Eco BCK Question Bank

Micro Economics
MANISH DUA
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Q.1 -Managerial economics generally refers to the integration of economic theory with
business
A. Ethics
B. Management
C. Practice
D. All the above
Q.2. In a free-market economy the allocation of resources is determined by:

a. Votes taken by consumers
b. A central planning authority
c. By consumer preferences
d. The level of profits of firms
3. A rational person does not act unless:

a. The action is ethical
b. The action produces marginal costs that exceed marginal benefits
c. The action produces marginal benefits that exceed marginal costs
d. The action makes money for the person
4. Economics is a ------science which deals with human wants and their satisfaction.
a. Social
b. Political
c. Natural
d. Physical
5 ------------------- focuses on the behavior of the individual actors on the economic stage ,
that is, firms and individuals and their interaction in markets
a. Macroeconomics b. Microeconomics
c. Managerial Economics d. Economics
6 . In free market economy, the organization and interaction of producers and consumers
is accomplished through the----------------system.
a. Price b. Cost c. Profit d. Revenue
7. The regulatory mechanism of the market system is:
a. Self-interest b. Private property.

c. Competition d. Specialization.
8.Two major virtues of the market system are that it:

a. Allocates resources efficiently and allows economic freedom.
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b. Results in an equitable personal distribution of income and always maintains full
employment.
c. Results in price level stability and a fair personal distribution of income.
d. Eliminates discrimination and minimizes environmental pollution.
9.In economics the central problem is:

a. Money. b. Scarcity. c. Allocation. d. Production.
10 . Macroeconomics deals with:

a. The behavior of firms. b. Economic aggregates.
c. The behavior of the electronics industry d. The activities of individual units.
11. Microeconomics is not concerned with the behaviour of:
a. Consumers. b. Aggregate demand.
c. Firms. d. Industries
12. In a planned or command economy, all the economic decisions are taken by the:
a. Workers. b. Consumers. c. Voters. d. Government.
13. Which one of the following is a normative statement?

a. The richest 10 per cent of the population has had a bigger percentage increase in incomes
over the past 10 years than the poorest 10 per cent.
b. The proportion of people's income paid in taxes is higher under this government than under
the previous one.
c. Inflation is rising.
d. Inequality in the distribution of income is a more serious problem than unemployment.
14. In Product market money flows from:
a. Individual to firm.
b. Business to households.
c. Government to household.
15. In factor market suppliers are:

a. Firms.
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b. Households.
c. Government
16. Business Economics is also known as………….
a. Managerial Economics b. Economics for Executives
c. Economic analysis for business decisions d. All the above
17. State whether economics is

a. A positive science only
b. Neither a positive nor normative science
c. A science but not art

d. A science or an art depending on who uses economics and for what purpose.
18. The branch of economics wherein mathematics and statistics are used to measure and
analyse economics activities is called……………..
a. Applied Economics b. Econometrics
c. Statistics d. Macro Economics
19.It is also known as prescriptive economics

a. Positive Economics b. Micro economics
c. Normative economics d. Economics
20. It is the study of economics actions of individuals and small groups of individuals.
a. Micro-Economics b. Macro-Economics
c. Managerial Economics d. Business Economics
21. The term `Economics‟ in English language has its origin in ------ word.
a. Greek b. Italic c. Latin d. Indian

22. Economics includes the following economic activities:
a. Production b. Consumption c. Exchange d. All of the above
23.It refers to the determination of prices of all goods and services by the interaction of the
forces of demand and supply without any external interference.
a. Product-mechanism b. Price-mechanism
c. Cost-mechanism d. None of these
24. The principle reasons behind economic problems
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a. Unlimited wants b. Limited or Scarce of Means
c. Alternatives Uses of Means d. All of the above
25 .Economics is the study of:
a. how society manages its unlimited resources.

b. how to reduce our wants until we are satisfied.
c. how society manages its scarce resources.
d. how to fully satisfy our unlimited wants.
e. how to avoid having to make trade-offs

26 Which of the following issues is related to microeconomics?
a. The impact of oil prices on car production
b. The impact of money on inflation
c. The impact of technology on economic growth

d. The impact of the deficit on saving
27 . The word economy comes from the Greek word for
a. "Environment." b. "One who participates in a market."
c. "One who manages a household." d. "Conservation.“
28. Economics deals primarily with the concept of
a. Poverty. b. Scarcity. c. Change. d. Power.
29. Economics is different from other social sciences because it is primarily concerned with
the study of ; it is similar to other science as they are all concerned
with the study of -
(A) Limited resources, market behaviour(B) Scarcity, human behaviour
(C) Social behaviour, limited resources (D) Biological behaviour, scarcity
30. Our economy is characterised by -
(A) Unlimited wants and needs (B) Unlimited material resources
(C) No energy resources (D) Abundant productive labour
31. The Central economic problem is -
(A) What to produce? (B) How to produce?
(C) For whom to produce? (D) All of above
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32. Under a mixed economy -
(A) A dual system of pricing exists (B) State regulates prices of essential goods
(c) Both (A) and (B) (D) Neither (A) nor (B)
33. Capital-intensive techniques would get chosen in a -
(A) Labour-surplus economy (B) Capital-surplus economy
(C) Developed economy (D) Developing economy

34. Labour-intensive techniques would get chosen in a -
(A) Labour-surplus economy (B) Capital-surplus economy
(C) Developed economy (D) Developing economy

35. Which of the following is related to micro-economics?
(A) Inflation in the economy (B) Problem of unemployment
(C) National income (D) Income from the railway

36. Competitive market structure and inequality of wealth are the main features of -
(A) Mixed economy (B) Socialistic economy
(C) Capitalistic economy (D) None of the above
37. State which of the following refer to the macro economic approaches from a national
angle -
(A) Per capital income of the country (B) Capital-output ratio in steel industry
(C) Income from the railways (D) Both (A) and (B)
38. State which of the following refer to the micro economic approaches from a national
angle -
(A) Per capital income of the country(B) Capital-output ratio in steel industry
(C) Income from the railways (D) Both (A) and (B)
39. State which of the following refer to the micro economic approaches from a national
angle -
(A) Unemployment among the educated people
(B) Inflation in the economy
(C) Lockout in Indian Airlines
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(D) Distribution of coal in the country
40. Rational decision-making requires that -
(A) One’s choice be arrived at logically and without error
(B) One’s choice be consistent with one’s goals
(C) One’s choice never varies
(D) One makes choices that do not involve trade-offs
41. 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
42. The central problem in economics is that of -
(A) Comparing the success of command versus market economics
(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 a society’s unlimited needs
or wants are satisfied as well as possible
43. Which of the following can be regarded as the laws of economics?
(A) There is a direct proportionate change in the price level with a change in the
supply of money.
(B) Prices are determined by total demand and total supply in the market.
(C) After a point, the marginal increase in output shows a falling tendency with
every increase in one or more of the factors of production.
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(D) All of above
44. Under a controlled economy -
(A) State plays a major role
(B) Central authority decides how much will be produced
(C) Both (A) & (B) (D) Neither (A) nor (B)
45. Under a capital economy -
(A) Government plays a major role (B) Government plays no role
(C) Government plays a minor role (D) None of these
46. In free market economy, when consumers increase their purchase of a good and the
level of exceeds , then price tends to rise -
(A) Demand, supply (B) Supply, demand
(C) Prices, demand (D) Profits, supply.
47. Right to private property is found in -
(A) Socialism (B) Capitalism
(C) Mixed economy (D) None of these
48. 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 X and Co.
(C) Identifying the causes of inflation in India

(D) Analysing the causes of failure of industry in providing large-scale employment
49. Economics goods are considered scarce resources because they -
(A) Cannot be increased in quantity
(B) Do not exist in adequate quantity to satisfy social requirements
(C) Are of primary importance in satisfying social requirements
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(D) Are limited to man-made goods
50. From the national point of view which of the following indicates micro approach?
(A) Per capital income of India (B) Underemployment in agriculture sector
(C) Lock-out in TELCO (D) Total savings in India
51. When specifying economic models, economics often make assumptions about the real
world. The purpose of assumptions in economic theory is to -
(A) Make the model more realistic
(B) Simplify the model and provides a primary focus for theory
(C) Ensure that the model only covers specific conditions
(D) Guarantee the accuracy of theory
52. Which of the following is incorrect?
(A) The central problem in economics is that of allocating scarce resources in such
a manner that society’s unlimited needs are satisfied as well as possible.
(B) In a mixed economy, the government and the private sector interact in solving
the basic economic questions.
(C) Micro economics best describes the study of the behavior of individual agents.
(D) An important theme in economics is that market systems are better than
command (socialistic ) economies.
53. 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 good
(D) Deciding how to distribute the output of the economy
54. Identify the correct statement -
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(A) In the deductive method logic proceeds from the particular to the general.
(B) Micro and Macro - Economics are interdependent.
(C) In a capitalist economy, the economy problems are solved by the Planning
Commission.
(D) Higher the prices, lower is the quantity demanded of a product is a normative
statement.
55. 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
56. Which of the following statement is correct?
(A) In a two-goods economy, the production possibilities frontier reflects the

maximum amount of one good that can be produced when a given amount of the other good
is produced.
(B) Micro economics is the study of the behavior of the economy as a whole.
(C) Positive economics focuses on welfare of the people of a society.
(D) None of the above.
57.What is the “Fundamental Premise Basis of Economics”?
(A) Natural recourses will always be source.
(B) Individuals are capable of establishing goals and acting in a manner

consistent with achievement of those goals.
(C) Individuals choose the alternative in which they believe the net gains would be
the greatest.
(D) No matter what the circumstances, individual choice always involves a trade-
off.
58. Which of the following is a normative statement?
(A) Planned economics allocate resources via government departments.
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(B) Most transitional economics have experienced problems of falling output and
rising prices over the past decade.
(C) There is a greater degree of consumer sovereignty in market economics than

planned economics.
(D) Reducing inequality should be a major priority for mixed economies.
59. Which of the following statements would you consider to be a normative one?
(A) Faster economic growth should result if an economy has a higher level of
investment.
(B) Changing the level of interest rates is a better way of managing the economy
than using taxation and government expenditure.
(C) Higher level of unemployment will lead to higher levels of inflation.
(D) The average level of growth in the economy was faster in the 1990s than the
1980s.
60. Which of the following statements is correct?
(A) Unlike normative economics, positive economics is based on objective analysis

of economic issues.
(B) The opportunity cost of a good is the quantity of other goods sacrificed to get
another unit of that good.
(C) Micro economics emphasizes interactions in the economy as a whole.
(D) None of the above.
61. Economics is the study of -
(A) How society manages its unlimited resources
(B) How to reduce our wants until we are satisfied
(C) How society manages its scarce resources
(D) How to fully satisfy our unlimited wants
62. The meaning of the word ‘Economic’ is most closely connected with the word -
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(A) Extravagant (B) Scarce
(C) Unlimited (D) Restricted
63. 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
64.Which of the following falls under Micro Economics?
(A) National Income (B) General Price level
(C) Factor Pricing (D) National Saving and Instrument

65. Economics as a positive science should be between ends.
(A) Unique (B) Socially responsible
(C) Neutral (D) Inspiring
66. The branch of economics theory that deals with the problem of allocation of resources
is -
(A) Micro economics (B) Macro economics
(C) Econometrics (D) None of the above
67. An economy achieves “productive efficiency” when -
(A) Resources are employed in their most highly valued uses.
(B) The best resources are employed
(C) The total number of goods produced in greatest
(D) Goods and services are produced at least cost and no resources are wasted
68. Which of the following is not a micro economic subject-matter?
(A) The price of mangoes
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(B) The cost of producing a fire truck for the fire department of Delhi, India
(C) The quantity of mangoes produced for the mango market
(D) The national economy’s annual rates of growth
69. 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?
70. Mr. A : My corn harvest this year is poor.
Mr. B : Don’t worry. Price increase will compensate for the fall in quantity
supplied
Mr. C : Climate affects crop yields. Some years are bad, others are good.
Mr. D : The government ought to guarantee that our income will not fall.
In this conversation, the normative statement is made by -
(A) Mr. A (B) Mr. B
(C) Mr. C (D) Mr. D

71. Which of the following is an economic activity?
(A) Medical facilities rendered by a charitable dispensary
(B) Teaching one own’s child at home
(C) A housewife doing household duties
(D) Listening to music on the radio

72. Which of the following statements is normative?
(A) Large government deficits cause an economy to grow more slowly.
(B) People work harder if the wage is higher.
(C) The unemployment rate should be lower.
(D) Printing too much money causes inflation
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MICRO ECONOMICS
MEANING AND DETERMINANT OF DEMAND, LAW OF DEMAND AND ELASTICITY OF DEMAND-

PRICE, INCOME AND CROSS ELASTICITY
(1) A desire culminates into demand or effective desire only when it is backed by
(a) Purchasing power
(b) Willingness to spend money
(c) Both
(d) None
(2) The price that a customer is willing to pay for a given quantity is called demand price
(a) Maximum
(b) Minimum
(c) Bargained
(d) Floor
(3) Goods or services that are not necessary for living are
(a) Needs
(b) Desires
(c) Wants
(d) Essentials
(4) Complementary goods are those which are

(a) Consumed simultaneously
(b) Close competitive
(c) Both
(d) Unrelated
(5) ........Sugar and coffee are goods

(a) Complementary
(b) Perfect substitute of each other
(c) Both
(d) Unrelated
(6) If price of sugar increase, the demand for coffee will

(a) Fall
(b) Increase
(c) Not affected
(d) No relation
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CHAPTER 2. CONSUMER BEHAVIOUR
(7) Increase in price of a product reduces the purchasing power as a result of which demand for a product falls down.
This effect is known as
(a) Substitution effect
(b) Income effect
(c) Diminishing marginal utility concept
(d) Law of diminishing returns
(8) Decreases in price of a product results in increased consumption of the product as the product becomes cheaper
compared to other products. This effect is known as
(a) Substitution effect
(b) Income effect
(c) Diminishing marginal utility concept
(d) Law of diminish returns
(9) Traditional approach to law of Demand was pro- pounded by

(a) Giffen
(b) A Samulson
(c) Alfred Marshall
(d) Pigue
(10) According to traditional approach the factor responsible for operation of downward slope of demand curve
are
(a) Change in number of consumers
(b) Law of .decreasing marginal utility
(c) Alternative uses of goods
(d) All the three
(11) According to Modern approach, law of demand is caused by
(a) Income effect

(b) Substitution effect
(c) Both
(d) None
(12) Which of these are exceptions to law of Demand
(a) Giffen effect/goods

(b) Future change in prices
(c) Change in fashion
(d) All the three
57 15
MICRO ECONOMICS
(13) Shift in Demand curve or change in Demand curve occurs due to
(a) Increase in cost of production

(b) Decrease in cost of production
(c) Change in Cetris paribus conditions
(d) All the three
(14) Change in quantity demanded or Movement along demand curve occur due
(a) Due to change in price only

(b) Change in Cetris paribus conditions only
(c) Change in cost of production
(d) Change in technology
(15) Increase in Quantity Demand is also known as—
(a) Expansion in demand

(b) Compression in demand
(c) Extension in demand
(d) Extraction in demand
(16) Decrease in Quantity Demand is also known as
(a) Expansion in demand.

(b) Contraction in demand
(c) Extension in demand
(d) Extraction in demand
(17) Tea and coffee are
(a) Complementary goods

(b) Alternative goods
(c) Unrelated goods
(d) None of these
(18) If priceof Tea increases the demand of coffee will
(a) Increase
(b) Decrease
(c) Remain same
(d) Cannot say
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(19) The demand function of a product x is as dx =12- 2Px, where Px stand for price. The quantity demanded
corresponding to price of ` 2 will be
(a) 8
(b) 6
(c) 5
(d) 10
(20) In question No. 19 the quantity demanded if the price is 5 will be
(a) 8
(b) 2
(c) 5
(d) 10
(21) If an Individual Y has a demand of 6 units of the product the market price of the product will be
(a) ` 4
(b) ` 5
(c) ` 3
(d) ` 4.5
(22) If there are 5000 customers for the product, the aggregate market demand for the product at market price ` 2 in
the question No. 19 will be
(a) 40,000
(b) 30,000
(c) 20,000
(d) 16000
(23) Aggregate market demand in question No. 20 read with question No. 22 will be
(a) 40,000
(b) 30,000
(c) 20,000
(d) 10000
(24) The Supply function of a product x is as Sx=5px +3. Where Px stand for price. The quantity supplied corresponding
to price of ` 2 will be
(a) 18
(b) 13
(c) 15
(d) 10
59 17
MICRO ECONOMICS
(25) In question No. 24 if the price is ` 4 the supply available in the market will be
(a) 18
(b) 13
(c) 15
(d) 23
(26) At what price the firm will be willing to supply 28 pieces in the market
(a) ` 4
(b) ` 5
(c) ` 3
(d) ` 4.5
(27) If there are 1000 firms in the market dealing the product under question what would be the aggregate supply if
the price is ` 4
(a) ` 20,000
(b) ` 23,000
(c) ` 25,000
(d) ` 21,000
(28) The individual demand and supply curve of a product are Dx=12-2px, Sx=3+5px, where Px stand for price and
Dx and Sx respectively stand for quantity demanded and quantity supplied. If there are 5000 consumers and 1000
suppliers for the product under question. What will be the equilibrium price
(a) ` 4
(b) ` 4.25
(c) ` 3.8 i
(d) ` 5.0
(29) What is the quantity demanded and supplied at the equilibrium price
(a) 20,000
(b) 22,000
(c) 21,000
(d) 19000
(30) What is the aggregate demand if the market price is ` 4.20 per unit (Ref. Q. No. 28)
(a) 20,000
(b) 22,000
(c) 19,000
(d) 18000
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(31) What is the aggregate supply if the market price is ` 4.20 per unit (Ref. Q. No. 28)
(a) 20,000
(b) 24,000
(c) 25,000
(d) 28000
(32) The quantity of a commodity which an individual is willing to purchase over a specific period of time is a function
of
(a) Price of the product
(b) Disposal income
(c) Taste and price of other commodities
(d) All the three
(33) Market demand curve for a commodity is
(a) Horizontal summation of the individual demand curve for the commodity
(b) Summation of individual demand curve for 3 years
(c) Demand curve of complementary goods
(d) Demand curve of supplementary goods
(34) Equilibrium state is achieved at
(a) The peak point of supply curve

(b) The bottom point of demand curve
(c) The inflection point of demand curve
(d) The intersection of demand and supply curve
(35) Under the law of demand ceteris paribus is
(a) Price of other goods

(b) Disposal income
(c) Tastes and preferences
(d) All the three
(36) The demand for a product is 25 units when the price is ` 10; however the demand rises to 26 when the price
is reduced to ` 9.9 per unit. The marginal revenue from production and sale of additional unit from 25 to 26
is
(a) ` 7.4
(b) ` 9
(c) 10
(d) 257.6
61 19
MICRO ECONOMICS
(37) If in question No. 36 the price is reduced to 9 ` but the demand goes to 26 units what is the marginal revenue
from sale of 26th unit
(a) ` 16
(b) ` 16
(c) ` 234
(d) ` 7.4
(38) In question No. 36 what is the total revenue from sale of 26 units
(a) ` 7.4
(b) ` 9
(c) 10
(d) 257.6
(39) In question No. 37 what is the total revenue from sale of 26 units
(a) ` 16
(b) ` 9
(c) 234
(d) 257.4
(40) In question No. 36 what is the average revenue from sale of 26 units
(a) ` 10
(b) ` 9.9
(c) 9
(d) 16
(41) If in question No. 36 despite reduction in price to ` 9.9 the demand for the product remains at 25 units we can
say that the demand for the product is
(a) Elastic
(b) Less elastic
(c) Perfectly inelastic
(d) Unity elastic
(42) In question No. 36 if the price is reduced to ` 9 per unit the demand for the product instead of increasing fall
down to 24 units, the goods can be
(a) Essential goods
(b) Luxury goods
(c) Inferior goods
(d) None of these
62 20
(43) In question No. 36 if the price is increased to ` 11 per unit and the demand sharply falls to 20 unit, we can say
that the goods are
(a) Essential goods
(b) Luxury goods ’
(c) Inferior goods
(d) None of these
(44) In question No. 43 read with question No. 36 the price elasticity of demand of the goods between ` 10- ` 11
is
(a) Perfectly elastic
(b) Less elastic
(c) Perfectly inelastic
(d) Unity elastic
(45) A levy of excise duty on consumption of an item consumed will
(a) Induce suppliers to pump in more quantity in the market

(b) Result in fall in the consumption of the commodity and lower total expenditure on it by the consumer
(c) Lead to inflationary conditions
(d) Place the consumer on lower indifference curve
(46) An imposition of excise duty would effect the demand of a product due to
(a) Income effect

(b) Substitution effect
(c) Both
(d) None
(47) Two commodities X and Y goods can be inferred as close substitute of each other if
(a) Increase in price of one leads to increase in demand of other and vice versa
(b) Increase in price of one leads to decrease in demand of other and vice versa
(c) Fall in price of one lead to fall in demand of other one
(48) Increase in price of one leads to increase in demand of other one Two Commodities X and Y can be inferred as
complementary to each other if
(a) Increase in price of one leads to increase in demand of other and vice versa
(b) Increase in price of one leads to decrease in demand of other and vice versa
(c) Fall in price of one lead to fall in demand of other one
(d) Increase in price of one leads to increase in demand of other one
63 21
MICRO ECONOMICS
(49) A goods can be considered inferior goods in economics if increase in disposal income of the consumer causes
(a) A increase in demand

(b) No change in demand
(c) Decrease in demand
(d) Less than proportionate change in demand
(50) A goods can be considered a normal goods in economics if increase in disposal income of the consumer causes
(a) A increase in demand

(b) No change in demand
(c) Decrease in demand
(d) Less than proportionate change in demand
(51) Change in consumers tastes and preference causes—of the particular goods
(a) Change in quantity demanded

(b) Shift in demand curve
(c) Change in price
(d) No effect on quantity demanded
(52) Change in price of the goods causes
(a) Change in quantity demanded

(b) Shift in demand curve
(c) Change in price
(d) No effect on quantity demanded
(53) If price of Choco bar decreases we expect
(a) The quantity demanded to increase

(b) Quantity demanded to decrease
(c) Demand curve to shift left
(d) No change in quantity demanded
(54) According to law of demand
(a) Higher the price higher the production of the product

(b) Higher the price lower the cost of production
(c) Lower the price higher the demand for the product
(d) Higher price higher the quantity the more the consumer demand
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(55) The quantity of a commodity that an individual is willing to purchase over a specified period of time is a function
of except
(a) Price of the commodity
(b) Price of the competitive products
(c) His disposal income
(d) Price of factor of production
(56) Market demand curve for a commodity is a
(a) Horizontal summation of all the individual demand curve for that product
(b) Summation of demand curve of competitive products
(c) Demand curve of average demand and price of previous six month
(d) Projected demand schedule for next three months
(2.B)-THEORY OF CONSUMER’S BEHAVIOUR- MARSHALLIAN AND INDIFFERENCE CURVE

ANALYSIS
(1) An indifference curve shows all combinations of two commodities which

(a) Give the same level of satisfaction to the consumer
(b) Represent the highest satisfaction to the consumer
(c) Give the different level of satisfaction to the consumer
(d) None of the above
(2) The slope of the indifference curve shows the

(a) Marginal rate of substitution
(b) Level of satisfaction to the consumer
(c) Elasticity of the indifference curve
(3) As one moves upward towards left along an indifference curve, the marginal rate of substitution of commodity ‘X’
for commodity ‘Y’
(a) Increases
(b) Decreases
(c) Constant
(d) Fluctuates
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MICRO ECONOMICS
(4) The budget line shows

(a) Possible combinations of two commodities, which the consumer can buy if he spends the whole of his given
money at the given prices.
(b) Price of two goods
(c) Demand for one commodity on X-axis and money income on Y-axis.
(5) Shifting of the budget line to a parallel position to the right indicates
(a) The consumer’s tastes has been changed
(b) The prices of both the commodities have been increased
(c) The consumer’s income has increased.
(d) The consumer will maximize his satisfaction and to be in equilibrium at a point where
(6) How many indifference curves can touch the price line
(a) Two
(b) One
(c) As many as possible
(d) Depends upon the purchasing power of the consumer
(7) A change in household income will always shift the budget line parallel to itself if
(a) Money prices stay constant
(b) Relative prices stay constant with money prices changing by the same percentage as income
(c) Real income stays constant
(d) Prices change in the same direction
(8) Halving all absolute prices, ceteris paribus, has the effect of
(a) Halving real income
(b) Halving money income
(c) Changing relative prices
(d) Doubling real income
(9) A change in one absolute price, with all other things remaining constant, will
(a) Shift the budget line parallel to itself
(b) Change money income
(c) Cause the budget line to change its slope
(d) Have no effect on real income
66 24
(10) An indifference curve includes
(a) Constant quantities of one good with varying quantities of another

(b) The prices and quantities of two goods that can be purchased for a given sum of money
(c) All combinations of two goods that will give the same level of satisfaction to the house-hold
(d) Combinations of goods whose marginal utilities are equal.
(11) Households may attain consumption on a higher indifference curve by all but which of the following?
(a) An increase in money income

(b) A reduction in absolute prices
(c) A proportionate increase in money income and in absolute prices
(d) A change in relative prices caused by a reduction in one price
(12) The slope of the budget line with product ‘Y’ on the vertical axis and product ‘X’ on the horizontal axis is
(a) – (Py/Px)
(b) – (X/Y)
(c) – (Y/X)
(d) – (Px/Py)
(13) Where the budget line is tangent to an indifference curve,
(a) Equal amounts of goods give equal satisfaction

(b) The ratio of prices of the goods must equal the marginal rate of substitution
(c) The prices of the goods are equal
(d) The household has revealed a preference for that combination of goods
(14) Indifference curve theory assumes that
(a) Buyers can measure satisfaction

(b) Buyers can identify preferred combinations of goods, without necessarily being able to measure their satisfac-
tion
(c) Buyers always behave consistently
(d) All buyers have the same preference patterns.
(15) The hypothesis of diminishing marginal utility states that
(a) The less of a commodity one is consuming, the less the utility obtained by an increase is its consumption.
(b) The more of a commodity one is consuming, the more the utility obtained by an increase is its consumption
(c) The more of a commodity one is consuming, the less the utility obtained by an increase is its consumption
(d) Marginal utility cannot be measured, but, total utility can
67 25
MICRO ECONOMICS
(16) According to utility theory, for a consumer who is maximizing total utility, MUA / MUB
(a) Equals PA / PB
(b) Equals PB / PA
(c) Will not necessarily be related to relative prices
(d) Equals TUA / TUB
(17) An indifference curve is
(a) Downward sloping and convex to origin

(b) Downward sloping and concave to origin
(c) Upward sloping and convex to origin
(d) Vertical to Y-axis.
(18) At a point near the right hand below corner of a normal indifference curve, the marginal rate of substitution of
commodity ‘X’ for commodity ‘Y’ is
(a) Very high
(b) Very low
(c) zero
(d) Neither high nor low
(19) A higher indifference curve denotes a
(a) Higher level of satisfaction

(b) Lower level of satisfaction
(c) Same level of satisfaction
(20) Which of the following is not a characteristic of the indifference curve
(a) Downward sloping to the right

(b) Convex to the origin
(c) Intersecting at one point
(21) The budget line of a consumer in the analysis of indifference curve is
(a) Vertical straight line

(b) Horizontal straight line
(c) Straight line sloping down towards right
(d) Straight line sloping upwards rights.
68 26
(22) The consumer will maximise his satisfaction and to be in equilibrium at a point where
(a) Price line or budget line is tangent to an indifference curve

(b) Price line crosses an indifference curve
(c) Price line does not touch the indifference curve
(23) When marginal utility is negative, the total utility:
(a) Becomes zero

(b) Becomes negative
(c) Increases
(d) Decreases
(24) The third cup of tea gives lesser satisfaction than the first cup of tea, this is a clear case of:
(a) Law of demand

(b) Law of diminishing returns
(c) Law of supply
(d) Law of diminishing marginal utility
(25) The following is not a characteristic of utility:
(a) Utility depends upon the intensity of want

(b) Utility is subjective
(c) Utility can be put in order of preference
(d) Utility has not ethical or moral implication
(26) Marginal utility can be expressed as follows:
(a) The satisfaction from a commodity consumed

(b) The utility from an additional unit of commodity consumed
(c) The utility from all the units of a commodity consumed
(d) The price paid for a commodity
(27) The law of diminishing marginal utility states that:
(a) As more units of a commodity are consumed, the total utility falls
(b) The consumer gets same utility from all the units consumed
(c) The utility from the successive units of commodity consumed decreases
(d) The consumer gets more satisfaction as he consumes additional units of a commodity
69 27
MICRO ECONOMICS
(28) Consumers equilibrium in the utility approach is attained when:
(a) His want is fully satisfied

(b) He gets diminishing marginal utility
(c) Total utility is maximum
(d) The price of the commodity equals its marginal utility
(29) The law of equi-marginal utility states that:
(a) The consumer consumes equal unit of a commodity

(b) He pays equal prices for all the commodities
(c) The marginal utility from all the units consumed is equalized
(d) The consumer gets equal satisfaction from all the units of different commodities
(30) According to the law of equi-marginal utility, the consumer’s equilibrium is attained when:
(a) MU x = Py
(b) MU x = TU y
MU x MU y
(c) >
Px Py
MU x MU y
(d) =
Px Py
(31) Consumer’s surplus refers to:
(a) Satisfaction ion from the consumption of a good

(b) The difference between price a person is willing to pay and the market price
(c) The total area under the marginal utility curve
(d) The area below the budget line of a consumer
(32) The following is not an assumption of the concept of consumers surplus:
(a) Price of the commodity should not change

(b) Utility can be measured
(c) Marginal significance of money should remain constant
(d) Consumer should be rich
(33) The slope of an indifference curve indicates:
(a) Price ratio between two commodities

(b) Marginal rate of substitution
(c) Factor substitution
(d) Level of indifference
70 28
(34) The following is the normal shape of an indifference curve:
(a) Convex
(b) Concave
(c) Straight line
(d) Rectangular
(35) Consumer’s equilibrium is attained at a point where the budget line is:
(a) Above an indifference curve

(b) Below the indifference curve
(c) Tangent to an indifference curve
(d) Cuts an indifference curve
(36) For the equilibrium of a consumer in the indifference curve analysis:
(a) Indifference map is required

(b) Budget line is required
(c) Consumer’s decision is required
(d) Indifference map and budget line both are required
(37) An indifference curve is convex to the original because:
(a) Marginal utility of good X is increasing

(b) Marginal utility of good Y is decreasing
(c) Marginal rate of substitution of good X for Y is diminishing
(d) Marginal rate of substitution of good X for Y is increasing
(38) The ratio of exchange between two goods in indifference curve analysis is shown by:
(a) The price line

(b) The income consumption curve
(c) The price indifference curve
(d) The indifference curve
(39) If an inferior good is shown on the X-axis, then an increase in households income will be shown by:
(a) A positively sloped income consumption curve

(b) A negatively sloped income consumption curve
(c) A backward sloping income consumption curve
(d) A vertical income consumption curve
71 29
MICRO ECONOMICS
(40) Consumer’s equilibrium is attained when:

∆Y
(a) MRS x y
∆X
Px
(b) MRS x y =
Py
(c) MRS x y = 0
(d) P x Q x + P y Q y = M
(41) The following is not a feature of indifference curves:
(a) Indifference curves intersect each other

(b) Indifference curve is convex towards the point of origin
(c) Indifference curve slopes downwards to the right
(d) Higher the indifference curve, the higher the level of satisfaction
(42) An indifference curve refers to:
(a) A curve showing relationship between price and quantity

(b) A curve representing equal level of satisfaction
(c) A curve showing relationship between money income and demand for a commodity
(d) A curve representing equal level of output
(43) If two commodities are perfect substitutes, then the indifference curve will have the following shape:
(a) Convex
(b) Concave
(c) Straight line sloping downwards
(d) Rectangular
(44) A group of indifference curves is called:
(a) Price consumption curve

(b) Budget line
(c) Indifference map
(d) Indifference schedule
(45) Combination of two goods that a consumer can buy with given money income and commodity prices is shown
by:
(a) Indifference curve
(b) Demand curve
(c) Indifference map
(d) Budge line
72 30
(46) If two goods are complements to each other, the indifference curve will have:
(a) Right angled shape

(b) Negative slope
(c) Positive slope
(d) Horizontal shape
(47) The tangency point of IC curve and budget line shows:
(a) Minimum satisfaction

(b) Maximum satisfaction
(c) State of indifference
(48) If a consumer spends all his income on a good represented on the Y-axis, then the combination will lie on:
(a) Budget line

(b) The left of the budget line
(c) Y-axis
(d) X-axis
(49) If the combination of two goods is to the right of the budget line, it means:
(a) Consumer cannot buy this combination

(b) Consumer is spending all his income on one commodity
(c) Consumer is not spending all his income
(d) Consumer is buying both the goods
(50) If consumers money income and prices of two goods increases by 50 per cent, he would be:
(a) Better off

(b) Worse off
(c) Indifferen
(d) Neither better off nor worse off
(C) MEANING AND DETERMINANTS OF SUPPLY, LAW OF SUPPLY AND ELASTICITY OF SUPPLY
(1) If the supply of a product remain same with increase in price, the possible reasons can be
(a) Apprehension of further price hike
(b) Limited production facility
(c) Commodity being a rare commodity
(d) All the three
73 31
MICRO ECONOMICS
(2) In a market economy equilibrium price is reached at

(a) Point of interaction of aggregate demand and aggregate supply curve
(b) At the top of demand curve
(c) Mid point of demand curve
(d) Mid point of supply curve
(3) Which of the following is not a factor in market supply of a product

(a) Cost of production
(b) Number of buyers
(c) Market price of the product
(d) Price of related products
(4) The minimum price that a supplier expects to make available a specific quantity for sale is called
(a) Demand price
(b) Administered price
(c) Cost price
(d) Supply price
(5) The maximum quantity that a supplier is prepared to supply in the market at a given price is called
(a) Economic order quantity
(b) Optimum quantity
(c) Supply quantity
(d) Both or quantity
(6) Change in cost of production of the concerned goods causes

(a) The demand curve to shift
(b) The supply curve to shift
(c) Increase in quantity demanded
(d) Decrease in quantity supplied
(7) Shift in supply curve is caused by

(a) Change in citrus paribus conditions
(b) Change in price
(c) Change in fashion
(d) Change in consumer income
74 32
(8) At a given price increase in quantity supplied can be possible if

(a) There is apprehension of sharp fall in prices in future
(b) Refund or subsidy of Statutory levy in cash is given by the Government
(c) Improvement in technology led to cost saving
(d) All the three
(9) Which of these is not a determinant of aggregate supply

(a) Quantity demanded
(b) Price of the product under consideration
(c) Relative price of other goods
(d) Future expectations about prices
(10) A positive sloped supply curve for a product represents
(a) Supply will move with movement in the price in the opposite direction
(b) Supply will move with the movement in the price in the same direction
(c) Both
(d) None
(11) Which of the following will have a relatively flat supply curve
(a) Land
(b) Labour
(c) Capital
(d) Raw material
(12) A supply curve parallel to X axis means the product supply is
(a) Limited
(b) Unlimited
(c) Not available
(d) None
(13) Which of these will have highly inelastic supply curve
(a) Perishable goods

(b) Consumer durables goods
(c) Items of elite class consumption
(d) All the three
75 33
MICRO ECONOMICS
(14) Which of these is not a factor affecting supply of a good?
(a) Price of the goods

(b) Price of the related other goods
(c) Cost of production
(d) Consumers disposal income
(15) The supply of goods means
(a) Quantity offered for sale at a given price and time

(b) Quantity produced by the manufacturer
(c) Quantity available with the supplier
(d) Quantity likely to be produced
(16) Under law of supply, ceteris paribus is

(b) Production technology
(c) None
(d) Both
(17) According to law of supply
(a) Higher the price higher the production of the product

(b) Higher the price lower the cost of production
(c) Lower the price lower the demand for the product
(d) Higher the price higher the quantity the seller is prepared to supply in market
(18) The quantity that an individual supplier is prepared to supply over a period of time is a function of
(a) Price of the product

(b) Cost of production of the product
(c) Both
(d) None
(19) The supply of a good refers to:
(a) Actual production of a good

(b) Total stock of the good
(c) Stock available for sale
(d) Amount of the good offered for sale at a particular price per unit of time
76 34
(20) Elasticity of supply for a positively sloped straight line supply curve that intersects the price axis is:
(a) Zero
(b) Equal to unit
(c) More than unit
(d) Less than unit
(21) Which of the following elasticities measure a movement along a supply curve rather than a shift in the supply
curve:
(a) Price elasticity of supply
(b) Cross elasticity of supply
(c) Income elasticity of demand
(d) Elasticity of demand
(22) The supply schedule of a commodity X shows:
(a) The quantity of X that will be supplied at a given price

(b) The total amount of X in existence at any time
(c) The amount o X which is bought at the equilibrium price
(d) The amount of X which will be put on the market at certain prices in a given period of time
(23) Other things being equal, a decrease in the supply of a commodity can be caused by:
(a) A fall in the price of the commodity

(b) A change in the tastes of the consumers of the commodity
(c) A fall in the income of the consumer
(d) A fall in the price of substitutes
(24) A rightward shift in the supply curve indicates:
(a) A decrease in supply

(b) An increase in the quantity supplied
(c) An increase in supply
(25) Other things being equal, an increase in the supply can be caused by:
(a) A rise in the price of the commodity

(b) An improvement in the techniques of production
(c) A rise in the income of the consumer
(d) An increase in the income of the seller
77 35
MICRO ECONOMICS
(26) A supply curve will generally have an upward, slope form left to right because:
(a) Market price is normally abode total cost of production

(b) Consumer’s income tends to increase in the long run
(c) Producer’s costs tend to increase as their output expands
(d) Supply of most goods is essentially a short-term phenomenon
(27) The shift of the supply curve for a commodity to the left may indicate, other things being equal, that:
(a) Shares in the producing firms are in great demand on the stock exchange
(b) Producers of the commodity wish to make and sell less at each price
(c) Prices of the raw materials used in the production of the commodity have fallen
(d) Wages have fallen
(28) The long-run elasticity of supply is greater than the short-run elasticity of supply because:
(a) In the long run, the stock of machine and buildings can adjust,
(b) In the long run, new firms can enter and existing firms can exit in industry,
(c) In the long run, customers can discover substitutes,
(d) Both (a) and (b)
(29) Increase in supply is represented by:
(a) Downward movement along a supply curve

(b) Upward movement along a supply curve
(c) Rightward shift in the supply curve
(d) Leftward shift in the supply curve
(30) Supply remaining unchanged irrespective of any change in price represents:
(a) Perfectly elastic supply

(b) Perfectly inelastic supply
(c) Relatively elastic supply
(d) Relatively inelastic supply
(31) Decrease in supply is shown by:
(a) Downward movement along a supply curve

(b) Upward movement along a supply curve
(c) Leftward shift in the supply curve
(d) Rightward shift in the supply curve
78 36
(32) In case of perfectly elastic supply, the supply curve is:
(a) Parallel to the X-axis

(b) Parallel to the Y-axis
(c) Sloping upwards
(d) Sloping downwards to the right
(33) Change in supply due to factors other than the price indicates:
(a) Expansion and contraction in supply

(b) Increase and decrease in supply
(c) Supply curve
(d) Supply schedule
(34) If the quantity supplied of a commodity rises by 40 per cent of 20 per cent increase in its price, the supply is said
to be:
(a) Relatively elastic
(b) Relatively inelastic
(c) Perfectly elastic
(d) unitary elastic
(35) If the supply of a commodity remains unchanged irrespective of any change in price, the supply is said to be:
(a) Perfectly elastic

(b) Perfectly inelastic
(c) Inelastic
(d) Relatively elastic
(36) The supply of a commodity falls with a fall in its price, if. . . . . . . . . .remains the same:
(a) Cost of inputs

(b) Tax rate
(c) Goal of the producer
(d) All the above
(37) The following is not a determinant of supply:

(b) Money income of the consumer
(c) Technology
(d) Price of the commodity
79 37
MICRO ECONOMICS
(38) Increase in the rate of tax causes. . . . . . .in supply:
(a) Decrease
(b) Increase
(c) Contraction
(d) Expansion
(39) If the supply curve is extended downwards and passes through the X-axis, the supply is said to be:
(a) Inelastic
(b) Elastic
(c) Unitary elastic
(d) Perfectly elastic
(40) If the supply curve is extended downwards and passes through the point of origin, the supply is said to be:
(a) Inelastic
(b) Perfectly inelastic
(c) Unitary elastic
(d) Elastic
(41) Decrease in supply is shown by:
(a) Downward movement along the supply curve

(b) Leftward shift of the supply curve
(c) Rightward shift of the supply curve
(d) Upward movement along the supply curve
(42) For a perfectly elastic supply, the elasticity coefficient is:
(a) Es = 0
(b) Es > 1
(c) Es = α
(d) Es < 1
(43) If the supply is perfectly inelastic, the supply curve will have. . . . . . . . . . . . slope
(a) Vertical
(b) Horizontal
(c) Steeper
(d) Flatter
80 38
(44) If the value of the coefficient is less than one, the supply is:
(a) Perfectly inelastic

(b) Inelastic
(c) Unitary elastic
(d) Relatively elastic
(45) If the supply is relatively elastic, the coefficient of elasticity of supply is:
(a) Es = 0
(b) Es = α
(c) Es > 1
(d) Es = 1
(46) Increase in the excise duty causes:
(a) Expansion in supply

(b) Contraction in supply
(c) Increase in supply
(d) Decrease in supply
(47) Improvement in technology causes:
(a) Expansion in supply

(b) Increase in supply
(c) Contraction in supply
(d) Decrease in supply
(48) Reduction in the cost of credit causes:
(a) Decrease in supply

(b) Expansion in supply
(c) Increase in supply
(d) Contract in supply
81 39
MICRO ECONOMICS
CHOOSE THE CORRECT ANSWER
(1) The Marginal utilities derived from neuters :

(a) +ve;
(b) −ve;
(c) zero;
(d) none of these.
(2) The assumption of transitivity means–

(a) A > B > C
A>C
(b) A < B & B = C
A=C
(c) A = B & B > C
A=C
(d) a > B & B = C
A<C>
(3) PE is composed of–
(a) Substitution Effect + Wage Effect;
(b) Substitution Effect + Price Effect.
(c) Substitution Effect + Income Effect;
(d) Time Effect + Income Effect.
(4) Greater the Elasticity of Demand, Greater is the burden of tax

(a) Buyer;
(b) Seller;
(c) Both buyers and seller;
(d) None of them
(5) In utility approach it is possible to have interpersonal comparison of utility (Yes / No)
(6) The nature of IC is straight line when X & Y are
(a) Perfect substitutes;
(b) Perfect complements;
(c) subject to increasing MU;
(d) subject to diminish MU
(7) Colgate has

(a) Inelastic;
(b) Elastic;
(c) Unitry elastic;
(d) Perfectly elastic demand.
82 40
(8) Fall in the price when results in increase in total expenditure, demand is said to be–
(a) Inelastic;
(b) Elastic;
(c) Unitry Elastic;
(d) Perfectly inelastic demand
(9) Total outlay method gives us–

(a) Only one measure;
(b) Only two measures;
(c) Only three measures;
(d) Only four measures
(10) Law of DMU applies in case of–

(a) Consumer goods
(b) Producers good
(c) Capital goods
(d) Investment goods
(11) On moving down the demand curve ed

(a) Increases;
(b) Decreases;
(c) remains constant;
(d) None of these.
(12) When demand curve is rectangular by pera bola ed will be

(a) Elastic;
(b) Inelastic;
(c) Unitry elastic;
(d) Perfectly inelastic
(13) If x and y are substitute cross ed will be

(a) +ve
(b) −ve
(c) Zero
(d) Infinity
83 41
MICRO ECONOMICS
(14) If x and y are complement cross elasticity of demand will be

(a) +ve,
(b) –ve,
(c) zero,
(d) infinity
(15) If x and y are perfect substitute, the cross elasticity of demand will be–
(a) +ve;
(b) –ve;
(c) zero;
(d) Infinity
(16) If x and y are unrelated good, the cross elasticity of demand will be–
(a) +ve;
(b) –ve;
(c) zero;
(d) Infinity
(17) In case the supply curve intersects yaxis the nature of supply curve is–
(a) Elastic;
(b) Inelastic;
(c) Unitry elastic;
(18) In case the supply curve intersects xaxis the nature of supply curve is–
(a) Elastic;
(b) Inelastic;
(c) Unitry Elastic;
(19) If the supply curve on extension meets origin the elasticity is–
(a) Elastic;
(b) Inelastic;
(c) Unitry elastic;
84 42
(20) Given the demand function Q = 60/P at P1 = ` 4 and P2 = ` 2 The ed will be–
(a) Elastic;
(b) Inelastic;
(c) Unitry elastic;
(21) Given the liner demand function Q = 2000 – 2P. At what price the elastic of demand is unitry
Ans: ` 500
(22) Which one is not the assumption of law of DMU–
(a) Cardinal utility;
(b) Rotionality;
(c) Transivity;
(d) Hypothesis of Independent utility
(23) Substitution effect is generally–

(a) +ve;
(b) –ve;
(c) zero;
(d) Infinity
(24) At the point of equilibrium now many IC touch the subject line–
(a) one;
(b) two;
(c) as many;
(d) can’t say
(25) Combination lying on or inside the budget line are attainable combination
(26) At the point of consumer equilibrium–
MUx Px
(a) >
MUy PY
MUx Px
(b) <
MUy PY
MUx Px
(c) =
MUy PY
MUx
(d) = zero
MUy
(27) Consumer surplus is the difference of willing to pay and actually paid
85 43
MICRO ECONOMICS
(28) PE. of Giffen good are–

(a) +ve;
(b) –ve;
(c) zero;
(d) None of the above.
(29) Income effect of inferior good is–

(a) +ve;
(b) –ve;
(c) zero;
(d) Infinity
(30) If two linear demand curves intersect each other, do both of them have same price elasticity at this point–
(a) Yes;
(b) No;
(c) Can’t say
(31) The slope of demand curve is–

p
(a)
q
q
(b)
p
∆p
(c)
∆q
∆q
(d)
∆p
(32) If two commodities are perfect substitutes for each other, elasticity of substitution will be–
(a) zero;
(b) one;
(c) Infinite;
(33) The increasing MRSxy can make the IC–

(a) convex;
(b) concave;
(c) Lshaped;
(d) straight line
86 44
(34) In case of perfect complementary good, the IC will be–

(a) convex;
(b) Lshaped;
(c) concave;
(d) straight line.
(35) The MRCxy for perfect substitute goods are–

(a) one;
(b) zero,
(c) infinite;
(d) none of these.
(36) In case of economic bad commodity MU will be–

(a) +ve;
(b) –ve;
(c) zero;
(d) can’t say
(37) When the Px and Py falls and Income increases in same proportion the budget line will–
(a) Shift leftward;
(b) Shift Rightward;
(c) Remain constant;
(d) Move along xaxis
(38) Law of demand is a–

(a) Quantitative statement;
(b) Qualitative statement;
(c) Both quantitative as well as Qualitative;
(39) Which one of the following is not the property of IC–

(a) IC are downward sloping
(b) IC are concave to origin
(c) IC do not cut each other.
(d) Higher IC provides higher level of satisfaction
87 45
MICRO ECONOMICS
(40) Which one of the following is not the determinant of Demand–

(a) Advertisement;
(b) Time period;
(c) Income;
(d) Taste and Preferences
(41) At a given quantity rightward shift in the demand is at–

(a) Increase in income;
(b) Increase in price;
(c) Increase in price of sub Good
(d) Decrease in price of complementary goods
(42) Which of the following pairs of commodities is an example of substitute?

(a) Ball pen and fountain pen;
(b) Tea and shirt;
(c) Shirt and Pen;
(d) Sugar and tea.
(43) All but one of the following are assumed to remain the same while drawing an individuals demand curve for a
commodity which one is it ?
(a) Preferences of the Individual.
(b) His money Income
(c) Prices of other goods
(d) Price of the commodity under consideration
(44) If both the supply and the demand for a good increases the market price will–
(a) Rise only in the case of an inelastic supply function
(b) Fall only in the case of an inelastic supply function
(c) Not be predictable with only these facts
(d) Rise only in the case of an inelastic demand function
(e) Fall only in the case of an inelastic demand function
(45) A market supply curve for corn informs us how much corn–
(a) Will be sold at each possible price for corn
(b) Must be produced in order to achieve parity
(c) Will be offered for sale at each possible price of corn
(d) Consumer and government will demand at each possible price.
(e) Is being stored in government warehouses
88 46
(46) A business firm recently decreased prices by 50% assuming on other change and if elasticity of demand is unitary
total revenue will–
(a) double;
(b) increase by 50%;
(c) remain unchanged;
(d) decrease by 50%
(47) The greatest satisfaction which can be obtained from a consumer’s limited income occurs only if–
(a) The consumer buys those commodities which have income elastic
(b) The marginal utility of the last rupee spent is the same for all goods
(c) The consumer saves a portion of his income.
(d) The consumer spreads his income evenly across those goods which are necessities
(48) If the demand for a product rises as a result of a fall in its price (other things remaining constant) this happens
because of–
(a) Income effect;
(b) substitution effect;
(c) Income and substitution effect;
(d) Neither of the above.
(49) The MRS of good A for good B goes on __________as more and more A is substituted for B–
(a) Increasing;
(b) decreasing;
(c) constant;
(d) none of these.
(50) Demand for sugar is influenced by–

(a) price for sugar;
(b) price of tea;
(c) price of shirts;
(d) price of tea pots
(51) Demand for inverter and battery is–

(a) derived demand
(b) joint demand;
(c) consumer demand;
(d) effective demand.
89 47
MICRO ECONOMICS
(52) For demand to become effective demand which one is not required–
(a) wish;
(b) Ability to pay;
(c) willingness to pay;
(d) price.
(53) MRS is diagrammatic terms–

(a) Slope of budget line.
(b) Slope of Demand curve
(c) Slope of marginal utility curve.
(d) Slope of indifference curve.
(54) MRS in utility terms–

Px
(a)
MUx
Py
(b)
MUy
Px
(c)
Py
MUx
(d)
MUy
(55) In case of two perfect complementary good MRSxy is
(a) one;
(b) zero;
(c) +ve infinity;
(d) –ve infinity
(56) Which one of these is not a veblen good–

(a) Diamond;
(b) Rice;
(c) Rare paintings;
(d) Luxury cars
(57) Even distribution of income results in–

(a) Increase in demand;
(b) decrease in demand;
(c) does not effect the demand;
(d) none of these.
90 48
(58) Greater is the degree of substitutability–

(a) Greater will be magnitude of EC
(b) Lesser will be magnitude of EC
(c) Unitry will be the EC
(d) None of these.
(59) Which one is not the nature of utility–

(a) Utility is subjective phenomenon
(b) Utility is closely related to usefulness
(c) Utility has no material or physical existence
(d) Utility is common to all goods
(60) According to ordinal approach utility can be–

(a) Quantified;
(b) subject to mathematical manipulation;
(c) perceived.
(d) measured;
(61) The law of DMU is based on fundamental assumption that want–

(a) can be fully satiable.
(b) Can’t be fully satiable.
(c) Can be expressed ordinally
(d) None of these.
(62) Consumption beyond the point of satiety leads to–

(a) Positive dissatisfaction;
(b) Positive utility;
(c) Negative dissatisfaction;
(d) Zero satisfaction
(63) As per the law of DMU utility derived from tea–

(a) depends upon sugar
(b) depends upon milk
(c) depends upon biscuits
(d) depends upon tea only
91 49
MICRO ECONOMICS
(64) Law of DMU explain equilibrium condition–

(a) With two goods
(b) With several goods
(c) With single good
(d) None of these.
(65) At the point of equilibrium–

(a) MUx > Px
(b) Mux < Px
(c) Mux = Px
(d) Mux > Px
(66) As per law of DMU–

(a) Mum remain constant
(b) Mum keeps increasing
(c) Mum keeps diminishing
(d) Can’t say
(67) What assumption of DMU converts MUx curve into demand curve of x–
(a) Cardinal utility;
(b) constancy of marginal utility of money;
(c) Hypothesis of independent utility;
(d) Rationality
(68) Why constant MU of money assumption necessary in the Marshallian analysis of demand–
(a) Like utility money can be measured.
(b) Money is regarded as measuring rod.
(c) Because commodity can only be bought by money.
(d) All of these.
(69) If over years the quantity purchased of a good increases in spite of an increase in its price, does it mean that its
demand curve is upward sloping–
(a) Yes;
(b) No;
(c) Can’t say
92 50
(70) Which one is not the method of demand forecasting–

(a) Consumer Survey Method;
(b) Salesman Opinion Method;
(c) Linear Programming Method;
(d) Delphi Method
(71) Fall in the Demand results in–

(a) Increase in Price
(b) Decrease in Price
(c) Does not effect the price
(d) None of these.
(72) If a consumer spent his given money income on two goods x and y and increase in price of x resulted in increase
in expenditure of y the x has–
(a) Inelastic demand;
(b) Elastic demand;
(c) Unitry elastic demand;
(d) Perfectly elastic demand.
(73) Elasticity of demand at common point will be __________on a flatter demand curve
(a) More;
(b) Lesser;
(c) Same;
(d) None of these.
(74) When we draw a market demand curve we

(a) ignore tastes and incomes and all other prices;
(b) assume that tastes income and all other prices do not matter;
(c) assume that tastes, incomes and all other prices change in the same way prices change;
(d) assume that tastes incomes and all other prices stay constant
(75) Consumer tastes and preference are

(a) always treated as exogenous to the economic system
(b) Always treated as endogenous to the economic system
(c) So unpredictable that demand analysis is virtually impossible,
(d) Altered by such economic activities as advertising and demonstration effects
93 51
MICRO ECONOMICS
(76) A decrease in income can be predicted to

(a) Invariably cause leftward shifts in demand curves
(b) Increase the quantity demanded of an inferior good
(c) Invariably cause rightwad shifts in demand curves
(d) Decrease the quantity demanded of an inferior good.
(77) A rightward shift in the demand curve for Corn Flakes would be predicted from
(a) A decrease in the number of breakfast eaters
(b) A change in tastes in favour of hot cereals
(c) A fall in the price of Corn Falkes
(d) A rise in the price of wheat.
(78) To say that the demand for commodity is elastic means

(a) That the demand curve slopes downward to the right
(b) That more is sold at a lower price
(c) That a rise in price will increase total revenue
(d) That the change in quantity sold is proportionally greater than the change in price.
(79) When the demand is elastic

(a) A fall in pri ce is more than offset by an increase in quantity sold so that total revenue ri ses
(b) The good is probably a necessity
(c) A rise in price will increase total revenue, even thought less is sold
(d) Buyers are not much influenced by prices of competing products
(80) A demand curve is perfectly inelastic

(a) A rise in price causes a fall in quantity demanded
(b) A fall in price causes a rise in sellers’ total receipts
(c) The commodity in question is highly perishable, like fresh strawberries
(d) A change in price does not change quantity demanded
(81) If a 100 percent rise in the membership fee of a club caused the number of members to decline from 600 to
450
(a) Demand was inelastic
(b) Demand was infinitely elastic
(c) Demand was elastic
(d) The price rise caused a shift in demand for membership so it is impossible to say
94 52
(82) If price elasticity of demand for a product is 0.5, this means that
(a) A change in price changes demand by 50 percent
(b) One percent increase in quantity sold is associated with a 0.5 percent fall in price
(c) One percent increase in quantity sold is associated with a 2 percent fall in price
(d) 0.5 percent change in price will cause a 0.5 percent change in quantity sold.
(83) Given a demand and schedule

Price (`) Demand (Kg)
2 70
3 60
4 50
5 40
What is the price elasticity of demand when price increases from ` 2 to ` 4?
(a) – 2/7
(b) – 2/14
(c) – 4/7
(d) none of the above.
(84) On a typical straight line demand curve the elasticity of demand at a point where it meets the price axis or Y–
axis is
(a) 2
(b) 0.75
(c) 1
(d) infinite
(85) On a typical straight line demand curve the elasticity demand at a point where it meets the quantity axis or X–
axis is
(a) 1/2
(b) 1
(c) 0
(d) infinite
(86) On a typical straight line demand curve the elasticity of demand at the mid point of the curve is
(a) 1/2
(b) 2
(c) 0
(d) 1
95 53
MICRO ECONOMICS
(87) To measure price elasticity over large changes in price we use

(a) Point elasticity method
(b) Arc elasticity method
(c) Income elasticity method
(88) Price elasticity of demand for a commodity tends to be greater

(a) The more of a necessity it is
(b) The closer substitutes there are for it
(c) The less important it is in our budget
(d) The lower the price
For questions (xii) through (xv) refer to the figure given below:
Quantity Quantity Quantity Quantity

(a) (b) (c) (d)
(89) The demand curve with an income elasticity of is zero

(a) a
(b) b
(c) c
(d) d
(90) The demand curve with an income elasticity of greater than 1 is

(a) a
(b) b
(c) c
(d) d
(91) The demand curve with an income elasticity of less than 1 is

(a) a
(b) b
(c) c
(d) d
96 54
(92) The demand curve with an income elasticity of ∝ is

(a) a
(b) b
(c) c
(d) d
(93) If incomes rise by 5 percent, the quantity sold of a commodity rises by 10 percent, income elasticity is
(a) −2
(b) 2
(c) −(1/2)
(d) 1/2
(94) In a certain market, when the price of hotdogs rose from 76 paise per piece to 84 paise per piece, the quantity of
hotdog buns sold went from 11,000 to 9000. Indicated cross elasticity of demand is
(a) 1/2
(b) − (1/2)
(c) 2
(d) − 2
(95) Inferior commodities

(a) Have zero income elasticities of demand
(b) Have negative cross elasticities of demand
(c) Have negative elasticities of supply
(d) Have negative income elasticities of demand.
(96) Tea and Coffee probably have

(a) The same income elasticities of demand
(b) Very low price elasticities of demand
(c) Negative cross elasticities of demand with respect to each other
(d) Positive cross elasticities of demand with respect to each other.
(97) Sugar and Tea have

(a) The same income elasticities of demand
(b) Very low income elasticities of demand
(c) Negative cross elasticities of demand with respect to each other.
97 55
MICRO ECONOMICS
STATE WHETHER THE FOLLOWING STATEMENTS ARE TRUE OR FALSE
(98) The desire and the demand of a commodity are the same.
(99) The demand for cloth is 10,000 units in Rajouri Garden over a month.
(100) The demand for pullovers is 5,000 units in Pitam Pura over one week when the average price of a pullover is
` 300.
(101) As size of population rises the demand for commodities falls.
(102) The composition of population does not determine the demand for goods.
(103) As income distribution becomes more equal the demand for goods rises.
(104) The demand curve always slopes downward from left to right.
(105) Price effect = Income effect + Substitution effect.
(106) Navpreet Kaur gave birth to a baby on March 9 The family expenditure on milk increased as a result. This is an
example of extension in demand.
(107) Change in taste shifts the demand curve.
(108) The coefficient of price elasticity of demand is generally negative. However, minus sign is ignored for the sake of
convenience.
(109) When quantity demanded does not change at all with a change in the price for a commodity demand is said to
be perfectly elastic.
(110) Less steep a demand curve, more is the price elasticity of demand.
(111) If price of a commodity increases and total outlay falls it is a case of elastic demand.
(112) Using outlay method we can never have unit elastic demand.
(113) The price elasticity of demand of a curvy demand curve is always unity.
(114) Nature of the commodity does influence the price elasticity of demand.
(115) Less are the number of substitutes of a commodity more is its price elasticity of demand.
(116) Commodity with diverse uses has generally an elastic demand.
(117) Price support programme is the situation where producers are not allowed to charge a price less than what has
been announced by the government.
(118) Income elasticity of demand is always positive.
(119) Cross elasticity of demand between two substitutes is positive.
FILL IN THE BLANKS WITH APPROPRIATE WORDS
(120) Demand for a good is always expressed in relation to a particular and at a particular .
(121) The requirement of two or more goods (like bricks and cement) at a time is an example of demand
(122) The demand for food is demand.
(123) If the price of Limca goes up the demand for Campa .
(124) Demand schedule and demand curve supply the information
98 56
(125) Demand curve slopes ulinedownward because of the income and substitution effects
(126) If demand falls due to the rise in price of a commodity it is called in demand
(127) If demand increases at the same price, it is the case of in demand.
(128) For a given income when price falls there is .
(129) A shift in income is known as .
(130) The amount of a commodity that consumers wish to purchase at various prices is called for the
commodity
(131) The demand curve is a representation of the functional relation between and It differs from
the demand function because values of the other determinants of demand are assumed to be This
assumption is frequently described by the latin term .
(132) When an increase in the price of another good causes an increase in the demand for a commodity the other good
is called a if it causes a decrease, the other good is called .
(133) A movement along a demand curve implies a change in and therefore in the quantity .
(134) A shift in the demand curve may be caused by changes in any determinant of the demand function except the
of the commodity.
(135) A change in the willingness of the consumer to purchase a particular product because of a change in something
other than price is called a change in .
(136) Demand for common sat is while demand for Limca is .
(137) Point method is used, when the changes in price and demand are while total Arc method is
used when the changes in price and demand are .
(138) When price of a commodity falls and total outlay also falls then elasticity of demand is said to be .
(139) Demand is said to be if total outlay remains same with rise or fall in the price of a commodity.
(140) When elasticity of demand is measured in terms of its substitute or complement it is called .
(141) Cross elasticity of demand between two complements is .
(142) The term ‘elastic demand’ means one whose elasticity is and the term ‘inelastic demand’ means
one hose elasticity is while the term ‘unitary elasticity’ of demand means one whose elasticity equals
.
(143) If elasticity is unitary a fall in price will cause total revenue to .
(144) If the price of a commodity is increased, total revenues also increase, ceteris paribus elasticity of demand must be
.
(145) If there are few available substitutes for a good that is necessity, elasticity of demand could probably be .
(146) If as an individual seller in a market, you think you can sell all you can produce at the going market price, then for
you the elasticity of demand seems . On the diagram this demand curve would appear .
(147) If buyers are totally impervious to price, and continue to buy the same quantity no matter what the price,
elasticity of demand is On the graph this demand curve would be verticle.
(148) Income elasticity measures the response of quantity demanded to .
(149) If a rise of 10 percent in income is associated with a 5 percent increase in the sale of shoes income elasticity is .
99 57
MICRO ECONOMICS
(150) If a fall in the price of ‘Y’ results in a decrease in the sale of ‘X’ the two goods appear to be and the
cross elasticity would be .
(151) Of two parallel downward sloping demand curves the more elastic one would be the origin.
(152) Given a straight line downward sloping demand curve, the elasticity of demand becomes greater, as the price
.
(153) When price and quantity changes are small we can use a simpler formula than that given for are elasticity namely
where p and q are taken as the rather, than the average amounts.
(154) The slope of a downward sloping straight line curve can be symbolised as: that of a tangent to a point on a
curve can be symbolised as: .
(155) If a consumer spends a small proportion of his income on a commodity the price elasticity is .
(156) When price rises and elasticity is greater than one, total revenue will while if elasticity is less than one
total revenue will .
UTILITY ANALYSIS
Fill in the blanks with the appropriate words

(157) Consumers tend to value a commodity less the more of it they have; this is called diminishing
Thus with constant incomes consumers are usually unwilling to buy more of a product beyond their present rate
unless.
(158) If the marginal utility of a good is zero, a household will be willing to pay a price of for it.
(159) A free good, one so pletiful as to have no price, will be used up to the point where its marginal utility is .
(160) A household maximising the utility or satisfaction obtained with a given income will allocate its spending among
commodities so that the last rupee spent on each brings equal .
(161) The more rapidly the marginal utility of extra units of a particular good falls the will be the elasticity of
demand.
(162) The budget line show combinations of two types of commodities obtainable, given household and the
commodities It shows a household’s purchasing power, or income.
(163) The budget line’s slope reflects the ratio of the of the two types of commodities shown; because it also
represents the rate at which one commodity must be given up to gain more of another it shows the
cost of a particular combination.
(164) To find out where the budget line intersects the vertical or Yaxis household money income is divided by .
(165) How would the following events be picture on the budgetline diagram ceteris paribus?
(a) Household money income rises .

(b) Relative prices of commodities change .
(c) Income rises price level rises by equal percent .
(d) Income rises price level rises by grater percent .
100 58
(166) The budget line on the accompanying diagram is drawn for an income of ` 300 per week Referring to it,
determine the following:
20
0 15
(a) Price of product ‘Y’ .

(b) Price of product ‘X’ .
(c) To buy one more unit of ‘Y’ if the household is spending all of its on come, it must give up how much ‘X’?
.
(d) Opportunity cost of ‘Y’ in terms of ‘X’ .
(167) An indifference curve shows various combinations of two commodities that give to the buyer .
(168) An indifference curve farther from the origin than another shows points where total satisfaction is than
the other.
(169) (a) The slope of an indifference curve shows what we call the marginal .
(b) If a household is indifferent between 21 units of food, 30 of clothing and 20 of food, 32 of clothing, the
rate of substitution of food for clothing is .
(170) Satisfaction is maximum where an indifference curve is tangent to . At this point, the marginal rate
of substitution is equal to the ratio of .
SUPPLY
State whether the following statements are true or false

(171) Supply refers to the amount offered for sale at different prices per unit time.
(172) The law of supply tells inverse relationship between price and supply of a commodity.
(173) Producers supply more at a higher price than at a lower price.
(174) Discoveries innovations and technological development raise the cost of production.
(175) New method of organizing an existing productive activity is a technological improvement.
(176) Profit maximization is the only objective of every firm.
(177) An ‘extension of supply’ means that at a given price, more is supplied.
(178) An ‘increase’ and ‘extension’ of supply are one and the same thing.
(179) Change in technology results in change in supply.
(180) A movement along the supply curve shows the operation of the law of supply.
(181) A shift in the supply curve occurs when the producers are willing to offer more or less of a commodity because
of factors other than the price of a commodity.
(182) A leftward shift of supply curve implies an increase in supply.
101 59
MICRO ECONOMICS
(183) Elasticity of supply explains the reasons for the operation of the law of supply.
(184) Elasticity of supply can be found out, even if the law of supply does not apply.
(185) Perfectly elastic supply curve is parallel to Yaxis.
(186) Elastic supply curve passes through the quantity axis.
(187) Supply has unitary elasticity if the amount supplied increases in the same proportion as price has changed.
(188) Elastic supply implies that a given percent rise in price leads to the same percent rise in quantity supplied.
(189) Elasticity of supply of curvilinear supply curve is unity throughout the curve.
(190) Long run supply curve of a commodity is generally less elastic than the short run supply curve.
FILL IN THE BLANKS WITH THE APPROPRIATE WORDS
(191) A supply curve is sloping

(192) A supply curve relates of a commodity to its offered for sale during a particular period of time.
(193) At the lower prices the producers supply less of a commodity because of reduced .
(194) The law of supply states that the price of a commodity and its quantity supplied are related, other things
remaining same.
(195) A movement along a supply curve means a while a movement from one supply curve
to another means a .
(196) When supply curve shifts to the left, it implies that same quantity is supplied at a price. Similarly
rightward shift of the supply curve implies that same quantity is supplied at a price.
(197) An increase in supply is
(a) An increasing willingness of firms to produce a commodity for reasons other than its price.
(b) The creation of surplus or glut
(c) An increase in the amount, consumer wants to purchase
(d) A description of the increased quantities supplied at higher prices
(198) The supply curve shifts to the left it
(a) Wages of the construction workers increase

(b) Cheaper techniques are employed
(c) The demand for houses increases
(d) the cost of building materials falls
(199) A rise in the price of washing machine components would lead to
(a) A fall in the demand for washing machines

(b) A rise in the supply of washing machines
(c) A rightward shift in the demand curve for washing machines
102 60
ANSWER KEYS
Meaning and Determinant of Demand, Law of Demand and Elasticity of Demand-Price,

Income and Cross Elasticity
(1) (c) (2) (a) (3) (b) (4) (a) (5) (a) (6) (a) (7) (b) (8) (a) (9) (c) (10) (b)
(11) (c) (12) (a) (13) (c) (14) (a) (15) (a) (16) (b) (17) (b) (18) (a) (19) (a) (20) (b)
(21) (c) (22) (a) (23) (d) (24) (b) (25) (d) (26) (b) (27) (b) (28) (c) (29) (b) (30) (d)
(31) (b) (32) (d) (33) (a) (34) (d) (35) (d) (36) (a) (37) (a) (38) (d) (39) (c) (40) (b)
(41) (c) (42) (d) (43) (b) (44) (b) (45) (b) (46) (c) (47) (a) (48) (b) (49) (c) (50) (a)
(51) (b) (52) (a) (53) (a) (54) (c) (55) (d) (56) (a)
(2.B)-Theory of Consumer’s Behavior-Marshallian and Indifference Curve Analysis

(1) (a) (2) (a) (3) (a) (4) (a) (5) (c) (6) (b) (7) (a) (8) (d) (9) (c) (10) (c)
(11) (c) (12) (d) (13) (b) (14) (b) (15) (c) (16) (a) (17) (a) (18) (b) (19) (a) (20) (c)
(21) (c) (22) (a) (23) (d) (24) (d) (25) (d) (26) (b) (27) (c) (28) (d) (29) (c) (30) (d)
(31) (b) (32) (d) (33) (b) (34) (a) (35) (c) (36) (d) (37) (c) (38) (a) (39) (c) (40) (b)
(41) (a) (42) (b) (43) (c) (44) (c) (45) (d) (46) (a) (47) (b) (48) (c) (49) (a) (50) (d)
(C) Meaning and Determinants of Supply, Law of Supply and Elasticity of Supply
(1) (d) (2) (a) (3) (b) (4) (d) (5) (c) (6) (b) (7) (a) (8) (d) (9) (a) (10) (b)
(11) (b) (12) (b) (13) (a) (14) (d) (15) (a) (16) (d) (17) (d) (18) (c) (19) (d) (20) (c)
(21) (a) (22) (d) (23) (a) (24) (c) (25) (b) (26) (c) (27) (b) (28) (d) (29) (c) (30) (b)
(31) (c) (32) (a) (33) (b) (34) (a) (35) (b) (36) (d) (37) (b) (38) (a) (39) (a) (40) (c)
(41) (b) (42) (c) (43) (a) (44) (b) (45) (c) (46) (c) (47) (b) (48) (c)
Choose the Correct Answer

(1) (c) (2) (a) (3) (c) (4) (b) (5) (Yes) (6) (a) (7) (b) (8) (b) (9) (c) (10) (a)
(11) (b) (12) (c) (13) (a) (14) (b) (15) (d) (16) (c) (17) (a) (18) (b) (19) (c) (20) (c)
(21) (22) (c) (23) (a) (24) (a) (25) On (26) (c) (27) (28) (a) (29) (b) (30) (b)
` 500 or Inside Willing
to Pay,
Actually
paid
(31) (c) (32) (c) (33) (b) (34) (b) (35) (a) (36) (b) (37) (c) (38) (b) (39) (b) (40) (b)
(41) (b) (42) (a) (43) (d) (44) (c) (45) (c) (46) (c) (47) (b) (48) (c) (49) (b) (50) (b)
(51) (b) (52) (d) (53) (d) (54) (d) (55) (b) (56) (b) (57) (a) (58) (a) (59) (b) (60) (c)
(61) (a) (62) (a) (63) (d) (64) (c) (65) (c) (66) (a) (67) (b) (68) (b) (69) (b) (70) (c)
(71) (c) (72) (b) (73) (a) (74) (d) (75) (d) (76) (a) (77) (b) (78) (d) (79) (a) (80) (d)
(81) (a) (82) (c) (83) (a) (84) (d) (85) (c) (86) (d) (87) (b) (88) (b) (89) (b) (90) (c)
(91) (d) (92) (a) (93) (b) (94) (c) (95) (d) (96) (d) (97) (c)
103 61
MICRO ECONOMICS
State Whether the Following Statements are True or False
(98) False (99) False (100) True (101) False (102) False (103) False (104) True (105) True
(106) False (107) True (108) True (109) False (110) True (111) True (112) False (113) False
(114) True (115) False (116) True (117) True (118) False (119) True
Fill in the Blanks with Appropriate Words

(120) Price, Time period
(121) Joint
(122) Inelastic
(123) goes up
(124) Same
(125) Downward
(126) Contraction
(127) Increase
(128) Increase in Real Income
(129) Change in Income
(130) Demand
(131) Price, Demand, Constant, Cetris, Paribus
(132) Substitute, Complementry
(133) Price, Demand
(134) Price
(135) Demand
(136) Inelastic, elastic
(137) minute (very small), large
(138) Inelastic
(139) Unitry elastic
(140) Cross elasticity
(141) negative
(142) greater than 1, less than 1, equal to 1
(143) remain constant
(144) Inelastic
(145) inelastic
(146) Perfectly elastic, Horizontal
(147) Perfectly inelastic, verticle
104 62
(148) Change in Income

(149) .5
(150) substitutes, positive
(151) farther
(152) rises
(153) Percentage Method, original
∆P P
(154) ,
∆Q Q
(155) Inelastic
(156) Decrease, Increase
Utility Analysis
(157) Marginal utility
(158) zero
(159) zero
(160) Marginal utility
(161) lesser
(162) Income, prices, real
(163) prices, opportunity
(164) Price of Y
(165) (a) Shift in Budget line
(b) Budget line change its slope
(c) Remain unchanged
(d) Left ward shift
(166) 20
0 15
(a) Py = ` 15
(b) Px = ` 20
(c) .75 units of x
(d) .75 units of x
(167) Same satisfaction
(168) more
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MICRO ECONOMICS
(169) (a) rate of substitution

(b) 1/2
(170) Budget line
Price of X & Y
Supply
(171) False (172) False (173) True (174) False (175) False (176) False (177) False (178) False
(179) True (180) True (181) True (182) False (183) True (184) False (185) False (186) False
(187) True (188) False (189) False (190) False
Fill in the Blanks with the Appropriate Words

(191) Upward
(192) Price, Quantity
(193) Profit
(194) Directly
(195) Change in Quantity Supplied, Change in Supply
(196) Same price, Same

(197) (a) (198) (a) (199) (c)
106 64
CHAPTER 3B. COST ANALYSIS
COST & PRODUCTION ANALYSIS
OBJECTIVE TYPE QUESTIONS

(1) The curve is called planning curve.
(a) Marginal revenue curve.
(b) Marginal cost curve
(c) Long-run average fixed curve
(d) Long-run average cost curve.
(2) Which one is not the contractual payment –

(a) Wages;
(b) Interest;
(c) Rent;
(d) Profit.
(3) The sum total of explicit and implicit cost is termed as –

(a) Accounting cost;
(b) Nominal cost;
(c) Opportunity cost;
(d) Economic cost.
(4) The rectangular hyperbola curve is –

(a) TFC;
(b) AFC;
(c) MC;
(d) AVC
(5) Normal profit is part of –

(a) Accounting Cost;
(b) Economic Cost;
(c) Opportunity Cost;
(d) Nominal Cost.
(6) Change in TVC is –

(a) AVC;
(b) MC;
(c) AC;
(d) TC.
141 65
MICRO ECONOMICS
(7) When law of diminishing returns operate –

(a) TVC rises with diminishing rate.
(b) TVC rises with increasing rate.
(c) TVC rises with constant rate.
(d) Can’t say.
(8) If distance between successive points of tangency increases –

(a) Return to scale is increasing.
(b) Return to scale is diminishing
(c) Return to scale is constant
(d) Can’t say.
(9) How many SAC curve are tangent to LAC curve at its minimum point?
(a) 1;
(b) many;
(c) none;
(d) 3.
(10) Combination lining iso cost line are attainable –

(a) on;
(b) inside;
(c) outside;
(d) both on and inside.
(11) MRTSLK mean –

−∆K
(a)
∆L
−∆L
(b)
∆K
MPL
(c)
MPK
(12) With the given information -
Q K L Q K L
490 15 99 470 14 100
500 15 100 500 15 100
If the price of L is ` 5 per unit and the price of K is ` 10 per unit, does the input combination of I5K and 100L
represent the least cost method of producing output of 500?
Ans: No
142 66
(13) When the TP falls –

(a) The APL is zero;
(b) The MPL is zero;
(c) The APL is negative;
(d) The APL is declining.
(14) When APL is +ve, the MPL could be –

(a) Declining;
(b) Zero;
(c) Negative;
(d) Any of the above.
(15) Stage II of production begins where the APL begins to decline –

(a) Always;
(b) Never;
(c) Sometimes;
(d) Often.
(16) When the MPL is negative, we are in –

(a) Stage 1 for land;
(b) Stage III for labour;
(c) Stage II for land;
(17) If by increasing the quantity of labour used by one unit, the firm can give up 2 units of capital and still produce
the same output, then the MRTSLK is –
(a) 1/2 ;
(b) 2;
(c) 1 or
(d) 4.
(18) If the MRTSLK equal 2 then the MRK / MPL is –

(a) 1;
(b) 1/2 or
(c) 4.
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MICRO ECONOMICS
(19) Within the relevant range, isoquants –

(a) Are negatively sloped;
(b) Are convex to the origin;
(c) Cannot cross;
(d) All of the above.
(20) If we plot capital on the vertical axis and labour on the horizontal axis, the slope of a straight line iso cost drawn
on such a graph is –
(a) PL / PK ;
(b) PK / PL ;
(c) – PL / PK ;
(d) – PK / PL .
(21) At the point of producer equilibrium –

(a) The isoquant is tangent to the iso cost;
(b) The MRTSLK equals PL / PK
(c) MPL / PL = MPK / PK.
(d) All the above.
(22) If we have constant return to scale and we increase the quantity of labour used per unit of time by 10% but keep
the amount of capital constant, output will –
(a) increase by 10%;
(b) decrease by 10%;
(c) Increase by more than 10%, or
(d) Increase by less than 10%.
(23) Which of these reach its minimum first –

(a) AC;
(b) AVC;
(c) AFC;
(d) MC.
(24) Which of these reach its minimum at last –

(a) AC;
(b) AVC;
(c) AFC;
(d) MC.
144 68
MPL MPK
(25) When < , it implies that in order to achieve least cost combination–
PL PK
(a) some more unit of labour is employed;
(b) some more unit of capital is employed;
(c) some more unit of both labour and capital is employed;
(d) none of these.
(26) Fill in the spaces in the accompanying table –
Output TFC TVC TC MC AFC AVC ATC

1 100 50
2 30 40
3 30
4 270
5 70
(27) Fixed cost of firms is ` 60. Calculate TVC, ATC, AVC, TC and AFC at each level of output.
Output 1 2 3 4
MC 30 20 28 32
(28) A firm is producing 20 units. At this level of output, the ATC and AVC are respectively equal to ` 40 and ` 37.
Find out the total fixed cost of this firm –
(a) 60;
(b) 70;
(c) 40;
(d) 50.
(29) Consider a point where a straight line from the origin is tangent to the TC curve. Which of the following will
be –
(a) AC is minimum;
(b) AC = MC
(c) AC = AFC + AVC
(d) All the above.
(30) The MC curves reaches its minimum point before the AVC curve and the AC curve. In addition, the MC curve
intersects the AVC curve and the AC curve at their lowest point. The above statements are both true –
(a) Always;
(b) Never;
(c) Often;
(d) Sometimes.
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MICRO ECONOMICS
(31) The LAC curve is tangent to the lowest point on the SAC curve when the LAC curve is falling–
(a) Always;
(b) Never;
(c) Sometime;
(d) Can’t say.
(32) If the LAC curve falls as output expands this is due to–
(a) Economics to scale;
(b) The of diminishing returns;
(c) Diseconomies to scale;
(33) STC can never be less than LTC –

(a) always;
(b) often true;
(c) sometimes true;
(d) never true.
(34) Given below is the long-run production function. Which type of returns to scale are being shown in the table?
Units of Inputs (Labour Capital) + Units of Output

1+1 10
2+2 30
4+4 60
8+8 100
16 + 16 180
REVIEW QUESTIONS
(35) The cost that a firm incurs in purchasing or hiring any factor of production is referred to as–
(a) explicit cost;
(b) implicit cost,
(c) variable cost, or
(d) fixed cost.
Ans.: (a)
146 70
(36) An entrepreneur running a business takes out $ 20,000/year as “salary” from the total receipts of the firm. The
implicit cost of this entrepreneur is –
(a) $ 20,000/year;
(b) More than $ 20,000;
(c) Less than $ 20,000/year;
(d) Any of the above is possible.
Ans.: (d) The implicit cost of the entrepreneur depends on how much labour and other factors that person owns and
uses in thee enterprise would earn collectively in their best alternative use.
(37) If only part of the labour force employed by a firm can be dismissed at any time and without pay, the total wages
and salaries paid out by the firm must be considered –
(a) A fixed cost;
(b) A variable cost;
(c) Partly a fixed and partly a variable cost, or
Ans.: (c) The wages paid out to the portion of the labour force which can be dismissed at any time and without pay
is a variable cost. That part of the labour force which because of a labour contract cannot be dismissed without pay
represents a fixed cost until the expiration of the contract.
(38) When the law of diminishing returns begins to operate, the TVC curve begins to
(a) Fall at an increasing rate;
(b) Rise at a decreasing rate;
(c) Fell at a decreasing rate, or
(d) Rise at an increasing rate.
Ans.: (d)
(39) All the following curves are U-shaped except –
(a) The AVC curve,
(b) The AFC curve,
(c) The AC curve, or
(d) The MC curve.
Ans.: (b)
(40) MC is given by –
(a) The slope of the TFC curve,
(b) The slope of the TVC curve but not by the slope of the TC curve,
(c) The slope of the TC curve but not by the slope of the TVC curve, or
(d) Either the slope of the TVC curve or the slope of the TC curve.
Ans.: (d)
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MICRO ECONOMICS
(41) The MC curve reaches its minimum point before the AVC curve and the AC curve in addition, the MC curve
intersects the AVC curve and the AC curve at their lowest point. The above statements are both true –
(a) Always;
(b) never;
(c) often, or
(d) sometimes.
Ans.: (a)
(42) At the point where a straight line from the origin is tangent to the TC curve, AC–
(a) is minimum;
(b) equals MC;
(c) equals to AVC plus AFC, or
(d) is all of the above.
Ans.: (d) For choices (a) and (b)

(43) The LAC curve is tangent to the above point on the SAC curves when the LAC curve is telling
(a) Always;
(b) Never;
(c) Sometimes, or
(d) Cannot say.
Ans.: (b)
(44) If the LAC curve fall s as output expands, this is due to –
(a) Economics of scale;
(b) The law of diminishing returns;
(c) Diseconomies of scale, or
Ans.: (a)
(45) The LAC curve –
(a) Falls when the LMC curve falls;
(b) Rises when the LMC curve rises;
(c) Goes through the lowest point of the LMC curve, or
(d) Falls when LMC < LAC and rises when LMC > LAC.
Ans.: (d)
148 72
(46) STC can never be less than LTC –

(a) Always true;
(b) Often true;
(c) Sometimes true, or
(d) Never true.
Ans.: (a)
STATE WHETHER THE FOLLOWING STATEMENTS ARE TRUE OR FALSE
(47) Production consists of tangible goods only. False

(48) Production include only those goods. False
(49) Short period is that period of time in which a firm cannot change the quantity of fixed facto` Thus, the firm
cannot import new machinery and equipment or establish a new plant. True
(50) The distinction between fixed and variable factors is relevant only in the short run. In the long run, all factors
are variable. True
(51) In the short run, production is subject to the law of returns. In other words, this law assumes that some factors
are fixed, while others are variable. True
(52) The operation of the law of diminishing returns can be postponed indefinitely. False
(53) The law of diminishing return applies to agriculture alone. False
(54) The law of increasing returns operates indefinitely in an industry. False
(55) Stage 1 of production corresponds to the law of diminishing marginal returns. False
(56) When total product is maximum, marginal product is zero. True
(57) When average product is maximum, marginal product is greater than average product. False
(58) The point of maximum marginal product occurs earlier than the point of maximum average product. True
(59) In returns to scale, all inputs change in the same proportion. True
(60) In the long run, we get only constant returns to scale. False
(61) If output of a firm goes up by 20% as a result of 10% increase in all inputs, we have diminishing returns to scale.
False
(62) Advantages accruing from increasing the scale of production are known as economies of scale. True
(63) Cost of production of a commodity includes only money expenses incurred on its production. True
(64) Wages paid to the labour hired are explicit costs. True
(65) Opportunity cost does not form part of the cost of production. True
(66) Fixed cost exists in short period as well as long period. False
(67) Fixed cost is always greater than total cost. False
(68) Total variable cost increases with increase in the level of production, but, total fixed cost remains the same. True
(69) Total cost is the sum of fixed cost and variable cost. True
149 73
MICRO ECONOMICS
(70) With increase in the level of output, average fixed cost falls, while average variable cost falls to a point and begins
to rise thereafter. True
(71) Average fixed cost remains the same, as output rises. False
(72) Average total cost falls, as average variable cost decreases. True
(73) The gap between average total cost and average variable cost falls with rise in the level of output. True
(74) Since ATC = AFC + AVC, thus, marginal cost is equal to marginal fixed cost plus marginal variable cost. True
(75) MC is zero, when total cost is maximum. False
(76) When average cost falls with increase in output, marginal cost is less than the average cost. True
(77) Average cost begins to rise earlier than the marginal cost. False
(78) Marginal cost cuts average variable cost and average total cost from below at their respective minimum points in
that order. False
(79) With increase in average cost, marginal cost rises at a lower rate. False
(80) Marginal cost cannot increase, when average total cost is falling. False
(81) When marginal cost first begins to fall, average variable cost begins to rise.
Further, when marginal cost is minimum, average variable cost is equal to marginal cost. True
(82) The production function relates

(a) Cost to input
(b) Cost to output
(c) Wages to profits
(d) Inputs to outputs
(83) If the marginal product of capital is six times that of labour and the price of capital is three times that of
labour,
(a) Capital will be substituted for labour;
(b) Labour will be substituted for capital
(c) The price of capital will fall, of labour will rise;
(d) Twice as much capital as labour will be employed.
(84) Which of the following is an example of a production decision in the short run ?
(a) A contractor buys two additional cement mixers and hires two new drivers for them.
(b) A contractor decides to work his crew overtime to finish a job.
(c) A railroad decides to eliminate all passenger service.
(d) A paper company takes only three weeks to install antipollution equipment.
150 74
(85) The law of diminishing returns describes

(a) The fact of inevitable eventual un-profitability
(b) The reduction in revenue resulting from falling prices
(c) The declining marginal productivity of productive factors
(d) The decline in total output from a given production function.
(86) The hypothesis of eventually diminishing returns applies to production function

(a) Having at least one fixed factor
(b) In the long run only
(c) In the very long run preferably
(d) In which inputs are applied in fixed proportions.
(87) Long-run decisions

(a) Do not affect short-run decisions
(b) Can consider all factors variable
(c) Are not very important because the long run is a succession of short runs
(d) Are taken with fewer alternatives open than in the case of short-run decisions.
(88) A firm facing long-run increasing returns should expand by

(a) Substituting labour for capital
(b) Replication
(c) Building smaller plants
(d) Building larger plants
(89) Long-run decreasing returns are evidently the result of

(a) Rising factor prices
(b) Replication
(c) Spreading the overhead’
(d) Incompetent management.
(90) If you give up a full-time job to go to college, the major cost is -

(a) Tuition and fees
(b) Room and board
(c) The income you could have received from employment
(d) Social and miscellaneous expenses.
151 75
MICRO ECONOMICS
(91) We can be certain of the usefulness of opportunity cost concepts, when our purpose is
(a) To help a firm make the best decision it can to achieve maximum profits
(b) To predict the responses of the firm to change in conditions
(c) To describe the firm’s actual behaviour
(d) To predict the money costs of a firm’s activities.
(92) Which of the following necessarily declines continuously?

(a) Marginal cost
(b) Average fixed cost
(c) Average variable cost
(d) Total fixed cost
(93) Short-run average costs eventually rise because of

(a) Rising overhead costs
(b) Rising factor prices
(c) Falling marginal and average productivity
(d) Decreasing returns to scale.
(94) When average cost is declining

(a) Marginal cost must be declining
(b) Marginal cost must be above average cost
(c) Marginal cost must be below average cost
(d) Marginal cost must be rising.
(95) Decreasing average costs for a firm, as it expands plant size and output
(a) Result from decreasing returns to scale
(b) Result usually from the effects of increased mechanization and specialization
(c) Result from the increased complexity and confusion of rapid expansion
(d) Are a very rare case caused by exogenous events.
(96) The log-run average cost curve is determined by

(a) Long-run demand
(b) Long-run supply
(c) Population growth and inflation
(d) Technology and input prices.
152 76
(97) The long-run average cost curve

(a) Shows total output related to total input
(b) Assumes constant factor proportions throughout
(c) Reflects the least-cost production method for each output level
(d) Rises because of the ‘law of diminishing returns’
(98) Constant long-run average costs for a firm mean that

(a) There are greater advantages to small-rather than large-scale plants
(b) An unlimited amount will be produced
(c) Any scale of production is as cheap per unit as any other
(d) No addition of factors is taking place.
(99) Plant capacity is

(a) The output at which unit cots are a minimum
(b) The maximum output possible for a firm
(c) Where unit costs are a maximum
(d) Where marginal cost begins to rise.
153 77
MICRO ECONOMICS
ANSWER KEYS
Objective Type Questions
(1) (d) (2) (d) (3) (d) (4) (b) (5) (b) (6) (b) (7) (b) (8) (b) (9) (a) (10) (d)
(11) (a) (12) No (13) (d) (14) (d) (15) (a) (16) (b) (17) (b) (18) (b) (19) (d) (20) (c)
(21) (d) (22) (a) (23) (d) (24) (a) (25) (a)
(26) Output TFC TVC TC MC AFC AVC ATC

1 100 50 150 50 100 50 150
2 100 80 180 30 50 40 90
3 100 110 210 30 33.3 26.6 70
4 100 170 270 60 25 42.5 67.5
5 100 250 350 80 20 50 70
(28) (a) (29) (d) (30) (a) (31) (b) (32) (a) (33) (a) (34) IRS, CRS, DRS, DRS
Review Questions
(35) (a) (36) (d) (37) (c) (38) (d) (39) (b) (40) (d) (41) (a) (42) (d) (43) (b) (44) (a)
(45) (d) (46) (a)
State Whether the Following Statements are True or False
(47) False (48) False (49) True (50) True (51) True (52) False (53) False (54) False
(55) False (56) True (57) False (58) True (59) True (60) False (61) False (62) True
(63) True (64) True (65) True (66) False (67) False (68) True (69) True (70) True
(71) False (72) True (73) True (74) True (75) False (76) True (77) False (78) False
(79) False (80) False (81) True

(112) (d) (113) (a) (114) (b) (115) (c) (116) (a) (117) (b) (118) (d) (119) (a) (120) (c) (121) (a)
(122) (b) (123) (b) (124) (c) (125) (b) (126) (d) (127) (c) (128) (c) (129) (b)
154 78
MICRO ECONOMICS
PRICE – OUTPUT DETERMINATION IN DIFFERENT MARKETS
MULTIPLE CHOICE QUESTIONS
(1) Under which market structure a firm has no control over the price of its product?
(a) Monopolistic completion
(b) Perfect completion
(c) Monopoly
(d) Oligopoly
(2) Kinked demand curve in oligopoly market explains

(a) Price leadership
(b) Price rigidity
(c) Price and output determination
(d) Collusion among rival firms.
(3) The shape of the demand curve of a firm under perfect competition is:
(a) Horizontal
(b) Vertical
(c) Positively sloped
(d) Negatively sloped
(4) In the following market the firms is the price-taker:

(a) Monopoly
(b) Monopolistic competition
(c) Perfect competition
(d) Oligopoly.
(5) In which of the following markets, the equilibrium condition is that MC = ΣMR?
(a) Oligopoly
(b) Monopoly
(c) Discriminating monopoly
(d) Monopolistic competition
(6) In which of the following markets the equilibrium condition is that ΣMC = MR?
(a) Monopolistic competition
(b) Discriminating monopoly
(c) Collusive oligopoly
(d) Monopoly
178 79
CHAPTER 4. MARKETS
(7) In case the average revenue of a firm exceeds its average cost, the firm will:
(a) Suffers loss
(b) Receive profit
(c) Breal-even
(8) In case the average variable cost of a competitive firm exceeds the average revenue, the firm will:
(a) Produce
(b) Not produce
(c) Receive profits
(d) Operate at break-even
(9) Break even refers to a situation when

(a) AR > AC
(b) AR < AC
(c) AR < AVC
(d) AR = AC
(10) A firm will not produce, if:
(a) AR = AC
(b) AR < AC
(c) AR > AVC
(d) AR < AVC
(11) Besides MC = MR, the other condition for the equilibrium of a competitive firm is that:
(a) MC curve should interest MR curve from above

(b) MC curve should interest MR curve from below
(c) MR should be equal to AC
(d) MR should be equal to AVC
(12) In which of the following market the firm does not produce at its optimum capacity?
(a) Perfect competition

(c) Monopsony
179 80
MICRO ECONOMICS
(13) Which of the following conditions are met in the long-run equilibrium in monopolistic competition where the
firm is earning only normal profits?
(a) MC = AC
(b) Price = AC
(c) Price = MR
(d) Price = MC
(14) Consumers are likely to get a variety of goods under:

(b) Monopoly
(c) Oligopoly
(15) In monopolistic competition, we have:
(a) Large number of firms selling differentiated goods

(b) Few firms selling differentiated product
(c) Few firms selling a homogeneous product
(d) Large number of firms selling homogenous product
(16) In which of the following market a firm can join cartel to maximize its profits?

(c) Oligopoly
(d) Monopoly.
(17) A monopolistic competitive firm produced at a lowest average cost of production of ` 15. Then in the long run
the price of its product will be:
(a) Equal to ` 15
(b) Greater than ` 15
(c) Less than ` 15
(18) A market with many sellers producing differentiated goods is called:
(a) Monopoly
(b) Perfect competition
(c) Monopolistic competition
(d) Oligopoly
180 81
CHAPTER 4. MARKETS
(19) Long run equilibrium of a competitive firm is attained when:
(a) AR= AC
(b) AR = MR
(c) MR = MC
(d) AR = AC = MR = MC
(20) Demand curve of a monopolistic competitive firm is attained when:
(a) Relatively inelastic

(b) Relatively elastic
(c) Unitary elastic
(21) A monopolistic competitive firm gets normal profit when:
(a) AR = MC
(b) AR = AVC
(c) AR < AC
(d) AR = AC
(22) For a competitive firm shut-down point is obtained when:
(a) AR < AVC

(b) AR = AC
(c) AR = AVC
(d) AR < AC
(23) A market of passenger cars is best described by:
(a) Monopoly
(b) Oligopoly
(d) Perfect competition
(24) Full capacity out of a firm can be attained when:
(a) MC is minimum
(b) AVC is minimum
(c) AFC is minimum
(d) AC is minimum
181 82
MICRO ECONOMICS
(25) For a firm under. . . . equilibrium, output is always less than the full capacity output:

(b) Oligopoly
(c) Discriminating Monopoly
(d) Monopolistic Competition.
(26) A firm under . . . . . . gets abnormal profit in long run:

(b) Monopoly
(d) Oligopoly
(27) A monopoly firm will suffer loss if:
(a) AC = AR
(b) AC = MC
(c) AC > AR
(d) AC < AR
(28) The market of agricultural goods is very close to:
(a) Perfect completion

(b) Monopoly
(d) Oligopoly
(29) In the Short run a firm suffers loss because of:
(a) Small number of buyers

(b) High cost of production
(c) Very low price
(d) Non-recovery of fixed costs
(30) In the short run a firm has AC = ` 50, AVC = ` 30, AFC = ` 20 and MC = ` 25. The firm will not produce if the
price is:
(a) ` 28
(b) ` 30
(c) ` 32
(d) ` 35
182 83
CHAPTER 4. MARKETS
(31) In the short run a competitive firm has AC = ` 100, AVC = ` 70 and MC = ` 50. It will earn super normal profit
if the price is
(a) ` 90
(b) ` 95
(c) ` 100
(d) ` 105
(32) Which of the following statement is incorrect?
(a) Monopoly firm always gets pure profit in the long run
(b) Perfectly competitive firm earns pure profit in the short run
(c) Monopolistic competitive firm earns pure profit in the long run
(d) Monopolistic competitive firm earns normal profit in the long run
(33) The supply curve of a competitive firm in the short run is best described by:
(a) MC curve below the AR curve

(b) MC curve above the AVC curve
(c) AR curve
(d) AC curve
(34) If a firm has a horizontal demand curve, then it is operating under:
(a) Oligopoly
(c) Monopoly
(35) A firm confronted with a kinked demand curve is operating under:
(a) Monopolistic competition

(b) Monopoly
(c) Oligopoly
(36) Suppose that the selling price of a firm is less than its average cost but more than the average variable cost in the
short run. The firm should do the following:
(a) Stop production and quit the market
(b) Temporarily suspend production activity
(c) Continue to produce to recover the loss in the long run
(d) Increase the price
183 84
MICRO ECONOMICS
(37) If price discrimination is to succeed, then the elasticity of demand in tow or more markets should be:
(a) Different
(b) Uniform
(c) Perfectly elastic
(d) Perfectly inelastic.
(38) Under discriminating monopoly, the firm charges different prices:
(a) From different buyers

(b) At different places
(c) For different uses
(d) All the above.
(39) A monopoly firm can maximize its profits by:
(a) Setting a very high price

(b) Equating MC = MR
(c) Selling a large quantity
(d) Reducing the total cost.
(40) A market of garments is best described by:
(a) Monopoly
(b) Perfect competition
(c) Oligopoly
SOME ADDITIONAL IMPORTANT QUESTIONS
(1.1) Objective type Questiom

(i) State whether the following statements are true or false
(ii) All the means of Production are owned by State under Capitalisation
(iii) Consumer is free to exercise his choice under capitalisation His choices are reflected by price mechanism
(iv) The role of economic planning is decisive in a mixed economy
(v) Under socialism means of production are privately owned. (vi) Under capitalism labour power is a commodity
(vi) Market has a predominant role under socialism
(vii) In a socialist economy the basic force of economic activity is profit.
(viii) Deductive method is based upon specified causes
(ix) Deductive method proceeds from general to particular
(x) Deductive and inductive methods are competitive to each other.
184 85
CHAPTER 4. MARKETS
(xi) In deductive method all the assumption are unrealistic

(xii) Inductive method is based upon a study of observed facts
(xiii) Inductive method is historical concrete or realistic method
(xiv) Micro Economic theory studies the volume of the circular flow of income while macro- economic theory studies
the composition of circular flow of flow of income.
(xv) Robin’s definition treats Economics as a purely positive science
(xvi) Price theory is an important constituent of microeconomics
(xvii) Economic is natural between ends
(xviii) The study of per capital income of the country is microeconomic approach from national angle
(xix) Inductive method of reasoning goes from general specific.
(xx) The concept of Scarcity is valid only in poor economic.
(1.2) Fill in the blank with the appropriate words

(i) Ends are _________ while means are _________ This gives rise to the problem of choice
(ii) Samuelson gave the _________ oriented definition of Economics.
(iii) Scarcity is a _________ concept
(iv) _________ have alternative uses
(v) If one alternative is chosen, another must be scarified, this sacrifice is called _________ of the alternative chosen
(vi) A study of mankind in the ordinary business of life _________ material requisites of wellbeing.
(vii) A science which studies human behaviour as a relationship between ends _________ which have alternative uses
(1.3) Choose the correct answer

(i) Scarcity definition was a given by
(a) Alfred Marshall
(b) Adam Smith
(c) Paul s Samuelson
(d) Lionel Robbions
(ii) Who is regarded as the ‘father of modern Economics’
(a) AC Pigou
(b) Adam Smith
(c) Tomas Carlyle
(d) Lionel Robbions
185 86
MICRO ECONOMICS
(iii) The most severe criticism of these welfare definition of economics was given by
(a) Adam Smith

(b) John Ruskin
(c) Lionel Robbins
(d) Paul S Samuelson
(iv) Positive statements concern what is; normative statements concern
(a) What was

(b) What will be
(c) What is the normal situation
(d) What ought to be
(v) Scarcity is a problem that
(a) Proper use of resources could eliminate

(b) The twentieth century has solved
(c) Is confined to poor countries
(d) Will probable exist as long as man finds new wants to be satisfied
(vi) The question at what good and services are produced and how much of them is covered by the general term.
(a) Resource allocation

(b) Macroeconomics
(c) Consumption
(d) Scarcity
ANSWER TO OBJECTIVE TYPE QUESTION
(1.1) (i) False (ii) True (iii) False (iv) False (v) True (vi) False (vii) False (viii) True (ix) True (x) False (xi) False (xii) True
(xiii) True (xiv) False (xv) False (xvi) True (xvii) False (xviii) False (xiv) False (xx) False
(1.2) (i) Unlimited united (ii) growth (iii) relative (iv) means (v) opportunity lost (vi) which (vii) most closely connected
with the attainment with the use of (vii) and means
(1.3) (i) (d) (ii) (b) (iii) (c) (iv) (d) (v) (d) (vi) (a)
186 87
CHAPTER 4. MARKETS
ANSWER KEYS
Multiple Choice Questions
(1) (b) (2) (b) (3) (a) (4) (c) (5) (c) (6) (c) (7) (b) (8) (b) (9) (d) (10) (d)
(11) (b) (12) (b) (13) (b) (14) (d) (15) (a) (16) (c) (17) (a) (18) (c) (19) (a) (20) (b)
(21) (d) (22) (c) (23) (b) (24) (d) (25) (d) (26) (b) (27) (c) (28) (a) (29) (d) (30) (a)
(31) (d) (32) (c) (33) (b) (34) (b) (35) (c) (36) (c) (37) (a) (38) (d) (39) (b) (40) (d)
187 88

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Micro Economics

Q.2. In a free-market economy the allocation of resources is determined by:

3. A rational person does not act unless:

a. Self-interest b. Private property.

8.Two major virtues of the market system are that it:

d. Eliminates discrimination and minimizes environmental pollution.

9.In economics the central problem is:

10 . Macroeconomics deals with:

13. Which one of the following is a normative statement?

15. In factor market suppliers are:

16. Business Economics is also known as………….

a. Managerial Economics b. Economics for Executives

c. Economic analysis for business decisions d. All the above

17. State whether economics is

c. A science but not art

c. Statistics d. Macro Economics

19.It is also known as prescriptive economics

a. Greek b. Italic c. Latin d. Indian

a. how society manages its unlimited resources.

e. how to avoid having to make trade-offs

c. The impact of technology on economic growth

c. "One who manages a household." d. "Conservation.“

28. Economics deals primarily with the concept of

a. Poverty. b. Scarcity. c. Change. d. Power.

(A) Limited resources, market behaviour(B) Scarcity, human behaviour

(C) Social behaviour, limited resources (D) Biological behaviour, scarcity

30. Our economy is characterised by -

(A) Unlimited wants and needs (B) Unlimited material resources

(C) No energy resources (D) Abundant productive labour

31. The Central economic problem is -

(A) What to produce? (B) How to produce?

(C) For whom to produce? (D) All of above

(A) Labour-surplus economy (B) Capital-surplus economy

(C) Developed economy (D) Developing economy

(A) Labour-surplus economy (B) Capital-surplus economy

(C) Developed economy (D) Developing economy

(A) Inflation in the economy (B) Problem of unemployment

(C) National income (D) Income from the railway

(A) Mixed economy (B) Socialistic economy

(C) Capitalistic economy (D) None of the above

(A) Unemployment among the educated people

(B) Inflation in the economy

(C) Lockout in Indian Airlines

40. Rational decision-making requires that -

(A) One’s choice be arrived at logically and without error

(B) One’s choice be consistent with one’s goals

(C) One’s choice never varies

(D) One makes choices that do not involve trade-offs

41. In a mixed economy -

(A) All economic decisions are taken by the central authority

(B) All economic decisions are taken by private entrepreneurs.

(D) None of the above

42. The central problem in economics is that of -

(A) Comparing the success of command versus market economics

(B) Guaranteeing that production occurs in the most efficient manner

(C) Guaranteeing a minimum level of income for every citizen

43. Which of the following can be regarded as the laws of economics?

44. Under a controlled economy -

(A) State plays a major role

(B) Central authority decides how much will be produced

45. Under a capital economy -

(A) Government plays a major role (B) Government plays no role

(C) Government plays a minor role (D) None of these