,50,000

42)The LAC curve which envelops the family of SAC curve, is “U” shape because:
a. All SAC curves are U shaped
b. Law of variable proportions
c. Law of Return to scale
d. All of the above
43)Different department can be further sub divided into separate sections like sales can be split into
separate sections such as for advertising, exports, and customer service is an example of:
a. Technical economies
b. Managerial economies
c. Commercial economies
d. Financial economies

44)When LAC Curve is declining, it will be tangent to the:

a. Falling portions of the SAC Curves
b. Rising portions of the SAC Curves
c. Both (a) and (b)
d. Neither (a) and (b)

45)Average Cost of Producing 50 units of a Commodity is 250 and variable cost is 10,000. What will
be the average fixed cost of producing 100 units of the Commodity?
a. 10
b. 30
c. 20
d. 25

46)Fixed cost are a function of:

a. Output
b. Capacity
c. Time
d. They can never be changed

47)When LAC curve is ______, it will be tangent to the rising portions of the SAC curves.
a. Decreasing
b. Increasing
c. Constant
d. None of the above

48)When AC increases as a result of an increase in output:

a. MC = AC
b. MC > AC
c. MC < AC
d. None of the above

49)Beyond certain output level, when there is a sharp increase in Average Variable Cost (AVC),
Average Cost (AC) also increases due to the reason that:
a. Fall in AFC is less than the sharp rise in AVC
b. Fall in AFC is greater than the sharp rise in AVC
c. Fall in AFC is equal to the rise in AVC
d. None of the above
50)Average Variable Cost Curve has a positive slope:
a. Up to normal capacity output
b. Beyond normal capacity output
c. At all levels of output
d. None of the above

51)Which of the following is an example of sunk cost?

a. Expenses incurred on advertising
b. Buy a new production facility
c. Replace worn out machinery
d. All of the above

52)Empirical evidence shows that the modern firms face ______ LAC
a. U- shaped
b. Boat shaped
c. L- shaped
a. Linear

53)___________ arises due to endogenous factors?

a. External economies
b. Internal economies
c. Both a. and b.
d. None of the above

54)Advertisement and other marketing expenditure will increase more proportionately” Which
diseconomies is referred here?
a. Technical
b. Commercial
c. Financial
d. Managerial

55)The normal returns on money capital invested by the entrepreneur himself in his own business is
an example of:
a. Explicit cost
b. External cost
c. Private cost
d. Implicit cost

56)The money cost of production incurred by the firm such as wages, lighting, lease payment etc., are:
a. Implicit cost
b. Opportunity cost
c. Outlay cost
d. Economic cost
57)What term is used to describe costs that remain fixed over a certain range of output but suddenly
jump to a new higher level when output goes beyond a given limit?
a. Variable cost
b. Semi-variable cost
c. Stair-step variable cost
d. Sunk cost

58)Which of the following expenses is included in cost of production and termed as accounting cost?
a. Wages paid to workers employed in the factory.
b. Expenses incurred on Research & Development.
c. Expenses incurred on advertising.
d. Common costs incurred for general operation of business.

59)What will be the total amount of sunk cost on the basis of following information?
Particulars Amount (₹ in crores)

Fuel and Power 1,000

Research and Development 150

Rent 9

Wages 10

Advertisement 5

a. 1,150 crores
b. 155 crores
c. 159 crores
d. 164 crores

60)A firm produces 5 units of output at average fixed cost of 4 per unit. For production of 10 units of
output average cost is 7 per unit. Average variable cost for producing 10 units of output is:
a. ₹4
b. ₹5
c. ₹6
d. ₹10
 Chapter 4
1) Assume that when price is Rs. 20, the quantity demanded is 9 units, and when price is Rs. 19, the
quantity demanded is 10 units. Based on this information, what is the marginal revenue resulting
from an increase in output from 9 units to 10 units.
a. Rs. 20
b. Rs. 19
c. Rs. 10
d. Rs. 1

2) Assume that when price is Rs. 20, the quantity demanded is 15 units, and when price is Rs. 18, the
quantity demanded is 16 units. Based on this information, what is the marginal revenue resulting
from an increase in output from 15 units to 16 units?
a. Rs. 18
b. Rs. 16
c. -Rs. 12
d. Rs. 28

3) Suppose a firm is producing a level of output such that MR > MC, what should be firm do to
maximize its profits?
a. The firm should do nothing.
b. The firm should hire less labour.
c. The firm should increase price.
d. The firm should increase output.

4) Marginal Revenue is equal to:

a. The change in price divided by the change in output
b. The change in quantity divided by the change in price.
c. The change in P X Q due to a one unit change in output.
d. Price, but only if the firm is a price searcher.

5) Which of the following is not an essential condition of pure competition?

a. Large number of buyers and sellers
b. Homogeneous product
c. Freedom of entry
d. Absence of transport cost

6) What is the shape of the demand curve faced by a firm under perfect competition?
a. Horizontal
b. Vertical
c. Positively sloped
d. Negatively sloped
7) Which is the first order condition for the profit of a firm to be maximum?
a. AC = MR
b. MC = MR
c. MR = AR
d. AC = AR

8) Which of the following is not a characteristic of a “price-taker”?

a. TR = P x Q
b. AR = Price
c. Negatively – sloped demand curve
d. Marginal Revenue = Price

9) Which of the following statements is false?

a. Economic costs include the opportunity costs of the resources owned by the firm.
b. Accounting costs include only explicit costs.
c. Economic profit will always be less than accounting profit if resources owned and used by
the firm have any opportunity costs.
d. Accounting profit is equal to total revenue less implicit costs.

10)With a given supply curve, a decrease in demand causes

a. an overall decrease in price but an increase in equilibrium quantity
b. an overall increase in price but a decrease in equilibrium quantity.
c. an overall decrease in price and a decrease in equilibrium quantity.
d. no change in overall price but a reduction in equilibrium quantity.

11)It is assumed in economic theory that

a. decision making within the 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.

12)Assume that consumers’ incomes and the number of sellers in the market for good A both
decrease. Based upon this information, we can conclude, with certainty, that the equilibrium:
a. price will increase.
b. price will decrease.
c. quantity will increase.
d. quantity will decrease.
13)If supply increases in a greater proportion than demand
a. The new equilibrium price and quantity will be greater than the original equilibrium price
and quantity
b. The new equilibrium price will be greater than the original equilibrium price but
equilibrium quantity will be higher
c. The new equilibrium price and quantity will be lower than the original equilibrium price
and quantity.
d. The new equilibrium price will be lower than the original equilibrium and the new
equilibrium quantity will be higher.

14)Assume that in the market for good Z there is a simultaneous increase in demand and the quantity
supplied. The result will be:
a. an increase in equilibrium price and quantity
b. a decrease in equilibrium price and quantity
c. an increase in equilibrium quantity and uncertain effect on equilibrium price.
d. a decrease in equilibrium price and increase in equilibrium quantity.

15)Suppose the technology for producing personal computers improves and, at the same time,
individuals discover new uses for personal computers so that there is greater utilization of
personal computers. Which of the following will happen to equilibrium price and equilibrium
quantity?
a. Price will increase; quantity cannot be determined
b. Price will decrease; quantity cannot be determined
c. Quantity will increase; price cannot be determined
d. Quantity will decrease; price cannot be determined

16)Which of the following is not a condition of perfect competition?

a. A large number of firms
b. Perfect mobility of factors.
c. Informative advertising to ensure that consumers have good information.
d. Freedom of entry and exit into and out of the market.

17)Which of the following is not a characteristic of a perfectly competitive market?

a. Large number of firms in the industry
b. Outputs of the firms are perfect substitutes for one another.
c. Firms face downward-sloping demand curves.
d. Resources are very mobile.

18)Which of the following is not a characteristic of monopolistic competition?

a. Ease of entry into the industry.
b. Product differentiation.
c. A relatively large number of sellers.
d. A homogeneous product.
19)Monopoly may arise in a product market because
a. A significantly important resource for the production of the commodity is owned by a
single firm.
b. The government has given the firm patent right to produce the commodity.
c. The costs of production and economies of scale makes production by a single producer
more efficient.
d. All the above

20)Oligopolistic industries are characterized by:

a. a few dominant firms and substantial barriers to entry.
b. a few large firms and no entry barriers.
c. a large number of small firms and no entry barriers.
d. one dominant firm and low entry barriers.

21)Price-taking firms, i.e., firms that operate in a perfectly competitive market, are said to be “small”
relative to the market. Which of the following best describes this smallness?
a. The individual firm must have fewer than 10 employees.
b. The individual firm faces a downward-sloping demand curve
c. The individual firm has assets of less than ` 20 lakhs.
d. The individual firm is unable to affect market price through its output decisions

22)For a price-taking firm:

a. marginal revenue is less than price.
b. marginal revenue is equal to price.
c. marginal revenue is greater than price.
d. the relationship between marginal revenue and price is indeterminate

23)Monopolistic competition differs from perfect competition primarily because

a. in monopolistic competition, firms can differentiate their products.
b. in perfect competition, firms can differentiate their products.
c. in monopolistic competition, entry into the industry is blocked
d. in monopolistic competition, there are relatively few barriers to entry

24)The long-run equilibrium outcomes in monopolistic competition and perfect competition are
similar, because in both market structures
a. the efficient output level will be produced in the long run.
b. firms will be producing at minimum average cost
c. firms will only earn a normal profit.
d. firms realize all economies of scale.

25)Which of the following is the distinguishing characteristic of oligopolies?

a. A standardized product
b. The goal of profit maximization
c. The interdependence among firms
d. Downward-sloping demand curves faced by firms.
26)In which form of the market structure is the degree of control over the price of its product by a
firm very large?
a. Monopoly
b. Imperfect Competition
c. Oligopoly
d. Perfect competition

27)Average revenue curve is also known as:

a. Profit Curve
b. Demand Curve
c. Average Cost Curve
d. Indifference Curve

28)Under which of the following forms of market structure does a firm have no control over the price
of its product?
a. Monopoly
b. Monopolistic competition
c. Oligopoly
d. Perfect competition

29)Discriminating monopoly implies that the monopolist charges different prices for his commodity:
a. from different groups of consumers
b. for different uses
c. at different places
d. any of the above

30)Price discrimination will be profitable only if the elasticity of demand in different sub-markets is:
a. Uniform
b. Different
c. Less
d. Zero

31)In the context of oligopoly, the kinked demand hypothesis is designed to explain
a. Price and output determination
b. Price rigidity
c. Price leadership
d. Collusion among rivals.

32)The firm in a perfectly competitive market is a price-taker. This designation as a price-taker is

based on the assumption that
a. the firm has some, but not complete, control over its product price
b. there are so many buyers and sellers in the market that any individual firm cannot
affect the market.
c. each firm produces a homogeneous product.
d. there is easy entry into or exit from the market place.
33)Suppose that the demand curve for the XYZ Co. slopes downward and to the right. We can
conclude that
a. the firm operates in a perfectly competitive market.
b. the firm can sell all that it wants to at the established market price.
c. the XYZ Co. is not a price-taker in the market because it must lower price to sell
additional units of output
d. the XYZ Co. will not be able to maximize profits because price and revenue are subject to
change.

34)If firms in the toothpaste industry have the following market shares, which market structure
would best describe the industry

a. Perfect competition
b. Monopolistic competition.
c. Oligopoly
d. Monopoly

35)The kinked demand curve model of oligopoly assumes that

a. the response (of consumers) to a price increase is less than the response to a price decrease.
b. the response (of consumers) to a price increase is more than the response to a price
decrease
c. the elasticity of demand is constant regardless of whether price increases or decreases.
d. the elasticity of demand is perfectly elastic if price increases and perfectly inelastic if price
decreases

36)Suppose that, at the profit-maximizing level of output, a firm finds that market price is less than
average total cost, but greater than average variable cost. Which of the following statements is
correct?
a. The firm should shut down in order to minimize its losses.
b. The firm should raise its price enough to cover its losses
c. The firm should move its resources to another industry
d. The firm should continue to operate in the short run in order to minimize its losses.
37)When price is less than average variable cost at the profit-maximizing level of output, a firm
should:
a. produce where marginal revenue equals marginal cost if it is operating in the short run.
b. produce where marginal revenue equals marginal cost if it is operating is the long run.
c. shutdown, since it will lose nothing in that case.
d. shutdown, since it cannot even cover its variable costs if it stays in business

38)A purely competitive firm’s supply schedule in the short run is determined by
a. its average revenue.
b. its marginal revenue.
c. its marginal utility for money curve
d. its marginal cost curve.

39)One characteristic not typical of oligopolistic industry is

a. horizontal demand curve.
b. too much importance to non-price competition
c. price leadership.
d. a small number of firms in the industry

40)The structure of the toothpaste industry in India is best described as

a. perfectly competitive
b. monopolistic
c. monopolistically competitive.
d. Oligopolistic

41)The structure of the cold drink industry in India is best described as

a. perfectly competitive
b. monopolistic
c. monopolistically competitive.
d. Oligopolistic

42)Which of the following statements is incorrect?

a. Even a monopolistic firm can have losses
b. Firms in a perfectly competitive market are price takers.
c. It is always beneficial for a firm in a perfectly competitive market to discriminate
prices
d. Kinked demand curve is related to an oligopolistic market

43)Under perfect competition, in the long run, there will be no ________________

a. normal profits
b. supernormal profits
c. production
d. costs
44)When ________________________________ , we know that the firms are earning just normal profits.
a. AC = AR
b. MC = MR
c. MC = AC
d. AR = MR

45)When ________________________________, we know that the firms under perfect competition must be
producing at the minimum point of the average cost curve and so there will be productive
efficiency.
a. AC = AR
b. MC = AC
c. MC = MR
d. AR = MR

46)When ______________________________, there will be allocative efficiency meaning thereby that the cost
of the last unit is exactly equal to the price consumers are willing to pay for it and so that the right
goods are being sold to the right people at the right price.
a. MC = MR
b. MC = AC
c. MC = AR
d. AR = MR

47)Agricultural goods markets depict characteristics close to

a. perfect competition.
b. Oligopoly
c. monopoly.
d. monopolistic competition.

48)Which of the following is not a characteristic of a competitive market?

a. There are many buyers and sellers in the market.
b. The goods offered for sales are largely the same.
c. Firms generate small but positive supernormal profits in the long run
d. Firms can freely enter or exit the market.

49)Which of the following markets would most closely satisfy the requirements for a perfectly
competitive market?
a. Electricity
b. Cable television
c. Cola
d. Milk
50)Which of the following statements is accurate regarding a perfectly competitive firm?
a. Demand curve is downward sloping
b. The demand curve always lies above the marginal revenue curve
c. Average revenue need not be equal to price
d. Price is given and is determined by the equilibrium in the entire market

51)The market for hand tools (such as hammers and screwdrivers) is dominated by Draper, Stanley,
and Craftsman. This market is best described as
a. Monopolistically competitive
b. a monopoly
c. an oligopoly
d. perfectly competitive

52)A market structure in which many firms sell products that are similar but not identical is known as
a. monopolistic competition
b. monopoly
c. perfect competition
d. oligopoly

53)When an oligopolist individually chooses its level of production to maximize its profits, it charges
a price that is
a. more than the price charged by either monopoly or a competitive market
b. less than the price charged by either monopoly or a competitive market
c. more than the price charged by a monopoly and less than the price charged by a competitive
market
d. less than the price charged by a monopoly and more than the price charged by a
competitive market.

54)In the long-run equilibrium of a competitive market, firms operate at

a. the intersection of the marginal cost and marginal revenue
b. their efficient scale
c. zero economic profit
d. all of these answers are correct

55)Which of the following is not a characteristic of a monopolistically competitive market?

a. Free entry and exit
b. Abnormal profits in the long run
c. Many sellers
d. Differentiated products

56)In a very short period market:

a. the supply is fixed
b. the demand is fixed
c. demand and supply are fixed
d. none of the above
57)Time element was conceived by
a. Adam Smith
b. Alfred Marshall
c. Pigou
d. Lionel Robinson

58)Average revenue is the revenue earned

a. per unit of input
b. per unit of output
c. different units of input
d. different units of output

59)Marginal revenue can be defined as the change in total revenue resulting from the:
a. purchase of an additional unit of a commodity
b. sales of an additional unit of a commodity
c. sale of subsequent units of a product
d. none of the above

60)When e > 1 then MR is

a. Zero
b. Negative
c. Positive
d. One

61)When e = 1 then MR is
a. Positive
b. Zero
c. One
d. Negative

62)When e < 1 then MR is

a. Negative
b. Zero
c. Positive
d. One

63)In Economics, the term ‘market’ refers to a:

a. place where buyer and seller bargain a product or service for a price
b. place where buyer does not bargain
c. place where seller does not bargain
d. none of the above
64)A Monopolist is a
a. price-maker
b. price-taker
c. price-adjuster
d. none of the above

65)Price discrimination is one of the features of ___________

a. monopolistic competition
b. monopoly
c. perfect competition
d. oligopoly

66)Under monopoly, the degree of control over price is:

a. None
b. Some
c. very considerable
d. none of the above

67)Generally, perishable goods like butter, eggs, milk, vegetables etc., will have
a. regional market
b. local market
c. national market
d. none of the above

68)At price P1, the firm in the figure would produce

a. Zero output
b. Q3
c. Q5
d. Q6

69)Secular period is also known as

a. very short period
b. short period
c. very long period
d. long period
70)Stock exchange market is an example of
a. unregulated market
b. regulated market
c. spot market
d. none of the above

71)The market for the ultimate consumers is known as

a. whole sale market
b. regulated market
c. unregulated market
d. retail market

72)The condition for pure competition is

a. large number of buyer and seller, free entry and exist
b. homogeneous product
c. both (a) and (b)
d. large number of buyer and seller, homogeneous product, perfect knowledge about the
product

73)Pure oligopoly is based on the ________________ products

a. Differentiated
b. Homogeneous
c. Unrelated
d. none of the above

74)In oligopoly, when the industry is dominated by one large firm which is considered as leader of the
group, then it is called:
a. full oligopoly
b. collusive oligopoly
c. partial oligopoly
d. syndicated oligopoly

75)When the products are sold through a centralized body, oligopoly is known as
a. organized oligopoly
b. partial oligopoly
c. competitive oligopoly
d. syndicated oligopoly

76)When the monopolist divides the consumers into separate sub markets and charges different
prices in different sub-markets it is known as
a. first degree of price discrimination
b. second degree of price discrimination
c. third degree of price discrimination
d. none of the above.
77)Under _________________ the monopolist will fix a price which will take away the entire consumers’
surplus.
a. second degree of price discrimination
b. first degree of price discrimination
c. third degree of price discrimination
d. none of the above.

78)Price discrimination is related to

a. Time
b. size of the purchase
c. income
d. any of the above

79)The firm and the industry are one and the same in _______________
a. Perfect competition
b. Monopolistic competition
c. Duopoly
d. Monopoly

80)The demand curve of a monopoly firm will be __________________

a. Upward sloping
b. Downward sloping
c. Horizontal
d. Vertical

81)Which of the following statements is correct?

a. Price rigidity is an important feature of monopoly.
b. Selling costs are possible under perfect competition.
c. Under perfect competition factors of production do not move freely as there are legal
restrictions.
d. An industry consists of many firms.

82)Which of the following statements is incorrect?

a. Under monopoly there is no difference between a firm and an industry
b. A monopolist may restrict the output and raise the price
c. Commodities offered for sale under a perfect competition will be heterogeneous
d. Product differentiation is peculiar to monopolistic competition

83)Average revenue is equal to.

a. The change in P & Q due to a one unit change in output.
b. Nothing but price of one unit of output.
c. The change in quantity divided by change in price.
d. Graphically it denotes the firm’s supply curve.
84)Example of a commodity said to have an International Market.
a. Perishable Goods.
b. High Value and Small Bulk Commodities.
c. Product whose trading is restricted by government.
d. Bulky Articles

85)Conditions for equilibrium of a firm are:

a. MR = MC
b. MC should cut MR from below.
c. MR = AR and MC should cut MR from below
d. MR = MC and MC should have a positive slope.

86)Natural Monopoly arises when

a. There is enormous goodwill enjoyed by a firm
b. There are stringent legal and regulatory requirement.
c. There are very large Economies of Scale.
d. There are Business Combinations and Cartels.

87)Price Discrimination cannot persist under the following market form:

a. Perfect Competition
b. Monopoly
c. Monopolistic
d. Oligopoly

88) Sweezy’s Model explains the concept of price rigidity relating to following market form:
a. Oligopoly Market
b. Perfect Competition Market
c. Monopoly Market
d. Monopolistic Market

89)Combination of Monopoly Market and Monopsony Market is called as

a. Duopoly Market
b. Oligopoly Market
c. Bilateral Monopoly Market
d. Monopolistic Market

90)Price varies by attributes such as location or by Customer Segment is __________ degree of Price
Discrimination.
a. First
b. Second
c. Third
d. Fourth
91)The kinked demand curve model of oligopoly is useful in explaining
a. the way that collusion works
b. why oligopolistic price and output are extremely sensitive to changes in marginal cost.
c. why oligopolistic prices might change only infrequently.
d. the process by which oligopolist merge with one other.

92)The monopolistically competitive seller’s demand curve will become more elastic, the
a. more significant the barriers to entering the industry.
b. greater the degree of product differentiation.
c. larger the number of competitors.
d. smaller the number of competitors.

93)With respect to the pure monopolist’s demand curve it can be said that
a. The stronger the barrier to entry, the more elastic is the monopolist’s demand curve
b. Price exceeds marginal revenue at all outputs greater than 1.
c. Demand is perfectly inelastic.
d. Marginal revenue equals price at all outputs.

94)For an imperfectly competitive firm

a. Total revenue curve is straight up sloping line because a firm’s sales are independent of
product price
b. The marginal revenue curve lies above the demand curve because any reduction in price
applies to all units sold.
c. The marginal revenue curve lies below the demand curve because any reduction in
price applies to all units sold.
d. Marginal revenue curve lies below the demand curve because any reduction in price applies
to only extra unit sold.

95)A firm reaches a break-even point (normal profit position) where,

a. Marginal revenue curve cuts the horizontal axis.
b. Marginal cost curve intersects the average variable cost curve.
c. Total revenue equals total variable cost.
d. Total revenue and total cost are equal.

96)A purely competitive seller’s average revenue curve coincides with

a. its marginal revenue curve only
b. its demand curve only
c. both its demand & marginal revenue curves
d. Neither demand nor marginal revenue curve

97)For a purely competitive firm total revenue

a. is price times quantity sold
b. increases by a constant absolute amount as output expands.
c. graphs as a straight up sloping line from the origin.
d. has all of the above characteristics
98)The demand curve confronted by an individual purely competitive firm is-
a. Relatively elastic i.e., the elasticity coefficient is greater than unity.
b. Perfectly elastic.
c. Relatively inelastic i.e., the elasticity coefficient is less than unity.
d. Perfectly inelastic

99)An industry comprised of a very large number of sellers producing a standardized product is
known as
a. Monopolistic competition
b. Oligopoly
c. Pure monopoly
d. Pure competition

100) Demand curve is:

List I List II
I Horizontal A Monopoly
II Kinked B. Oligopoly
III. Downward sloping C. Perfect competition
a. I-C, II-A, III-B
b. I-C, II-B, III-a
c. I-A, II-B, III-C
d. I-B, II-A, III-C

101) Price control is:

List I List II
I Highest A Monopoly
II Second Highest B. Oligopoly
III. Third Highest C. Monopolistic Competition
IV. Fourth Highest D. Perfect competition
a. I-D, II-C, III-B, IV-A
b. I-A, II-B, III-C, IV-D
c. I-D, II-A, III-C, IV-B
d. I-A, II-C, III-B, IV-D

102) Which of the following assumptions is correct in connection with oligopoly?

1. If an oligopolist increases his price his rivals will follow.
2. If an oligopolist increases his price his rivals will not follow.
3. If an oligopolist increases his price his rivals will lower their prices.
4. If an oligopolist decreases his price his rivals will not react.

a. 1 only
b. 2 only
c. 1 & 3 only
d. 4 only
103) Which of the following is not correct?
1. Monopoly form of market organization may be the result of increasing returns to scale
2. Monopoly form of market organization may be the result of patent or govt. decision
3. Monopoly form of market or organization may be the result of control over the supply of
raw materials
4. Monopoly form of market or organization may be the result of control over the demand of
raw materials

a. 1 only
b. 2 only
c. 1 & 3 only
d. 4 only

104) Marginal cost is equal to marginal revenue, average cost is equal to average revenue, average
revenue is equal to marginal revenue and average cost is equal to marginal cost. This is the
condition of:
1. Long period equilibrium for a firm under oligopoly
2. Short period equilibrium for a firm under oligopoly
3. Long period equilibrium
4. Long period equilibrium for a firm under perfect competition
5. Short period equilibrium for a firm under perfect competition
a. 1 & 5 only
b. 3 & 4 only
c. 3 & 1 only
d. 2 only

105) Match List I with List II and choose the correct answer using the codes given below.
List I List II
A Perfect competition 1 Differentiated product
B Monopolistic competition 2 Homogeneous or differentiated products
C Oligopoly 3 Homogenous product
D Monopoly 4 Sharply differentiated products

Codes A B C D
a. 1 2 3 4
b. 3 1 2 4
c. 4 3 2 1
d. 1 4 3 2
106) Which of the following is an essential condition for price discrimination? Choose the
correct answer using the codes given below:
1. Existence of two or more than two markets
2. Full control over the supply
3. Communication between buyers in different sectors of the monopolist’s market
4. Existence of different elasticity of demand in different markets.
5. No possibility of reselling a commodity at a higher price in another market.

a. 1, 2, 3 & 4
b. 2, 3, 4 & 5
c. 3, 4 & 5
d. 1, 2, 4 & 5

107) If a monopolist could perfectly discriminate then which of the following statements would be
true?
a. Every increment of the goods would be priced separately so as to capture the entire
consumer surplus
b. Every increment of the goods would be priced evenly.
c. Every increment of the goods would be priced higher than the previous one.
d. Every increment of the goods would be priced lower than the previous one.

108) For a competitive firm, long period normal price will

a. Equal AC and MC of production
b. Equal MC of production only
c. Equal TC of production only
d. None of these

109) Monopolistic competition has features of

a. Monopoly but not competition
b. Monopoly and competition with features of competition predominating
c. Monopoly and competition with features of monopoly predominating
d. None of the above

110) Imperfect competition arises when

a. There is imperfect rivalry among competitors
b. There are unexplainable imperfections in the market
c. Competition does not exist
d. Product variation, ignorance of consumers and distance & transportation costs lead to
Imperfection in the competitive market which operates on certain assumptions.

111) Marginal revenue along with marginal cost helps to determine

a. Profit maximizing output
b. Profit/unit
c. Price/unit
d. Total revenue
112) Which of the following is true at equilibrium in monopolistic competition?
a. Price is greater than marginal cost
b. Price is greater than marginal revenue
c. Both (A) and (B)
d. Price is equal to marginal revenue

113) The kinked demand curve theory explains that even when the demand conditions
_____________ the price ______________
a. Change, changes
b. Change, remains stable
c. Remain stable, changes
d. Remain stable, falls
114) Consider the following:
1. Large number of buyers and sellers
2. Firms produce differentiated products
3. Free entry & exit of firms
4. Perfect knowledge about technology
Which of the above are the characteristics of monopolistic competition?

a. 1&3
b. 2&3
c. 2, 3 & 4
d. 1, 2, 3 & 4

115) Monopoly equilibrium can be reached when _______________________.

a. Marginal cost is rising
b. Marginal cost is remaining constant
c. Marginal cost is falling
d. None of these

116) The size of a monopolist’s plant and the degree of utilization of any given plant size depend
entirely on the ______________________.
a. Factor price
b. Price of good
c. Market demand
d. Market supply

117) In the perfect competition at short run, the firm is a price _____________ and can sell _________
amount of output at the ongoing market price.
a. Taker, any
b. Taker, a definite
c. Maker, any
d. None of the above
118) Which of the following is an implication of the imposition of price ceiling below the
equilibrium price?
a. Shortages in the market
b. Problem of allocation of limited supplies among large number of consumer.
c. Black marketing
d. All of the above

119) If a product has elastic demand, its marginal revenue (MR) will be ______________. (Given that
the price of the product is Rs.5/unit).
a. Positive
b. Zero
c. Negative
d. can’t be determined

120) If the price elasticity of demand of a product is (-) 3, what should be the price of the
product for its MR to be Rs. 20?
a. Rs. 10/unit
b. Rs. 20/unit
c. Rs. 30/unit
d. Rs. 40/unit

121) If the price of a product is Rs.10/unit and its price elasticity of demand is (-) 2.5. Its MR will
be _____
a. 10
b. 6
c. -10
d. 4

122) When the perfectly competitive firm and industry are in long run equilibrium then:
a. P = MR = SAC = LAC
b. D = MR = SMC = LMC
c. P = MR = Lowest point on the LAC curve
d. All of the above

123) In monopoly, the relationship between average and marginal revenue curves is as follows:
a. AR curve lies above the MR curve
b. AR curve coincides with the MR curve
c. AR curve lies below the MR curve
d. AR curve is parallel to the MR curve

124) Relationship between AR, MR and Price elasticity of demand is

a. MR = AR + [e -1/e]
b. MR = AR x [e -1/e]
c. AR = MR x [e -1/e]
d. MR = AR x [e/e -1]
125) In perfect competition the firm’s _________ above AVC has the identical shape of the firm’s
supply curve
a. Marginal revenue curve
b. Marginal cost curve
c. Average cost curve
d. None of the above

126) Which of the following statements about price and marginal cost in competitive and
monopolized markets is true?
a. In competitive markets, price equals marginal cost; in monopolized markets, price equals
marginal cost.
b. In competitive markets, price exceeds marginal cost; in monopolized markets, price
exceeds marginal cost.
c. In competitive markets, price equals marginal cost; in monopolized markets, price
exceeds marginal cost.
d. In competitive markets, price exceeds marginal cost; in monopolized markets, price equals
marginal cost.

127) If oligopolist engage in collusion and successfully form a cartel, the market outcome is
a. The same as if it were served by a monopoly
b. The same as if it were served by competitive firms
c. Efficient because cooperation improves efficiency
d. Known as Nash equilibrium

128) If a seller realizes Rs. 10,000 after selling 100 units and Rs. 14,000 after selling 120 units.
What is the marginal revenue here?
a. Rs. 4,000
b. Rs. 450
c. Rs. 200
d. Rs. 100

129) In long run equilibrium the pure monopolist can make pure profits because of
a. Blocked entry
b. The high price he charges
c. The low LAC costs
d. Advertising

130) A perfectly competitive firm has control over

a. Price
b. production as well as price
c. production, price and consumers
d. none of the above
131) In short run, a firm in monopolistic competition
a. always earns profits
b. incurs losses
c. earns normal profit only
d. may earn normal profit, supernormal profit or incur losses

132) In the case of monopoly:

a. MR curve cannot be defined
b. AR curve cannot be defined
c. the short run supply curve cannot be defined
d. none of the above

133) Full capacity is utilized only when there is

a. Monopoly
b. Perfect competition
c. Price discrimination
d. Oligopoly

134) Which of the following statement is incorrect?

a. Even monopolist can earn losses
b. Firms in a perfectly competitive market are price-takers
c. It is always beneficial for a firm in the perfectly competitive market to discriminate
prices
d. Economic laws are less exact than the laws of physical sciences

135) If a competitive firm doubles its output, its total revenue:

a. Doubles
b. more than doubles.
c. less than doubles.
d. cannot be determined because the price of the good may rise or fall

136) In the short run if a perfectly competitive firm finds itself operating at a loss, it will:
a. Reduce the size of its plant to lower fixed costs.
b. Raise the price of its product.
c. Shutdown
d. Continue to operate as long as it covers its variable cost

137) In Economics, we are concerned with:

a. Value in use only
b. Exchange value only
c. Both value in use and exchange value
d. None of the above
138) Women primarily wear Traditional Assamese Saree in Assam & adjoining areas, is an
example of:
a. National Market
b. Regional Market
c. Local Market
d. International Market

139) Markets where goods are exchanged for money payable either immediately or within a
short span of time:
a. Forward Market
b. Spot Market
c. Both (a) and (b)
d. Neither (a) nor (b)

140) Marginal Revenue will be zero in imperfect competitive market, if the elasticity of demand
is:
a. Equal to zero
b. Equal to 1
c. Greater than 1
d. Less than 1

141) On the basis of nature of transaction, the market is classified into:

a. Regulated & Unregulated Market
b. Wholesale & Retail Market
c. Spot & Future Market
d. None of these

142) “I am making a loss, but with the rent I have to pay, I can’t afford to shut down at this point
of time.” If this entrepreneur is attempting to maximize profits or minimize losses, his behaviour
in the short run is:
a. Rational, if the firm is covering its variable cost
b. Rational, if the firm is 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.

143) _____ is not an objective of price discrimination

a. To secure equity through pricing
b. To enjoy economies of scale
c. To dispose of surplus stock
d. To escape foreign market
144) This type of oligopoly tends to process raw materials or produce intermediate goods that
are used as inputs by other industries
a. Open oligopoly
b. Collusive oligopoly
c. Pure oligopoly
d. Full oligopoly

145) The elasticity of demand on the upper segment of a kinked demand curve will be:
a. Infinite
b. Equal to one
c. Greater than one
d. Less than one

146) _____ classified three degrees of price discrimination

a. Alfred Marshall
b. Prof. Pigou
c. Hickes & Allen
d. Adam smith

147) MR curve under Monopoly lies between AR and Y-axis because the rate of decline of MR is:
a. Just half of the rate of decline of AR
b. Just equal to the rate of decline of AR
c. Just double the rate of decline of the AR
d. None of the above

148) Aluminum industry is an example of:

a. Collusive Oligopoly
b. Organized oligopoly
c. Competitive oligopoly
d. Pure Oligopoly

149) Increase in demand and decrease in supply causes:

a. Equilibrium Price uncertain, Equilibrium quantity rises
b. Equilibrium Price rises, Equilibrium quantity falls
c. Equilibrium Price rises, Equilibrium quantity uncertain
d. Equilibrium Price falls, Equilibrium quantity uncertain
150) In which market is the price elasticity of demand infinite?
a. Perfect competition
b. Monopolistic competition
c. Oligopoly
d. Monopoly

151) The relation between AR and MR in a monopoly is stated as:

a. AR can be zero, MR can be zero or negative
b. AR and MR both are upward sloping
c. AR curve lies halfway between MR and y axis
d. Slope of MR is twice that of AR

152) In which form of market are patents and copyrights given by the government to protect
intellectual property rights?
a. Perfect competition
b. Monopoly
c. Monopolistic competition
d. Oligopoly

153) Which feature of monopolistic competition differs from perfect competition?

a. Large number of sellers
b. Freedom of entry and exit
c. Product differentiation
d. No super normal profits in the long run

154) If the electricity department is charging Rs. 3 per unit to farmers and Rs. 7 per unit to
industries, it is described as:
a. Product differentiation
b. Price discrimination
c. Monopoly
d. Differentiation activity

155) When a few firms in the oligopolistic market come to a common understanding with each
other in fixing price and output, it is called:
a. Syndicate oligopoly
b. Collusive oligopoly
c. Perfect oligopoly
d. Open oligopoly
156) Three major smartphone manufacturers, Alpha Tech, Beta Mobile, and Gamma Gadgets,
dominate the smartphone market. These companies are in constant competition for market share
and innovation. Which type of the market structure has been described in this scenario?
a. Monopoly
b. Oligopoly
c. Perfect Competition
d. Monopolistic Competition

157) If Marginal Revenue (MR) for Unit 1 is 10, for Unit 2 is 5, and for Unit 3 is 3 then what will
be the amount of Total Revenue (TR)?
a. ₹15
b. ₹10
c. ₹8
d. ₹18

158) Which market covers a wider area such as a few adjacent cities, parts of states, or a cluster
of states?
a. Regional Market
b. National Market
c. International Market
d. Local Market

159) When should a competitive firm consider shutting down its operations?
a. When the price is above Total Variable Costs (TVC).
b. When the price is below Average Variable Costs (AVC).
c. When the price is equal to Total Revenue (TR).
d. When the price is constant.

160) In the case of demand decreasing and supply increasing, what is the expected impact on
equilibrium price?
a. Equilibrium price rises
b. Equilibrium price falls
c. Equilibrium price remains constant
d. Equilibrium price remains uncertain

161) In Ricardo's view, what does "Exchange Value" represent?

a. The cost of production of a commodity
b. The subjective preferences of individuals
c. Power in exchange over purchasable commodities in general
d. The quantity of labour embodied in a commodity
162) Talcum powder market is an example of which of the following markets?
a. Collusive Oligopoly
b. Imperfect Oligopoly
c. Open Oligopoly
d. Close Oligopoly

163) A software company engages in price discrimination for its product. The company
identifies different market segments and charges different prices based on perceived differences
in willingness to pay. This is possible under which situation?
a. Monopolistic competition
b. A Monopoly
c. Perfect competition
d. Oligopoly competitions

164) What happens to the equilibrium price when there is a decrease in supply with no change
in demand?
a. Equilibrium price goes down.
b. Equilibrium price remains constant.
c. Equilibrium price goes up.
d. Equilibrium quantity increases.

165) A market structure in which there is only a single buyer and a single seller is known as:
a. Monopsony
b. Bilateral Monopoly
c. Oligopoly
d. Duopoly

166) Monopolistic Competition is characterized by

a. Many sellers selling identical products to many buyers.
b. Many sellers sell differentiated products to many buyers.
c. Few sellers selling identical products to many buyers.
d. Few sellers selling competing products to selective buyers.

167) Condition for equilibrium of firm under perfect competition:

a. Where Marginal Revenue (MR) is equal to the Marginal Cost (MC).
b. Where Average Revenue (AR) is equal to the Average Cost (AC).
c. MC curve cuts MR curve from below.
d. Where MR = MC and also MC curve cuts MR curve from below.
168) According to the Kinked demand curve hypothesis, why does the demand curve facing an
oligopolist have a 'Kink' at the prevailing price level?
a. To create confusion among competitors
b. To make the demand curve visually interesting
c. The segment above price is highly elastic, and below it is inelastic
d. It is a graphical error in the representation.

Chapter -5
Business Cycles
1) The term business cycle refers to
a. the ups and downs in production of commodities
b. the fluctuating levels of economic activity over a period of time
c. decline in economic activities over prolonged period of time
d. increasing unemployment rate and diminishing rate of savings

2) A significant decline in general economic activity extending over a period of time is

a. business cycle
b. contraction phase
c. recession
d. recovery

3) The trough of a business cycle occurs when _____ hits its lowest point.
a. inflation in the economy
b. the money supply
c. aggregate economic activity
d. the unemployment rate

4) The lowest point in the business cycle is referred to as the

a. Expansion
b. Boom
c. Peak
d. Trough

5) A leading indicator is
a. a variable that tends to move along with the level of economic activity
b. a variable that tends to move in advance of aggregate economic activity
c. a variable that tends to move consequent on the level of aggregate economic activity
d. None of the above
6) A variable that tends to move later than aggregate economic activity is called
a. a leading variable
b. a coincident variable.
c. a lagging variable.
d. a cyclical variable

7) Industries that are extremely sensitive to the business cycle are the
a. Durable goods and service sectors.
b. Non-durable goods and service sectors.
c. Capital goods and non-durable goods sectors.
d. Capital goods and durable goods sectors.

8) A decrease in government spending would cause

a. the aggregate demand curve to shift to the right.
b. the aggregate demand curve to shift to the left
c. a movement down and to the right along the aggregate demand curve.
d. a movement up and to the left along the aggregate demand curve.

9) Which of the following does not occur during an expansion?

a. Consumer purchases of all types of goods tend to increase.
b. Employment increases as demand for labour rises.
c. Business profits and business confidence tend to increase
d. None of the above

10)Which of the following best describes a typical business cycle?

a. Economic expansions are followed by economic contractions.
b. Inflation is followed by rising income and unemployment.
c. Economic expansions are followed by economic growth and development.
d. Stagflation is followed by inflationary economic growth

11)During recession, the unemployment rate ___________ and output ___________.

a. Rises; falls
b. Rises; rises
c. Falls; rises
d. Falls; falls

12)The four phases of the business cycle are

a. expansion, peak, contraction and trough
b. contraction, expansion, trough and boom
c. expansion contraction, peak, and trough
d. peak, depression, bust, and boom
13)Leading economic indicators
a. are used to forecast probable shifts in economic policies
b. are generally used to forecast economic fluctuations
c. are indicators of stock prices existing in an economy
d. are indicators of probable recession and depression

14)When aggregate economic activity is declining, the economy is said to be in

a. Contraction
b. an expansion
c. a trough
d. a turning point

15)Peaks and troughs of the business cycle are known collectively as

a. Volatility
b. Turning points.
c. Equilibrium points.
d. Real business cycle events

16)The most probable outcome of an increase in the money supply is

a. interest rates to rise, investment spending to rise, and aggregate demand to rise
b. interest rates to rise, investment spending to fall, and aggregate demand to fall
c. interest rates to fall, investment spending to rise, and aggregate demand to rise
d. interest rates to fall, investment spending to fall, and aggregate demand to fall

17)Which of the following is not a characteristic of business cycles?

a. Business cycles have serious consequences on the well-being of the society.
b. Business cycles occur periodically, although they do not exhibit the same regularity.
c. Business cycles have uniform characteristics and causes
d. Business cycles are contagious and unpredictable.

18)Economic recession shares all of these characteristics except

a. Fall in the levels of investment, employment
b. Incomes of wage and interest earners gradually decline resulting in decreased demand for
goods and services
c. Investor confidence is adversely affected and new investments may not be forthcoming
d. Increase in the price of inputs due to increased demand for inputs

19)The different phases of a business cycle

a. do not have the same length and severity
b. expansion phase always last more than ten years
c. last many years and are difficult to get over in short periods
d. none of the above
20)Which of the following is not an example of coincident indicator?
a. Industrial production
b. Inflation
c. Retail sales
d. New orders for plant and equipment

21)According to ________________ trade cycles occur due to onset of innovations.

a. Hawtrey
b. Adam Smith
c. J M Keynes
d. Schumpeter

22)Economic indicators are –

a. A one stroke solution to check the phase of economy
b. Indicators showing the movement of economy
c. Some activities which predict the direction of economy
d. Just an illusion

23)Which economic indicator is required to predict the turning point of business cycle?
a. Leading indicator
b. Lagging indicator
c. Coincident
d. All of the above

24)Business cycle generally originate in free market economies, what is a free market economy?
a. The economy where government is in possession of major assets
b. The economy where private firms control major assets
c. The economy where decisions of productions are taken by public sector undertakings
d. The economy where price is controlled by government

25)Which of the following statements is correct?

a. The business cycle largely affects the agricultural sector
b. The business cycle largely affects small employees
c. The business cycle generally affects all sectors of economy but business sector in
particular
d. The business cycle affects low wages workers

26)According to Keynes, fluctuations in Economic activities are due to-.

a. Fluctuation in aggregate effective demand.
b. Innovations
c. Changes in money supply
d. Fluctuation in agricultural output
27)Which of the following is the cause of business cycles?
a. Fluctuations in aggregate effective demand
b. Fluctuations in investments
c. Fluctuations in government spending
d. All of the above

28)An important indicator of a nation’s well-being is _____________

a. Gross Domestic Product (GDP)
b. Gross National Product (GNP)
c. Gross National Income (GNI)
d. Growth rate of GDP or GNP

29)In order to influence spending on the goods and services in the short run, monetary policy is
directed at directly influencing ___________________________.
a. Unemployment rate
b. Inflation rate
c. Interest rate
d. Economic growth rate

30)During business cycles the opposite of a trough is _____________

a. an inflation
b. a hyperinflation
c. a trend
d. a peak

31)Cost of living increases when business cycle is __________________

a. at peak
b. contracting
c. expanding
d. at lowest point

32)Post war reconstruction

a. will push the economy to slow down because of excess external debts.
b. will cause pickup in economic activities as the reconstruction pushes up effective
demand & in turn employment and income.
c. can cause boom or recession depending upon the policies for reconstruction adopted by
govt.
d. None of these
33)Suppose in an economy the population growth rate remained 6% during last 5 years while the
economic growth rate during the same period was just 3%.
What will be the consequences of it? Select the right option from the options given below.
a. Lesser savings→ Lower investment→ Low income & employment→ Low effective
demand → Overall slowdown in economic activities
b. More consumption expenditure→ more demand→ more production→ more employment &
income → Overall boom in economic activities
c. Increase in labour supply→ Lower wage rate→ Low income → Low savings & investments
→ Low production→ Overall slowdown in economic activities
d. None of the above

34)Which of the following statements is correct regarding business cycles?

a. Business cycles always affect all sectors uniformly.
b. Business cycles may affect all sectors uniformly.
c. Business cycles do not affect all sectors uniformly.
d. None of these

35)Cyclical business refers to

a. The business where demand fluctuates seasonally
b. The business which keep on changing their product
c. The business whose fortunes are closely related to the rate of economic growth.
d. All of the above

36)Match List I with List II and choose the correct answer using the codes given below.
List I List II
I Leading indicator A Industrial production
II Lagging indicator B. Changes in stock price
III. Coincident indicator C. Corporate profit

a. I-A, II-B, III-C

b. I-B, II-C, III-A
c. I-C, II-B, III-A
d. I-A, II-C, III-B

37)According to British Economist J. M. Keynes _______________ was the main cause of massive decline in
income and employment during Great Depression of 1930.
a. Lower aggregate expenditure in the economy.
b. Banking crises and low money supply
c. Overdebtness
d. Lower profits & pessimism
38)Business cycle emerge in ____________.
a. Socialist economy
b. Free market economy
c. Mixed economic system
d. None of the above

39)During an upturn in the business cycle the negative output gap does not become much more
negative than it was. This is because of the fact that:
a. Capacity increases because of the rise in investment.
b. Expenditure decreases because of the rise in the interest rate.
c. The government lowers the taxes during an upturn.
d. Labour productivity decreases during upturn.

40)The government and industry try to predict the business cycle by using indicators. These are:
a. Variable that can explain the growth of production capacity.
b. Variables that precede the actual movements in expenditure and production.
c. The expenditure categories of consumption, investment and exports.
d. Domestic and foreign indications relating to the business cycle and the tendency.

41)When aggregate economic activity is increasing, the economy is said to be in

a. an expansion
b. a contraction.
c. a peak.
d. a turning point.

42)What is the term for the lowest point of economic activity in a business cycle, where
unemployment is high, and production is at its lowest?
a. Prosperity
b. Trough and Depression
c. Peak
d. Expansion

43)A business whose fortune is closely linked to the rate of economic growth is referred to as:
a. Cyclical Business
b. Seasonal Business
c. Static Business
d. Dynamic Business

44)During what time, the production of weapons and arms, etc. increases and most of the resources of
the country are diverted for their production?
a. Post-War
b. Pre-War
c. War
d. Peace
45)In Recovery phase of business cycle, the process of reversal is initially felt in the:
a. Capital market
b. Labour market
c. Agriculture market
d. Financial market

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